Israel seeks new stock market ideas to keep high-tech firms and talent

By Steven Scheer

TEL AVIV, June 4 | Tue Jun 4, 2013 8:57am EDT

(Reuters) – Israel’s stock market must find ways to attract more high tech companies, to prevent foreign firms from swooping on unlisted start-ups and making off with the country’s talent, a government panel urged on Tuesday.

After Silicon Valley, Israel is widely considered the world’s second-largest high-tech centre – but not one of its estimated 5,000 start-ups went for an initial public offering (IPO) last year. By contrast, 66 high tech Israeli companies were bought for around $10 billion in total.

« We are trying to provide a financial infrastructure in order for start-ups to grow in Israel instead of being sold abroad, » said Sraya Orgad, co-chairman of the committee appointed by the Israel Securities Authority (ISA) to promote investment in public companies.

There are several reasons behind Israeli firms’ reluctance to head for the stock market, including the cultural tradition that entrepreneurs in the country prefer to work on small start-ups than run big companies and so tend to sell and move on to the next project rather than consider IPOs.

In addition the venture capitalists who fund start-ups tend to prefer the quick exit afforded by a sale rather than a drawn-out IPO process. And foreign firms who prefer to pay for new technology rather than develop it themselves know that there are plenty of companies looking to be acquired for the right price.

As a result both the Tel Aviv Stock Exchange (TASE) and Israel’s economy are suffering.

Trading volumes on the TASE dropped in 2012 to a daily average turnover of $279 million from a daily average of $482 million in 2011. The exchange took another hit this week when Mellanox Technologies – whose products allow databases, servers and computers to talk to each other – requested to be delisted from TASE and trade only on Nasdaq.

Meanwhile, Israel’s economic growth rate is slowing, from 4.6 percent in 2011 to 3.2 percent in 2012. GDP is forecast to grow 2.8 percent in 2013.

The ISA-approved committee recommended setting up a new « Elite Tech » index on the TASE to tempt companies with a market cap above $68 million with various exemptions such as tax benefits and allowing reports in English.

The committee also proposed enabling venture capital funds to trade under the model of closed-end mutual funds. Such funds may invest up to 30 percent of the capital raised from the public in the securities of privately held Israeli high-tech companies and 70 percent in high-tech firms traded in Tel Aviv.

« The need to undertake measures to help Israeli R&D companies raise capital is unquestionable,  » said ISA Chairman Shmuel Hauser.

Co-chairman Orgad added: « Three companies (going public) a year for the next three years would be a success, » Orgad said.

The committee said it would field comments in the next few months and issue its final report by early October.

($1 = 3.67 shekels) (Editing by Sophie Walker)

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