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Opinion Articles
2016/17
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High-Tech & Technology -
DUN’S
100
19
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
fundraising.
Adv. Atir Jaffe and Adv. Guy Lachmann are partners in the High-Tech group at Pearl Cohen Zedek Latzer Baratz