July Edition 2024 IsraelDesks Presented by In Partnership with
Welcome to the Latest Edition of IsraelDesks Magazine There is no doubt these are among the most challenging times in the history of the State of Israel. There are few people or businesses untouched by the Swords of Iron War, all united in the fervent hope for peace and better days ahead. In this edition of IsraelDesks magazine, we invite you to explore a significant aspect of Israel’s economic landscape: its vital relationship with Canada. Tracing back to the legacy of Israeli-Canadian visionary David Azrieli and before, we delve into the synergies between these two nations. Our comprehensive exploration includes insights from legal experts at some of the most prominent firms in Canada - Aird & Berlis, Bennett Jones, DLA Piper, and Gowling WLG. Additionally, we feature perspectives from the global investment platform OurCrowd and the Israel-Canada Strategic Network (ICaN). Their expert analysis shines a light on opportunities for future collaboration and investment opportunities between Israel and Canada. In our other main feature, it was a privilege to speak with thought leaders at Dechert, Fox Rothschild, and Greenberg Traurig, as well as Erdinast, Ben Nathan, Toledano, Goldfarb Gross Seligman, and Shibolet. Together, they provide invaluable guidance for entrepreneurs navigating the complexities of today’s financial landscape. We also go deeper into current trends with OurCrowd and engage with the Israeli HighTech Association, both of which discuss how to secure early-stage financing in these choppy waters. As always, follow us and if you wish to know more and contribute to our bi-monthly IsraelDesks magazine, reach out. We would love to hear from you. Lee Saunders Editor IsraelDesks
Recent Market Trends » Israeli law firms and their outbound business development: new survey unlocks insights ...................................................................................... 42 » The Luzzatto Group | Essential insights into IP in Israel ............................. 46 » Pride Month........................................................................................................... 50 Industry Focus » Raising Early-Stage Finance for Start-Ups ..........................................24 » Interview with OurCrowd: Start-Ups seeking early-stage financing ........36 Jurisdiction in the Spotlight » Israel and Canada: A partnership to build on........................................04 » Israel’s Start-Up Ecosystem Overview: A Regional and Global Miracle....16 Table of Contents 24 04 42
4 Jurisdiction in the Spotlight Israel and Canada A partnership to build on
5 Ten years ago – in July 2014 – the Israeli-Canadian real estate entrepreneur David Azrieli passed away in Montreal at the age of 92, leaving an architectural legacy for both Israel and Canada. You may be deeply familiar with the landscape-defining Azrieli Centers in Tel Aviv or Montreal. Having been born in Poland - where he lost his family in the Holocaust - he moved to Israel in 1948, becoming a prominent figure in the real estate, construction and philanthropic fields, before emigrating to Canada in 1954. Fast forward to today, and the partnership between Israel and Canada has expanded well beyond real estate since the two countries established relations 75 years ago. In this latest edition of IsraelDesks magazine, we speak to those in the know – private practice lawyers, industry bodies, such as the Israel-Canada Strategic Network (ICaN), a bilateral business platform for Israeli and Canadian innovative companies to engage and scale up, and global investment platform OurCrowd that connects investors with early-stage start-ups. They all shared their thoughts on the latest trends, opportunities and challenges in these uncertain times. While the current war against Hamas has clouded some of Israel’s relationships, ultimately the commercial synergies and common aspirations have held true, and, according to many experts, will hold firm going forward - to the benefit of both countries. Back in 2014, Israel and Canada signed the Canada-Israel Strategic Partnership Memorandum of Understanding (MOU) to bolster cooperation in trade, energy, defense, security, R&D, international aid and development, among other things. Five years later – September 2019 - the 1997 Canada-Israel Free Trade Agreement (CIFTA) was amended, eliminating or reducing tariffs on virtually all products. Today, in the field of technology, the relationship has deepened further. Israel and Canada: A partnership to build on
6 Two Vibrant Tech Ecosystems – OurCrowd In Israel Nir Ben-David, CEO of ICaN and Senior Vice President at the Israel-Canada Chamber of Commerce: “Israel is like a huge tech incubator that is pumping out new ideas at an unprecedented rate. This has allowed them to attract tech giants, leading thinkers and venture capital from around the globe.” In the recent 2024 report by StartupBlink, a global innovation economy research platform, both Israel and Canada retained their 3rd and 4th spots globally, positions they have taken since 2020. Tel Aviv is ranked in the top 25 globally for 9 of the 11 industries, demonstrating the city’s strength across multiple sectors, performing especially well in software & data. Nir at ICaN: “The Israeli startup ecosystem is a cash cow, generating tax revenue for the country both from exits and high salaries. Israeli apps like Waze, Wix, Fiverr, and Viber have made their mark around the world, but a few, like Mobileye (sold to Intel for USD 15 billion) and Wiz (raised USD 1 billion at a USD 12 billion valuation), are the hidden powerhouses within the ecosystem.” In Canada Over 450 times bigger than Israel, Canada is one of the few countries, together with the U.S., China, and India, to have at least three cities ranked in the global top 50 of Start-up Blink report. Canada ranks third worldwide for the number of R&D branches. Nir at ICaN: “Canada’s startup scene is already impressive, but it has even more potential to tap. Considering the active approach by its efficient public sector to develop startup ecosystems, and a relative abundance of natural resources, Canada is fully able to take an even more substantial role in producing massive global hubs. The climate for entrepreneurship in Canada is promising, with attractive incentives like the Startup Visa Program (SVP), the Global Skills Strategy, and one of the most educated workforces in the world.” Toronto has most start-ups of any Canadian city The highest-ranked Canadian city in any industry is Toronto. Tzahi Lati, Associate Director at global investment platform OurCrowd
