Blog / Start- Ups
Raising financing is tricky, stressful and for many involves navigating uncharted waters. Click to read for useful information to help you sidestep certain unhealthy choices.
In 2019, Israel remains “the Start-Up Nation” and a leader of technological innovation. Thanks to its strong currency, active economy, and robust export industries, it also continues to attract noteworthy international investments.
In the past three years, an estimated $1 billion has been invested in women’s health technology, and according to Pitchbook, femtech raised $650 million in VC funding last year alone and $241 million so far this year. Still since just around 6% of all decision-makers at U.S. venture capital firms being female, it is not surprising that it is difficult to secure funding for women’s issues.
How Can the Digital Workforce Support Productivity?
April 11, 2019 / by Danny Boguslavsky
April 11, 2019 / by Danny Boguslavsky
Automation is big in the news lately. The lines between human and machine tasks are blurring, and arguments abound. Will new technology kill jobs or improve productivity?
Many startups fail to adequately safeguard their most important asset – their intellectual property. Click to read some fundamental steps that tech companies can take in order to protect their products and inventions.
Blockchain Now and Into the Future – What We Can Expect
January 9, 2019 / by Zvi Gabbay
January 9, 2019 / by Zvi Gabbay
Blockchain has a well-established presence in the ecosystem, with a variety of use cases across a broad range of sectors, including Fintech, advertising, security, telecommunications and others. Here is an overview of the latest developments regarding blockchain regulations in Israel.
What You Always Wanted to Know About Fintech Regulation, But Were Afraid to Ask…
December 31, 2018 / by Zvi Gabbay
December 31, 2018 / by Zvi Gabbay
For Fintech companies looking or hoping to work in Israel, the regulatory developments could either serve as an opportunity or as a barrier, and should be carefully considered. Click to read an overview of the Israeli Fintech regulatory situation.
While still widely identified with digital currencies, blockchain technology is also beginning to revolutionize the healthcare industry. See how pharma companies and medical institutions have begun to rely on this technology to resolve problems faster and more efficiently.
How to Negotiate with a Prospective Angel Investor
November 15, 2018 / by Yuval Lazi
November 15, 2018 / by Yuval Lazi
How you negotiate with an angel investor goes a long way in determining whether you will receive funding or not. Click to read some top tips for negotiating with a potential angel investor.
Warranty & Indemnity (W&I) Insurance – It’s All in the Name
October 25, 2018 / by Ariella Dreyfuss
October 25, 2018 / by Ariella Dreyfuss
Sellers in an M&A transaction are required to make certain statements about the company they are selling. If these statements are not true, the buyer can claim against the seller for any damages it incurs as a result of the inaccuracies. W&I insurance can cover the cost (or part of the cost) of the buyer’s damages.
Despite the many internal and external challenges unique to Israel, the country has successfully transformed itself into a powerhouse of technological innovation. Israel has become an excellent destination for international business, boasting a strong local currency, an active local economy, and robust export industries.
PropTech – Transformation of the Real Estate Market
June 21, 2018 / by Danny Boguslavsky
June 21, 2018 / by Danny Boguslavsky
Major, long-established players in the real estate market have joined forces with young companies and entrepreneurs with the objective of resolving the many challenges inherent in the field of real estate transactions.
2017 was a significant year for the blockchain industry in general and for cryptocurrencies in particular. 2018 is expected to be an equally interesting year for the cryptocurrencies industry, as new trends take shape and regulation becomes even more refined. Check out some of our digital currencies predictions for the year.
Smart City – Israel’s Innovative Technologies
February 11, 2018 / by Asaf Shalev
February 11, 2018 / by Asaf Shalev
The future is here and Israel’s innovative Smart City technologies are creating a pathway for the nation as well as the world. Central to this crucial development is a remarkable collaboration between the private sector and the government.
Follow these strategic steps in planning your company’s exit
January 31, 2018 / by Yuval Lazi
January 31, 2018 / by Yuval Lazi
Before selling your business, consider these factors to guarantee your company is fully prepared. Following are pertinent reasons why business owners cannot afford to risk a hands-off approach to planning a business exit strategy.
Following its incorporation, every startup company needs a variety of essential legal documents in order to launch its vision and conduct its business. This includes: founders’ agreement, non-disclosure agreement, terms and conditions, employee stock option plan and business plan.
Israel’s International Innovative Edge in Robotics Technology
January 10, 2018 / by Itay Gura
January 10, 2018 / by Itay Gura
The 21st century robotics industry impacts nearly every facet of life – business, health, commerce, education, and even government. In fact, Tractica, a market research firm, forecasts that this technological area will grow from $31 billion in 2016 to $237.3 billion by 2022.
Sports Tech – When Sports Join Up with Technological Innovation
December 24, 2017 / by Danny Boguslavsky
December 24, 2017 / by Danny Boguslavsky
In recent years, tremendous progress has been made in introducing know-how and technology into sports – despite this being a conservative world concerned that the introduction of new powers might compromise the ethos of sportsmanship.
Glossary for Beginners in the World of Digital Currency
November 30, 2017 / by Karin Kashi
November 30, 2017 / by Karin Kashi
Do you keep hearing people talk about blockchain, bitcoins, and ICOs with no idea what they mean? - Here’s a short glossary to help you understand what the fuss is all about. Decentralized coins/digital coins These coins are basically digital money that is secured through encryption technology (cryptocurrency). Digital currencies are not issued or managed by any country or central bank. Thus, their value is not under their control, but rather is determined by the agreement of and according to the demand among the network of users. Bitcoin The bitcoin is the first digital currency used, and the first and most famous application of blockchain technology. Digital wallet A digital wallet is software that is linked to the digital currency network. It enables the user to hold, transfer, and receive digital currencies. Every digital wallet has two “keys”-a public key and a private key. The public key corresponds to the bank account number, i.e. the address to which the money is transferred. The private key is the key to the safe. Only its owner can perform transactions with the digital currency in the wallet. Blockchain Blockchain is a technological concept that enables secure activity on the internet without needing a central management entity. Blockchain serves as a digital ledger of all the transactions performed on it since it began. The information maintained in blockchain is stored in cells called blocks, which are linked together in chronological order (in a "chain of blocks"). Upon completing any transaction in blockchain, it is documented and automatically stored in the devices of all users of the system. The structure of blockchain technology and its decentralized nature provide the structural security of the blockchain. The chaining of the blocks does not enable information stored in blockchain to be altered without changing the definitions of all subsequent blocks in the system, which is practically impossible. Moreover, the decentralized nature of blockchain does not allow for the system to be compromised without taking control of the majority of the devices connected to blockchain, which, due to the number of users of the bitcoin blockchain, is practically impossible as well. Blocks Blocks are storage units in which all information maintained in blockchain is stored. So, if blockchain is likened to an accounting ledger, then the blocks are pages in the ledger. The blocks that comprise blockchain are linked to each other using a complex mathematical puzzle, making it nearly impossible to alter information saved in blockchain. Bitcoin mining Bitcoin mining is the process by which bitcoin transactions are verified and documented in the bitcoin’s blockchain. The mining process is performed by a particular type of users of the bitcoin system, known as “miners”. The mining process basically involves solving a mathematical puzzle. The miner who solves it first creates the next block. The first miner who succeeds in solving the puzzle is rewarded for his successful mining with bitcoins and sometimes also with transaction fees. Virtual coin offerings or Initial Coin Offerings (ICO) An ICO is a crowdfunding channel. An ICO is a process where entrepreneurs who are developing platforms or projects raise money in exchange for digital coins. The digital coins give the projects' investors the right to use the platforms developed in projects funded by the ICO. Additionally, the digital coins provide liquidity to investors in ICO projects, since they are tradable assets in the secondary market. Smart contracts Smart contracts are considered the most dramatic application of blockchain technology. They represent a promise to change the way traditional processes are carried out, characterized typically by a dependence on middlemen. A smart contract is a computer protocol that enables two strangers on the internet to conduct business in a way that is secure and reliable. Since smart contracts are based on blockchain technology, they can reliably and securely complete operations on the internet without involving middlemen. Source: barlaw.co.il
