2017 Opportunities & Risks

Oren Bar On

February 6, 2017

Page 2

Agenda

► US Election Impact

► Tax

► Immigration

► Health Sector

► Ecosystem : What happened in 2016?

► Five key themes for M&A in 2017

► Why 2017 is excellent year to invest?

Page 4

US Election Impact

► Fiscal policy - tax reduction and increased investment in infrastructure

► What is the impact on technology companies?

Page 5

Tax reform: overall state of play and proposals

► Replace corporate income tax with 20%

► Reduced individual tax rates: 12%, 25%, 33%

► Mandatory tax on accumulated foreign earnings

► NOLs could be carried forward indefinitely

► One significant difference - House Blueprint is intended to be revenue

neutral while Trump Plan has been scored as losing trillions of dollars.

Republican

House

Reason for

change

► Income tax rate seen are not globally competitive

► International tax system compels profit shifting to low-tax jurisdictions and erodes US

tax base. Low US rate may make the US competitive as an IP or Principal company

► Motivate economic growth and job creation

Trump

► 15% business income rate

► 10% mandatory tax on accumulated foreign earnings

► Individual: 12%, 25%, and 33% rates; deductions capped at $100,000/$200,000

► Carried interest would be taxed as ordinary income

Page 6

Trump Tax: highlights – Impact on any tax payerTop corporate tax rate 15%

Taxation of future foreign earnings In 2015, proposed immediate worldwide taxation, repeal of deferral

Taxation of accumulated foreign

earnings

10% mandatory tax

Cost recovery Expensing for manufacturers

Interest Manufacturers who elect to expense lose the deductibility of interest

Other business provisions Most eliminated, except for R&D Credit

Individual tax rates 12%, 25%, 33%

Capital gains - Existing capital gains rate structure (maximum rate of 20 percent)

- 3.8% Net Investment Income Tax (NIIT) repealed

Dividends Existing rates but NIIT repealed

Carried interest Ordinary income

Estate tax-now 40%, $5.43m

exempt

Repealed, but capital gains held until death will be subject to tax, with the

first $10 million tax-free

NOL Carried Indefinitely

Itemized deductions Capped at $100,000 for single filers and $200,000 for married filers

Border Tax A tax exemption for exports would Incentive outbound cloud / digital

transactions from US developed IP

Timing There is a realistic possibility that tax reform could get passed and

effectuated in 2017 – making planning very time sensitive for December

31st and certain fiscal year filings

Page 7

US Election Impact

► Deregulation primarily in the financial, energy, and pharmaceutical

fields and more regulation on cyber security

► IPO’s, increase public investment in Cyber

► Trade policy- significant risk on the global supply chain of tech

companies

► Chinese products, India as a service center, Cost + centers

► Immigration policy- impact on the demand: inflation on the one hand

and corporates profits on the other

► The ability to obtain H-1B visas for software engineers

Page 8

Page 9

US election Impact

► Monetary policy- interest will go up, but budget blow up..

► Currency War - ?

► “Make America great again” – what does it mean for

Autonomous cars, HC system.

Page 10

US Election Impact on Health Sector

► The health care industry invested million of dollars to be prepare for

business under Affordable Care Act.

► A Repeal of ACA would lead to 22 millions of people losing insurance

which will increase uncompensated care and bad debt to pre-ACA

level.

► Hospitals will need to reduce cost and will lower healthcare spending

► After election large healthcare facilities and healthcare shares went

down.

► What does it mean for Israeli companies that their clients and targeted

clients are hospitals and healthcare providers?

Page 11

So what happened in 2016?

Page 12

Winter is coming? The winter was moderate in 2016

► Chinese

Page 13

“Start-up fundraising in Silicon Valley wouldn’t function without Chinese money. It has changed the landscape.”