7 adds: “Toronto has emerged as a significant hub for technology startups in Canada, alongside other cities like Vancouver, Montreal, and Waterloo. Startups in Toronto span various industries including AI, fintech, healthcare, e-commerce, and entertainment technology. Toronto benefits from a highly educated workforce and attracts talent from top universities globally. The presence of leading research institutions like the University of Toronto fuels innovation. The ecosystem is supported by a network of startup incubators, accelerators, venture capital firms, and government initiatives (such as the Ontario ScaleUp Vouchers Program and the Canadian Innovation Exchange). Torontobased startups have access to a growing pool of venture capital and angel investors. The Toronto-Waterloo corridor is particularly known for its strong investor network. Overall, Toronto’s startup ecosystem is dynamic, supportive, and poised for growth, making it an attractive destination for entrepreneurs and investors alike. Similar dynamics can be observed in other major Canadian cities, each with its own strengths and focus areas within the startup landscape.” There are many synergies between Israel and Canada today Tzahi at OurCrowd indicates: “Both Israel and Canada have vibrant technology ecosystems with strengths in sectors like cybersecurity, AI, biotechnology, and clean technology.” “Israel is known for its strong cybersecurity and AI sectors, while Canada has significant expertise in AI research and development (especially in Toronto and Montreal). Canada has abundant natural resources and a growing focus on renewable energy technologies. Israel has expertise in water management technologies, solar energy, and environmental technologies, which could complement Canada’s efforts in clean technology. Both countries have thriving agricultural sectors and are leaders in agricultural technology innovations. Israel’s expertise in desert agriculture and water-efficient farming techniques can be beneficial for Canada, particularly in sustainable farming practices. Both Toronto and Tel Aviv are emerging as fintech hubs. Canada’s strong banking sector and regulatory environment, combined with Israel’s fintech innovations, present opportunities for collaboration and investment.”
8 Technology and innovation partnership unlocks commercialization opportunities “Building on the existing collaboration between the two countries’ business and innovation ecosystems, in 2022, a refreshed Canada-Israel science, technology and innovation partnership was announced,” adds Nili Goldman, Toronto partner at Aird & Berlis. She continues: “This partnership created opportunities in several sectors including clean technologies, health, quantum computing, digital technologies, cybersecurity and agriculture. Through the partnership, both parties aimed to actively engage key public, business and academic leaders to enable greater commercialization opportunities for innovations in both countries.” “Canada like Israel has leading University research departments, but Israel’s record of commercializing research is much better than Canada’s,” says Noam Goodman, Toronto partner at DLA Piper. In Israel, support, collaborations and partnerships often come via the Israel Innovation Authority (IIA), an outstanding example of a public sector entity with historical ecosystem impact, while the Israel Institute of Technology – Technion is also involved in developing the start-up ecosystem through its Drive Accelerator Program, a shining example of how a university can become an integral part of the start-up ecosystem. Canadian government puts out call for collaborative As a percentage of GDP, Israel has is the highest spender on R&D globally and on a per capita basis, Israel has the highest concentration of unicorns initiated by its founders worldwide. Nir at ICaN: “Name a technology multinational, and they probably have a presence in Israel. Microsoft, Google, Apple, Siemens, Sony, Intel, and more than 300 others have either established R&D centers or recruitment operations in the country, or both. When you’ll ask the executives of these global giants about the importance of their Israeli presence, they probably
9 will say: ‘we all live and die by the work of our Israeli teams.’ It’s much more than just outsourcing call canters to India or setting up IT services in Ireland. What we do in Israel is unlike what we do anywhere else in the world. Over 80 Israeli unicorns are now operating in the US. Part of this exodus can be explained by the need to be close to clients and major markets.” Partly, with that in mind, the Canadian government is keen to support joint R&D projects with a high potential for commercialization. Tapping into this robust tech infrastructure in Israel, the Canadian government has put out a call for proposals for collaborative industrial R&D across all sectors, with a focus on: agricultural technologies; agrifood technologies; clean technologies; low carbon economy technologies; clean transportation and mobility; climate resilient building and infrastructure; renewable energy, water and wastewater management; smart cities and smart mobility; environment protection technologies; health and biosciences; and quantum computing technologies. More details can be found on the Canadian government website. Resilience of the Israeli tech sector While the impact of the war has been felt by the high-tech sector in Israel, there are also growing reports in the business press of longer term resilience and growth. Tzahi at OurCrowd adds: “Despite the geopolitical challenges, the Israeli economy has really demonstrated resilience and continues to be a hub of innovation and technological advancement. Canadian investors looking to capitalize on opportunities in Israel could consider several sectors that are particularly attractive and has alignment with Israeli strengths.” “Canadian investors are impressed by Israel’s resilience in the aftermath of the October 7 terror attacks,” agrees Jason Saltzman, partner at Gowling WLG in Toronto and co-head of the firm’s Israel Desk. “They are still very much interested in investing in, and otherwise supporting, Israel’s high tech, security tech (including defense and cybersecurity), med tech / life science and climate tech sectors as Israel is, and will continue to be, a leader in these important industry sectors. Members of our law firm’s Israel Desk continue to work closely with Israeli companies in these sectors in their efforts to raise capital from Canadian investors through private and public financings.”