Israel’s Successful Incubators and Accelerators Develop the Future
November 19, 2017 / by Daniel Lorber
November 19, 2017 / by Daniel Lorber
In its innovative journey, Israel has exhibited technological achievements and economic advancements that have proved it to be one of the strongest leaders in the entrepreneurial world. Through the aid of the Israel Innovation Authority (“IIA”) or accelerator programs, Israeli startups are able to receive funding at very early stages of their venture, or a set of tools and insights that fast-track startups in terms of their management skills, business focus, and marketing capabilities. Incubators and Accelerators in Israel In addition to the financial aid granted by the IIA to eligible startups, incubator and accelerator programs provide startups with significant tools to enhance their products and services. Incubator and accelerator programs offer valuable assistance, including a supportive infrastructure, mentoring by industry experts, and the necessary training required for new startups to further enhance their development. A significant difference between incubators and accelerators is that accelerators are intended to accelerate the development of startups within a short time frame. In contrast, incubators operate within more extended timeframes -approximately 24 months on average. As such, they focus more on the initial phases of startups and aim to guide startups through their preliminary stages of development. Incubators The support of incubators encompasses market penetration, legal consultation, laboratory guidance, and technological development. Such incubators are located throughout Israel, advancing fields like biotechnology, aerospace, life sciences, and cybersecurity. In Israel, incubators operate through the support of the IIA, which contributes 85% of the financing received by startups through the respective incubators. It is important to point out that any grant received by the IIA, including through incubator programs, is subject to the Law for Encouragement of Industrial Research and Development. This law includes provisions that restrict companies’ ability to transfer IP or manufacturing overseas without the IIA’s consent. It is essential for startups to be aware of such restrictions, and to contemplate their applicability in light of the startups' business strategy, prior to accepting such grants. Accelerators In contrast to the governmental support incubators enjoy, in general, accelerators do not receive financial aid from the Israeli government. Accelerators are used as a tool to expedite startup development by giving investors the chance to discover startups in their early stages and to then aid in their rapid growth. The accelerator program is also beneficial for the startups themselves, as such startups are able to take full advantage of investors’ experience and know-how. Currently, there are approximately 90 accelerator programs in Israel. These programs can differ substantially with regard to their framework and engagement terms. It is therefore prudent for startups to research and take the time to fully understand the specific terms and itineraries these programs offer, prior to engaging with them, as this will affect their future development and the likelihood of securing future investments following the completion of the accelerator program. Source: barlaw.co.il
Developing Marketing Strategy for Potential Investors
October 16, 2017 / by Yuval Lazi
October 16, 2017 / by Yuval Lazi
When you build out your business model, you need more than a great product or service. Innovative brilliance and new ideas matter, but they are not enough. By the time you are ready to raise capital, you should be able to outline for your potential investors a clear market strategy. What Problem Are You Addressing? For your product or service to succeed in the market, it should meet an identifiable need in the market. After all, the world business landscape is littered with failed companies that have created solutions in search of problems. Success comes through sales; for people to pay for what you provide, they must feel they need it. Investors will want to see how your product addresses a specific problem your potential customers have. What Is Your Real Market? If you declare your market to include "everyone", savvy investors will steer clear. Different people and companies have different needs, so a key offshoot of identifying the problem you address is finding the market niche you will target. You may well want to grow to a point where you have multiple target markets, but you need to find a direction in which to focus your efforts. This will serve as the foundation for later growth. What Is Your Go-to-Market Strategy? Whatever the size of your potential market, you need first to find your way in. Some companies start with a high-end strategy and then go to the masses; others look for a lower-income market to help establish a mass appeal. With a specific point of entry, you can then describe to investors a sensible strategy to use the investment they provide to develop and grow your business. What Are Your Customer Costs and Long-Term Value? Your marketing strategy should consider both the cost to acquire each customer (CAC) and long-term value (LTV) of each customer. Marketing efficiently to build a customer base gets strong initial value for your investment. But retaining those customers over time creates an LTV that prevents your company from being a mere flash in the pan. Create a strategy that does more than build quickly to develop a sustainable business model attractive to investors. Your marketing strategy helps fundraising efforts by showing investors why you will succeed. Describing your market and entry point, as well as the value your customers contribute, will help you attract the funds to help you move forward. Source: barlaw.co.il
September 19, 2017 / by Daniel Israeli
September 19, 2017 / by Daniel Israeli
It is nearly impossible to keep track of the developments in the cryptocurrency and ICO arena, with new digital currencies being launched and new ICOs records frequently being broken. Recently, the record was broken once again, when Filecoin’s ICO raised about USD 200 million in one hour (!), after having raised about USD 52 million from investment funds and private investors in the presale ahead of the ICO. So what is an ICO? ICO is the abbreviation of Initial Coin Offering, a term inspired by the capital market term IPO (Initial Public Offering). This is when a company recruits debt or capital by publishing a prospectus offering of its securities to the public for the first time. A prospectus is a profound legal and accounting document that furnishes information about the company, its management, its businesses, and its financial position. Once a company’s securities are held by the public, it becomes a public company. In an ICO, companies that are developing a technology or an innovative venture, which, for the most part, is based on blockchain technology, recruit capital through the issuing of digital coins. The hope is that the coins' value will appreciate when the venture succeeds and will maximize profits for the coin buyers in the ICO. To date, digital coins and ICOs are unregulated in most countries. However, the US Securities Exchange Commission (SEC), the Central Bank of Singapore (MAS), the Canadian Securities Authority (CSA), and the Israel Securities Authority (ISA) have all already announced they are considering applying in some cases the existing securities regulations also to digital coins and ICOs (such regulations include restrictions in public offerings, prospectus and reporting requirements, etc.) Despite the lack of regulation, as well as the lack of uniformity with regard to the quality of the information being disclosed, the practice is that when launching a new token or actual digital coin and an ICO, the company publishes a document on the ICO’s website that furnishes information about the venture or the technology, pertinent financial data, and information about the offering itself. This document is called a ‘Whitepaper’. It is reasonable to assume that once leading countries enact regulations for digital currencies, including a binding standard for whitepapers, this market will become more regulated. Following are some helpful tips for new ventures still in the pre-ICO stage and who want to make their whitepapers accessible to potential investors. Mode of presentation of the information When an investor considers whether it is worthwhile to participate in an ICO, he wants to know why purchasing coins in the ICO will be a golden opportunity for him and what his resulting profit will be. Unfortunately, companies tend to focus on presenting the technology or the venture in their whitepapers, and they do not attribute enough importance to presenting the financial-economic data. But such data are equally important to potential investors, especially since financial data demonstrate the venture’s potential market value. It may will add value if the whitepaper will include financial data about the company, information about the new coin (or token) to be issued, and information about the technology. Such information should be substantiated by data from reliable sources. It is also advisable and helpful to use infographics—graphs, simulations, and comparative data—that encapsulate the highlights of the ICO clearly and