Chris Nicholson CEO, skymind.io

Page 15

Winter is coming? The winter was moderate in 2016

► Chinese

► "Tourism” Investment

► Everything goes digital – everything moves towards industries

Page 16

Winter is coming? The winter was moderate in 2016

► Chinese

► "Tourism” Investment

► Everything goes digital – everything moves towards

industries

► Vertical eco-system,

New platforms: Autonomous car, AR,VR, AI,

Robots, IoT, Big data, Wearables, Bots

Page 17

Dramatic changes in the transportation market

► Gett: $300m from VW + $100m in debt

► Via: $100m

► Juno: a key player in NY

► Additional rounds of investments: UBER, DIDI, Lyft

► Mobileye: new partnerships: Delphi, Nissan, intel+BMW

► Ford: First acquisition in Israel, SAPIS

► GM: new R&D center in Israel

► Israel as key player in auto-tech-cyber: Karamba

Page 19

Winter is coming? The winter was moderate in 2016

► Chinese

► "Tourism” Investment

► Digital transformation for non-tech companies

► Vertical eco-system, New platforms: Autonomous car, AR,VR, AI,

Robots, IoT, Big data, Wearables, Bots

► Interest rates

Page 20

Winter is coming? The winter was moderate in 2016

► The two issues of 2015 still exist:

► Private companies high valuations, to a certain extent also the public ones

► Growth: generally not accompanied by profitability

► Capital market is still closed but seems to be opened soon

Page 21

Ecosystem (cont.)

► New issues:

► New restrictions on China capital outflow

► Buy Back instead of investment in illiquid assets

► Increase of Interest rate

► Increase in political uncertainty – 2017 election year

Page 22

US Venture investments in Q4 2016 decreases

U.S.-based companies raised

$10.17 billion in 862 equity

deals in 4Q 2016, a decrease

of 16.31% and 11.95% in terms

of capital raised and deal flow

when compared to the previous

quarter.

In 4Q 2016 the number of deals

and total capital invested

decreased by 16.31% and

48.33%, respectively,

compared to the same period

the previous year.

Equity Financings into U.S. —

Based, VC-backed Companies (2013–2016)

4Q'13

1Q'14

2Q'14

3Q'14

4Q'14

1Q'15

2Q'15

3Q'15

4Q'15

1Q'16

2Q'16

3Q'16

4Q'16

Amount Raised ($B) $9.84$12.9$16.0$11.3$18.5$16.9$20.3$20.3$19.6$13.4$16.6$12.1$10.1

Number of Deals 106910441108104010511043115010211030 960 917 979 862

0

200

400

600

800

1000

1200

1400

$0.00

$5.00

$10.00

$15.00

$20.00

Page 23

Equity financing into US based VC backed companies by round class (2013-2016)

4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 4Q'16

Later $5.19 $7.85 $10.34 $6.13 $12.08 $10.66 $12.14 $12.82 $13.37 $8.27 $7.42 $7.08 $4.78

Second $1.95 $2.11 $2.72 $1.96 $2.96 $3.08 $3.52 $3.05 $2.91 $2.11 $2.53 $2.25 $2.17

First $2.16 $1.84 $2.47 $2.20 $2.78 $2.22 $2.61 $2.82 $2.77 $2.33 $2.31 $1.90 $2.02

Seed $0.10 $0.09 $0.09 $0.13 $0.08 $0.07 $0.10 $0.08 $0.08 $0.07 $0.03 $0.08 $0.06

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

Amount Raised ($B)

Page 24

US VC backed M&As (2013-2016)

118 M&As of venture-backed

companies in the U.S. garnered

$12.15 billion during 4Q 2016.

► Compared to 3Q 2016, when

a total of 151 transactions

accumulated $25.48 billion,

the number of deals

decreased 22% along with a

52% decline in amount

raised.

► The largest M&A deal of the

quarter was

Krux Digital Inc., which was

acquired by Salesforce.com

for $700 million.

