Israeli Parliament Eases Regulation On Startup Equity Crowdfunding

On Tuesday, the Israeli Parliament amended a series of regulations that will ease fixed-income debt crowdfunding for startups and small businesses.

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Current Israeli legalization allows private companies to raise funding from banks or institutional investors, venture funds, angels, or raise capital and debt financing from a group of up to 35 accredited investors.

The Israeli Parliament	צילום: אמיל סלמן

Over the last five years, 145 Israel-linked tech companies were financed through equity crowdfunding platforms, according to a September report by IVC Research Center Ltd., a tech-focused Israel-based research company. Israel-linked startups raised $173 million through equity crowdfunding in the first half of 2017, around 73% percent of the overall sum raised through crowdfunding in 2016.

Equity crowdfunding platforms operating in Israel are currently open only to accredited investors. According to IVC, the most active crowdfunding platform in Israel is OurCrowd, with 58% of the deals. iAngels Crowd, comes second with 30% of the deals, ExitValley with 6% of the investments comes third, and Pipelbiz with 5% of the investments comes fourth. The report also stated that of the companies crowdfunded in Israel in the past five years, 68% were seed and early-stage companies.

In March, the Israeli parliament’s finance committee decreed that as of January 2018, private companies could issue bonds or raise fixed-income debt from the public through crowdfunding platforms. Such platforms could enable small and early-stage companies that can't yet afford to list on an exchange to raise money from a wider range of investors than was legal until now. The amount of money people can invest will be capped according to their annual income.

Until now, each company wishing to raise money through crowdfunding would have had to do so individually, divulging its identity and certain legal details, though the regulations do not demand a prospectus like public offerings do.

According to the new resolution, equity crowdfunding platforms would also be able to offer investment opportunities in anonymous diversified investment portfolios. Investors would be required to choose the sum of the investment and the degree of risk.

Both types of crowdfunding are considered a risky investment as early-stage companies are statistically more likely to fail than succeed. While on the surface a diversified portfolio might seem less risky than a single investment, the fact that the companies in the portfolio are not required to disclose any information to the investor can increase the risk.

Investors with a yearly income of $100,000 could invest as much as $3,000 in a single company, for an overall investment sum of around $6,000. At the same yearly income, investors choosing a diversified crowdfunding portfolio with an investment of up to 5% in each company could invest up to $14,000. Investors choosing diversified portfolios with a 1% cap for each company could invest up to $70,000.

According to the regulations, the crowdfunding cap for an individual company or project would be a little over $1 million, with certain conditions raising the cap to $1.7 million.