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The Government Seed Fund

The Government Seed Fund. February 2004. Background. The Burst of the high-tech Bubble + Security Situation = Fewer Investments Particularly in Start-Ups The Need: Sharing Investor Risk to Encourage Investments and Increase the Number of Start-Up Companies. The seed program.

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The Government Seed Fund

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  1. The Government Seed Fund February 2004

  2. Background • The Burst of the high-tech Bubble + Security Situation = Fewer Investments Particularly in Start-Ups • The Need: Sharing Investor Risk to Encourage Investments and Increase the Number of Start-Up Companies

  3. The seed program • An additional and separate vehicle for a limited time period to support new start-up companies. • The Government’s matching investment shares the risk with the investor. • The investor also enjoys the equivalent of a stock option at the opening price

  4. Seed Program (cont.) Funding Source: • VC Fund or Corporation Active in VC or Tech Company Investing in Like Industries • Has the ability and manpower to guide the management of the new company • Has sufficient available funds

  5. Seed Program(cont.) Start-Up Company: • R&D Company in Existence for not more than 6 Months OR Whose Total Expenditures have not Exceeded 800,000 NIS. • First Round – excluding financing for feasibility study.

  6. Investment Model • Essentially Like VC Investment in the Private Sector. • Ensure that Government and Investor Interests Overlap. • Determine a System that will Yield a Return to the Government for a Successful Investment. • Ensure that the Government will be able to Sell its Holdings to a Third Party.

  7. The Government’s Investment • Up to 5 Million NIS per Company per 2 Year Period that will Finance up to 50% of the Approved Work Program. • The Expenditures Supported will be Those Related to R&D.

  8. The Government’s Investment • The seed fund and the investor will put up matching funds. • Preferred shares will be issued as follows: • Preferred shares ‘A’– Investor • Preferred shares ‘A1’– Seed Fund (nonvoting + no right to appoint directors) • Ordinary shares – Entrepreneurs and workers

  9. The Government’s Investment(cont.) Preferred Shares “A1”: • Liquidation Preference (incl. Merger, Purchase of Shares and Properties). • Dividend Preference • Rights of Conversion to Preferred Shares “A” or ordinary shares. • Full Ratchet Protection Against Dilution of Shares.

  10. The Investor’s Option • The Investor will be given an Option to Purchase the Government Shares Anytime Within the First 5 Years. • Within the first 3 Years the purchase is at cost plus “regular” interest. • For Years 4 and 5 at cost plus “higher” interest.

  11. Privatization The Sale of the Government’s Holdings in the Start-Up Companies does not Entitle any of the investors the right of first refusal if a 60 days notice of sale was given and the investors did not express interest in purchasing the seed fund shares

  12. R&D Law • With reference to transfer of know-how and manufacturing rights, the company will be bound, as are all those enjoying government support by R&D LAW

  13. The approval procedure • The Investor – can apply to be approved even without a specific company he wants to invest in. • The Company - can’t get approval without an approved investor investing in it.

  14. Board Members The seed fund has an exclusive steering committee: • Mr. Eli Opper – Chief Scientist, MOITaL • Mr. Yaacov Perry- Chairman of the Board of Directors United Mizrahi Bank • Mr. Chemi Peres- Managing Director, Pitango • Ms. Rakefet Russak- Bank Leumi • Mr. Ron Eylon-CFO Mirs communication • Mr. Shlomo Shalev- Senior VP investments Ampal • Mr. Rafi Nevo-CEO Treatec • Mr. Yoav Forer- VP YEDA Solutions

  15. FOR FURTHER INFORMATION Please contact Mr. Itamar Dar Seed Fund manager Email: itamar@ocs.moit.gov.il Tel: 02-6662457 Web: www.moit.gov.il/heznek.htm

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