Building the Right Foundations

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1 Building the Right Foundations July 2012 Guy Preminger, Partner, Technology Leader,

2 Current Trends in the Israeli Hi Tech Space Investor Trends A continuing decrease in local VC activity due to fund raising difficulties Smaller amount of investments, mainly in Internet, Cloud & Software companies More companies are being funded by Angels, Micro VC s, Strategic Investment New Seed/Early stage players: Accelerators, new micro VCs Exit Strategies Industry Trends Cyber Security Increased focus, in light of recent high profile website attacks Cloud - More companies are using Cloud computing and SaaS models Internet Increase in number of early stage companies, mainly as a result of investor trends & shorter time to money Semi and communication companies are straggling to raise High number of mature companies Content original content brings value More early stage acquisitions mainly Internet & Cloud companies Average size of M&A in 2011 is $80M IPO window of opportunity is opening at the end of 2011 and is expected to increase during 2012 (Imperva on Nov. 9 th, $400M) Most Investors are less patient and are looking for quick exits 2

The amount of active VC s in Israel has decreased significantly over the last 5 years Investments in 2001-Q1/2012 1800 1600 1400

3 The Market- Israeli VC Investments Highlights: Total amount of VC investments has decreased After each economic crisis (2001/2008) there is a period of lower VC investments. The amount of active VC s in Israel has decreased significantly over the last 5 years Investments in 2001-Q1/ Active VC in Israel Q

Million US$ Million US$ The Market- Israeli VC Investments Highlights: The Internet sector showed the highest growth among VC Investments, growing from 13% of all investments in 2010 to 23% in 2011

4 Million US$ Million US$ The Market- Israeli VC Investments Highlights: The Internet sector showed the highest growth among VC Investments, growing from 13% of all investments in 2010 to 23% in 2011 The Life Sciences, while growing in nominal value, showed a decrease in their share of all VC Investments from 23% in 2010, to 18% in Internet Commun ications & Networki ng Lifescien ces Software Semicon ductors Other Cleantec h Seed/Start-up Early/Expansion Stage Later Stage

5 Company Stage of Development The Market- Investors by Stage Maturity Growth Growth Capital Markets Private Equity Capital Markets Mezzanine Mezzanine Early Stage Venture Landing Venture Capital COMPANY 5 Time Seed Angels Micro VC Incubators Accelerators Chief scientist LIFE CYCLE 5

6 The Market - IPOs Highlights: Since the crisis of 2008 the amount of IPO s in the Hi-Tech sector has declined significantly The Tel Aviv stock exchange has seen only 4 IPO s, all of Life Sciences companies We have yet to see an IPO of an Israeli company in the US in 2012 with only 2 IPO s in IPOs TLV Stock Market IPOs US Stock Market

The Market- M&A Transactions Highlights: Avg.

7 Billion Last 6 months M&A burst 100 90 80 70 60 50 40 30 20 10 0 28 3,084 2012 68 5,078 2011 23 1,176

4,000 2,000 - Millions $ Number of deals 2011 M&A to date*: Total Million $ 5,078 Number of deals 68

7 The Market- M&A Transactions Highlights: Avg. deal increases in 2011 Volatile Market conditions deals 6.7 Billion Last 6 months M&A burst , , , , , ,000 3,522 2, ,000 10,000 8,000 6,000 4,000 2,000 - Millions $ Number of deals 2011 M&A to date*: Total Million $ 5,078 Number of deals 68 Average deal size ($M) 80 *Source data IVC Research Center *Does not include deals in which the price was N/A Average deal size

The Market- M&A Transactions 2011 Internet was the most active sector with 15 deals executed with an average deal size of $100M 2012 Communication is the most

5M in 2011 2011 Exits by Sector Life Sciences, $487.5 Communicati on, $767.4 IT & Enterprise Software, $944.6 2012 Exits by Sector Communication, 971.

8 The Market- M&A Transactions 2011 Internet was the most active sector with 15 deals executed with an average deal size of $100M 2012 Communication is the most active sector with $971.5M in M&A Life Sciences also saw growth with $779.1M in the first half of 2012 compare to $487.5M in Exits by Sector Life Sciences, $487.5 Communicati on, $767.4 IT & Enterprise Software, $ Exits by Sector Communication, Internet, IT & Enterprise Software, CleanTech, $25.0 Internet, $1,479.6 Semiconducto rs, $1,045.9 Semiconductors, Miscellaneous Tech., $327.9 Miscellaneous Technologies, 0.7 Life Sciences,

Exit Busters Delays in the process deals are built on momentum, delays

competitor that become more sexy, investment budget finished, investment

impression clear option plan, founders agreement, fixed financial

9 Exit Busters Delays in the process deals are built on momentum, delays kill momentum Investment lead might change, change in investment focus, a competitor that become more sexy, investment budget finished, investment committee Disorder - may cause mistakes, delay the process and make a bad impression clear option plan, founders agreement, fixed financial reports, license agreement, fixed everything from the beginning don t postpone. 9

10 Be Prepared Keep it Simple Keep it Documented Keep it Right Use Top Advisors 10

11 Legal Structures Inc. Cost + Ltd. IP Inc. Ltd. IP Ltd. Inc. IP Marketing 11

12 Tax Exposures Approved enterprise Financing subsidiaries )מע"מ ) VAT US Federal & State Tax )מוסד קבע ) PE )ניכוי מס במקור ) Tax Withholding US Europe Israel Transfer Pricing Rolling )הוראות ניהול ספרים ) instructions Accounting 12

Chief Scientist Grants While Making the Decision - The implications of taking the grant When Filling Out the Applications taking into account the future

13 Chief Scientist Grants While Making the Decision - The implications of taking the grant When Filling Out the Applications taking into account the future implications During Current Conduct Taking out the IP, Production etc. Licensing Transactions During EXIT - Implications of taking out or leaving the IP in Israel 13

14 Accounting Order - accounting, customer portfolios, Accounts receivable, Accounts payable etc. Revenue Recognition How to treat Stock Option and other equity instruments Inventory Fixed Assets 14

15 Don t Forget Keep it Simple Keep it Documented Keep it Right Use Top Advisors 15

16 Guy Preminger, Partner, Technology Leader, 2012 Kesselman & Kesselman. All rights reserved. In this document, refers to Kesselman & Kesselman, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Please see for further details. helps organisations and individuals create the value they re looking for. We re a member of the PwC network of firms with 169,000 people in more than 158 countries. We re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not take into account any objectives, financial situation or needs of any recipient. Any recipient should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Kesselman & Kesselman, and any other member firm of PwC, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it, or for any direct and/or indirect and/or other damage caused as a result of using the publication and/or the information contained in it.

MoneyTreeTM. Report. results. IL Report. The PwC Israel MoneyTree Report for the first quarter of 2013

MoneyTreeTM. Report. results. IL Report. The PwC Israel MoneyTree Report for the first quarter of 2013 www.pwc.com/il TM 0 1 Venture Capital Investments Plunge Some $ 19 million VC financing invested in hitech companies in 1 compared with $ million (9%) in previous quarter IL The PwC Israel for the first