What is a private offering?
“99% of companies worldwide raise capital through private offerings, where the company identifies an investor and allocates shares to them. Why are most offerings conducted privately? Because when the fundraising is done privately, the process is much simpler—without oversight or regulation.”
Can you give an example?
“For instance, if a person decides to establish a chain of stores but does not have sufficient capital of their own, they will seek partners. If, let’s say, they need 10 million shekels to execute the move, they will approach friends and family and raise the funds. If they find 10 friends, each contributing one million, the ownership structure of the company could be as follows: each will receive 5%, and they will retain 50% of the company for themselves.”
And in contrast, what happens in a public offering?
“A company that wants to raise capital from the public and wishes for the company’s shares to have value at all times must go to the stock exchange and conduct a public offering.”
Roni Yagerman, Co-Founder at EXITEAM
How is the process conducted? When is a prospectus written?
“The offering process is very similar in all countries. You go to an investment bank called an underwriter, hire lawyers and accountants who will prepare financial statements according to international accounting standards. Then you write a 150-200 page document describing the company in all its aspects, the method of fundraising, and the securities or shares through which you wish to raise the capital. This document is also called a prospectus.
“The prospectus is submitted to the securities authority, which is responsible on behalf of the state to approve the document and ensure it truly meets the criteria. The securities authority will request to see employment contracts and other data, and in many cases will also provide hundreds of comments on the prospectus. The company will correct and clarify the document until the authority is satisfied with the description in the prospectus and approves it. Once there is an approved prospectus, you can proceed to raise capital.”
From whom do you raise capital? How long does the process take?
“You can raise capital from institutional investors—pension funds, insurance companies, hedge funds, and more; or from the public—from private individuals like Mrs. Cohen from Hadera. Fundraising from private individuals is done through brokers and investment houses that offer it to their clients.
“For example, people with a securities account can participate in offerings. Typically, the fundraising process takes less than a month and includes presentations to major investors.”
Why do companies choose to go public?
“First of all, because they want to have a tradable security that can always be liquidated. When a company is public, its shares can always be sold on the market. In contrast, if the company is private, its shares are not liquid.
“Two additional key reasons are reputation and minimal interference. First, a public offering may enhance the company’s reputation and contribute to its public profile. Second, when raising capital from a private investor, they will typically be more involved in the company’s affairs, whereas raising capital from the public leaves control in the hands of the company.”
And how does EXITEAM’s model fit into our conversation?
“EXITEAM’s model combines private and public offerings. We enter through a private offering, between six months to a year before the public offering, raise convertible bonds for the company, accompany the company, and ultimately assist it in reaching a public offering and value growth.”
