“What we’ve seen over the past 12 months is not just companies that have been successful in raising large sums or going public at high valuations with founders pocketing big sums, but we have seen another layer of executives that get richer very very quickly. The market rhetoric is that there will be between 10,000 and 20,000 new rich people in Israel over the next 12 months. This is double the current figure and I am not sure the financial management industry is ready for this situation, ”said Karen Schwok, owner, founder and CEO of Lucid Investments and former CEO of Pictet Wealth Management Israel.
“In the same way that we say the market is not ready when it comes to manpower, neither am I convinced that we are ready for this,” Schwok told CTech. She believes there is even a terminology gap between investors and their investment managers when it comes to questions regarding the investment of money received from IPOs, PSPCs and the secondary market. “Finance is a different language and sometimes I feel like I’m talking to them but they don’t understand the terms. It is true that they are very intelligent people, but it also takes them 6-12 months to study the sector and know how to manage themselves. They need to understand the terms and understand issues such as tax ramifications and how to act properly in an environment with such problematic interest rates. “
One of the most recent examples of a company that has created a massive amount of new rich in a short period of time is Gong, which last week became the most valued private company in Israel’s history after having raised $ 250 million at a valuation of $ 7.25 billion after money, effectively tripling its valuation in 10 months. The company employs 600 people, all of whom have stock options. It is estimated that a total of 10 to 15 percent of the company’s shares, valued at at least $ 750 million, are owned by employees.
“What is happening in the country right now is that we are seeing companies that, instead of being acquired at a relatively early stage, are expanding and doing IPOs or PSPCs, and the secondary market is in. expansion, which changes our dynamic with the founders. I sit down with entrepreneurs or start-up investors and we have real discussions regarding the valuation of the business and we have very different perspectives, so it’s a very healthy process in my opinion.
“You can’t ignore the fact that this money is also seeping into other sectors of the economy like real estate. If there are 10,000 or 20,000 people who now have a million dollars, you can understand what that will do for real estate in Tel Aviv or other in-demand areas of the country.
Do you think the number of rich people will continue to increase?
“I think so … One of the amazing things that is happening is that the founders of companies that are publicly traded or traded on the secondary
market have a lot of power over the investment banker. They are making history and they don’t want one of these bodies to decide for them.
Is that why they are also investing in PSPCs?
“I will go even further. I believe that in future IPOs, regulators will allow founders to sell their shares either during the public offering or nearby. This is the exact process that causes people to receive the money at an earlier stage. This will speed up many processes in the ecosystem because they will have money and know, for example, that a friend of theirs has a very disruptive idea and now they will have the money to go ahead and fund it, which they don’t necessarily have until now. I know many entrepreneurs who have invested in start-ups and haven’t seen their money since. The terms of the initial public offering and the development of the secondary market have considerably changed the dynamics.
But in the meantime, hasn’t that hurt investment in start-ups?
“I think there is one element that we are missing here. I look at all the big tech companies that have very high valuations and mountains of cash and I believe that at some point they will have to deploy. We still don’t see this happening on a significant scale, but it could happen in six months or 12 months and it will lead to higher valuations and much greater interactions between large companies and start-ups. “
What do you think about investing in PSPCs?
“As an investor, I don’t like the idea that I provide an open check and don’t know what will happen to it. So I am initially very cautious about investing in PSPCs. At the end of the day, the PSPC itself isn’t very interesting, but rather the person who runs it and who you basically give the money to. It is important to note that their interests are not the same as mine. One of the main issues I foresee in PSPCs is that they will have difficulty deploying. You see what happened to the reviews and you can’t really figure out how this ecosystem is going to survive on so much money. It is clear to me that even if we donate money to a PSPC there could be some issues ahead and it is clear to me that their interest is to complete the fundraising and deploy as quickly as possible because then they will receive their reward. But I have the exact opposite interest as an investor. I want them to handle this for the long term, which means my interest is that I will have executives who come into these companies and these boards and actually build the business.
“That’s why I say I like the concept of PSPC, but I can’t say it’s a tool that we use widely. We are cautious about this situation because sometimes people who run PSPCs can be inexperienced. They may be great investment bankers and they know how to raise money, but that doesn’t mean they are necessarily good managers in the post-deal situation. I have to admit that not all clients are interested in getting involved in these kinds of investments and I think it will take time for investors to digest this development.
According to Schwok, who specializes in family office services, there is another problem in the local financial ecosystem as banks will struggle to provide quality, personalized service to such a large number of clients. She said that the fact that most local banks do not specialize in foreign ETFs hurts the wealth management services they provide to their clients. “Each advisor in a bank, and even in the best departments of the big banks, serves between 300 and 500 people. There is no way to provide good service in such a situation. When I left Pictet three years ago, I had 100 clients and felt like I was suffocating. This is not a healthy situation and the banks must prepare for it.