A Guide for Israeli Start-Up Companies
Entering the U.S. Market
Through New York StateThrough New York State
Key Legal and Business Issues
Asaf Hahami, Esq.
April 30, 2014
The New York State Start-Up Scene
“Start-Up New York” Program
– startup.ny.gov– startup.ny.gov
New York City – Silicon Alley, Cornell Technion/Google
Expansion in West side of Manhattan/Midtown East
expansion/Tech and life science hub Brooklyn
Upstate – Capitol Region – Albany – Collaboration
Western New York – More than a frontier, but a growing
Start-Up ecosystem near Niagara Falls and Canadian tech hub
43North – World’s largest business plan competition in
America’s most affordable City (Buffalo)
Market Potential and Trajectory
Entrepreneurs from Israel set up between 600-700 new tech
companies each year. Israel has 6,000 or so active start-ups, butcompanies each year. Israel has 6,000 or so active start-ups, but
only 1,000 of those successfully raise venture capital locally,
according to IVC Research Center. Some of those have unique
Many Israeli companies already in U.S. (Silicon Valley, Boston,
NYC – estimated 200 Israeli tech start-ups are in NYC alone); 65
Israeli companies on NASDAQ.
Attractiveness of New York State as Market Entry Point –
diversity, size, types of markets, breadth of industries, etc.
Typical Trajectory of Israeli company entering the U.S.
What An Israeli Company Needs to Enter
Money – refer you to 43North and other investors
Support – 43North accelerator program and other acceleratorsSupport – 43North accelerator program and other accelerators
Access to U.S. Market – need for market penetration
– Requires commitment of executives and dealing with host of
legal and business issues
Questions About Entering U.S. Market
If you are an Israeli founder thinking about a move to a larger
market, how do you enter the U.S. market? What is yourmarket, how do you enter the U.S. market? What is your
How do you establish and capitalize a subsidiary or other
What key legal and business issues do you have to worry about
as you leap into the U.S. market (corporate structure, tax,
finance, operations, marketing, employee/HR issues,
intellectual property protection, immigration)?
What are the rules of the road that you must think about?
Formation & Tax Planning
Delaware “C” Corporation with authority to do business in
New York StateNew York State
C Corp as preferred vehicle for Israeli subsidiary in U.S. and for
venture capital financing from U.S.-based funds
Limited Liability Company
– Advantages and disadvantages
U.S. tax issues vs. Israeli tax issues
Tax Treaty and IP Issues
U.S.-Israel Tax Treaty
Intellectual Property Location, Transfer and Sale Issues
Venture Capital Financing Features of
% “Interest” on Investment
Liquidation PreferenceLiquidation Preference
Participating Preferred vs. Convertible Preferred
Anti-Dilution Protection Formulas
Dividend Rights (simple vs. cumulative/accruing)
Special Voting Rights
What’s Left for Founders and Employees?
Sweat equity gets common stock.
Capital gets rights, preferences, privileges and protections ofCapital gets rights, preferences, privileges and protections of
Founders and employees get potential for upside and incentive
to drive up enterprise value.
Employees in the U.S.
Will have to deal with a host of applicable U.S. federal, state and
local laws and regulations.local laws and regulations.
Ensure proper employment agreements with confidentiality and
IP assignment agreements in place
Document employee grants to avoid diligence problems down
Employees vs. Independent Contractors: Your company does
not want to be in a situation where your independent contractor
is later found to be an “employee” for federal and/or state law
purposes, so avoid penalties.
Restricted StockRestricted Stock
Change of Control
– Limited window to exercise stock options, repurchase rights,
rights of first refusal, drag along
Space and Real Estate Leases/Equipment
Real Estate LeasesReal Estate Leases
– Written lease
– Dealing with landlords
– Limits of use of property
– What happens in a change of control?
Intellectual Property Protection in the U.S.
Investors, acquirers and commercial partners will perform due
diligence of your company’s intellectual property protection in
the U.S.the U.S.
– Does the Israeli company really own the IP? Can third
parties step in and claim ownership?
IP Assignment Agreements – differences when involving
individual, previous employer, university, government
Trade Secret – what is protectable?
Trademarks and Service Marks
Data Security and Privacy – the U.S.
U.S. federal privacy laws
HIPAA for health informationHIPAA for health information
Gramm-Leach-Bliley Act (GLBA) for financial activities
Children’s Online Privacy Protection Act (COPPA) and FTC
State privacy laws
Data security requirements
Commercial law issues – unique contractual issuesCommercial law issues – unique contractual issues
Sales representative laws in various states, and payment of
Additional securities law issues as company grows
Antitrust issues (for larger companies)
Immigration Status While in U.S.
F-1 Immigrant Student Entrepreneur
L-1 Visa for Intra Company TransfereesL-1 Visa for Intra Company Transferees
L-1 New Office
E-2 Treaty Investor
H1-B Specialty Occupation
EB-5 Immigrant Investor
For Further Information, Contact:
Asaf Hahami, Esq.
Phillips Lytle LLPPhillips Lytle LLP
The New York Times Building
620 Eighth Avenue, 23rd Floor
New York, NY 10018-1405
Office: (212) 508-0432
Mobile: (917) 648-5060