Financial technology (“FinTech”) is a broad term that encompasses many kinds of technology across many industries. It includes hardware and software, apps and analytics, and solutions for companies of all sizes. Because FinTech plays a role in virtually every kind of company, it is worth taking the time to understand its position in the world economy. 1. Everyone Uses ItThe financial sector is the most obvious place one would look to understand FinTech's rise in prominence. Indeed, large banks and lenders in many ways lead the growth in demand for FinTech solutions, and have developed many of them. But if you look at the opposite side of the coin, every kind of company relies on financial applications. Companies in all industries look for better, more efficient ways to collect revenue and make payments. Much of this is now paperless, meaning that cloud technology, smartphone and tablet apps, and on-site hardware solutions matter to anyone whose business involves money. 2. The Regulatory ChallengeFinTech operates in heavily regulated areas, perhaps more than any other area of developing technology. As a result, when you bring products and solutions to the market, dealing with the regulatory challenges already in place across myriad disciplines is a must, rather than an option. You need to consider and resolve the legal challenges as you define the product, rather than waiting for a later stage of development — or worse, until you are taking the product to market.Further complicating this issue, as with any area of emerging technology, national and international regulatory agencies are struggling to keep up with financial services regulation. Although it seems that technological offerings level the playing field between large financial institutions and lean startups, most of the regulatory regimes tend to focus only on one-size category. Accordingly, the laws and rules that govern FinTech companies and innovators are necessarily in flux while companies emerge and grow. You need to plan to address issues that create moving targets in your development. 3. Israel's Increasing PositionAs is the case with many kinds of startups, Israel is developing quickly in FinTech. The country's focus on innovation and entrepreneurship has led naturally to growth in this vital sector. Further, because the world relies more every day on FinTech products and solutions, global demand for this kind of innovation shows no sign of abating anytime soon.Beyond the technological innovations required, because money is involved with the development and use of FinTech, any new product needs to offer solutions to cyber security threats that abound in the financial sector. Israel has long maintained a national interest in battling on the cyber security front. Its emergence as a leading producer of startups has included a surge into a leading position on security issues as well.Because it is so well positioned in these areas, Israel's highly trained technology workforce has grown into the FinTech industry. In the first quarter of 2016 alone, Israeli startups raised over $1 billion, with FinTech capturing a large portion of that windfall. Those numbers should only grow as companies and individuals develop more specialized understanding of the industry. With all the technological expertise available, Israel offers a natural place to develop FinTech companies and resources. To take advantage, you will need expertise in both the local and international legal aspects of building in FinTech. Barnea & Co. can help you navigate the industry so you can grow quickly. 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
Israel: A Clean Tech Nation
June 16, 2016 / by Gal Oren
June 16, 2016 / by Gal Oren
Our world today looks very different from what we knew even twenty years ago. Climate change has emerged as a concern across the globe. With this, though, new opportunities have risen for investors and entrepreneurs in the area of clean and renewable energy. Israel has embraced this more than any other country by fostering growth and embracing policies to encourage and develop new small business in this area. More and more, Israel has stepped forward as the world's leading clean tech nation. Encouraging Innovation and Clean Energy Israel has earned a reputation for encouraging start-ups and commercial innovation. Its technology sector in particular benefits from training its brightest citizens during compulsory Israel Defense Forces service. Those citizens carry their training into the private sector and lead the country's push to develop new business ideas. A significant part of this push now moves into clean energy companies. Israel's Ministry of Energy and Water Resources is working as part of national policy to push development of clean and renewable energy sources. The purpose is twofold. From an environmental perspective, this push will help Israel reduce air pollution and decrease the health burden that pollution places on its citizens. And from an economic perspective, boosting local businesses as they strive to create and implement new clean energy technologies reduces national dependence on imports and increases investment from outside entities that can further bolster Israel's financial future. Clean Tech Success Stories The policies in place are already paying off for Israel. According to the 2014 Global Cleantech Innovation Index, Israel holds the best opportunities in the world to start and develop clean tech companies. Among the report's findings: Israel ranked first overall among the 40 countries studiedIsrael scored well above all other countries in emerging clean tech innovationIsrael reuses about 97% of its wastewater, far above standards in other countriesOther countries are taking notice. Investment in Israel is booming, through individual investors and international agencies alike. Despite having fewer natural resources available than many other nations possess, Israel is already generating over 2% of its total electricity from renewable sources, largely due to its technological innovation and development. If you are looking to invest in clean energy opportunities, you need representatives who understand Israel's legal and regulatory systems and the international marketplace. Barnea & Co. can help you tap into the clean energy innovation available here. Source: barlaw.co.il
4 Things to Know About the Sharing Economy
June 1, 2016 / by Barnea
June 1, 2016 / by Barnea
