Knesset Approves Changes to Advance Crowdfunding

The Knesset Finance Committee has approved changes to existing statutes that will accommodate crowdfunding, allowing small companies and start-ups to issue prospectuses to potential investors. The new rules open up the opportunity for investments in start-ups to smaller investors who cannot participate in venture capital funds, backers of the new rules say.

In recent years, much of the funding for Israeli high-tech start-ups has come via venture capital funds, in which investors typically pool together tens of millions of dollars, which they invest in companies. The VC investment system favors larger companies that have already had successes at the expense of smaller start-ups, critics of the current system say, and make it more difficult for new technology to be developed. As a result, start-ups have been seeking other paths to investments, and crowdfunding, where smaller investors are able to buy shares in companies, has proven to be a valid method of investment in other countries, most notably the U.S.

Under the new rules, companies will be able to raise up to NIS 6 million a year from an unlimited number of investors. The program is open to “qualified investors” with at least NIS 350,000 a year in income, and investment levels are tied to income; at the NIS 350,000 level, an investor will be able to put NIS 10,000 into the program. Investors who earn between NIS 750,000 and NIS 1.2 million a year will be able to invest up to 5 percent of their annual income into the program.

Commenting on the changes, Israel Stock Exchange chairman Shmuel Hauser said that “the crowdfunding program will enable many more people to share in the dreams of high-tech entrepreneurs in the start-up nation. This is another step in the reduction of regulations that will make it easier for small companies to raise money and receive tax breaks.”