succinctly. Structure of an ICO An ICO whitepaper should explain how and when investors can participate in the ICO, and in which currencies the investor can purchase the company’s new token (if only through digital coins, so which digital coins; and whether it is also possible to use FIAT money. Notwithstanding the regulatory uncertainty surrounding digital currencies, nearly every developed country imposes anti-money-laundering laws and KYC (know your client) provisions. Therefore, the whitepaper should also inform investors about the identification processes they will have to undergo during the ICO and the required mode of payment. Legal aspects As stated, most countries have not yet enacted digital currencies regulations that also regulate the mode of performance of an ICO. Consequently, purchasing digital coins and participating in an ICO are still highly risky and thus are not suitable for everyone. Therefore, it is critical to ensure the whitepaper accurately presents the venture and the structure of the ICO. It is recommended that the whitepaper disclose the risk factors unique to the market in which the company operates (in addition to the risks inherent in the digital currencies arena, the lack of regulations, and the absence of any promise that the venture’s success will lead to a rise in the value of the issued coin). In light of the above, and bearing in mind today’s regulatory uncertainty, ventures considering fundraising through digital currencies should act with all due care so that they do not find themselves in violation of securities laws in countries where the ICO is being launched. The applicable law in the territories relevant to the ICO should be meticulously examined. Source: barlaw.co.il
Deliver a Strong Value Proposition to Raise Funds Effectively
September 7, 2017 / by Yuval Lazi
September 7, 2017 / by Yuval Lazi
When you are ready to raise money to begin or expand operations for your startup, you cannot just ask and wait for money to pour in. Today's investors are savvier than ever. They need to understand the value you create, for investors and for the market your company will serve. You need to understand your business model thoroughly, but you should also prepare concise answers to the questions any smart investor will ask. 1. What Market Do You Serve? If you do not have a target market, you are not ready to do business. By the time you begin fundraising, you must know who you will serve. This means you should be able to identify your potential customers by their demographics and by their needs. In a few sentences, be ready to tell investors where their pain points lie. 2. How Do You Solve the Problem? It does no good to anyone if you can identify problems but cannot solve them. Your customers have a need, and you must demonstrate how you can fill that need. Competitors likely exist, so you must show where existing market remedies fall short and how you exceed what currently exists. 3. Why Is the Time Right? Needs do not exist in a vacuum. You must be ready to answer why your customers need a solution now, rather than last year or next year. If the pain point has existed for a long time, have your customers found acceptable workarounds? If it is new, why is it urgent? Concise answers show that you provide value critical to the market. 4. What Is Your Pricing Model? You should know that economic forces will change your pricing over time. Still, put thought into what you will charge for your product or service, both to earn business and earn a profit from your labor. 5. How Will You Use the Money? This may seem obvious, but you should have a plan for the money you seek. Know what you will purchase and why, and how the funds will allow you to reach your next milestone. If you can answer this, investors are more likely to see their own growth opportunity. Investors want to understand how you will put their money to work and deliver what your customers need. Showing what and how you deliver, and how investment will help you do so, gives them a reason to help you succeed. Source: barlaw.co.il
How Tech Transfer Organizations Drive Israel’s Growth
July 30, 2017 / by Yuval Lazi
July 30, 2017 / by Yuval Lazi
Much of the research and development that goes into new technologies occurs in academic and research institutions and laboratories. But this does not in itself create the new products and processes that change the world. Rather, the technologies are transferred from these academic institutions to the companies that will develop marketable applications. In Israel, the middlemen for this process are special Tech Transfer Organizations (TTOs) that are incorporated by the academic research facilities in order to ‘transform’ theory into practice. As Israel continues to churn out new scientific breakthroughs, TTOs play a critical role in converting new science into continued economic growth. Bringing Science to the Market TTOs are not a new development in Israel. From the establishment of the first transfer organization in the country, Yeda Research and Development Co., the nation has depended on these organizations to bring science to the market. Today, tech transfers are a big business in Israel. Every year, TTOs in the country generate $1.5 billion in royalties and lead to the creation of 15 new companies. Indeed, their existence improves the efficiency of the market by allowing everyone else to do what they do best. A research institution benefits from being able to focus on scientific inquiry and development. In turn, TTOs can identify potential applications for the resulting science and help connect the research to companies that can best apply it to marketable inventions. The result - an efficient economic approach that continues to foster powerful growth year after year. Engagement with TTOs The engagement with the TTOs are non-standard. The TTO does not invest in the company or sell the technology, but rather provides the license needed in order to commercialize the technology. Usually, these types of engagement require a “three way” agreement between the TTO, the startup company that will commercialize the technology and a ‘grown’ company that expects to use this technology in order to implement it into its own products or services. These complex engagement structures can in some cases result in uncertainties and disputes relating to the rights in the technology and its implementation. Barnea & Co. has experience helping TTOs, commercialization companies and technology purchasers navigate the difficulties involved in the process of structuring such complex engagement and assist in managing the continued drive of the country's technology boom with the TTOs in its forefront. Source: barlaw.co.il
Today's world holds more cybersecurity threats every day than it did the day before. Expert estimate that Israel faces 100,000 cyber-attacks every day, and 10 times that amount in wartime. Given the constant threat against businesses and the government, Israel's national focus on fostering cybersecurity technology and growth seems almost obvious. But sometimes, the needs of businesses in a global economy clash with national interests. Navigating a path that takes both into account requires a thoughtful approach from government and the private sector. Israel's Cybersecurity Needs One key difficulty of cybersecurity comes in the exponential expansion of the world's connectedness. The Internet of Things creates opportunities for consumers to connect to information in more ways every day, and Israel has taken a leadership position in its growth. But this area also creates some of the greatest security risks for information. Israel and other developed nations must constantly examine and re-examine the vulnerabilities of the information network and find ways to combat them. In addition, countries have an interest in protecting the cybersecurity techniques they develop from other countries whose interests may not fully align with their own. This is where conflicts arise; successful businesses grow and expand beyond national borders, so the exporting of cybersecurity capabilities can be simultaneously a business necessity and a national concern. Legal Landscape for Cybersecurity Business In Israel, a proposed regulation would have subjected all cyber exports in four distinct areas: intrusion software, vulnerability detection, defense technology, and advanced forensics. After careful consideration and listening to the concerns of the industry, the government pulled back and will only be supervising offensive cyber technology being exported. The industry representatives feel confident their concerns have been addressed, with a balance struck to allow defensive technology to be shared outside of the country. This represents a key moment in the examination of disparate needs between the government and the private sector. Still, the legal and regulatory ground for cybersecurity in and outside of Israel will never fully settle. Technology continues to develop, and the law will continue to respond to the new realities of the day. Working with effective counsel remains critical to managing change and staying abreast of the changes that occur daily. Source: barlaw.co.il
Israel’s New Opportunity in Renewable Energy
July 2, 2017 / by Gal Oren
July 2, 2017 / by Gal Oren