It is possible to believe the innovations of the Sharing Economy are due to a collective and empowering business model that places the emphasis on the individual and that this is a revolutionary outgrowth of information accessibility. However, one would be dismissing the very economic fundamentals that are the foundation for future growth and prosperity of the larger global economy. There are four important things to know about the Sharing Economy. Solution Driven The sharing economy is driven by solutions to needs that are not necessarily addressed by traditional businesses. In some cases, these solutions can coexist with existing traditional businesses e.g. Uber or AirBnb. There is no suggestion that traditional hospitality and transportation businesses under serve consumers, only that specific need situations fall outside of the traditional need and are thus better served by the sharing economic model. Failure Is Unforgiving In reference to the sharing economy, failure in the public eye is impactful to a much more significant degree than it is on traditional corporate structures and models. The fact that the businesses operating in the sharing economy rest on the trust of the customers, as well as the buzz relating to such businesses, makes them that more susceptible to suffering blows where they act, or fail to act, in a manner which is conceived by the public as problematic. Therefore, such businesses must be able to handle any crisis in a far more efficient manner than "regular" businesses. For instance, if a person using a transportation platform suffers from a crime committed by the driver providing the transportation services, then – from the perspective of the business operating the platform – things could deteriorate quickly to a mass exodus of users of the platform on account of what could be conceived as a failure of that platform; this is especially true where there are several competitors vying for such customers. Unclear Regulatory Concerns Either by design or oversight, sharing economy concerns are commonly running afoul of existing regulatory emplacements. In 2014, the Harvard Business Review expressed the concern that sharing economy actors are often seen as exploiting the regulatory loopholes and are, therefore, creating a negative perception of said actors. Further still, since the exact regulatory structure for the sharing economy is in a dynamic state, the risks for regulations that prohibit company growth are real and potentially devastating. Many regulatory concerns are focused on the specific aspects of the company, the relationship between the company and the customers and service providers providing services via the company's platform, as well as the nature of the company's business; and the applicability of existing regulations as per traditional businesses in a similar sector. However, in absence of traditional regulatory authority, the sharing economy presents a question of what regulations if any are needed to address regulatory concerns or future issues. Taxation Concerns One area of specific concern is taxation and responsibility for said taxation. Much of this revolves around the employee/employer designations. Should taxes be the responsibility of the independent contractor or should the company be responsible for taxation? This is a critical component and one that is still being evaluated by various entities. The collective consumption foundation of the sharing economy has generalized potential and it certainly functions well in a regional or localized setting. However, for long-term corporate viability, the issue of growth sustainability is still in doubt. At present there is plenty of room for both positive and negative considerations. Thus, it's important that your voice as both a consumer and business owner is clearly heard, so that the sharing economy can be shaped into a sustainable, beneficial and continually growing part of the global economy. 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.
China has a long-held reputation in the international community for being closed off from outsiders — a reputation that it cultivated for thousands of years. In recent decades, however, this past custom has rapidly been changing and China has become a world leader in manufacturing and production, leveraging a large population and an immense technological skill base. Today China is pushing for more growth, looking to drive innovation to launch its economy into the future. This has led to a trend of opening up to the world, and in keeping with that trend, China has begun to reach out to Israel. Today Israel is only the third country with which China has developed a multi-visit visa program to encourage business and tourist travel. This highlights the importance of Israel's role as an innovation center for new technologies, particularly in the fields of Agrotech, Healthcare, Fintech and cyber security, and China’s desire to strengthen its cooperation with Israeli technology companies. In March, Prime Minister Benjamin Netanyahu and Chinese Vice Premier Liu Yandong announced that Israel and China were starting negotiations for a bilateral free trade agreement. A free-trade agreement between Israel and China may not only increase the gross national product of both countries, but also would most likely double the total value of traded goods between both countries, which currently stands at $8 billion. Challenges to NavigateThe two countries have much to offer each other, and the ability of Israeli companies to offer technological solutions which are applicable to the needs of the Chinese market is of significant interest to the Chinese government and Chinese investors and companies. Despite the many advantages which such cooperation can yield to both countries, there are many obstacles which hinder the cooperation between the two countries, such as cultural gaps which have a material effect on negotiations and the ability to locate a strategic partner on the other side, as well as differences in each party’s expectations with regard to a given transaction. Whereas many Israeli entrepreneurs and companies set their companies up for future exits, Chinese investors are in search for technologies that could benefit the Chinese market and therefore are looking for long term projects that are not necessarily focused solely on their return on investment. In addition, another challenge which is inherent to Israel- China collaborations is the need to be familiar with Chinese laws and regulations and the ability to navigate the heavy bureaucracy which is associated with operating in China. In order to overcome the above challenges it is highly recommended to receive counsel from professionals who possess the know-how which in bridges the cultural and legal gaps between the parties, and who can advise on certain material issues which are synonymous with doing business in China, such as proper tax structures, or expatriating funds which were generated in China. For assistance in these challenges, please speak with the experts at Barnea & Co., and we will get you started on the right path.
