Crowdfunding Might Make Israel’s ‘Start-Up Nation’ Available to the Masses
JNS.org – According to serial entrepreneur and venture capitalist Jonathan Medved, practically everyone wants to get in on Israel’s so-called “start-up nation” technology boom. Consider the facts: last year, 700 Israeli companies raised $3.5 billion in venture capital funding, a 46-percent increase from 2013 despite the 50-day war against Hamas; also in 2014, there were $15 billion in Israeli “exits”—companies that either went public or got acquired.
Medved says that when he travels to speak about Israeli innovation, “the most common reaction is people will hand me their business card and say, ‘Find me a deal, get me involved, let me participate.'” Two years ago, he created a platform to makes that possible: OurCrowd. The company has become the leading global equity crowdfunding platform for accredited investors, raising $100 million over the last two years and currently on pace to double that performance in 2015, Medved says. One of OurCrowd’s first portfolio companies, the ReWalk bionic walking assistance system, completed a successful public offering in 2014.
Crowdfunding uses the collective cooperation of a group of people to pool resources in support of a specific project. In this case, the “projects” are Israeli start-ups. But now, OurCrowd is venturing into new territory, with Medved in late February announcing its first official strategic partnership on U.S. soil. The collaboration is with the Maryland/Israel Development Center (MIDC), which promotes bilateral trade and investment to help create jobs in both economies mentioned in its name.
“Maryland turns out to be a start-up environment,” Medved tells JNS.org. “People don’t really know Maryland, they see it as this small state, but it punches way out of its league in terms of technology and innovation. It’s very strong in the pharmaceutical and medical industries and in cybersecurity.”
The way the new partnership will work is that Medved and MIDC Executive Director Barry Bogage will work closely to recruit accredited Maryland investors interested in supporting Israeli start-ups. Those same investors will have in-person access to the Israeli companies when the companies travel to the U.S. or when the investors go abroad, softening the playing field so that when Israeli companies are ready to open U.S. offices, they will be more likely to choose Maryland for their headquarters.
On the flip side, MIDC will be working with Maryland’s Technology Development Corporation (TEDCO) to identify Maryland start-ups that might make sense for OurCrowd. These Maryland companies will be the first non-Israeli startups in the crowdfunding platform’s portfolio.
“Our goal is to foster economic development in Israel and in Maryland—and this is what the partnership will be doing,” Bogage tells JNS.org.
“Technology commercialization is a global enterprise,” says Mike Gill, Maryland Secretary of Business and Economic Development. “Capital flows to good ideas wherever they are found. The MIDC-OurCrowd partnership shows that Maryland and Israel share strengths in creative scientific discovery that attracts global investment capital.”
Medved tells JNS.org that he sees the MIDC partnership as just the beginning for OurCrowd in the U.S. While he is confident in his choice to launch this partnership is Maryland, he says the OurCrowd equity crowdfunding platform will be “the next big thing” for Israel and the U.S. He offers the following scenario: A company starts in Israel, and money comes to support it from America or elsewhere. Then, the company leaves Israel and hires people in places like Maryland, creating jobs. The company raises more money or gets acquired by a U.S. giant, creating more value for America. Then, the founder stays a few years, returns to Israel, and starts again.
“The circle gets stronger and stronger,” says Medved. “This isn’t really about OurCrowd, or about OurCrowd and MIDC. This is about partnership between the U.S. and Israel, which is linking the two most important sources of innovation in the world.”
Al Migliaccio—CEO and founder of JAMIS Sales Success, one of the leading U.S. crowdfunding consulting agencies—agrees. Migliaccio, who has 45 years of experience in business, helps start-ups raise capital by executing sales and crowdfunding strategies. He explains that there are three types of crowdfunding: donations, rewards, and equity. Donation and reward crowdfunding websites essentially offer a product, discount, or enticement in exchange for monetary funding. Anyone can participate in funding start-ups on these platforms, which include well-known ones such as GoFundMe, Kickstarter, and Indiegogo.
In April 2012, President Barack Obama passed the JOBS Act, short for Jumpstart Our Business Start-ups, giving the general public the ability to receive company equity in exchange for funding. As of today, notes Migliaccio, the Securities Act of 1933 still states that entities cannot offer or sell securities to the public unless the offering is registered with the Securities and Exchange Commission (SEC) or if there is an available exemption from registration. The crowdfunding exemption, introduced under Title III of the JOBS Act under Section 4(a)(6) of the Securities Act, won’t be available until the SEC issues its regulations. Therefore, platforms like OurCrowd are still only open to accredited U.S. investors.
Nonetheless, Migliaccio believes that change is imminent, and that crowdfunding is here to stay and thrive. That puts OurCrowd “ahead of everybody” in that space, he says.
“Six years ago, the term crowdfunding didn’t even exist,” Migliaccio tells JNS.org. “Today, we have gone from $0 to last year about $12 billion worldwide raised through crowdfunding. The World Bank projects that global crowdfunding will soon reach $95 billion annually.”
But equity crowdfunding, says Medved, is “not for the faint of heart.” Migliaccio cautions, “You only hit a grand slam home run about 7-9 percent of the time.” Nevertheless, Medved says crowdfunding will serve as a major boon for a small country like Israel.
“Look at where the world is moving, the ‘Internet of things,'” Medved says. “With a projected 75 billion devices connected to Internet by 2020, Israel is a huge leader in that. There has never been anything like the state of Israeli technology today. In the old days, you used to have to explain, ‘Why Israel?’ Today, everybody knows.”