10 In Israel, cybersecurity is unmatched: Tel Aviv 2nd globally Noam at DLA adds: “Israel’s tech ecosystem is more mature than Canada’s and that has historically been the sector where Canadian investors have shown interest. A number of the larger investors are Canadian financial institutions who invest to use the technology themselves. For pension funds and other institutional investors Israeli has certain cutting-edge technology like cybersecurity which is not matched anywhere else.” According to the StartupBlink report 2024 - Tel Aviv excels in cybersecurity, where it ranks 2nd in the world for the second year in a row, while Israel remains prominent in AI start-ups, with Tel Aviv ranking 7th and Jerusalem 25th worldwide in this industry. Tzahi at OurCrowd: “Israel is a global leader in cybersecurity technologies and solutions, many cybersecurity companies were acquired since the beginning of 2024 with great returns for investors. In Q1 2024, the Israeli cybersecurity sector raised $846 million in private funding, accounting for nearly 50% of the total ecosystem funding and half of the top six exits. Israel also has a strong ecosystem of AI startups focusing on applications in various sectors such as healthcare, finance, and autonomous systems. The AI sector continues to thrive and even one company of OurCrowd AI portfolio D-ID was names as one of the most promising AI startups in Israel. D-ID’s main business today is “the humanization of bots”, the human digital market is huge and is estimated by the company at half a trillion dollars.” Canada: promising opportunities and a stable market For Israeli businesspeople looking to expand into Canada, there are a number of industries and sectors that offer promising opportunities. Tzahi at OurCrowd tells us of Canada’s emergence as a global leader in AI research and development, particularly in cities like Toronto, Montreal, and Vancouver. “Israeli tech companies specializing in AI algorithms, machine learning, and data analytics could find fertile ground for partnerships and market entry.”
11 Infrastructure and Construction Tzahi adds: “With ongoing infrastructure projects and urban development initiatives across Canada, Israeli companies involved in construction technologies, smart cities solutions, sustainable building materials, and infrastructure management systems could find opportunities for collaboration and project implementation. CleanTech and Renewable Energy “Canada is committed to sustainability and reducing carbon emissions, making it a promising market for Israeli cleantech companies focusing on renewable energy technologies, energy efficiency solutions, water management systems, and sustainable infrastructure,” adds Tzahi. Formerly an associate with Herzog in Israel, Elad Travis, associate at Bennett Jones in Toronto, added: “There are unprecedented opportunities ahead for investment in energy transition in Canada. There are federal investment tax credits for clean technology, clean electricity, clean hydrogen and CCUS. In renewable energy development, electricity grid operators across the country continue to announce expanded procurements for carbon-free power. The energy transition will require sustained investment in new energy infrastructure over the next 20 to 30 years. All of this can mean opportunities for Israeli climate-tech companies and investors.” Agri-food ripe for investment Elad at Bennett Jones also indicated: “Canada has the potential to become a global player in agri-food. We have an abundance of natural resources, leading research institutions, and a strong focus on sustainable agricultural practices. We are seeing more investment in foodtech. Vertical farms are opening across the country, including in major cities. Here at Bennett Jones, for example, we have partnered with Bioenterprise Canada to foster innovation and growth within Canada’s food and agri-tech sector and accelerate commercialization.” Meanwhile, OurCrowd’s Tzahi added: “Israel’s expertise in agricultural and food
12 technology, offers opportunities for Canadian investors seeking innovations in precision agriculture, agronomy, food safety, and sustainable farming practices. Israel ranks second only to the US for private investment in the alternative protein section, accounting for nearly 10% of investment in the sector. OurCrowd is also active in this space and is well positioned to leverage Israel’s cutting-edge leadership in FoodTech through its network of entrepreneurs, scientists, third-party funds, and in-house food incubators. Offering to investor the opportunity to get diversified access to this sector and invest in a the OurCrowd FoodTech Fund.” Real Estate is still lucrative: investments more riskaverse “Although now facing market pressures, the Canadian real estate market has been stable and there have been large Israeli institutions which have successfully invested in Canadian real estate,” adds DLA’s Noam. “Traditional areas such as real estate continues to be attractive to foreign investors,” agrees Nili at Aird & Berlis. “Large cities across the nation provide lucrative investment opportunities yet are still more affordable than some of their counterparts in other countries. Canada also has well-established laws and regulations governing real estate transactions, making the investments much more risk-averse. As Canada’s population continues to grow, new areas are rapidly developing around central hubs and the market offers a wide array of investment options including retail, industrial, office or mixed-use spaces. Many retail, industrial, office or mixed-use spaces have long-term leases and guarantee consistent cash flow, making them attractive for investors and developers.” Healthcare: A prime target “If the Israeli company has the patience to deal with a slow-to-innovate sector that is in dire need of disruption, then the healthcare sector in Canada would be a prime target,” points out DLA’s Noam. Canada’s healthcare sector must innovate and expand to meet the needs of Canada’s growing population. Israel has excellent medical and healthcare technology that could help Canada rehabilitate its hospitals and healthcare system.” Tzahi at OurCrowd, agrees: “Israel has a robust healthcare ecosystem with advancements in medical technology, digital health solutions,