Israel has for years led the world in technology and entrepreneurial growth and development. After building in a number of key tech areas like cyber security and biotech, the nation has turned its sights on bolstering capabilities in renewable energy. Recently, the Israeli government announced a new initiative focused on pushing development of renewable energy into the 21st century. This creates a prime opportunity, for Israel's energy companies and for investors looking to become part of this growth in the years ahead. Sources of Renewable Energy in Israel Israel receives a great deal of sun, and Tel Aviv University's Center for Renewable Energy estimates that covering merely eight percent of the Negev Desert with solar panels could supply all of Israel's energy needs. To make this work, Israel needs the benefit of technology to maximize production of electricity converted from solar sources, efficiently store solar energy, along with infrastructure changes to allow better transmission of solar power across the country. This leads to ever increasing amount of people working to develop these technologies to improve its renewable energy capabilities. The Opportunity Emerging As of this time last year, 2.6 percent of Israel's energy was produced from renewable sources. Given the amount of solar energy available to be harvested, this creates tremendous growth opportunities in this field. In fact, the Electric Authority recently issued a the first tender out of four that are scheduled to take place this year for solar generation, and announced on March 2017 its first round winners, which committed collectively to almost 235 megawatts of electric generation within the scope of 300 megawatts allocated to this tender and overall scope of over 1,000 megawatts for all four tenders scheduled this year. Beyond creating opportunity for the companies building the facilities, this new focus on solar generation can create a boom for technology start-ups and established companies that develop mechanisms for more effectively storing and transferring solar energy. If you're ready to build or invest in this growth opportunity, the Ministry has developed a regulatory structure for which you should be prepared. Barnea & Co. can help you understand and move through the system to get your company or investment working efficiently and legally. Source: barlaw.co.il
The life sciences are advancing at dramatic rates in capabilities and goals. For most of human existence, we have been trying to keep up with the path of diseases as they emerge. Now, we are starting to push more toward prevention and improvement of life in a forward-looking manner. Israel sits at the front of the developmental curve, with over 1,200 active life sciences companies. With its national innovative drive and start-up mentality, Israel provides fertile ground for growth in the sector. Why Life Sciences Are Growing The growth in this sector comes as more scientists recognize the direction companies take needs to change. Much of the research in the area has come in academia, which develops information well but limits the practical development that comes more through entrepreneurial action. One big shift Israeli companies are showing is the push to develop technology for how people actually behave, rather than how a hypothetical person would act in an ideal world. Integrity Applications, Inc., for example, has developed technology in its GlocoTrack system to measure blood glucose without a finger prick, thus reducing human error and time lag issues in measurement. Israeli companies are also attacking some of the biggest health challenges in the world. CureTech, for example, is working on ways to harness the immune system to fight cancer, while Teva works on Parkinson’s disease, cancer, and a host of other health concerns. The overriding theme is using research and development in the private sector to combat real problems that people face everywhere. Israeli Funding for Life Sciences In 2016, investments in life sciences companies in Israel increased by 42% over 2015, though the total amount of investment declined. More significantly, the mergers and acquisitions for life sciences company increased almost tenfold from 2015, a sign of an economy maturing and companies growing in the industry. As companies continue to push toward the future, Israel provides a friendly structure for companies to not only get started with funding, but to grow into entities that can change the world. Understanding in the life sciences field is still scratching the surface of what we can achieve, but investing and developing in Israel continues to push the standard forward. Barnea & Co. can help you work through the legal and regulatory path to setting up so you can do your part to change the world. Source: barlaw.co.il
Israel has long been acknowledged and admired for its vibrant start-up culture, fostered through government investment and pro-business policies. Further, the national focus on business development provides a regulatory structure that protects business owners from creditors and ensures proper structure for the public – incorporation. To take advantage of the corporate structure, you need to ensure that you follow the proper registration process, and select the right corporate vehicle to fit your emerging business model. Why should start-ups incorporate? The most common corporate vehicle in Israel, and especially for start-ups, is a limited liability company. The main reasons for its popularity, and why entrepreneurs should incorporate at an early stage, are: The first and foremost reason for any individual to incorporate a company and become a shareholder thereof, is the fact that a company is a separate legal entity from its shareholders. This separation creates a “wall” between the company’s shareholders and its creditors, so that the shareholders and their private property are protected against the company’s creditors and they will not be personally liable for the company’s debts, to the extent allowed under the ‘piercing of the corporate veil’ provisions, according to law (whereby in extreme cases a shareholder can be held personally liable for the company’s debts). In addition, the shareholders cannot be obliged to pay the company's debts beyond the amount of their investment. Any early stage start-up is always seeking investors to invest in their product or idea. In exchange for their investment, the investors expect a form of guarantee in return. When operating under a company, the company can leverage its capital raising without actually giving a substantial consideration in return (such as personal guarantees) by offering the investors consideration in the form of company shares and/or share options. One of the main reasons for investors to invest in a start-up is its intellectual property. With incorporation, the IP is owned by the company and not by the founders, and the investors, who are also shareholders of a company, are the owners of the intellectual property too, in proportion to their shareholding percentages. Moreover, in the event one of the company’s founders terminates its engagement with company, the IP shall remain with the company and not with the departing founder. A start-up which wishes to expand will search for quality employees to join and can offer them benefits such as options. For those start-ups who are or become profitable, the tax rate for companies in Israel is 24% (as of 2017), compared to the individual tax rate, which can be as high as 50%. How to incorporate Before you can do business in Israel as a company, you must register your company with both the Registrar of Companies and the Tax Authorities, which fall within the control of the Ministry of Justice and the Ministry of Finance, respectively. When registering a company, the following steps must be taken: File an application for the company’s incorporation which includes, inter alia, the company’s suggested name, its share capital, its shareholders and their holdings, and its first directors. Draft the company’s articles of association, which governs the relationship between the company and its shareholders and between the shareholders and themselves. Pay a registration fee of NIS 2,606 (as of today). The process can feel onerous at times, but each step is important. Besides the importance of operating legally, the paperwork establishes the rules of conduct and governance both in respect of the present and going forward. This is why the incorporation procedure is critical. “Originally published on the IDC Legal Clinic website”
Funding your startup company is an inexact science. The first round of funding helps get your company established, but often leads to a realization that you need more. After the first round, new issues and growing capital requirements emerge and you need to adjust course moving forward. To help you build your company successfully, you should know what the challenges are in each stage you are in, and to be prepared for them. Challenges Following the First Round The first round of investment allows you to bring on employees. Following the completion of the first round, your company has shares issued to the founders, to employees through an ESOP, and to the initial investors. The board of directors begins working together with the founders. This is the point where you begin to discover your ongoing needs and start facing mounting challenges. Money is running out, the available stock option pool is spent, some investors may lose interest and even certain funders may be looking to move on to other ventures or cash out on this one. To allow the company to face these challenges and continue and grow, another round of fundraising quickly becomes necessary. Plan and Execute the Second Round When starting down the road to the second financing round, you should have a better sense of what your company is, and should be. This is the opportunity to raise money based on what you have in place. You want to focus on raising the right amount rather than aiming for a specific valuation. When structuring the second round, you should focus on your current and future capitalization table. The allocation of the shares in your company may distinguish between active and departing founders, must ensure that current and future employees are sufficiently covered, should consider the cash waterfall upon an exit event so that the valuable team is incentivized, and secure the reasonable stake of current and incoming investors. As part of the second round you should also prepare for a change in the control of your company. It is inevitable that the founders would lose the control of the board that would gravitate towards the investors. This means you should be very careful in selecting the right investors for the second round, as they will have the ability to impact the future of the company, and even have a major role in determining its future direction. The second round is where you grow from starting a company to building it. “Originally published on the IATI website”
