Financing Trends in the Start-up Nation

6th Meeting of the European TTO Circle 20-21 January 2014

Adv. Simon Weintraub

ABOUT US

Established over 55 years ago

1 of the largest and most dynamic law firms in Israel

Numbers over 140 lawyers

Full service offices in 2 main cities

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Born and raised in Canada

Educated in Canada and in Israel

Represents a variety of start-up companies, venture capital funds, venture lending funds and angel investors

Fields of expertise: Technology, Life Sciences, Corporate Finance and M&A

SIMON WEINTRAUB

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Selected M&A Transactions

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Israeli Economic Success Story

Israel has more companies listed on New York stock exchanges (NYSE, AMEX, NASDAQ) than any other country except the U.S. and China

The world's highest per capita count of engineers

The highest density of high-tech startups

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In just the last 12 months: ◦ acquired for $630M - a leading provider of software against

financial fraud and advanced security threats

◦ Googl buys Waze for over $1 billion

◦ buys for approx. $650 million

◦ buys for $475 million

◦ They join , , , , , , , ,

, and others with R&D and production facilities in Israel

Israel’s VC Industry – Largest in Absolute Terms Outside of Silicon Valley: ◦ Over 60 active funds with $16 billion under management

◦ Major U.S./European funds active in Israel: Sequoia, Benchmark, Greylock, Battery Ventures, Lightspeed, Accel

Israel – A Hi-Tech Powerhouse

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Key Data about Israeli M&A and IPO’s

Over past decade:

◦ $15 billion invested in Israeli tech co’s

◦ $37 billion taken out in M&A/IPOs

In 2013:

◦ Average M&A deal size was $90 million (increased 48% from 2012)

◦ The average IPO was for $198 million

◦ The value of M&As set an eight-year high of $6.45 billion (up 20% from 2012)

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Bust - Where are the traditional Israeli VC funds?

Only 13 Israeli VC funds raised $ in 2013 in the total amount of $526 million

28% decrease from 2012

Only two funds raised more than $100 million (Aleph and Vintage) accounting for 59% of total raised

Israeli Microfunds raised total of $124 million (24% of total amount raised)

38% of Israeli VC funds did not invest in 2013

Boom – VC backed company raises are on the rise!

VC backed Israeli companies raised $225 million in Q3 of 2013 (up from $174 million in previous quarter)

$137 million was invested in 5 deals of over $10 million in Q3

Average investment per company in Q3 was $5.4 million

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The Explanation:

Increase in micro fund activity

Many foreign institutional investors in the past did not invest directly in Israeli portfolio companies

Increase in foreign investment (namely, from China, other Asian countries and Russia)

VC investment in Israel today dominated by Angels, Super Angels and Micro VC's

Most Israeli VC funds are focused on follow-on investments and existing portfolio

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Trends in Deal Terms

Smaller amounts raised and more seed and pre-seed deals

Increase in convertible bridge financing (almost equity)

VC funds are more friendly (e.g. Non-participating Preferred, low or no interest rates on liquidation preference, no anti-dilution, etc.)

Broader veto rights and more involvement in management

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Trends in Structures

Significant rise in high tech/life science incubators, accelerators, hubs and shared office space (e.g. Techloft, MESH etc.)

Increase in start-ups incorporating in Delaware over Israel (also re-incorporation deals)

Significant decline in funding from the Chief Scientist (OCS)

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Opening of US markets e.g. Alcobra and Kamada (pharmaceuticals), Evogene (agriculture chemicals) and Wix (software)

Large M&A Deals e.g. Waze and Trusteer Highest M&A rate since 1994

Valuations lower in Israel compared to Silicon Valley

Significant decline in venture lending (although increase for more mature companies with asset/AR based lending)

Massive increase in crowdfunding e.g. Kickstarter, Indiegogo and OurCrowd

Trends in Financing Models

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Conclusions

Start-up culture and funding is flourishing

Israeli VC funds are in crisis

Foreign investment invasion

Homeless companies and faceless investors

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Thank You!