13 and telemedicine. Canadian investors interested in healthcare innovation can find opportunities in partnerships or investments in Israeli MedTech startups.” DLA’s Noam adds: “The non-regulated private sector is a faster market in which to expand. HR management software, cybersecurity and fintech companies have been successful in Canada. Other sectors which such as medical devices or medical software also represent a good opportunity in Canada but require a more long-term view as the sale cycle is longer.” Finance and insurance are attractive areas Nili at Aird & Berlis adds: “While there are countless investment opportunities in various sectors, the management of companies and enterprises sector remains the largest recipient of foreign investment, with the finance and insurance sectors also continuing to be attractive areas. The area that saw the largest increase in foreign investment in the past year was the manufacturing sector. The professional, scientific and technical services sector also saw a jump in foreign investment.” Toronto Stock Exchange offers simplified process; RTOs an attractive alternative With regards to investment into Canada, DLA’s Noam adds: “We continue to see Israeli companies expand into Canada in a number of areas. There are small to mid-sized Israeli technology companies who have chosen to go public on the Toronto Stock Exchange rather than NASDAQ due to the more simplified process and timing. In terms of Israeli companies who intend to be global, Canada represents a stable market in which to expand.” Elad at Bennett Jones adds: “Investment and trade are essential to both countries. Innovation is the now and the future of our economies. We are seeing activity, but there are opportunities for much more. The Maple & Honey Forum, which serves as a platform for investing and growing businesses interested in leveraging the Canada-Israel relationship, supports partnerships across industries, including technology, healthcare, cannabis, agri-tech, alternative energy and natural resources. Bennett Jones is one of the founders of the Forum.”
14 About 20 Israeli companies listed in Canadian exchanges - 17 by way of an RTO Elad continues: ”Reverse Takeover (RTO) transactions involving Capital Pool Companies on Canada’s TSX Venture Exchange has become an attractive alternative to private funding for pre-revenue tech companies. RTOs have lower thresholds for market capitalization, are more fitting for smaller raises, and are quicker and usually less expensive than an IPO. In the past few years, about 20 Israeli companies listed in Canadian exchanges—and 17 of them were done by way of an RTO. An Israeli success story is Real Brokerage, initially listed on the TSXV mid-2020 with a market cap of CAD $60 million, graduated to the TSX and dual listed on the NASDAQ with a market cap of CAD $300 million. Real Brokerage’s market cap is now close to CAD $1 billion. Another Israeli success story, a company listed in Canada by way of an RTO, that was pre-revenue when listed is NurExone Biologic Inc., a biotech company developing solutions for reversal of nervous system injuries. It listed mid-2022 with a market cap of CAD $12 million and two years later has a market cap of CAD $55 million.” Helping Israeli emerging growth companies list in Canada Jason at Gowling WLG: “Over the past few years, members of our law firm’s Israel Desk have been extremely active in helping emerging growth companies in various sectors raise capital in North America by way of a listing on one of Canada’s stock exchanges including the Toronto Stock Exchange, the TSX Venture Exchange and the Canadian Securities Exchange.” “We have assisted numerous Israeli companies complete successful financings through a listing on these Canadian exchanges and many of these companies eventually graduated to a senior exchange including achieving a dual listing on NASDAQ. We expect this trend to accelerate as global capital markets continue to improve.” Elad at Bennett Jones: “Digitalization is transforming the Canadian economy and there are opportunities for Israeli companies that can enable and accelerate this change. Canada needs to ramp-up its investment when it comes to
15 information and communications technology and software. We need to keep pace with our global peers in this area and with the advent of AI, this means much more investment in technology across all sectors of the economy.” “We are seeing lots of investment both ways between Canada and Israel in the IT and software spaces. In December 2023, Perion Network Ltd., an Israeli ad tech company acquired Hivestack Inc., a leading Canadian digital out-of-home platform for USD125 million. Earlier last year, AudioCodes Ltd. a leading Israeli provider of Voice over Packet technologies, acquired UAS Product Group from Nortel Networks. In March 2024, a Toronto-based and an Israel-based tech company announced a business combination to create a North American technology company with an AI-driven fintech marketplace.” Fintech a natural area of collaboration “The fintech sector would seem like a natural area for collaboration between Israeli and Canadian companies,” adds Noam at DLA. “Unlike the U.S., Canada has a concentration of financial institutions and an easier market to target, and Canadian financial institutions have adopted cutting-edge technology and a number have expanded into the U.S. market. For Israeli companies, establishing a new business in Canada is easy and fast and a bridge into the U.S. from Canada could also be attractive if the Israeli company is not already in the U.S. market.“ Nili at Aird & Berlis points out: “Israelis are always looking for safe investment opportunities. Canada is the fastest growing country in the G7 by population and provides great benefits to investors through its strong economy, global market access, highly skilled and educated workforce, political stability, safe banking system and low corruption.” While David Azrieli left a legacy in both countries, there is huge scope and variety for more entrepreneurs to follow suit.
