The startup, the dream and the weed

Trolling the Tel Aviv Stock Exchange's Web site for corporate announcements can be vastly entertaining. Really, it can. Take the announcement from Tuesday, a full year since the last time a company tried to float on the Tel Aviv stock market.

The announcement came from a little bitty startup called Galten Global Alternative Energy, which wants to offer shares to the public. Galten published a prospectus, which means a book describing itself, its business plan, its management and much else, because it wants people to buy its shares. Specifically, it wants to raise NIS 40 million from the public.

These are days when even government companies can't even borrow from the banks, let alone investors. These are days when the world's biggest insurance company, American International Group, admitted that it managed to lose nearly $62 billion in just 92 days - the last quarter of 2008. That's roughly Israel's annual budget.

These are days of equity markets seizing up, mounting layoffs, cracking consumer confidence, credit downgrades. And, it turns out, these are days when Galten thinks it can raise money from the public.

Apparently the self-described "clean-tech startup" has a remarkable public-relations team, because the announcement of the "first bud in the primary market" of new offerings appeared in just about every media outlet. But a deeper look into the case begs several questions about the stuff Galten wishes to sell (itself as an investment story), and about its chances of success. It is possible that this first bud might even start to grow, only to shrivel.

Galten is truly a startup. It was founded less than a year ago. Based on its prospectus, it is running a venture that aims to "create sources for the distillation of bio-diesel from perennial cultivation of the jatropha plant, which is not fit for human consumption, in Ghana, Africa."

Ostensibly, Galten has placed itself in the center of the action. U.S. president Barack Obama has breathed fresh life into the sphere of substitutes for fossil fuels. But the whole issue of bio-diesel as a viable substitute remains debatable and also, far-off. Galten writes in its prospectus that it's already started to work jatropha plantations, to produce oil as a raw material for bio-diesel. But it needs capital to substantially expand its area under cultivation and to start production.

So far the company, which is based in the town of Kadima, has sowed 400 dunams (99 acres), which is a tenth of the area it plans to cultivate in that particular plantation. But Galten is ambitious: its plans for the plant call for 100,000 dunams, or nearly 25,000 acres. Its aim is to produce 15,000 tons of jatropha oil a year within three years, selling for $10 million a year.

Thus, at the height of the most complicated economic crisis in history, equipped with a botanical opinion about the cultivation and production qualities of the jatropha plant in Ghana, armed with pathetically small shareholders equity of NIS 340,000, innocent not only of sales but of having produced a drop of oil - Galten is taking the leap.

Its initial public offering will last anywhere from 21 to 180 days, which could make it one of the longest flotations in Tel Aviv history.

Apparently, the reason for the unusually long flotation period is that the shares won't actually be listed for trading on the Tel Aviv Stock Exchange - they'll be offered to some 35 investment institutions.

Galten isn't even hiring underwriters to handle its offering, which brings to mind the case of LifeWave. That medical technology company raised NIS 7 million in mid-2006 without availing itself of underwriter services (and paying their fees).

The courage to brave the markets without an underwriter is probably because it's equipped not only with a botanical opinion, but also with Ramy Ordan.

Ordan is a seasoned market animal and one of the owners of Xpert Financial Group. Ordan owns 3.6% of Galten's shares, before the future offering, and also sits on the company's board of directors. He's one of the signatories on its financial statements, as the company has no chief financial officer, and Ordan has also been cited as the person organizing Galten's initial public offering.

He seems to have made a pretty good deal, all told. Just a month and a half ago, the company carried out a private placement of shares with four investors (including himself), according to a company valuation of $4 million. Today it hopes to float at a company valuation of $30 million, which is more than seven times higher.

True, Galten is formally a year-old infant but it turns out to be one of those companies that lived before its birth. In the summer of 2007, several announcements were published in the press about a company called Galten intending to raise capital. One piece reported that Galten meant to raise an astronomical quarter-billion dollars, for which purpose it hired the British company Capital Partner to lead its offering. Then, like now, its advisers regarding the offering were Deloitte-Brightman-Almagor and the law offices of Gornitzky & Co.

Seen otherwise, so far Galten hasn't managed to find enough investors, so now it's trying a new tack, hoping to tap the public.

The company is controlled by Shlomi Jonas and Doron Levi, who each own a 33% interest. Jonas served as CEO and Levi as chairman. The company's Web site states that both are businessmen: Jonas handled overseas marketing for an Israeli medical company, and Levi used to own an insurance agency, and is an expert on coaching.

Galten, which as we noted hasn't any sales to boast of yet, entered three-year contracts with Jonas and Levi. Each gets management fees of NIS 40,000 a month plus VAT. After the offering, each will get cost reimbursements of NIS 20,000 a month on top of that. If Galten completes its public offering, it will immediately adopt the culture of listed companies and pay the two NIS 720,000 a year as management fees.

From its official establishment in May 2008 to September 2008, or, in just four months, the company achieved a cash burn of $254,000. In the third quarter alone, it lost $223,000 (about NIS 900,000).

Galten could not comment for this report because it is in the process of flotation.

By Sharon Shpurer
Source: haaretz.com