Forces That Drive Innovative Countries – The Israeli Example
March 27, 2017 / by Itay Gura
March 27, 2017 / by Itay Gura
Innovation occurs at different levels between one country and another. Innovation does not occur by accident. While some nations depend on individuals to drive the creative process, others provide an environment and infrastructure that foster and support technological development. When a country focuses its attention on providing the best opportunities to innovate, that country can rise above the pack. Global Innovative Powers The United States and Japan have thrived for many years as countries that foster innovative development. Each nation has maintained an interest in educating its citizens in science and technology, encouraging the best and brightest to create ways to improve the world. The United States is responsible for almost 30 percent of the world's patents, and hosts 15 of the top 25 research universities in the world. Japan, meanwhile, has the world's third largest economy and has long established itself as a key global player in the auto making and electronics markets. In Europe, several countries have risen as leaders in the race to innovate. Denmark, Germany, and the United Kingdom in particular support technological growth through educational opportunities and governmental spending. The World Economic Forum ranks Germany fourth globally in company spending on research and development, and sixth for the quality of its research institutions. Meanwhile, the United Kingdom has pledged to increase its national R&D investment by two billion pounds by the year 2020. Denmark possesses particular strength in emerging and renewable energy innovation. Israel: The Perfect Innovative Storm Israel, nicknamed the “Startup Nation”, is known as a center of technological innovation, and appears on the radar of many leading international companies looking to invest in and acquire innovative technologies. Israel can be seen as an example of a country focusing on fostering innovation. The international interest in the local innovation economy is reflected in the scope of international investments and acquisitions of Israeli based tech companies and by the presence of more than 200 development centers of multinational top-tier corporations. Cyber security, Automotive technology, Fintech and the Internet of Things (IOT) are the current favored flavors. The innovation ecosystem is spreading across the entire country, branching out from Tel Aviv, Haifa and Herzliya, to Jerusalem, the Galilee and the Negev. The Israeli government endeavors to support the technology innovation ecosystem, which is also supported by numerous accelerators, incubators and early stage funds, some of which are supported by leading international companies and major financial institutions. Last year saw the introduction of an important amendment to the Encouragement of Research and Development Law, easing the rules governing technology transfer and establishing a new National Authority for Technological Innovation (NATI), replacing the Office of the Chief Scientist (OCS). New relevant tax rules are being considered and are expected to come into effect in 2017. Matters under consideration include treatment of intellectual property held by multinational companies, cross-border transfer pricing, taxation of online based businesses, and treatment of “reverse vesting” mechanisms. Source: barlaw.co.il
One of the common remuneration mechanisms in startups and technology companies is the granting of options to employees in addition to or, sometimes, in lieu of, the traditional remuneration component – the cash salary. The practical meaning of granting options is that employees are granted a right to purchase shares of the company at a fixed price at some time in the future. Options enable startups to compensate for their inability to offer attractive salaries and recruit a top-tier workforce (due to the lack of available funds in the initial stages of a start-up’s lifecycle) and, at the same time, the grant of options serves as an effective tool to align the interests of the employees with those of the company. Recently, we have been seeing an increasing number of cases in which successful startups that succeeded in securing investments from more than one investor in at least two investment rounds, find themselves in a complicated situation, whereby the company’s capitalization table following the above investment rounds does not enable the company to effectively incentivize its employees. How does this situation occur? When a company raises capital from strategic investors (for the most part, venture capital funds), it grants preferred stock to those investors against their investment. One of the key rights attached to preferred stock is the right to receive a certain portion of any future proceeds distributed upon the sale of the company, prior to the remaining shareholders (liquidation preference rights). Since every strategic investor seeks to ensure a pre-determined return on investment, a company with several strategic investors may find itself in a situation whereby, upon the occurrence of a sale event, the distribution waterfall of the proceeds dries up before it reaches the company’s ordinary shareholders, which, ordinarily, are comprised of the company’s founders and employees. This situation poses a major challenge to the company to retain and recruit the “best and brightest” employees, especially since in this era employees in the field of high-tech are well informed regarding equity incentive mechanisms and they are looking to join a company that offers a substantive equity incentive – and not just one on paper. This situation is also disturbing for the company’s current and potential investors, as every investor appreciates that the best way to guarantee that its investment will eventually reap profits is to ensure that the company’s employees are fully committed to the company’s success. In order to create that incentive for the company’s employees, companies facing the above predicament may amend their equity incentive plan and adopt what is known as a carve-out plan. A carve-out plan essentially “carves out” a fixed percentage of any future sale event and designates such percentage of the founders or employees of the company. The adoption of a carve-out plan requires full coordination with the company’s current investors, since they are the ones who will be relinquishing a certain portion of the proceeds to which they are entitled, to the benefit of the founders or employees. The adoption of a carve-out plan also raises significant legal considerations, such as the need to amend the company’s existing articles of association in order to create a new class of shares which is specifically designed to provide the grantees under the carve-out plan with the exact rights which are required to implement the plan, without disturbing the existing relationships between the company’s shareholders. Additionally, the adoption and implementation of a carve-out plan raises issues in the field of taxation, due to the need to seek the Israeli Tax Authority’s prior approval to the carve-out plan before it can be implemented. How can companies avoid this situation? Founders of startups need to devote considerable thought and planning prior to raising investments regarding exactly how much funds they require for the purpose of carrying out their business plan, and at what company valuation. Often, accepting a lower investment amount than the amount that the company could raise in a particular investment round, or holding off on raising capital until the company reaches a more mature stage, thus enabling the company to raise capital at a higher valuation, will minimize the dilution of the ordinary shareholders of the company. Of course, it is far easier to write about refusing available funds than actually turning such funds down in reality. However, adopting this kind of long-term thinking on the part of the founders of startups, and taking the issue of incentivizing employees as a dominant consideration from the company’s inception, may assist in avoiding having to face a problematic ownership structure which ultimately requires adopting a carve-out plan. Source: barlaw.co.il