16 Jurisdiction in the Spotlight Israel’s Start-Up Ecosystem Overview - A REGIONAL AND GLOBAL MIRACLE
17 A REGIONAL AND GLOBAL MIRACLE: Israel’s Start-Up Ecosystem Overview Nir Ben-David CEO of ICaN When considering population size, Israel has produced more special entities (such as unicorns and exits) per capita than any other country, even the U.S.! In the last decade Israel has emerged as a leading innovator. Surrounding Arab countries may be able to pump oil, but the country of Israel is like a huge tech incubator that is pumping out new ideas at an unprecedented rate. This has allowed them to attract tech giants, leading thinkers and venture capital from around the globe. Though trans-national tech firms are setting up shop around the globe in countries like Singapore, India and Ireland, they don’t establish their mission critical work in those places.
18 No country has pulled off Project Startup Nation as successfully as Israel Israel is known as the ‘Startup Nation’ for a good reason; it’s a small country which manages to leave a substantial mark on the global startup ecosystem. ‘Startup Nation’ is instructive in many ways, but perhaps most importantly, by contributing a definition and prescription for creating an entrepreneurial culture: blend a culture of assertiveness, willingness to question, good judgment, courage, willingness to risk, resilience, and esteem of experiential learning, along with an appreciation for real solutions, instructive failure and experimentation. These characteristics, when present together, make an excellent environment for entrepreneurship. The Israeli startup ecosystem is a cash cow, generating tax revenue for the country both from exits and high salaries. Israeli apps like Waze, Wix, Fiverr, and Viber have made their mark around the world, but a few, like Mobileye (sold to Intel for USD 15 billion) and Wiz (raised USD 1 billion at a USD12 billion valuation), are the hidden powerhouses within the ecosystem. A small country that leaves a substantial mark on the global startup ecosystem Name a technology multinational, and they probably have a presence in Israel. Microsoft, Google, Apple, Siemens, Sony, Intel, and more than 300 others have either established R&D centres or recruitment operations in the country, or both. When you’ll ask the executives of these global giants about the importance of their Israeli presence, they probably will say: “we all live and die by the work of our Israeli teams. It’s much more than just outsourcing call canters to India or setting up IT services in Ireland. What we do in Israel is unlike what we do anywhere else in the world.” Over 80 Israeli unicorns are now operating in the US. Part of this exodus can be explained by the need to be close to clients and major markets.
19 There are several lessons that can be learned from the success story of the Israeli ecosystem 1. Countries can turn a difficult geo-political situation into an advantage. 2. Startups can transform a low productivity, developing economy into a high efficiency, developed economy. 3. The Israeli army became one of the world’s top startup accelerators by accident. Canada’s Startup Ecosystem Overview Canada’s startup scene is already impressive, but it has even more potential to tap. Considering the active approach by its efficient public sector to develop startup ecosystems, and a relative abundance of natural resources, Canada is fully able to take an even more substantial role in producing massive global hubs. The climate for entrepreneurship in Canada is promising, with attractive incentives like the Startup Visa Program (SVP), the Global Skills Strategy, and one of the most educated workforces in the world. In Ontario, the leading region of Canadian innovation, the public sector leads by example in developing robust startup ecosystems. The Ontario Ministry of Economic Development, Job Creation and Trade (MEDJCT) has been pivotal in these efforts, setting a high standard for economic development activities. Within Ontario, municipalities such as the City of Toronto, Waterloo, Hamilton, Brampton, and Mississauga are actively focused on the development of their local ecosystems. Their initiatives have been instrumental in attracting investments and nurturing business growth, demonstrating the province’s proactive approach to economic innovation. Beyond Ontario, other Canadian cities and regions have also made notable strides. Edmonton Unlimited and Calgary Economic Development in Alberta are standout examples. Moreover, Quebec’s vibrant startup scene is supported by Startup Montreal, an organization working toward making Montreal an attractive global startup destination. Other national initiatives, such as Startup Ecosystem Canada and Startup Canada, are also working to connect ecosystem stakeholders in the country. These entities have been fundamental in promoting their regions, attracting global
20 investment, and supporting startups through various stages of growth. With resounding success stories like Shopify, Slack, SalesForce, Tauria, and more, Canada’s startup ecosystems are raising the bar. The Canadian startup ecosystem attractivity is based on these main elements 1. High performing entrepreneurs. 2. Attracting high quality foreign talent. 3. Market-oriented economic system. 4. High standard of living. 5. Native English language. 6. Proximity to the US market. 7. More than 50 bilateral trade agreements. Designated Stock Exchanges: The stock market is a captivating and complex entity that plays a vital role in the global economy. Among the numerous stock markets worldwide, the Canadian stock market stands as a significant player, renowned for its stability, diversity, and immense potential for investors. The Toronto Stock Exchange (TSX), The Canadian Securities Exchange (CSE) and CBoe stands as of the most influential and prestigious stock exchanges in the world. As Canada’s foremost marketplace for trading equities, these stock exchanges play a pivotal role in the nation’s economy and serves as a gateway for companies to access capital and investors to participate in the growth of various industries. A Global Trade Nation Canada has always been a trading nation. From the early days of fur and fish to the present, when a remarkable ninety percent of our gross national product is attributable to exports and imports, Canadians have relied on international trade to bolster our economy. Canada currently has 15 FTAs with 51 different countries. Together, these agreements cover 1.5 billion consumers worldwide (61% of the world’s GDP). In addition to lowering and
