Sivan Siboni Scherf
In the past year, the number of startup companies traded on the Tel Aviv Stock Exchange keeps increasing steadily. The stock exchange, formerly perceived primarily as the home court of well-established industry, energy and real estate companies, is transforming as we witness more and more startup companies going public. The expansion of the partnership model on TASE, over a year ago, opened a new gateway for many startup companies to enter the trade.
The influx of startups on TASE brings along concerned voices emphasizing the danger to the public’s well-being deriving from investment in startups, and questions such as “Why does Mrs. Cohen from Hadera need startup shares in her pension fund” rear their head as well.
The concern is clear: no one wants investors’ money to go down the drain, but more than a real, established concern, this, to me, represents mainly the concerns of the old world. The world is evolving, and investment channels such as startup companies, which used to be challenging to analyze using traditional methods, had now become mainstream. Market analysts – both in Israel and overseas – are capable of seeing the opportunity these companies hold despite the risks they involve.
Israel is widely considered a global hi-tech leader, being perhaps the country with most startup per capita. Startups are part of the Israeli landscape, so why should the Israeli stock exchange only showcase veteran industry and real estate companies?
In fact, the presence of startup companies on TASE greatly contributes not only to the startup itself, but also to the economy as a whole. Being part of a publicly traded startup company myself, I can highlight a couple of positive aspects the public platform provides investors.
- Transparency – private Israeli startups lack transparency. Once in a while, the public discovers them in a promising news article, typically scheduled to be published around the time of the startup’s raise round, following which the startup disappears back into the shadows with no need to keep the public posted. Next time anyone hears about it, it will probably serve another company business need. When the company is public, no such thing can happen: everything is on the table, for better or worse. Investors know what the company’s revenue was, how much funds it has, what were its buisness successes and failures and whether the company is facing a capital raise.
And not only investors: how often do we hear about employees of a startup company caught off-guard with the company’s going out of business or an unexpected layoff round? Employees of a public startup company are exposed to the company’s business information as much as the rest of the public, and I can attest personally to the fact that it significantly diminishes the typical startup rumour mill.
- All or nothing? Not on the stock exchange. Pessimists and worriers always warn of startups being dangerous zero-sum games. This may well be true when the startup is privately held. Startups used to be projects which either succeeded or failed, and if they failed it was due to either the technology failing or lack of financial ability to sustain themselves. Many excellent startups went under over the years because investors simply no longer had the patience to keep supporing the company. With public companies, the risk is divided between more entities, and there are numerous financial instruments and rapid access to funds that enable the startup’s ongoing existence until its exit or business success which will facilitate its independent existence.
Importantly, startups are like any other investment – no investment, in startups or otherwise, should be entered into based on chitchats or an online article you encountered.
We can always complain about the risks investments in startups entail, but ultimately we can identify in retrospect many risks in companies with positive cash flows.
Over the years, the Israeli stock exchange knew how to generate and adopt innovative investment tools, and it was again wise to recognize, based on the understanding that such opportunities will provide protfolios an added value, that it’s time to open the door and allow the public to discover emerging companies.
The author is VP HR at Foresight, a startup company traded on the TASE
Follow the link to read the original Globes article in Hebrew