How Covid Caused IPO Fever on the Tel Aviv Stock Exchange
TEL AVIV, Israel — Israeli tech companies like SavorEat normally raise cash from venture capitalists, private and ange investors in Israel and especially abroad.
But 2020 was not normal.
And that is why this Rehovot-based alternative protein startup was one of 29 Israeli companies that more than tripled the annual number of initial public offerings (IPOs) on the Tel Aviv Stock Exchange (TASE).
“Due to coronavirus, foreign money isn’t coming to Israel as much. And our product is something that people want to see and taste and experience; it’s not like a software product you can share through a link,” SavorEat cofounder and CEO Racheli Vizman said.
“In the last year, institutional investors — the largest players — suddenly looked for alternative investments and we are looking for alternative means of resources,” she says. SavorEat, the first-ever food-tech startup listed on TASE, raised about $13 million in its IPO.
The localization trend was accelerated by TASE reforms making it easier for companies to file in English, to dual-list and to use a simplified method to determine IPO prices. Also, the government created a safety net for institutional investors to recoup some of their money if things don’t turn out well.
“They were able to take more risk, and so we got huge interest from institutional investors that we would not have gotten a couple of years ago,” says Vizman.
“At the end of the day, it’s all about people driving solutions. We are trying to create a huge impact in trying to convince people to move from meat consumption to alternatives, so an IPO gets exposure and traction with potential pilot partners around the globe.
“When you go public, investors become your full partners; there are no preferred shares. It simplifies the entire process. TASE was very excited about this IPO and willing to assist us. It’s a success story for them too.”
New economy, new opportunity
Indeed, 2020 saw 30 new companies on TASE compared to seven in 2019.
There were no IPOs in March, April or May, when Israel was in its first lockdown. But by Dec. 30, companies had conducted IPOs worth approximately a combined $1.4 billion on TASE.
Of the total, 19 are technology companies — cleantech, food-tech, agri-tech, biotech, construction-tech, electronics and optics — and five are limited partnerships, which are basically tradable venture capital funds. Dozens more high-tech companies are now in various stages of pursuing an IPO.
“This is a huge change for the stock exchange,” says Lior Navon, TASE’s head of sales and markets development. “In 2019, we had zero technology company IPOs; two were supermarkets and three were financial service companies.
“The pipeline for 2021 is growing dramatically on a daily basis; we have about 70 companies that are aiming to go public next year.”
In December, robotic surgical device startup Human Xtensions joined TASE’s Biomed Sector of 33 companies (including eight in medical devices) with a total market cap of $24.5 billion.
“As a public company, Human Xtensions can achieve its business goals faster,” said co-founder and CEO Tami Frenkel.
Navon observes, “There was a lack of early- and mid-stage funding for Israeli tech companies that used to rely on venture capital funds, mainly from overseas. Companies now realize they can get better valuation on the stock market than in the private market.
“Founders and entrepreneurs are now looking at TASE in a new way, seeing opportunities and demand on the local stock exchange that they did not before.”
Investors’ new appetite
The Covid-fueled downturn in March caused institutional investors to take a step back and reassess stocks that they didn’t see before, Navon said.
“Most institutional investors in Israel used to invest in fixed income — bonds and traditional sectors such as real estate and finance. Their change in appetite to technology came with the pandemic. They saw a lot of tech companies exploded after the start of the pandemic in the US and they now realize they need to invest more in the new economy,” he says.
Close to 135,000 new investment accounts were created on TASE in 2020, compared to less than 100,000 in 2019.
Results have encouraged participation.
“We saw double-digit performance on the first day for many companies. As of the end of December, there are companies that have done 150%, and most did 20, 30 or 40% and up since the IPO,” says Navon.
And it’s not just IPOs.
Los Angeles-based Group 11, led by American-Israeli venture capitalist Dovi Frances, just announced the issuance of a new $100 million fund on TASE UP, a new electronic funding platform for technology companies “not yet ready to go public,” says Navon.
This marks the first time a VC fund investing in high-tech (much of it Israeli, such as Tipalti and Next Insurance) has offered this kind of opportunity to TASE investors.
“This is the opening shot for what will become the standard in the coming decades — the availability of venture capital funds to qualified investors and institutional investors through a central platform, which allows free purchase and sale of their limited partnership rights in the fund,” said Frances. “Full transparency of performance will result in a natural selection of the best performing funds.”
Navon notes that Covid-19 drove a lot of retail investors — non-professional market participants — into TASE, causing a dramatic rise in daily trading.
In a departure from tradition, more of those retail investors are young Israelis.
“The numbers we’re getting from our exchange members show more and more millennials and even Gen Z are opening trading accounts and becoming active in the market, similar to the ‘Robinhood’ trend we see in the U.S.,” says Navon.
“I think they have more time to invest and the awareness is definitely out there. We’ve seen a lot of new accounts opened since the pandemic began,” he says.
These are mainly 20- to 40-year-old high-tech entrepreneurs and employees who are trying to do more with their money.
“They are not very sophisticated in investing in stocks, but we are seeing more participation and we have some initiatives for educating this generation,” Navon said.
Navon says TASE expects the momentum to continue after the pandemic passes.
“We need to build a pipeline and work with companies at an earlier stage. That’s why we launched the new TASE UP platform,” he says.
“We believe the public market and institutional investors need to invest much more in technology. The public market has more than a trillion shekels in cash accounts and does nothing with it,” Navon continues. “We at TASE need to be a major player in the Israeli economy and that is happening. We have more people in our sales division speaking to those companies and helping those companies grow and develop the local capital markets.”
With an eye toward foreign investment returning to earlier levels, in June TASE launched the first English version of its corporate website.
And in December, TASE signed an agreement with the Abu Dhabi Securities Exchange (ADX) enabling UAE and Israeli companies, for the first time, to take advantage of new financing and investment opportunities and to collaborate in developing and commercializing innovative financial technologies.
Israel was not the only country to see a major uptick in IPOs in 2020; in the U.S., there were 480 such deals, an all-time record for exchanges based there.
How Covid caused IPO fever on the Tel Aviv Stock Exchange appeared first on ISRAEL21c.
(Edited by Matthew B. Hall and David Martosko)