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Start-up employees get stocks for free

Since 2004, Advasense has tried to develop microchips for cellular appliances, but the venture capital funds that invested in it – Giza, Genesis, VentureTech and Blu-Ran – have lost hope

Assaf Gilad, Calcalist |Published: 10.18.10 , 17:28

A precedent in Israeli high-tech: For the first time, high-tech company employees received company stocks without going through legal proceedings, Calcalist reported Sunday.

Venture capital funds that invested in Advasense – Giza, Genesis, VentureTech (the venture capital division of microchip factory TSMC) and Blu-Ran – transferred all of their holdings in the company to three employees, for no compensation.

In addition to the employees, the company is also owned by Krauss, a loan fund that invested $1 million in Advasense as a venture capital loan.

According to research site IVC, four venture capital funds, as well as Taiwanese bank CIDC, invested $30 million in Advasense over the course of several years. The transfer of stocks to the employees took place last year, after the recipients took a cut in salary and benefits.

One of Advasense's founders is serial entrepreneur Gidi Barak. Since 2004 the company has been developing a microchip to improve the quality of pictures taken on cellular cameras in relatively dark conditions. The microchip knows how to increase exposure to low light while canceling out temporary shaking. The company expects the microchip to be marketed at the end of 2010 or beginning of 2011.

Despite the difficulties, the gamble taken by the employees who manage the company may pay off: A few months after the stocks were transferred from the venture capital fund to the employees, Advasense signed a development deal with US camera sensor manufacturer Aptina.

As part of the deal, Aptina invested $6-8 million in Advasense, which was transferred to funding development. The transaction did not include Aptina's acquisition of Advasense stocks.

'Rare case in high-tech industry'

In the past year, Advasense invested most of the sum, and in the near future it will try to recruit new funding. According to sources close to the company, Advasense intends to try to recruit more capital from venture capital funds.

Sources in the company hope that despite not having launched a product since its establishment in 2004, the fact that the company currently has a strategic customer will make it somewhat easier to assuage investors' concerns.

Giza Chairman Zeev Holtzman said in response: “This event took place nearly two years ago. We tried to save the company a number of times, unsuccessfully, and eventually we decided to transfer the stocks to the person with the biggest debt, Krauss, and the employees. They kept trying to save the company, and to the best of my knowledge this was not successful. I don't know about recruiting money from the American company. We haven't been in the picture since we transferred the stocks.”

Yair Shoham, a partner in the Genesis Fund, told Calcalist. "We opted to leave the company alive and transfer the stocks to the employees after we heard about the funding deal with sensor manufacturer Aptina. This was a rare case in the high-tech industry – that a company successfully survived after being transferred to its employees.”