5 Myths About Renewable Energy
May 3, 2016 / by Gal Oren
May 3, 2016 / by Gal Oren
Sources of renewable energy include, among others, wind energy, solar energy, and hydroelectric energy. With different groups fighting to maintain or increase their relevance on the world energy stage, many myths about these energy sources pervade our understanding of how, and how well, they work. Five myths in particular emerge consistently, and should be overcome for you to better understand how the world is powered. 1. Renewable Energy Is ExpensiveMany forms of renewable energy require up-front investments, whether for individual consumers, companies, or governmental organizations. But those investments tend to pay off quickly in energy cost savings. Further, as competition increases for providers of equipment and services in this industry, those up-front costs are diminishing steadily. 2. It Is Still NewRenewable energy use actually predates our reliance on fossil fuels. For centuries people have harnessed wind, sun, and water to provide energy, going back as far as medieval windmills in the Netherlands. Modern technological solutions include the Hoover Dam, which has been providing electricity since the 1940s; and commercial solar plants have existed since the 1980s. 3. It Is UnreliableThe wind does not always blow, and the sun does not always shine. Still, technology has improved and continues to improve constantly. For example, we are now able to store enough solar energy on a sunny day to continue to produce at night, and harness enough wind to continue to power over time. 4. It Doesn't Create Much PowerAccording to the U.S. Energy Information Administration, about 21% of the world's energy generation in 2011 came from renewable sources - and much more in countries that have adopted renewable energy policies (Germany for example). Renewable sources cannot yet completely replace fossil fuels or nuclear energy, but this provides a significant portion of the world's energy. These sources allow smaller companies and nations to emerge with a greater role in the global market. 5. It Is InefficientTechnological developments allow energy to be stored, backed up, and distributed over time. And once the initial apparatus is set up, you can produce steady levels of energy over time without having to add in resources in the way non-renewable sources require. Over time, renewable sources become much more efficient than other sources of energy.Barnea & Co. has vast experience in providing legal support and advice for the development of energy infrastructure projects. Contact us to help bring your renewable project concept into reality.
5 Steps to Increase Sales for Commerce Sites
April 20, 2016 / by Barnea
April 20, 2016 / by Barnea
E-Commerce sites of both B2C and B2B oriented businesses still remain a positive growth vector across many industries and concerns. This will continue as more and more locations are provided with access to the Internet and as the bandwidth available correspondingly increases. However, the rising traffic is only one small factor in increasing overall e-commerce sales. A comprehensive approach to sales generation and lead transition is necessary to produce a sustainable increase in both the number of new transactions and the number of older or repeat consumers. Centered around the five steps listed below, a properly implemented strategy could significantly improve sales for your business. The Five Key Steps For Increasing Sales At Commerce Sites Importantly, it is the combination or varied combination of these steps that are capable of producing results. It is also conceivable that your business currently employs one or more of these steps. However, an overall analysis could potentially identify which of the other steps could be used or combined with existing implementations in order to achieve significant results. The five key steps are: Improved Automation Levels Proper Inventory Management Procedures Dynamic Pricing Customer/Consumer Value Creation Improved Customer Service Response Inventory Control With the exception of customer/consumer value creation and improved customer service response, the rest are invisible to the site traffic. However, they play a critical role in increasing sales. Automation levels are a component of both the proper management procedures and dynamic pricing. If the automation levels are insufficient and reliance on manual pricing changes is the norm, the customer will not derive the price changes that can affect their buying decision in sufficient time. For example, some marketing research has mentioned that it is possible that companies such as Walmart and Amazon will adjust pricing up to every ten minutes. This is referred to as dynamic pricing, one of the key steps. Value and Service Response Traditional methodology such as discounts account for increased consumer value creation. Importantly, this should correspond to inventory levels to become part of your inventory management procedures. This is facilitated by the dynamic pricing. Of course, Improved Customer Service Response should be obvious, however, it should be organic to your company as to the specific implementation and practices required to present the consumer with a flexible and responsive customer service. Altogether, these five steps can help improve your commerce site sales. However, it is up to you and your company to ensure proper implementation in order to achieve the desired objective of a sales increase at your commerce sites.
