The lawyer who loved high tech

Adv. Hanina Brandes on why Israel should exempt investors from tax.

Adv. Hanina Brandes, a founding partner of law firm Naschitz Brandes, is one of the busiest service providers in the Israeli high-tech industry. He serves as chairman of the Israel Bar Association's high-tech committee, and is set to submit a legislative proposal to the Prime Minister for the setting up of a high-tech authority which will coordinate dealings with foreign investors, and simplify the approvals process that foreign investors are currently required to go through.

According to Brandes's proposal, the authority's activity will be governed by law, in a similar fashion to the Public Utilities Authority (Electricity) or the Israel Small and Medium Enterprises Authority (ISMEA). Brandes and his firm represent more than half of the Israeli companies traded on Nasdaq, the most famous of which is Check Point Software Technologies Ltd. (Nasdaq: CHKP). He attends all the company's board meetings even though he is not a board member himself, and also serves as personal adviser to company founder, chairman, and CEO Gil Shwed. The last major deal his firm handled was the acquisition by SanDisk Corporation (Nasdaq:SNDK) of msystems a year ago, for $2.5 billion.

Brandes does not only advise companies. He has also invested himself as an angel in a number of high-tech companies, such as Check Point, Camelot, Portalis, and LanOptics Ltd. (Nasdaq: LNOP; TASE:LNOP). In addition, he is also responsible for two amendments to current legislation, one allowing lawyers to receive options in start-ups in exchange for legal advice, and the other removing the time limits on the duration of office for external directors on the boards of Israeli companies traded overseas. Before this, such directors were limited to two terms of office.

Globes: What does a lawyer have in common with high-tech?

Brandes: "My enthusiasm for high-tech started when I served in the IDF in the Signal Corps. During the 1970s, I was involved in a high-tech company which focused on genetic engineering. The company was jointly owned by the Hebrew University and investors from the dairy industry in the US. I have been a lawyer for 42 years, and the thing that excites me is mergers and acquisitions of start-ups. I try to keep myself up to date. I serve as chairman of the Bar Association's high-tech committee. If the next chairman would like me to carry on working, I'll be glad to."

Brandes feels that Israeli high tech should be promoted using all possible means. "Israeli high-tech is the most formidable force in generating foreign currency for Israel. This is especially noticeable in Israel's balance of payments. It's a sector that has enjoyed phenomenal success worldwide. When you add up all the dollars that Israeli high tech brings in, you realize that it is a far greater sum than the royalties the Saudis earn on their oil. I think that everyone understands that the human brain has replaced natural resources, and in contrast to them, it has unlimited growth capacity. I believe that is vital that Israel becomes synonymous with high tech just as Switzerland is synonymous with watches and chocolate. With the right creativity and thought, and some investment from the government, this can be achieved."

Israel is stagnating

Judging by the activity at Brandes's firm, there has been a dramatic increase in the number of new ventures. "Our index shows that there has been a 35-40% increase in the number of new ventures. I feel that the activity is now more dynamic than in 1999. The Americans are continuing to invest, and for the time being we haven't noticed any change in activity because of the uncertainty in public markets."

Which fields do you focus on?

"Telecommunications, convergence, information security, marketing tools, and Internet advising, which is a hot field."

The criticism that Brandes voices centers on a sensitive issue - IPOs on Nasdaq. Not that there have been that many of these in the last two years, but he believes that young Israeli companies should not be in a hurry to list there. "Young Israeli companies are in too much of a rush to list on Nasdaq, or dream about listing there, and don't seem to have noticed that the world has changed. Nasdaq has become a non-starter for small companies, and I'm not talking just about listing costs. The stringent regulation and the burden that directors have to shoulder are simply not real. Anyone who isn't experienced or brave, will not want to be a director of a Nasdaq-listed company, unless he's insured."

So what's the option? Investors want exits.

"I believe in mergers and acquisitions, and I believe that the Europeans will eventually set a stock market of their own that will be an alternative to Nasdaq, a successful stock market. I'm not talking about AIM, which is not a solution or an alternative for the flotation of R&D companies, but rather, a pan-European stock exchange, which can offer R&D companies a good market."

