Equity crowd funding change the global start up eco system

2017-05-08

Although some claims that equity crowd funding is dead , Seem that in Canada, the United States of America, the UK, Australia and now Israel, Equity crowd funding stills play a big role at the global start up eco-system. Across the globe, innovation is a key ingredient in the development of economies.

New technologies and applications are created and being commercialized all the time. The bottle neck in the path to technology development and business development, as always, lies in funding. New ideas need money to become startup companies, startup companies need money to develop the ideas into products and services. The position of business development and retaining investments are as important in a startup company as the position of leading software developer, chief scientist or R&D executives.

Early stages startup companies often struggle in the face of limited fund sources. Too small for any VC to even pick up the phone or to be listed on a stock exchange, early stages startup companies turns to friends and family and selected angles investors seeking for investments. An interesting funding channel is the crowd funding platforms. Until recently crowd funding offered a donation based fund raising or an equity offering to a small and limited number of investor, avoiding the regulatory regime of a public offering. a Public offering and especially an initial public offering (IPO) is a complicated and expensive procedure and being a public company with securities listed on a stock exchange adds considerable costs to the balance sheet (lawyers, accountants, internal professional executives, additional board members etc.).

New legislation, such as the legislation recently passed by the Israeli parliament (Knesset) allows small hi tech companies to raise limited sums (approx. USD 1-1.5M) by offering to an unlimited amount of private investors (the public) to purchase shares in the company, through an internet platform, without issuing a prospectus (a legal document that includes inter alia, a very broad description of the company, its financial statements its business model its related risk factors and its strategies). According to most equity crowd funding regulations, an equity crowed funding offering requires the participation of a professional investor (this is to signal to private investors that a professional investor has vetted the investment) and the disclosure of certain business and financial information regarding the offering company. Such disclosure is of a limited nature and reduced in scale (compared to the disclosure required from a public traded company).

Although securities offered via an equity crowd funding has no regular market and are not being quoted they offer the investor the opportunity to profit from a future dividend if distributed to shareholders or form a future M&A transaction in which all of the company's securities are being purchased. It is a convenient venue for raising funds and a needed instrument for developing capital markets across the globe.

Schedule a conference call with Nadler Elishar & Co. We will be happy to advise you with any matter related to equity crowd funding whether you are a startup company with intention to launch an equity crowd funding offering or an investor interested in participating in such offering.

The writer is a co-founder at Nadler Elishar & Co. and has a vast experience at capital market and corporate law.