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The Government Seed Fund. January 2006. 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 January 2006
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 • An additional and separate vehicle 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
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
Seed Program(cont.) Start-Up Company: • R&D Company in Existence for not more than 6 Months OR Whose Total Expenditures have not Exceeded 1 million NIS (companies in Bio-technology till the pre-clinical stage) • First Round – excluding financing for feasibility study.
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.
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.
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
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.
The Investor’s Option • The Investor will be given an Option to Purchase the Government Shares Anytime Within the First 7 Years. • Within the first 3 Years the purchase is at cost plus “regular” interest. • For Years 4 till 7 at cost plus “higher” interest.
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
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
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.
Board Members • Mr. Eli Opper – Chief Scientist, Moital • Mr. Chemi Peres- Managing Director, Pitango • Mr. Shlomo Shalev- Senior VP Investments, Ampal • Mr. Rafi Nevo – CEO, Treatec • Ms. Chana Gad – General Accountant, Moital • Mr. Avi Feldman – Vice Legal Advisor, Moital • Mr. Ran Kiviti – Manager Tmura Fund, Moital
FOR FURTHER INFORMATION Please contact Mr. Itamar Dar Seed Fund manager Email: itamar@ocs.moital.gov.il Tel: 02-6662457 Web: www.moital.gov.il/madan