None of this will suffice, Brandes warns, if Israel does not make an effort to consolidate its position as a high-tech superpower. "Governments worldwide have realizing this in recent years, and are now making massive investments in the field. On the other hand Israel, regrettably, is stagnating."

You know that asking the government for money is not easy.

"I'm not asking the government for money, but for the easing of requirements for foreign investors, so that they know that investing in Israeli companies is easy and convenient. I want Israel to follow the global market and offer tax breaks to investors, and simplify investment processes and bureaucracy."

How do we go about this?

"Clearly, what is needed is multidisciplinary activity, and this begins with education. How is it that there are classes for sports and the arts, classes for social studies, and classes for science, but no high-tech education? When it comes to education, we can learn from the Americans. I would like to see high-tech recognized as a vocation to be taught in junior high, and high schools. In addition, I believe that we need to build a system that will support any talented individual that wants to progress in this field, that is to say a young entrepreneur who wants to study high-tech subjects at university, will receive a loan to cover his tuition and living expenses, and can repay it after he graduates.

In the US, we saw that the company which purchased student loans from the state was floated on the market, and made it a thriving business. There's no reason why this shouldn't happen in Israel. It won't require funding from the state, and it will help a good many prospective entrepreneurs. Look at what happened in Ireland, a country with four million people which felt it was losing its grip on high-tech, and decided to invest billions in education and promotion of R&D. Germany too, for example, recently decided to invest €15 billion in physics education. Israel is the world's second largest country in terms of Nasdaq-listed companies. We cannot let this advantage slip."

How can investors be helped?

"Take taxation, for example. For several years now I have been calling on the state to declare every foreign investor in Israeli high-tech companies exempt from tax on his future profit. After all, there are international charters that regulate taxation, and all investment finds its way into the salaries of Israeli high-tech employees, and they do pay tax. This will have a dramatic impact on investors. It should be understood that approving an investment by a foreign investor is a long and tortuous process. We recently handled an application for such an investor and it took ten months. It cost him a fortune, and if he hadn't been someone who already made a profit on a previous investment, he would have dropped the whole idea."

Was this the reason for the bill to set up a high-tech authority?

"I got the idea for a high-tech authority while I was thinking about a way to solve the foreign investor problem. When I looked at the budget book, I saw how many authorities there are. There's an authority for Yiddish culture, Ladino culture, draining the Western Galilee, draining the Carmel, the ports, civil aviation, but no authority for high-tech. True, there is the Investment Promotion Center, and the Chief Scientist, which is doing excellent work, but there is no "one-stop" shop which a foreign investor entering Israel can turn to, an authority that will accompany him throughout his investment activity, support him, and make sure he is free to get on with investing, rather than having to cope with bureaucracy.

"I feel that all the pertinent authorities should be forced to toe the line. We'll make an international announcement of tax breaks and incentives for foreign investors, we'll educate children from an early age, and we'll manage to safeguard one of our main assets. That's my dream."

The high-tech authority proposal is now a draft bill which, as mentioned earlier, Brandes intends to push forward and submit to the government in the near future.

There's a good chance that they'll find a reason to bury your bill.

"The underlying idea is the creation of an efficient, synergetic interaction between all the authorities dealing with this field. We drafted a provision in the bill, like that in the restrictive trade practices law, which holds that if no approval is forthcoming from government authorities within a reasonable time, the non-approval will be considered an approval."

There are those who say that Israel should be wary of the rising forces in India and China.

"When I look at the young entrepreneurs in our waiting rooms, I know there's no competition. I think that Israel has elements which make our entrepreneurs special throughout the world. I've seen entrepreneurs in Silicon Valley and in the East. They don't have the spark in their eyes that Israeli entrepreneurs have."

Published by Globes [online], Israel business news - www.globes.co.il - on September 5, 2007

© Copyright of Globes Publisher Itonut (1983) Ltd. 2007

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