The NASDAQ, saturated as it is with those billions of greenbacks, is the high point for any technological start-up. NASDAQ, for its part, has a fondness for Israelis, but it's a bumpy road that leads there.
In New York, William Decker, a senior partner in Price Waterhouse Coopers (PWC), manages a large group of experts on US issue and capital-raising for high-tech companies the world over. These days, he explains, Americans prefer Israeli companies to any other average foreign company.
Decker, who came to Israel to lecture to Kesselman & Kesselman-PWC and to the high-tech customers of companies looking to issue in America, says Israelis are prepared to work hard to prepare themselves correctly for a US flotation. His impression, through meeting customers, was that high-tech people are highly goal-oriented, and prepared to learn and to use the services of experts as needed, in order to achieve their US issue.
"Israelis ask very tough questions. Also, their expectations as regards the experts accompanying them in the issuance are very high. They work hard themselves, and they work their advisers hard. They expect results, and no nonsense", he concludes.
"Another advantage Israelis have when they come to a US stock exchange", Decker says, "is their sense of ease. Many companies from other parts of the world find it hard to deal with the Americans and with our accounting principles. The Israelis show greater flexibility and acceptance, which undoubtedly makes a US issuance easier for them.
"In addition to all that, American funds and investment banks have already learned that the Israelis are particularly talented in technological matters and are also prepared to work hard. They may therefore constitute a worthwhile investment. Not only are Israelis well-reputed among US firms, but today there are some fine successes to point to, and Israeli companies can obtain a good valuation".
"Globes": In the past, the Israelis had a reputation in the United States as superior technologists but were seen as less successful in terms of management. How do the funds and the investment banks relate to this?
Decker: "It is true that funds seek good management teams, but I don't think the Israelis are considered inferior to others in this respect, maybe just the opposite. The Israelis have added value in this respect. For some reason, they are seen today as less foreign and as having a mentality closer to that of the Americans".
So something has changed in recent years.
"What has changed is that until five years ago, only very large companies went in for US issues. Today, there are a great many start-ups wishing to do so. Accordingly, the things that need to be dealt with on the financial and administrative levels, are completely different".
Yair Safrai, associate manager of the Concorde venture capital fund, seeks to distinguish between a private and a public placement. The public issue is a far more standardised procedure, and for a venture capital fund, this is the final stage in its work with the company.
However, he says, Israeli companies must understand that a US issue isn't everything. Far more important is who to go with, and when. "A company that obtains a market value of over $500 million can choose its investment bank, but where the amounts are smaller, it can raise money from banks that are not so much in the forefront, and not so technologically oriented. And that is where problems arise". The problems are that the company's image is damaged if it raises small amounts from second or third class banks or funds, to the point that Safrai defines as "junk issue", that does far more harm than good.
Safrai: The US market has changed considerably in recent years. Everything is far larger and far more heavily loaded. On the other hand, more Israeli companies seek to raise money and issue in the US and they encounter banks that are heavily overloaded and will only take highly attractive companies".
So what should an Israeli company do to be sufficiently attractive for an investment bank?
"There is no unequivocal answer. There are companies that will be very attractive to one bank, but unattractive to another, such as for venture capital funds. It depends on the various fields in which the banks and funds operate".
For example?
The medical field, moribund for a long time, now seems to be coming back to life. B2C is a less attractive field, while B2B is becoming more attractive. Today, though, even in these fields, a company has to show good performances and quick profitability".
The level of management, too, along with investor quality, is very important for raising capital and issuing in the US. Even the identity and quality of a company's customers is important, Safrai says, as are their ties with the company. "The Internet world, especially, is built of all the elements surrounding the company, and not only the company itself".
An Israeli company capable of offering all these things and able to reach leading analysts, is on the right road to the US stock exchange, Safrai says. He agrees that Israeli high-tech companies have undergone significant development and are particularly attractive in US issuance terms. Still, one should bear in mind the need to view things in perspective. Even if Israeli companies are so attractive, only a few of those knocking on the doors of the US will make it big.
Safrai: "Inflation in company size and money volume begins in Wall Street, and results in enormous salaries for employees, and all employees advance at once. I wish to emphasise: you should go to US funds and investment banks only if you can reach the best. I don't believe one should go to US investors just because they are American. Even if they are American, they aren't necessarily good. In my opinion, only one company in a hundred can reach the best.
"Otherwise, and of course I am not objective, it is preferable to go with a good Israeli venture capital fund that knows how to screen US investors".
Safrai adds that whoever manages to reach first-rate US investors will be an enormous success. "They can do lots of things for the company, including things that we could never do on our own. They make a tremendous contribution in recruiting good American managers. We understand about bridging the gap between Israel and the US, but within the US market, they are undoubtedly the best".
Published by Israel's Business Arena February 2, 2000