Israel is brimming with high tech ideas and you want to be part of the action, one way to do so is by providing a start-up with early seed money. But you need to protect your investment. The Target. Choose a start-up in a field that you understand, it will help you evaluate its chances of success. Remember founders can be picky too, they prefer angels who bring something to the table other than just money - contacts, distribution channels, expertise etc. Investment Deck. Ask for an investment deck and check it addresses the following questions to your satisfaction: What is the market need? How does the proposed product fill this need? What are competitors doing? How is the proposed product better? What is the proposed business model and budget? MOU. This should be a non-binding document that does not commit you to invest, but includes the material terms of the transaction. This is signed even before the material due diligence is conducted to ensure that everyone is on the same page and to avoid wasting valuable time and resources. When drafting the MOU you should consider: 1. Lump sum v Installments. You do not need to part with your hard earned cash in one go. You can be more conservative and condition your investment on the company meeting certain milestones. 2. Equity v Convertible Loan. You do not need to commit now. You can invest by way of a convertible loan. This may be less risky as (i) you can ask for repayment if you are not happy with the company’s performance, or (ii) you can convert into equity at the next investment round, on the same terms as the round and at a discount. 3. Company Valuation. At this stage the number will almost always be subjective. The founders will not want the valuation to be too low, because they do not want to give away too much of the pie. On the other hand you do not want it to be too high as: (i) you want a nice piece of the pie and (ii) you do not want a down round in the future (where the valuation drops), as this will dilute your holdings and may also deter future investors as it will reflect poorly on the company. 4. Anti-dilution. Whether full ratchet, broad based weighted average or narrow based weighted average, these anti-dilution protections will preserve your percentage holdings in a down round, or mitigate their dilution. 5. You want the target to have an employee share option pool and plan. You want the target to incentivize its employees and to attract the best talent. What you do not want is that the pool is created at your expense (i.e. by diluting your holdings). So ask that the company allocates a pool prior to your investment. 6. Do you want a seat on the board, to be an observer or would you be happy with information rights? Remember board members have duties as well as rights. If you are on the board, make sure the company agrees to indemnify you for your actions and purchases sufficient Director and Officers insurance. 7. General Terms. Most angels are minority shareholders, so make sure you include restrictive provisions preventing the company from taking certain actions without your consent - for example, changing the business of the company or selling the IP. You are taking a high risk at this stage so you want to guarantee a high reward, you could ask for dividend preference and liquidation preference. However, remember that your terms will set a precedent for the next investment round and the founders will be reluctant to give away too much. 8. Founders. Part of your decision to invest will inevitably be based on the identity of the founders, so make sure they will be around for the foreseeable future. Request a no sale undertaking, whereby they agree not to sell their holdings in the company for a certain period. Demand a co-sale right, so if the founders have a nice exit, you can benefit from it as well. Most importantly make sure the founders are dedicated, that they are engaged by the company on a full time basis and that this is not simply their hobby. You can also ask that if the founders cease working for the company within a certain period, the company will have the right to repurchase their shares. 9. No shop/Exclusivity. Despite the non binding nature of the rest of the MOU, the founders and company should undertake not to negotiate with other potential angels for a fixed period, buying you enough time to perform your due diligence and negotiate the definitive investment agreements without being undercut. Due Diligence. It might be that there is not much to review at this stage but performing due diligence (legal, financial and commercial) will put you in a much better position to gauge whether the start up will succeed. Is there a real market for the product? Does the company actually own the underlying intellectual property? What are the company’s current debts? Remember this is the start of a relationship, not an exit. No one likes to be bulldozed and the founders will be protective of their baby and may take flight if you are too demanding. Tread carefully but protect your money.