Crowds in Hitech

The Hitech field is in constant growth in Israel and worldwide. This filed also constitutes the growth engine of Israel’s economy. Further, entrepreneurship culture in this filed in Israel is strengthening. As a result, the demand for startup financing is increasing. On the other hand, since the beginning of the global economic crisis in 2008, traditional finance resources in Hitech are decreasing.

The dichotomy described above caused worsening in the shortage of financing for Hitech startups in their initial stages. One of the ways in which the market attempted to overcome the shortage is “Crowdfunding”, i.e. raising financing for young ventures from the public, in small amount from each investor, through the internet. The bonus is receiving an input from the public re the venture at a very early stage.

Many crowdfuning websites were opened. However, in most of the world, the grant of portions of the venture in consideration for an investment in the framework of an offer to the public requires a prospectus. Such requirement’s target is to protect the public from uneducated investments; on the other hand such requirement imposes burdensome costs that in most cases an early stage venture cannot bear.

Most crowdfunding is based on donation or purchase of initial products by the participants. Since the average investor, even when investing a small sum, is interested to receive a portion of the venture he is investing in, the crowfunding method remained a relatively minor path.

To enable early stage companies raise funds through crowdfunding, while reasonably protecting the public, most western countries are in the process for adopting legislation, which shall set a framework and rules for crowdfunding in consideration for equity.

In Israel, there were several attempts to promote such legislation. In 2013, a committee for the advancement of investment in public companies in the R&D fields, lead by the Securities Authority, was established. In the beginning of this year, the committee published its recommendations, including blessed recommendations advancing crowdfunding for shares in the startup raising the funds. The committee recognized the essentialness of such measure to the Hitech filed, which recognition is supported by experts of all disciplines. This matter is already in advance legislation procedures.

Nevertheless, several comments to the recommendations are due.

The recommendations set investment caps for crowdfunding in accordance with the income of the investor. We believe that in order to advance the purpose subject matter hereof, it is essential that the investment caps shall be raised and to set criteria that measures not only the income but also the assets of the investor.

The recommendations apply the limitations on crowdfunding also on follow-up investments by the same investors, even if not in the framework of crowdfunding. In our opinion, such the purpose of such limitations to protect the public in crowdfunding does not justify its application where the investment is not through crowfunding.

The recommendations requires that any company that wishes to raise funds though crowdfunding receives an approval from the Office of Chief Scientist, the Economy Ministry, and receive an investment from a sophisticated investor. We believe that to realize the purpose of such legislation, those requirements should be alternative (and not cumulative) and additional alternatives should be supplemented.

Most important: have all relevant procedures expedited in order to provide early stage startups with an additional tool for raising funds as soon as possible.


The Hebrew version was published with News1 –