U.S. VC-backed M&A Activity (2013 - 2016)

4Q'13

1Q'14

2Q'14

3Q'14

4Q'14

1Q'15

2Q'15

3Q'15

4Q'15

1Q'16

2Q'16

3Q'16

4Q'16

Amount Paid ($B) $15 $18 $13 $21 $35 $12 $11 $16 $17 $21 $23 $25 $12

Number of M&As 153 142 145 155 132 144 108 145 134 144 148 151 118

0

20

40

60

80

100

120

140

160

180

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Private M&A Above $50M

Number

Venture

Backed

M&A

Total Amount

$M

Ave Time

To Exits

Venture

Backed

Ave Time

To Exits

2014 16 9 3,449 5.5 6.3

2015 26 21 3,630 7.2 7.5

2016 18 11 2,702 7.8 6.3

1.1

1.92.1

2.6

2.2

2012 2013 2014 2015 2016

Israel VC backed investment ($B)

$2.9b

$3.9b

$2.1b

$3.4b

$2b

2012 2013 2014 2015 2016

amount paid (deals above $10m)

Israel VC backed M&A

Page 26

What are the new opportunities?

And others…

The changing in Israeli High-Tech Funding Landscape 2016

Equity Partners 3i

15% Israeli

Less than 1B$ is a failure

Expensive ticket to get in, Low supply

18159

American entrepreneurs continue to look for unicorns:1 in 5 founders says they’re rising a unicorns

- A lot of companies at the EXTENDED seed.

- Old model tries to raise in a changing environmentNew entrance of

small organizations looking for opportunities but some are opportunistic and lack methodology and discipline

B2C16%

Cyber15%

Enterprise software12%

Data Analytics9%

e-Commerce9%

Ad- tech8%

Fintech8%

Cleantech6%

IoT4%

Marketplace3%

Smart City/home3%

DH3%

Automotive2%

Semi1%

Hardware Communication1%

Round A and seed 2016 (103 companies)

And others…

The changing in Israeli High-Tech Funding Landscape 2016

Equity Partners 3i

15% Israeli

Less than 1B$ is a failure

Expensive ticket to get in, Low supply

18159

American entrepreneurs continue to look for unicorns:1 in 5 founders says they’re rising a unicorns

- A lot of companies at the EXTENDED seed.

- Old model tries to raise in a changing environmentNew entrance of

small organizations looking for opportunities but some are opportunistic and lack methodology and discipline

Page 31

Why 2017 is excellent year to invest?

► Investors will hold the upper hand

► Some investors are tired by the high valuation

► Better DNA of companies: Increase in productivity and decrease in

salaries

► Availability of talent

► The capital market will open later in 2017 for IPOs and new valuations

order

► New Mega Trend – new wave of tech creates enormous opportunities:

VR/AR,AI, Robots, Bots, self driving cars, private spaceflights, Gene

editing, and others

Page 32

New Tech Wave-Doing the same things in much lower cost:

► Truck drivers: 3.5m worldwide; otto+uber

► Diagnosing medical imaging; zebra

► AI will be better in researching case laws

► Low level accountants will be eaten by software

► Stock traders

► AI doctors

► IoT: from 6b to 100b: needs more computing power, better research

Page 33

Five key themes for M&A in 2017

► Money that will be repatriated back from off shore can boost the

M&A

► Capital Markets are expected to be opened again

► Valuation gap to widen

► Alliances offer accelerated path to growth/innovation: digital

disruption prompts new avenues via partnership and joint

ventures, which avoid complexities of full integration

► PE must evolve to deploy dry powder: unused PE capital reached

a record $536B in 2016 (60% in the US).

Page 34

Investors: Steps towards 2017

► Early stage is where you should be short term and long term, BUT

value correctly the pre-emptive

► Expertise in specific sectors- New platforms

► Be part of Vertical eco-systems

► Small funds are in limited competition with the big ones

► More risk but better spread out

► Develop relationships to get best founders

► Look for proven business model for extended seed money. The

opportunities are out there but not as unicorns

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