When presenting your startup to potential investors, there are two advantages available under Israeli law that you might want to emphasize, which could make investing in your startup much more attractive, particularly at the seed and pre-seed stages.
The first advantage is the tax benefits under the “Angels Law”, and the second is the $1:$1 grant under the “early stage companies” OCS program.
The “Angels Law” in its original form failed to achieve its goals, as only a few companies and angel investors capitalized on the benefits offered by the Angels Law. This law was recently amended to extend the applicability of the tax benefits, and as of January 2016 also applies to investments in “early stage” companies. The amended Angels Law also solves issues of uncertainty for the investors in terms of qualifying for the tax benefits that was determined only 3 years after the investment took place.
If you’re immersed with the Israeli venture capital industry, you are probably familiar with the “8.23 Program” of the OCS, also known as the “early stage companies” program (see “Directive 8.23 of the Director General of the Office of the Chief Scientist at the Ministry of Economy). This program provides for grants of 50% of the R&D budget (!). In addition, it is available for companies that might not necessarily qualify for grants under the incubators’ program or other R&D grant programs. These grants are provided without diluting the shareholders in equity, and the company is required to repay the grants only out of actual revenues.
Even though the definitions of “early stage companies” in the amended Angels Law and in Directive 8.23 are not identical, they are similar enough to make it easier to qualify for one if you qualify for the other. Therefore, a company that qualifies as an early stage company under the amended Angels Law, should explore the possibility of applying for a grant under the “early stage companies” program, as it’s likely to qualify for such grants.
To summarize, I believe that a company raising pre-see or seed funds from angel investors should try to utilize these two advantages concurrently, thus making its offering much more attractive. On this premise you should consider advising potential investors that:
For questions and queries – please do not hesitate to contact me.
Einat Katzenell offers strategic and practical advice to hi-tech, life sciences and biotechnology entrepreneurs, investors, early-stage and mature companies, academic institutions and business ventures, and is widely regarded an industry insider and a leader in her field.
einat@kdlaw.co.il +972.9.9500555 LinkedIn
DISCLAIMER: Blog posts are not designed to provide legal advice or create a lawyer-client relationship. You should not take action based on this content.