21 eliminating duty rates on certain products and services, FTAs also address modern trade challenges in areas such as labour, environment, certification, and intellectual property. Canada-Israel Free Trade Agreement (CIFTA): In 2014, Canada and Israel agreed to modernize the Canada-Israel Free Trade Agreement (CIFTA), a goods-only agreement in force since January 1, 1997. Through two phases of negotiations in 2014-2015 and 2017-2018, Canada and Israel updated four chapters and added nine new chapters to CIFTA. The modernized CIFTA improves access to the Israeli market for Canadian companies through further elimination and reduction of tariffs on agricultural, agri-food and fisheries products. With the addition of new chapters on Trade and Gender and Small and Medium-sized Enterprises, as well as new provisions on responsible business conduct and new labour and environmental protections, the modernized CIFTA signals the importance of inclusive trade and ensuring that the benefits and opportunities that flow from trade and investment are more widely shared. Since CIFTA first came into effect over two decades ago, Canada’s two-way merchandise trade with Israel has more than tripled and was valued at nearly CAD $1.8 billion in 2021. Two-way services trade was valued at CAD $412 million in 2020. Canada–Israel 2024-2025 collaborative industrial research and development call for proposals Working together, the governments of Canada and Israel aim to foster and support collaborative industrial research and development (R&D) projects with a high potential for commercialization. This call for proposals is open to organizations from Canada and Israel who wish to form project consortia to perform collaborative projects focused on developing innovative products, processes or technology based services. A new Bilateral Canada-Israel funding call for up to $500K CAD commercial R&D just opened. Funded to foster collaborative industrial research and development (R&D) projects with a high potential for commercialization. Open to all tech sectors with special considerations for: Agricultural technologies
22 Agri food technologies Clean technologies Low carbon economy technologies Clean transportation and mobility Climate resilient building and infrastructure Renewable energy, water and wastewater management Smart cities and smart mobility Environment protection technologies Health and biosciences Quantum computing technologies Canadian funding >> Click here Israeli funding In Israel, this call for proposals is offered through the Israel Innovation Authority (IIA) >> Click here Israel-Canada Strategic Network (ICaN): ICaN is the main bilateral business platform for Israeli and Canadian innovative companies to engage and scale up. We provide flexible teams of business developers with analytical and entrepreneurial mindsets, to solve your toughest bilateral business challenges. With our clients, we craft and implement solutions with measurable results. No surprise then that leading companies invite us to serve as their strategic partner for relentless growth. VISION: Generating Bilateral Business Opportunities for Innovative People & CuttingEdge Technologies. MISSION: Helping Israeli and Canadian Entrepreneurs to GrowthUp & Drive Their Business Towards Bilateral Success, As A Launchpad for A Better Global Value Proposition! info@icanstrategy.com icanstrategy.com +972-52-9452142 benda-ican
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24 Raising Early-Stage Finance for Start-Ups Industry Focus
25 In Q2 2024, Israeli high-tech firms successfully attracted USD2.9 billion in capital, up from almost USD2 billion a year ago, according to a report by IVC and LeumiTech. This increase signified the highest influx of investments since the end of 2022. Nevertheless, a concerning trend emerged as 64% of the funds raised in Q2 gravitated towards just six tech companies. This heavy reliance on a handful of major players is worrying, according to a report by RISE Israel (formerly known as the Start-up Nation Policy Institute). A key highlight in this story is Wiz, an American-Israeli cloud cybersecurity unicorn, that secured USD965 million in funding this past Mayr. This funding round boosted Wiz to an impressive valuation of USD12 billion, making up a substantial 34% of all investments in Q2. Government must allocate larger budgets to support earlystage startups “The main red flag is the growing dependence on a small number of outstanding companies that raise mega-rounds,” said RISE Israel CEO Uri Gabai in an interview with Times of Israel in June. “As the security situation prolongs, the high-tech sector will also stabilize at a lower level of activity compared to the past. If the Israeli government wants to gradually return high-tech to pre-crisis activity levels, it needs to allocate larger budgets in this sector, especially in startups in their early stages.” With such market volatility, investing early in startups faces significant challenges. In this edition of IsraelDesks magazine, we speak to lawyers in Israel and overseas, as well as global investment platform, OurCrowd and the Israeli High-Tech Association, to learn how to help startups come through these difficult times, as they unfold a more wrinkled commercial map. Investing early in startups in challenging times
26 Importance of high-tech and raising investment in startups Today, Israeli high-tech makes up 20% of the country’s total GDP. In a conversation with Calcalist, Dror Bin, CEO of the Israel Innovation Authority, said: “The high-tech field is more important to Israel than oil and gas are to Russia. On the other hand, the governments’ investments in Israel in the last 20 years have been decreasing, and are lower than what is accepted in the OECD. Israel is special in that it invests less every year in its main economic resource - high-tech - which is so important to the country’s economy, and has been a ‘shock absorber’ for quite a few years now.” However, the growth rate of the sector in 2023 was significantly lower than the annual growth rate since 2018. “The positive side is that despite all the challenges and difficulties of 2023, the decrease in investments and instability, the number of people employed in high-tech has grown. This is not a big increase, but it is still a nice achievement in a year of war and global crisis,” adds Dror Bin. Maya Schwartz, CEO of the Israeli High-Tech Association (HTA), which