Gov't cos startup investment rules streamlined

startups

Founding of technology companies through an abbreviated procedure is also being proposed.

Government companies and their subsidiaries will be able to buy shares and options in technology companies in their spheres of business without obtaining government approval, under a proposal by the Ministry of Finance and the Government Companies Authority. The initiative requires government approval.

According to the proposal, government companies will also be able to found technology companies in an abbreviated procedure. This fast track will enable government companies to invest up to 10% of their equity in technology companies in the beta site stage or later, providing that the companies are registered in Israel or have significant business in Israel. The purpose of this holding is defined as "assimilating technology developed by technology companies in the government company." If the objective is not achieved, the government company will sell its shares.

The current legal situation requires government companies to obtain government approval for buying shares in non-government companies. This requirement made it very difficult for government companies to buy shares in foreign companies, because obtaining government approval for a deal takes many months, even years in a case in which the government is replaced during this time, for example.

Under the proposal, the holdings of a government company in a technology company will be restricted to 20% of the latter's shares in order to make sure that the technology company does not itself become a government company. In order to reduce the risk incurred by a government company by investing in a young high-tech company, the government company's exposure to a single technology company will be limited to 3% of the government company's equity.

The Government Companies Authority today sent its plan for using the government companies to promote the high-tech sector to them for comment. The measure is based on the recognition that Israeli government companies invest too little in local high-tech companies, among other things due to concern about being criticized by agencies like the State Comptroller or legal advisers for choosing to work with concerns that lack previous experience. On the other hand, the overseas success of Israeli startups depends a large extent on proving that their technology is being applied and operated in their country of origin, i.e. in Israel.

In order to implement the new policy, innovation departments will be established in all 17 of the main government companies. These departments will include an organization innovation unit headed by a senior manager at VP level, a team of employees with a background in management of technological projects, and development personnel with a background in entrepreneurship.

According to the distributed circular, the purpose of the unit will be to show "innovative thinking and orientation and a profound understanding of the company's activity and its character. The companies operating in spheres such as transportation, energy, and other infrastructure are in great need of investment in their developments by Israeli companies."

In the framework of the innovation unit, an entity will be established to handle integration of technologies in the organization's core systems. Additional mechanisms proposed in the framework of the new policy will deal with assessing and approving projects and organizational sensing.

The plan also outlines a set of incentives for managers and employees in government companies to promote innovation.

Published by Globes [online], Israel Business News - www.globes-online.com - on August 23, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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