For many years now, Israel's emergence and growth on the world's economic stage has captured the attention of national and private investors all over the globe. It is only in recent years, though, that this has come to include Japan. In the past few years, more and more Japanese corporations have opened R&D and sales centers in Israel, while business delegations are continually streaming into Israel. One of those companies which recently entered Israel is Fujitsu, the largest IT company in Japan and the fifth largest in the world. Technological Relationships Business relations between the countries received a substantial boost, after Prime Minister Netanyahu's visit to Japan in 2014. The visit led to an historic R&D agreement that included a Memorandum of Cooperation and a Memorandum of Understanding, both designed to foster relationships between the two countries and create cooperative endeavors in technology. In July 2015, this lead to three distinct joint industrial R&D projects and on February 2017 both countries signed a bilateral investment treaty. One of the attractive areas for Japanese companies is Cybersecurity; Japan has long recognized Israel's position in this area, and stands to benefit from Israel's knowledge base and growth. The agreement between Israel's Radiflow and Japan's NEC focuses on integrating cybersecurity with physical security. Another agreement, between VocalZoom Systems and Fuetrek, focuses on audio technology that hones in on a speaker's voice while eliminating background noise. These agreements just scratch the surface of the potential this relationship creates. Japan has long been a world leader in technology engineering, and Israel's prowess in these areas has led to a sustained boom period in startups and technology investment. Together, the countries should be ready to build new technological opportunities in finance, technology, agricultural technology, the Internet of Things, Automotive, Cybersecurity, and much more. Where Next? The interest factor is not a one way street. Israeli companies are also showing interest in investing in the Japanese market in various sectors. Both countries enjoy innovative entrepreneurs who are driven to constantly push the boundaries of technological development and advancement. This era of cooperation between Israel and Japan will most likely help to cement relations between the countries on various levels, such as mutual tourism and support in international forums. Source: barlaw.co.il
Investors in startup companies need to learn as much about those companies as possible to make an informed decision. You do not want to go in blind before you put money into a startup a company. Still, the company in which you seek to invest needs to protect its confidential and proprietary information; otherwise, it stands to lose the benefit of introducing an innovative solution to the market. In order to put both sides at ease at the initial stages of the engagement, investors and startups generally turn to non-disclosure agreements (NDA’s). These agreements are designed to protect confidential information, while providing investors the information they need in order to make a determination whether to invest in a given startup. Defining Parties As with any contract, an NDA must define who the parties are. An investor may have interests in related companies and the agreement will spell out whether any information can be shared within a larger network, specific entities, or just specific individuals employed by the investor or acting as the investor’s consultants. It is important to define the party receiving the confidential information in a way which provides the startup comfort that any confidential information revealed to the investor will not end up in the hands of a potential competitor, as well as limiting the investor’s exposure by spelling out clearly to whom the confidential information may or may not be disclosed. Defining Confidential Information The parties must also carefully define what confidential information is protected under the NDA. For startups, this can provide particular challenges; products and services may be developed over the course of the term of the NDA. The definition of confidential information must be broad enough to cover variations and emerging confidential information, while still maintaining a definition which is focused on the concrete engagement between the parties. Both parties benefit from clarity here; too broad a definition of confidential information can potentially expose the investor, while a narrow definition can leave the startup unprotected. Exclusions The NDA should also set certain exclusions to protected confidential information in order to limit the investor’s obligation to safeguard certain information which may already be in its possession or which may become insignificant to the startup in the future. Typical exclusions will include public information or any information which the investor already knows at the time of disclosure. In the high-tech industry this exclusion is of specific importance as sophisticated investors often have a detailed understanding of a startup's industry and will not want to be penalized for any pre-existing knowledge. On the other hand, startups need to make sure that the exclusions are not drafted too broadly as to negate their confidential information. Terms The rest of the agreement will include terms for both sides to follow: how information is to be protected, permissible use of the information, the parties’ duties after the agreement expires and what actions the disclosing party may take in the event it reasonably believes its confidential information has been jeopardized. The two sides have diverging interests, so negotiating terms fair to both sides helps create conditions that allow the sides to work together. Creating well drafted, effective NDA’s allows startups and investors to start working together towards a future investment. Contact Barnea & Co.’s experienced team to help you start your relationship on the right foot. Source: barlaw.co.il
8 Things that Happened in the Israeli Hi-Tech World in 2016
January 4, 2017 / by Ariella Dreyfuss
January 4, 2017 / by Ariella Dreyfuss
It has been an interesting 2016 in the Israeli Hi-Tech world, here is a rundown of 8 things that happened, in case you missed them. Angels’ Law: In early 2016 an amendment to the "Angels’ Law" clarified the scope of the tax benefits available to private investors in new early stage start-ups; clearing the ambiguity that surrounded the law and had rendered it ineffective. Cash investments by angels in young Israeli companies in their initial research and development (R&D) stage can be recognized as deductible expenses for tax purposes, in an amount of up to NIS 5 million over a period of three tax years. The amendment is a temporary order and will remain in force until the end of 2019. SAFE: The Y Combinator’s “Simple Agreement for Future Equity” (SAFE), popular in Silicon Valley has become more acceptable in Israel. The “positive evolution of the convertible note” is not a debt instrument, it does not accrue interest, is not secured and is not repayable. It is essentially a deferred equity investment. While some argue that the SAFE is too entrepreneur friendly, others note that the protections offered by a convertible note are of little significance, as if the start up fails there is often little recourse for the lenders, if any. Hi-Tech Brain Drain: Avi Hasson, the Chief Scientist of the Ministry of Economy and chairman of the Israel Innovation Authority, voiced his concern that the “seven good years are over and that we are approaching our glass ceiling”. He explained that unless the government takes immediate action to educate Israeli students in the sciences, there will be an acute shortfall of engineers and programmers in the next decade. Drop in foreign VC Investment: The IVC Research Center noticed a drop in foreign investor participation in Hi-Tech capital raising in 2016, particularly by foreign VC funds. According to an IVC and KPMG report in the third quarter of this year VC-backed deals attracted $662 million, reflecting a 41% decrease from the previous quarter and a 24 percent year-on-year decrease; the lowest number in the past three years. However, Koby Simana, CEO of the IVC Research Center noted that this is a reflection of a global downtrend and not unique to Israel. Interest from the Far East: Interest from the Far East in Israeli Hi-Tech continues to spike. Hundreds of investors and entrepreneurs from the Orient have visited Israel this year to scout talent and the set-up of various incubators, accelerators and funds, including Techcode and The Kuang-Chi GCI Fund & Incubator, which has already invested around $4.3 million in the Israeli video analytics company - Agent Video Intelligence (Agent Vi). While Sony acquired Altair Semiconductor for USD 212 million earlier this year, just this month Taiwan's HTC Corporation and Quanta Computer invested US$30 million in Israeli augmented reality company Lumus which follows a US$15 million investment from China's Shanda Group and Crystal-Optech in the same company in June. Disinterest in IPOs: IPO’s are facing a downtrend, with few Hi-Tech companies choosing to go public as an exit strategy. An exception to the rule is trendIT, an analytics company that floated on the London Stock Exchange in the first quarter of 2016 raising $5.9 million at a $17.6 million valuation and smart VoD company Vonetize that raised NIS 16 million on the Tel Aviv Stock Exchange; a far cry from the highlight of the Mobileye IPO on the NYSE in 2015, which raised $1.02 billion at a $5.3 billion valuation. Crowdfunding: Israel is seeking to soften the regulatory hurdles to crowdfunding and will allow small start-ups to crowd fund without the need to issue a prospectus (which can be an expensive and time consuming task). Although the applicable regulations have been slow coming (a year now) it is believed that the Securities Authority has some sympathy for the trend. The current expectation is that investments of up to NIS 10,000 per investor for each investment, and NIS 20,000 per investor in the aggregate per annum will be exempt from the need to issue a prospectus. In addition, the relevant company will be limited in the aggregate amount it can raise through crowdfunding per annum, and the expectation is that the cap will be several million NIS. In the interest of protecting the public, the regulations will require that at least one accredited investor participates in the crowdfunding and that such crowdfunding is executed through an internet portal regulated by the Securities Authority. New Licenses in FinTech: With the aim of combatting financial crimes and money laundering and regulating the growing field of FinTech, a new law – the Control of Financial Services (Regulated Financial Services) Law - was adopted in August. The new law requires that credit providers and providers of financial asset services hold a license (as of June 2017 and June 2018 respectively) and will be subject to supervision by a new financial regulator. The licenses are subject to certain thresholds, including minimum equity (starting from NIS 300,000) and corporate requirements (for example board composition). Now bring on 2017! Originally published on the “TOI website”
