As stock exchanges go, Tel Aviv’s is no NASDAQ – and that’s fine by Yossi Beinart, chief executive officer of the Tel Aviv Stock Exchange.
“The world of finance is changing,” he said. “There are a lot of Israeli companies that ‘graduate’ beyond the level where they interest venture capital funds, but are still too small to take the next logical step – going public in New York or London. We can be that smaller stock market where they can raise money from the public as a corporation, as they continue to grow to the point where they can interest investors from abroad as well.”
Beinart spoke to The Times of Israel aboard the MoneyTrain, a unique event held Tuesday on an Israel Railways train, where Israeli start-ups pitched their companies to executives from top multinationals, investment firms and tech accelerators, including eBay, Tyco, Motorola, Poalim Fintech, Deloitte, Bosch and others.
The event was designed to “raise the consciousness of investors that there is a lot of great tech outside the center of the county,” said Barak Goldstein, chairman of Terra Venture Partners, which sponsored the event.
Tuesday also marked the day after a sweeping reform to make Israel’s capital markets more accessible to local investors was approved for final plenum voting by the Knesset Finance Committee. The so-called Start-Ups Law – formally known as the Law to Encourage Investments in Public Companies in the High-Tech Sector – contains numerous provisions that will make it easier for small companies to go public, and for small investors to get involved with firms they believe will pay off in the long run.
Among the tenets of the law is a relaxation of the “case” a company must make to the Israel Stock Authority before it can list on the TASE and raise money from the public.
In traditional firms, companies need to show that they have sufficient money in the bank, manpower and a financial reporting structure that shows that they are legitimate firms – conditions that many small start-ups that are currently funded by venture capital fund or angels cannot comply with because of manpower and money issues. By the time they can comply with those regulations, their market opportunity may have evaporated, as a rival company from abroad may have gotten to market first.
The stock authority will now be able to make exceptions for high-tech companies, allowing them to sell shares based on future promises to retroactively comply with the traditional rules.
In addition, Israeli law will now recognize crowdfunding as a legitimate means of raising money. In the crowdfunding model – ironically, invented in Israel by crowdfunding pioneer OurCrowd, but not yet implemented at home – a company will be able to sell shares to accredited investors (those of a specific net worth yet to be decided), opening up another venue for investing.
These changes and others, said Beinart, will likely change the investment scene in Israel for the good – and the TASE wants to be where the action is.
All of the companies pitching on MoneyTrain were start-ups, although some were already at an advanced stage, having raised funds from VC funds and sold to customers around the world. But even under the new criteria, and the TASE “boutique” standard for recruiting companies to list, none of the firms at the event were stock market-ready.
“But they will be one day, and we want them to get to know us, just as we want to get to know them. When they’re ready, we’ll already have a relationship to build on further,” Beinart said.
Beinart believes that positioning the TASE as a sort of pre-NASDAQ will also encourage more Israeli firms to stay in the game for the long haul, building themselves up as entities instead of going for an easy buy-out.
“If in the past a company could go public on average five years or so after its establishment, today, because of the competition in the capital markets and the higher stakes, it could take ten years,” said Beinart.
For many companies, the only alternative seems to be going for a buy-out offer. But that means Israel loses out on the opportunity to grow its own tech into a “unicorn,” the kind of company that can compete in world markets as an Israeli company.
“If we can get involved with some of these companies, we can ‘save’ them from that and encourage them to continue to develop their tech, with help from local investors,” added Beinart. “The TASE can be a great vehicle for that.”