supports economic growth across Israel’s high-tech sector, said: “The current economic climate is very challenging for entrepreneurs seeking for early stage funding. High interest rates, economic instability, the legal reform and the war affected in a very negative way on the investment side, both early stage VCs and angels.” “The start-up market is facing significant challenges due to a combination of circumstances involving Israel generally,” adds Dechert London partner, Adam Levin. “None of these can be mitigated against by any business, including the uncertainties surrounding Israel caused by the war and the Israeli political environment, the perception of Israel globally and the poor state of the world economy due to global uncertainties, especially from the Russia/Ukraine war and persistently high interest rates,” he adds. So what specifically are today’s challenges – and what factors help make start-ups more attractive to early investors? IP more crucial than ever and greater focus on due diligence As Tzahi Lati, Associate Director, at global investment platform OurCrowd, which connects startups and investors, says: “Companies are struggling with
27 negotiating a fair valuation and favorable funding terms, along with complex regulatory requirements which can change by industry and jurisdiction. Also, protecting their IP assets such as patents, trademarks, and trade secrets is more crucial than ever but can be costly and time-consuming. Investors these days are conducting a much more thorough due diligence before investing, and companies need to provide accurate and transparent financial records which creates a challenge in terms of information sensitivity. To mitigate some of those risks, companies need to perform thorough market research and financial modeling to justify valuations while engaging with experienced legal counsel to seek advice and negotiating the terms. They also need to work closely with IP attorneys to secure and enforce IP rights.” Jonathan Neumann, associate at Shibolet & Co. points out: “With the increasing volume of pre-seed financing by notable investors, unlike the traditional “friends and family” rounds, startups must prepare for pre-seed financing with the same rigor as a full-blown priced round. Legal counsel can enhance these factors by ensuring that corporate documents are properly in place and that day-to-day activities are well recorded, thus building investor confidence.” Valuations are under pressure and moving the business to revenue generation will de-risk the business Adam at Dechert adds: “Investors are continuing to fund startups in their portfolios, although valuations are under pressure. There is a real need to show revenue as soon as possible and significant progress towards goals. That means startups having a focus and determination to take the hard decisions on costs and those that make breakthroughs in pursuit of their goals are the one most likely to attract the confidence of investors. Moving the business to revenue generation and showing market adoption through sales will de-risk the business from investors’ perspectives dramatically, leading to a higher likelihood of success.” Many headwinds facing startups: Pressure on VCs to double digit interest rates “The biggest issue facing startups seeking financing is the macrotask of raising funds with so many headwinds,” points out Matthew Kittay, New York partner and the National Co-Chair of the M&A Practice Group at Fox Rothschild.
28 Matthew goes on: “Financing sources (i.e., VC funds) are under pressure to show outsized returns after a few years of pressure on their portfolios to perform- and the longer flat performance ensures, the pressure they get from their LPs. Those same LPs look at the handful of wildly successful public tech companies driving massive returns on the wings of AI, and need their high risk investments to exceed those. At the same time, early-stage companies face double digit interest rates for the first time in a long time, and the hope of a quick return to lower fades fading. That means debt isn’t the solution either.” Investors seek more assurances on meeting Series A Financings’ metrics and KPIs Danny Dilbary,partner in the International Corporate and Securities Department at Goldfarb Gross Seligman adds: “While we have noticed a decrease in valuations and investment amounts in early-stage financings, the metrics and KPIs for Series A financings, on the other hand, have significantly increased. As a result, while deciding whether to invest in an early-stage start-up, investors are looking for more assurances for the likelihood of meeting the Series A financings’ metrics and KPIs, even with limited financing resources.” He goes on: “In addition, we have noticed that early-stage investors are looking for more scrutiny (in terms of information and veto rights). That being said, early-stage financings are still based on a 1X, non-participating liquidation preference with a broad-based weighted average anti-dilution protection mechanism, which are attractive from start-up’s perspective.“ Approach potential customers and carry out co-pilots with partners before reaching out to early investors He adds: “In order to tackle these challenges, early-stage startups should strive to enhance their track record and market validation by approaching potential customers and carrying-out pilots with design-partners before approaching sophisticated early-stage investors, such as venture capital funds.” The SAFE instrument is the most popular and effective (Maya, HTA) Danny at Goldfarb, Gross, Seligman adds: “Early-stage startups should also consider pre-seed financings, in the form of Simple Agreements for Future
