ISRAEL Law and Practice Contributed by: Benjamin (Benny) Sheffer and Lance Blumenthal, S. Horowitz & Co.
The objective is to maintain a balance that protects investment while allowing the company to operate effectively within a regulated and technically complex sector. Structural Adjustments as the Business Grows As companies move from early-stage development to substantial project execution, their corporate frame- works are likely to evolve. A transition to public-com- pany status may be considered to access the capital markets. New subsidiaries may be set up to isolate regulatory and financial risks for each project. For companies raising funds globally or scaling opera- tions outside Israel, the creation of a foreign holding company may also be considered. These changes are generally timed to align with new financing requirements, participation in government tenders or large-scale infrastructure commitments. 2.2 Liquidity Events In Israel, companies in energy, infrastructure or related technologies most often see liquidity through: • acquisition by a strategic buyer – a larger company (eg, an infrastructure developer, energy company, utility, or major technology player) purchases the start-up. This is frequently the earliest realistic exit path; • sale of shares in a secondary transaction – existing shareholders (founders, early investors, employees) may sell their shares to new or existing inves- tors. This can happen even while the company remains privately held. For instance, secondaries are becoming more common in the Israeli venture ecosystem. • initial public offering (IPO) or listing on a stock exchange – this is less common in early‐stage energy/infrastructure companies, but if the compa- ny grows substantially (multiple projects, significant revenues, regulatory maturity), a listing becomes feasible; • merger or reverse takeover – particularly in infra- structure, a merger with another entity or reverse merger into a listed vehicle may provide exit paths; • dividends or distribution from project vehicles – in infrastructure vehicles (eg, SPVs owning a solar farm), investors may realise liquidity via dividends
or sale of the project entity rather than share sale of the parent company; and • liquidation or wind‐down – the less desirable out- come: if the business fails or cannot secure further funding, assets may be sold, or the company may be wound-up and shareholders receive residual value (which may be nil). Considerations for Founders and Investors Timing • Founders should set realistic expectations – in Israel many companies take five to ten years (and sometimes more) to reach a meaningful exit. • Investors should assess the liquidity horizon – longer holding periods are the norm and liquid- ity tools (secondaries, continuation vehicles) are increasingly relevant. • For infrastructure/energy ventures the scale often is much larger, regulatory/licensing cycles longer, so exit may take yet longer than typical tech compa- nies. Investment documents • Ensure that shareholder agreements, subscrip- tion agreements and articles/by‐laws include clear terms around exit rights, drag‐along/tag‐along rights, redemption rights, conversion rights, etc. • Founders should understand vesting, founder protections, and how exit events trigger (or fail to trigger) acceleration of equity vesting. • Investors should have clarity on how their shares convert in an exit (preferred versus ordinary shares), how proceeds are distributed, and whether there are any obstacles (for example, minority rights, regulatory approvals). Valuation and exit terms • Valuation at exit (or secondary sale) must be aligned with earlier rounds and topics such as dilution, anti‐dilution rights, participation rights of preferred shares will become increasingly relevant. • Founders should be clear on what “liquidity” means: a sale of some shares may not mean full exit for founders as they may retain shareholding in the buyer or hold shares that have not yet become accessible. • Investors should be aware of any exit that carries “earn-outs” or deferred payments – common in
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