Crowdfunding: Funding Companies in the Startup Nation
November 30, 2016 / by Daniel Lorber
November 30, 2016 / by Daniel Lorber
For many small businesses around the world, crowdfunding - the pooling of usually small investments from a large group of investors - facilitates the ability to start a business without large institutional investments in the company. The portfolio of crowdfunding investors is diverse and is comprised of a broad array of ROIs (returns on investment). Investors may be donating to a specific cause, seeking repayment with interest or claiming equity in the company. In the past year, Israel has loosened some of its regulatory impediments which existed under the Israeli Securities Law and regulations in order to enable and promote crowdfunding as a viable investment alternative for startups and small businesses. Under the new regulatory regime, investors can now come together to help fund companies in the startup nation, without the offer by the company to potential investors being deemed an Initial Public Offering. The Israeli Legal UpdateCrowdfunding has long been difficult to do in Israel. Section 15 of the Israeli Securities Law required until recently that the Securities Authority approve a prospectus for any offer of shares to more than 35 investors. This process made investment onerous for startups unable to access funds from venture capital funds and large financial institutions. In late 2015, Israel enacted its new Law for the Encouragement of Investment in High Tech Companies. This new law is actually an amendment to the Securities Law. It provides an exception for small investments, thus clearing the way for crowdfunding to occur without the prospectus requirement. It allows for tradeable venture capital funds to be created, which should further encourage group investments in new and emerging companies. The law also encourages startups to remain in Israel by making local funds more available; companies that may otherwise have sold or moved to more funding-friendly locations now have fewer incentives to leave. Crowdfunding Boosts in IsraelAs with any financing structure, investors and companies who wish to invest or raise funds through crowdfunding need to take the time to understand the legal and commercial implications of this financing tool before diving in. Crowdfunding in Israel still requires at least one accredited investor to participate in a fund. The idea of a completely deregulated funding scheme has not yet taken hold. Furthermore, investors need to remember that, in a crowdfunding scenario, they may have limited rights compared to other investment routes. Since the latest regulatory changes, a significant increase in crowdfunding investments has already taken place. In 2014, the aggregate investments through crowdfunding worldwide amounted to USD 10 billion. This number grew by 350% in 2015 and reached a staggering USD 35 billion. We have seen a dramatic increase in Israel as well during this period and expect to see these numbers increase in Israel and worldwide as the regulatory barriers which currently exists are gradually lifted.If you are interested in raising funds or investing through crowdfunding, you need to navigate a new legal structure that is still being defined. Contact Barnea & Co. for help in getting started. Source: barlaw.co.il
Israel's ‘startup boom’ has grown unfettered for decades. Its emergence as a nation of opportunity for business creation and innovation came not by accident, but through careful planning, tendency to think ‘outside the box’ and constant strive towards execution. All of which have been accomplished due to ability of Israel to support and grow qualified and innovative individuals. After years of steady growth, though, the country now faces some challenges to its positioning in the technology sector. Shortages in their high-tech labor pool and a need for companies to grow more within the country are forcing adjustments. How Israel navigates these concerns will have a significant impact on the year ahead for high-tech companies. Challenges in Human CapitalOne significant challenge area lies in the need for more qualified personnel. Israel trains thousands of individuals through compulsory Israel Defense Forces service, but tech sector growth has created a need for much more. Scientific and mathematical degrees earned have leveled off; the proportion of scientific and technical degrees among overall college degrees has dropped below 10 percent in recent years. As a result, the supply is not keeping up with the continued demand for more workers in this area. Current trends suggest a shortage of 10,000 engineers and programmers in the coming decade. After 13 years of continued growth in Israel's economy, investment and national leadership will need to focus on reversing these trends to develop a labor pool that keeps up with the appetite for national startup innovation. Need for Companies to MatureAnother issue for those looking to invest in Israel to consider is the increasing exit costs for businesses. New regulation and tax burdens now create incentives for companies to develop further before exiting the economy. Where short-term investments and profitable exit strategies once carried the day, your investment focus now should move toward a longer plan, increasing profitability over years rather than months. The government is developing plans to create new growth paths; as with any maturing nation, these will work to marry growth to stability. In the coming year, those who invest for the long term will find greater high-tech opportunities. As the regulatory and taxation systems change in Israel, you need experienced legal and consulting assistance to guide your strategy. Barnea & Co. can help lead you through the new paths to growth in Israel. Contact us today to learn how we can assist you and your business. Source: barlaw.co.il
Agtech: Why Israel Makes Sense
July 31, 2016 / by Gal Oren
July 31, 2016 / by Gal Oren
If you think about fertile land for agricultural development, Israel probably doesn't immediately come to mind. But perhaps it should. Despite a desert climate and the relative youth of the country, Israel's technological development has created a boom in agricultural innovation, with technology that helps farmers and companies develop healthier, higher-quality foods. With the challenges facing the world's farming and crops markets, this tiny country provides a wealth of opportunity moving into the future of agriculture. Addressing Agricultural ChallengesAgriculture today needs technology to succeed. Climate change is creating growing uncertainty in how and where plants will continue to grow well, and natural resources are diminishing over time. On the other hand, the world population continues to grow. This means that, absent technological solutions, the farms of the world will struggle to keep up with demand in the decades to come. To address these concerns, technological developers must lead the way. Irrigation techniques continue to advance, reducing further the dependence on natural water supplies near farms. Bioengineering strategies are also emerging. Farmers today can scientifically approach crops to make them healthier and increase their overall quality in safe, effective ways. Why Israel Makes SenseIn its sixty-eight years of existence, Israel has had to create and use technologies to grow crops. An arid desert climate requires engineering to help agriculture meet the needs of its population, so as early as the mid-1960s, companies like Netafim were revolutionizing irrigation technology in Israel. The country leads much of the world in agricultural technologies, and continues to push ahead to meet more of the surging world demand for science and farming to intersect.From its work to feed its own citizens, the agricultural technology market in Israel has expanded. Its companies, like Afamilk, Evogene, and Biobee, have grown in both size and number, and are now capable of managing and running farms all over the world. Hundreds of Israeli agtech startups emerge each year. In 2015, a Harvester Venture fund of $40 to $50 million was established, and a pledge by Bayer of another $10 million was made in 2016. Israel's agricultural technology prowess represents a growth area well into the future. Investors and nations looking to capitalize on Israel's capabilities need to work within its legal and regulatory system to fully realize the potential there. Contact Barnea & Co. to learn how we can help you develop in this space. Source: barlaw.co.il
