With its recently launched publicity campaign and the ongoing dispute between its management and workers' committee in the background, the Tel Aviv Stock Exchange (TASE) is promoting the creation of listed quasi-venture capital funds to invest in startups. The funds are designed to be liquid and available to the general public in ordinary trading, and will accommodate small investments. The TASE today published a draft for public comments for "revising the rules and regulations concerning listing for trading of limited partnerships whose field is research and development."
The option of raising capital from the public in a limited partnership framework was previously allowed only for oil and gas partnerships doing business in Israel and in cinema production for the local market. The permit was extended to overseas exploration by oil and gas partnerships in 2015 and to cinema production for overseas markets in 2017. Over the years, the permit was also extended to shale oil exploration. The venture capital initiative is led by TASE EVP and economics department head Hani Shitrit Bach.
The heads of the TASE now want to extend the permit to R&D partnerships for the first time in order to expand the supply of products and securities on the TASE and enable the public to take part in the success of Israeli high tech. "Although Israel is a high-tech power, only a small fraction of activity in the sector is reflected in TASE trading. The public is not benefiting from this success," the TASE states. According to the TASE, several concerns have already expressed interest, apparently including venture capital funds. Under the TASE's proposal, these partnerships can register their participation units for trading only after they invest in at least one project.
Maximum investment - 40% of a partnership's assets
The new measure by the TASE, managed by CEO Ittai Ben-Zeev, follows a similar effort by the Ministry of Finance and the Israel Securities Authority to facilitate investments by the institutional market and the general public in high tech, especially startups, through high-tech funds. In 2017, the state arranged for the establishment of up to four mutual funds to invest in technology companies with a state guarantee and safety net. The effort was mostly unsuccessful; only one mutual fund was issued to the public, by IBI Investment House, out of the five groups that wanted to found such a fund. In contrast to the partnerships now being advanced by the TASE, these high-tech funds were mutual funds with a different legal structure.
The TASE is proposing to permit listing for trading of R&D partnerships authorized to invest only in projects approved by the Israel Innovation Authority involving R&D as defined in the Encouragement of Research, Development, and Technological Innovation in Industry Law. The TASE also recommends setting a maximum investment of 40% of a partnership's assets in each project "on the date of the first investment in a project."
Another constraint advocated by the TASE states, "A research and development project will be recognized as such only if all of the rights in the product are owned by the corporation" in which the partnership invests." The TASE adds, however, "In exceptional cases in which a corporation does not own all of the rights in the product, confirmation by the Innovation Authority that the corporation is fulfilling the purposes of the Encouragement of Research, Development, and Technological Innovation in Industry Law - creating jobs in industry and hiring scientific and technologic personnel, generating a surplus return for the Israeli economy, developing knowledge-intensive industry, and encouraging growth and improving the state's balance of payments through production and export of products to be developed - is required."
Published by Globes, Israel business news - en.globes.co.il - on February 28, 2019
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