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Alternatives to VC Investments and the Challenges They Pose

. One of Largest Israeli Firms (120 Attorneys)Full service firm in numerous industries including: Hi-tech, Corporate, Securities, Anti-Trust, Banking, Real Estate, Employment Benefits, Litigation.Represent numerous private and publicly traded companies on exchanges around the world. . Barak Plat

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Alternatives to VC Investments and the Challenges They Pose

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    4. Current Trends in Hi-Tech Investments Apparent rise in investments in Israeli startups

    6. Investments by “Angels” What is an “angel” investor? Successful hi-tech entrepreneurs who wanted to provide start-ups with investments on terms much more friendly than those offered by VC funds Concept: not to take from “greedy” VC funds but rather from “angels” who are on same side as the founders

    7. Investments by “Angels” Apparently something got lost in translation between Silicon Valley and the Middle East In Israel, there are very few “angels” and many more “devils”

    8. Challenges of working with angels in Israel They tend to want the same terms as VC funds They are often less flexible than VC funds Most angels here invest between $50K and $100K Usually angels are unrelated, so company has to negotiate with each separately Large group of shareholders can complicate future round of financing and/or Exit transactions Investments by “Angels”

    9. Strategic Investors What is a “strategic” investor? From company’s perspective, all of its investors should be strategic The term “strategic investor” focuses on investor’s intent of creating strategic/commercial relationship

    10. Strategic Investors

    11. Companies must be tough and wise in dealing with Strategic Investors, because the commercial and investment terms can harm the company Strategic Investors

    12. Companies must be tough and wise in dealing with Strategic Investors, because the commercial and investment terms can harm the company Strategic Investors

    13. Companies must be tough and wise in dealing with Strategic Investors, because the commercial and investment terms can harm the company Strategic Investors

    14. Companies must be tough and wise in dealing with Strategic Investors, because the commercial and investment terms can harm the company Strategic Investors

    15. Companies must be tough and wise in dealing with Strategic Investors, because the commercial and investment terms can harm the company Strategic Investors

    16. Strategic standstill Limits Strategics’ ability to hold more than 20% -- applies to both issuances by company and sales by shareholders. Many Strategics do not object, as 20% threshold requires financial consolidation. Reduces concern regarding preemptives and ROFR. Strategic Investors

    17. Provide loans to technology companies and receive warrants for stock No real dilution No interference in operations of the Company Quick process

    18. OCS Grants Can fund a meaningful portion of R&D budget Grants available for 20%-50% of approved budgets. Convenient terms of repayment Royalties paid on “sale price” at rates beginning at 3% depending on various criteria.

    19. Money for early stage companies. Convenient terms of repayment. Government money available in times of financial strife. OCS Grants

    20. 20 Conclusions Decrease in number of VC transactions, but many financing alternatives exist Need to be aware of potential pitfalls Need to understand how they can impact future financing or exit Don’t go it alone

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