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Opinion Articles



High-Tech & Technology -




to increase the legal protection that founders

and managers enjoy, and are driven by the in-

creasing competition between VC funds on the

West Coast, seeking the opportunity to invest in

the most successful companies and promising

entrepreneurs. These trends may also appear,

to a certain degree, in the earlier stages of the

companies’ lifecycle - our impression is that

they increasingly make their way to Israel and

become customary in the local ecosystem. Solid

examples for this include the use of non-partici-

pating preferred shares and the implementation

of simpler debt financing transactions, which

have fewer conventional loan characteristics.

For example, SAFE agreements that offer a sort

of convertible security, free of the typical com-

ponents of a loan agreement, such as interest

or debt repayment, giving them a stronger eq-

uity character. These are contractual features

aimed at creating a friendlier environment for

companies and entrepreneurs and which reflect

the adoption of more moderate, pro-founder

managerial perspective by investors.

Furthermore, we have all witnessed the enor-

mous expansion of the economic environment

in which technology companies in Israel oper-

ate. In 2016, dozens of accelerators, incuba-

tors, shared work spaces and similar ventures

emerged in the local ecosystem, aimed at meet-

ing the market’s growing needs, while reflecting

investors’ growing understanding that attention

to young companies pays off in the future. Lo-

cal VC funds also realize today that they must

be active players in the early-stage market, in

order to avoid missing high-quality investment

opportunities. Simultaneously, more and more

entrepreneurs are realizing the advantages of

joining various acceleration programs and the

role they have in preparing their ventures for

engagement with sophisticated investors and

later stage competition.

This intensive early-stage activity leads to new

cross-market effects. With the growing number

of companies, private investor activity in the

local market also increased in 2016. This can

include different types of angels – from “family

and friend” types to more sophisticated, tier

one players – small VC funds and modern fund-

raising platforms, such as crowd funding and

professional investor clubs. Angels increase

the supply of available funds for the young

entrepreneurs use and improve the potential

and performance of local start-ups. This trend

is supported by the constantly diminishing

scope of investment received by companies in

pre-seed rounds, a result of the lacking need

to raise large capital in order to demonstrate

technological capabilities. It also indicates the

willingness of entrepreneurs to prolong their

venture’s early stage as much as possible, in

order to reach the crucial fundraising stage

with business and technological readiness and

maturity. Such readiness provides companies

with better chances of ensuring high-valuation


Adv. Atir Jaffe and Adv. Guy Lachmann are partners in the High-Tech group at Pearl Cohen Zedek Latzer Baratz