Forming a start-up begins with a great idea. This may be a product or a better way to do something, and it represents the seed from which your company grows. But planting the seed is just the first step. Moving from creating a company to running it as a CEO requires careful, diligent work in a number of areas. Your transition into leadership will often make the difference between your company's success and failure. Investor ManagementYour investors have provided some of the capital you needed to start your business. They are now your company's owners, and have a stake in your performance. Accordingly, you need to manage their expectations as you grow. Communicate regularly to let them know what you are doing and why, and ask questions. They invested in your idea because they see a path to your success; they will appreciate the opportunity to help, and will stay more engaged in the investment. Manage Your BoardYour board of directors can create obstacles if you are not all on the same page. You must remember that disagreements you may have come in the context of everyone wanting the best for your company. Part of this is regular communication outside of the meeting context. Work with them to decide what reports they want. Then, prepare and distribute agendas before board meetings so everyone knows what you need to cover and can make the most of the time. Financial and Tax adviceThe CEO has a responsibility to maximize the profit. There is no greater loss, then tax loss. It is fair and reasonable to pay what you owe, but a wrong financial turn, can set you on a path towards undesirable tax implications. Nobody likes paying taxes, its true for companies to. Consult with your accountants and international tax advisers. Plan your corporate structure and holdings, to maximize your tax benefits and minimize your exposures. Legal ConsiderationsFrom your company's beginning, you will be required to identify and comply with numerous legal requirements and legal hurdles. This begins with your founders’ agreement and articles of incorporation. You need to form the right entity and follow all the regulations from the get-go. You need documents to be as clear as possible, because what you agree to at the outset may not be so clear later. If you want to do business in Israel, national and international legal issues factor in. Feel free to contact me if you have any questions or in need of any assistance. Source: barlaw.co.il
Engaging in any business startup can be risky, and even more so when you are attempting to initiate a startup in the technology sector. Available risks cross both B2C and B2B vectors, and while the risk percentage can fluctuate between said vectors, it clearly illustrates the wide array of risks present for your technology startup. When these risks are combined with potential missteps by the founders of the technology startup, a perfect storm can be created that only terminates with the complete failure of the endeavor. Mistakes Do HappenMistakes in any endeavor are bound to happen, but there are several key mistakes that are most certainly responsible for a significant portion of startup failures. Many of these founder mistakes apply across all startups in any location. The top 10 mistakes startup founders inadvertently make are: Failure To Partner With the Right Co-founders: Failure to connect with trustworthy individuals who have the relevant skill set. Failure To Understand Current Trends: Inability to translate future market demands into marketable or operational results. Failure To Have Clear Objectives: Not having set goals and knowing how and when they are reached. Failure To Account For External, Non-Related Pressures: For example, working with partners who have other business activities and inability to fully contribute. Failure To Identify The Customer: Not understanding the targeted consumer and their needs. Failure To Implement The Appropriate Marketing Strategy: Not setting marketing goals and benchmarks to determine effectiveness. Failure To Establish a Clear Founders Agreement: Not laying out the roles and responsibilities between founders at the outset. Outsourcing Core Element: If your team relays on outsourcing for core elements of the product, your chances of raising funding decreases. Attempting To Shorten Incubation Limitations: Trying to grow the business too quickly. Unwillingness to Finance Boot Strapping Independently: Not willing to show ‘skin in the game’ may raise difficulty in initial fund raising. Indeed, there are other mistakes that startup founders can make that will contribute to the decline of startups, and while the above might seem obvious, these are among the most common.It is incumbent on you to endeavor to avoid these mistakes. One of the best ways to make sure you are avoiding the pitfalls is to work with and engage with qualified professionals who understand what is at stake and how to provide solutions to the problems outlined above.
Keep. It. Simple. (Stupid). Entrepreneurs, you are creative and innovative, but when raising financing it is ok to follow the norm. There is no need to try and reinvent the wheel. Standard also works. I would even argue that from an investment perspective it is superior. When there are too many moving parts, you run the risk of getting side tracked. I understand that securing financing is not always enough, you want to procure added value from your investors, for example manufacturing, distribution and marketing networks. It is easy to get tempted by alternative structures, or to try and roll too many transactions in to one. You invest in us, we will simultaneously incorporate a joint venture to do A, B and C together and we will grant you a separate license to our technology for X,Y and Z. It sounds attractive as you have opened up various distribution channels for your product. However, the details can act like quick sand, sucking you away from closing any deal at all, while consuming your time and resources. For most start-ups it is difficult enough to procure investment. You have to convince potential investors that there is a real market need, your product answers that need in a way that outshines your competitors, and that your company valuation is justified. Current reports also suggest that startup investment is cooling. The last thing you require is additional obstacles. If there is synergy before the equity investment, there will be synergy after. I understand that the demands may come from the investors, who are making a strategic investment in a technology they may ultimately want to commercially exploit, but try any buy yourself time. If you cannot buy time, you can still try and keep it as simple as possible. Remember this is the start of what will hopefully be a fruitful relationship for all involved, you do not want it to turn sour from extensive negotiations. Standard also usually means tried and tested. I have been part of many transactions where advisors have offered all types of creative models, usually for tax reasons. One, it later transpired, had serious and unintended consequences and had to be revised at the last minute. Almost all have delayed the actual investment. At the end of the day, no matter how complex your corporate structure, if “management and control” remains in Israel, when you make your exit the Israeli tax authorities are going to come knocking. Thinking long term, consider that if you give too much to the current investors (rights of first refusal/offer on distribution, an exclusive license etc.) you run the risk of deterring future third party investment - particularly from strategic investors (and will set a precedent). A plain vanilla subscription agreement is your friend. Focus your innovation and creativity on your product. Keep the investment terms simple.
Building a startup company takes vision and great ideas. But before you can get up and running, it also requires legal understanding and planning. Startups need to go through steps to protect the owners and the organization. Before you start doing business, make sure you have worked through these preliminary steps. Create a Legal Entity When you set up a business, you should create a separate legal entity under which you will operate, typically a corporation or an LLC. Identify the place you want to incorporate and set up to legally operate in all of the places you want to do business. You also need to set up your finances to ensure the assets of your company remain separate from your personal assets and file all the relevant paperwork to set up. This keeps someone from being able to attack your personal assets over a dispute with your business. Agreements and Contracts Besides protecting yourself from outside risks, you need to make sure inside disputes cannot derail you. Any agreements you have with co-owners or investors need to be in writing and should contain terms which you are comfortable with. You should include a vesting schedule within your agreements in order to prevent someone from getting cold feet and leaving early with his or her ownership interest. You also want to set rules for bringing in new or replacement owners. In addition to setting up, startups need to anticipate and plan for ending operations. What criteria need to be in place for the business to sell? How will owners divest their interests if you choose to part ways or close down? Startups eventually end operations, and you need to plan before the moment arrives. Protect Your Intellectual Property When you plan your company, you do so with ideas in place. Before you begin operating, you need to develop patent, trademark, and/or copyright protection for the products or methods that will come from your ideas. This ensures no one else can steal and run with them before you are able to build up your business. Ensure Legal Compliance Finally, you need to understand the laws and regulations that govern your operations. If you are non-compliant, whether in corporate, tax, or securities law, you can lose the business and more. Barnea & Co. has extensive expertise in helping startups begin with the right legal footing. Contact us today to help turn your ideas into a solid business.