29 Equity (SAFEs) or similar instruments, to finance activities that will allow the start-up to enhance track record and market validation. Early-stage startups should also consider pre-seed financings, in the form of Simple Agreements for Future Equity (SAFEs) or similar instruments, to finance activities that will allow the start-up to enhance track record and market validation. That being said, in many cases, founders do not fully comprehend the dilution effects of such instruments upon their conversion into shares in the framework of an equity financing. To avoid unexpected dilution, legal counsels should ensure that the company and the founders fully understand the terms and effects of such instruments, and even provide the simulations to illustrate such effects.” Strong team, scalability and product development milestones Tzahi at OurCrowd adds: “Investors prioritize startups with a capable and experienced team. Investors also seek evidence of market demand, potential for growth, and scalability and assess the start-up’s product or technology for innovation, differentiation, and defensibility. Other factors include evidence of early traction, such as revenue growth, partnerships, or product development milestones, and a scalable business model that outlines revenue streams, pricing strategy, and path to profitability.” Adam at Dechert agrees: “Key factors include the business having a scalable project in a market which offers exponential gains. Investors can see the way in which progress can be made so that the business can achieve milestones to make it attractive for larger investors in Series A and higher level rounds.” Another major factor is having “a management which is driven and focused on the outcome, communication skills in English which are at the level of native speakers, good financial skills, transparency on reporting and, perhaps the most underrated factor of all, luck.” Roy Caner, partner and head of Hi-Tech department at EBN: ”The factors that contribute to the startups’ success in securing financing are (in addition to the sector) the strength and background of the founding team and avoiding mistakes that relate to the ventures’ IP. Legal counsel can assist in providing good advice and making sure that the founders do not act impulsively and make such mistakes as well as in making sure that the company is advised, and its legal documents are in full order since inception and even before.” Maya at the HTA added: “First and foremost are the team members but also they will need proven product market fit and great technology. Legal can help first time entrepreneurs to avoid making mistakes they will regret down the road.”
30 Also value of data room Ephraim Schmeidler, Of Counsel at Greenberg Traurig (GT) adds: “The key factors are a great product and management that the investors will find to be hands on and trustworthy. Counsel cannot help with the former but can very much help on the latter. The investment stage includes the investor reviewing the material documents of the company (both corporate and transactional). Counsel could be extremely helpful in organizing the documents during the diligence stage. My personal experience includes mostly representing investors and I can say that an organized data room and a responsive team go a long way into building trust between the parties.” Communication can significantly de-risk the business Adam at Dechert continues: “Legal counsel are in the best position to provide an objective sounding board and the benefit of some good judgment when it comes to taking decisions which have a legal or financial impact on the start-up. Advising startups on the legal boundaries within which they operate so that they can take decisions within them is a real benefit, so regular communication and bouncing ideas around between a client and a trusted legal advisor can contribute significantly to de-risking the business and so improving the chance of a start-up’s success.” Know the market trends Dr. Ayal at Goldfarb, Gross, Seligman: “When preparing for financing, startups should get familiar with the market trends in general, and the investment strategy and terms of investment of the investors they are approaching, to enhance the likelihood of consuming the investment and minimize friction. Startups should also consider addressing, whether as part of a pre-seed financing or as part of the financing itself, high profile, added-value angel investors, who can use their knowledge, experience and connections to accelerate the start-up’s growth, as week as enhance other investor’s confidence in the start-up’s future success.” Granting anti-dilution protection is very useful Jonathan at Shibolet continues: “In the current unstable environment, it’s crucial for startups to ease investor concerns about future uncertainties. An example of a beneficial financing feature is granting early-stage investors catch-up rights regarding, among other things, anti-dilution protection,
31 registration, and information rights, ensuring they aren’t overshadowed by subsequent, larger-scale investors. This approach helps maintain investor confidence and secures their ongoing support.” What should startups have in place or have prepared? Strong founders’ agreement EBN’s Roy adds: “Although not a must in certain cases, a well drafted founders’ agreement is good to have. Agreements with prominent design partners are always good to have. Common mistakes that should be avoided, incorporating the company or signing a founder’s agreements during employment with the current employer; working in the new venture and developing the new product while still employed and with the resources of the current employer; promising excessive number of options to people that assist in the early days.” Dr. Ayal at Goldfarb, Gross, Seligman adds: ”Before approaching investors, founders should negotiate and enter into a founders’ agreement and share repurchase agreements, to ensure that the founders’ involvement in the company is secured and that all intellectual property developed by them is owned by the company, and to align expectations between the founders. Founders’ agreements and share repurchase agreements raise certain issues which also appear in financing transaction documents, and should be discussed and agreed upon between the founders before approaching investors to avoid misalignment and problematic dynamics between the founders during the negotiations with investors. “One of the most common mistakes made by early-stage startups is the lack of 83(b) election for the founders, especially if the start-up is incorporated in the US. Lack of 83(b) election may have an adverse effect on the founders from a tax perspective upon an “exit” event. In addition, founders should ensure no IP contamination regarding existing/ former employers or third parties with whom the founders or the start-up engage.” Matthew at Fox Rothschild: “Starting off with a foundation of rights for the founders and key employees that shows a sophisticated team is at the table put the company in a good starting place. If the founding team already has IP assignments and equity grant documents with vesting to protect the equity in case a founder leaves, that shows they are acting with the company’s best interest in mind.”
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