In accordance with the examination and discourse that the Authority’s staff also has with relevant professionals in the market, the Authority sees a need to refine and improve the existing requirements in order to ensure the entrepreneurs’ commitment to the investing public. In addition, the Authority instructed the mutual fund managers, supervised by it, to take into account the changes expected to be made in the stock exchange’s regulations, as part of the investment decision process they hold, when investing in R&D partnerships for which the rules are not met. The full document is published on the Securities Authority website. And responses will be received by 09.03.2021.
The inclusion of mechanisms for the protection of the investing public is added to the outline implemented by the Authority to expand the disclosure required from R&D partnerships in the issue prospectus, to reflect the unique risks inherent in investing in R&D partnerships. The disclosure in the R&D Partnerships prospectus includes, among other things, disclosure regarding target companies in which investment will be made from the initial recruitment, as well as disclosure about the entrepreneur (general partner), his ability to locate investments and analysis and discretion in investing in other target companies.
In addition, the prospectus includes disclosure regarding the structure of the entrepreneur’s incentives in the activity, and in particular about the structure of the benefits to which he will be entitled and the provisions of the Partnerships Ordinance and the partnership agreement that regulate his activities. Another significant aspect regarding which the Authority’s staff seeks disclosure concerns business successes and failures, as well as aspects that indicate a defect in the credibility of the controlling shareholders and officers in the general partner. The need for this disclosure stems from the much reliance on these factors and the characteristics of the corporate structure of R&D partnerships.
These requirements were also formulated while considering and comparing the activity characteristics of the R&D partnerships to the parallel activity in the private raising market, of venture capital funds raising capital from sophisticated investors while examining the disclosure given by them to investors and the incentive structure of their executives.
The following are the main anchors that the Authority seeks to adjust in the stock exchange’s regulations:
A. It is proposed to increase the minimum amount raised by the R&D Partnership to the amount of NIS 50 million – the minimum amount raised by public partnerships is currently NIS 25 million. Of this, a total of NIS 20 million from the public and NIS 5 million from the general partner and / or controlling shareholder Bo, who is the entrepreneur of the R&D partnership. Raising the minimum fundraising amount will increase the likelihood that institutional investors will be required to participate in IPOs, whose participation will signal to the general investing public the nature of the IPO.
Raising the amount will also allow partnerships the ability to spread more widely and make complementary investments in successful ventures without the need for follow-up issues. Therefore, it is proposed to increase the minimum fundraising amount of the R&D partnership to the amount of NIS 50 million, while adjusting the value and rate of the minimum public holdings and the value and minimum investment rate of the general partner at those rates. The investment of the general partner will not be less than NIS 10 million, in order to improve the entrepreneurs who come to the partnerships and increase their commitment.
B. It is proposed to extend the blocking period imposed on securities held by the general partner and its controlling shareholder in R&D partnerships – a stakeholder in the corporation at the time of registration for trading is currently subject to a total blocking period of 18 months – of which a total blocking period of 3 months and a “drip” period During a 15-month period, an interested party may make a transaction on a monthly basis that does not exceed 2.5% of the securities held by it.
The goal is to create an identity of interests for at least three years – extending the period will ensure that the entrepreneur will not reap a quick profit and will not realize holdings soon after the partnership has raised money from the public and then he may be indifferent and take unnecessary and / or exceptional risks. Therefore, the Authority believes that it is appropriate to set a blocking period of 36 months for the general partner in the R&D partnership and its controlling shareholder – of which 12 months of total blocking and 24 months of partial blocking, in which he will be allowed to sell securities of no more than 2.5 % Of the securities held by him, it should be noted that the proposed block corresponds to the practice in the private market.
third. It is proposed to create an affiliation of the partnership’s investments to the Israeli economy only – therefore, it is proposed that the research and development activities of each target company in which the partnership invests will be as defined in the R&D Law and will also meet the R & D law’s objectives.
D. It is proposed to designate for specific investments a minimum amount of 50% of the issue consideration – the rationale underlying this requirement is that in the absence of a specific consideration for part of the issue consideration, investors will not have information about designated assets that the partnership intends to invest. Their reputation and business experience. To date, the partnerships have earmarked a minimum amount of 15% -20% of the issue in the prospectus for the first issue for such investments. In order to ensure registration for trading of partnerships in more “mature” stages and in order for investors to have information about designated assets, the Authority’s staff believes that there is room to raise the minimum threshold rate.
God. It is proposed to update the manner of investing the funds received from the issue proceeds to ensure their value for the period of their holding until their realization in favor of the partner investments – R&D partnerships for the issue are intended for investments in target companies that meet the set conditions. And the length of time expected to elapse from the date of the issue until the actual investment is made may be long.Therefore, the partnership must ensure the preservation of monetary value for the remaining issue and not use them for speculative purposes in a way that would endanger the holders of the limited partnership.
Investing in channels of this type of a substantial part of the issue is also in conflict with the rationale underlying the option given to register R&D partnerships for trading, which is encouraging and financing research and development activities as their exclusive field of activity. Their holding until their realization for the benefit of the partnership investments, therefore, it is proposed to determine the manner of investing the funds received from the proceeds of the issue so as to ensure their value for the period of their holding until their realization in favor of the partnership investments.
The full document