How does Trendlines support its portfolio companies?

From the time of our initial investment, we are involved in nearly all aspects of our portfolio companies from technology development to business building.

Trendlines is a leader in providing technology and business development support to early-stage companies in the fields of medical and agricultural technologies. In addition to human capital, we provide our portfolio companies with technological, business development, and administrative support such as physical facilities and legal and financial services. We believe that this high support-level allows our companies to focus on developing their technology, product and markets, thereby reducing risk and increasing the chances for success.

We provide a range of services to our portfolio companies during their first years such as:

  • technology support, including R&D;
  • business development, market and commercialization strategy and support;
  • funding strategy;
  • financial support; and
  • marketing communications.

What is Trendlines’ business model?

Trendlines focuses on creating and developing medical and agricultural technology companies with a view toward successful exits, which may include sales such as merger and acquisition transactions, listing on public stock exchanges, and other dispositions of our holdings.

What is Trendlines’ organizational structure?

Trendlines operates principally through the 3 operating subsidiaries, namely, Trendlines Medical and Trendlines Agtech in Israel, Trendlines Medical Singapore, and through its own internal innovation center, Trendlines Labs.

Trendlines Medical is a technology incubator that was established in 1995, of which we acquired control in 2007. Trendlines Medical focuses on the discovery and development of novel and disruptive medical devices and technologies.

Trendlines Agtech is a technology incubator that was established in 1992, of which we acquired control in 2007. In 2011, Trendlines Agtech began to focus on the discovery and development of new agricultural and food technologies. Since 2011, the companies established by Trendlines Agtech have focused on agricultural and food technologies (“agrifood tech”) that help solve the global food crisis.

Trendlines Labs was established as a business unit of our Company in 2011 to invent and develop technologies for sale or licensing to others or for transfer to our incubators for further development and commercialization. Trendlines Labs conducts research and development activities to create new technologies, either as principal or in collaboration with global and local companies and partners, to address unmet market needs.

What are Trendlines’ competitive strengths?

Extensive network of relationships
We have cultivated an extensive network of relationships with entrepreneurs, inventors, technology transfer organizations, lawyers, patent attorneys, accountants, investment bankers, venture capitalists, and commercial enterprises in the medical and agricultural technologies markets. Through our extensive network of contacts, we are able to generate quality deal flow as well as undertake fund-raising activities.

Physical facilities and environment to support our portfolio companies
During their first 2 to 3 years of operations, our portfolio companies are housed in one of our two incubator facilities – in Israel or in Singapore. Our offices provide portfolio companies with a comfortable space in an entrepreneurial environment. The entrepreneurs benefit from working in close proximity with one another as it creates an environment that encourages cooperation, sharing ideas, brainstorming, and learning from one another. By working physically in one of our incubators, the companies have direct access to our extensive support structure, as well as to shared laboratories and equipment. Having the companies in our facilities increases our ability to monitor a company’s progress and to intervene, assist, and support as required.

Strong management team and track record
We have a strong management team with deep experience in creating, investing in, and developing companies to exit. Our Chief Executive Officers and Chairmen are both U.S.-born and educated and have lived in Israel for decades. Each has over 25 years of experience in investing, business development and bringing technologies to international markets, including in North America and China. Our key executive officers and staff are highly skilled and hold relevant qualifications.

We believe providing extensive technology and business support is a necessity to successfully establish and grow young portfolio companies. We have assembled a team that understands global markets and possesses the ability to bridge cultures to build businesses.

Leveraging on their collective experience, our management team is able to develop and execute exit strategies for our portfolio companies. In this regard, since our establishment in 2007, we have taken two of our portfolio companies, FlowSense Medical and E.T. View, public on the TASE by way of reverse mergers and led eight portfolio companies, including the two public companies, through successful acquisitions or sales to multinational corporations.

Effective use of funds
We initially fund our portfolio companies with what might be considered small amounts of capital so as to be highly efficient in our use of capital. Our ability to successfully limit the amount of capital that we put to work is predicated, in part, upon the fact that our portfolio companies, for at least their first 2 to 3 years, are located in our facilities and are extensively supported by our staff.

In addition, as a result of the franchises granted to Trendlines Medical and Trendlines Agtech by the Israeli government, we are able to leverage our portfolio investments with R&D grants from the Israeli government through the Technological Incubator Program (TIP). A typical investment of approximately US$120,000 is matched by the government in the form of contingent grants to a new company of approximately US$650,000.

Strong reputation and brand
Over the years, Trendlines Medical has twice been named the best incubator in Israel by the Israel’s Israel Innovation Authority (IIA) and five of our portfolio companies have been named the best start-ups of the year by the IIA. Together with our track record of successful companies and exits, and the events that we sponsor, we believe we have built a reputation as being one of the best incubator organizations in Israel.

What are Trendlines’ strategies and future plans?

Our strategies and future plans for the continued growth of our business are as follows:

  • Increasing number of portfolio companies
  • Building portfolio companies’ value through intense support
  • Building companies for exit
  • Trendlines Labs: creating new IP and new portfolio companies

Trendlines' single largest asset is “Investments in Portfolio Companies.” How is the value determined?

We review the fair market value of each of our portfolio companies every quarter.  When we believe there has been a change in the value of a portfolio company – either positive or negative – then the updated fair value will be determined by an external, independent valuation firm.  Changes in valuation may be due to new investments, technological status change, commercial status change, or other factors.  If there is an indication of irreparable difficulties and management believes there will be no return of investment, management may write-off the value. Even if none of these circumstances have occurred, every portfolio company’s fair value is reviewed at least annually by the third-party, independent valuation firm.

In performing the valuations, a variety of IFRS- compatible methodologies are used, including among others, Income Approach (“DCF”), Market Comparable Approach, Option Pricing Model (“OPM”), which is based on a company’s last non-Trendlines related investment valuation round, and Cost Approach.  The valuation firm advises Trendlines as to the appropriate valuation methodology, for each specific portfolio company on a case by case basis, as described in our Annual Report.

When the most recent investment in a portfolio company is in preferred shares, the OPM Model is used to calculate a discount from the value of the preferred shares to apply to the portfolio company’s ordinary shares, which, typically, is what we hold; frequently, the OPM may result in a 20% to 40% discount being applied to the value of our holdings.

Do you believe the value of your portfolio companies, as stated on your balance sheet, is justified?

We believe that the value represents a reasonable estimate of the fair value as of the date measured. The work of the external third-party, independent valuation firm is performed in accordance with generally accepted valuation methodologies, and in accordance with IFRS principles and fairly states our portfolio companies’ values, taking into consideration measurement risks as appropriate for financial reporting.  At the same time, experience has taught us that at Exit, when we have sold our shares in a portfolio company to a third-party in an arms-length transaction, it is not unusual for there to be a large jump in value of our holdings in that particular portfolio company, and we believe this jump occurs for the following reasons:

  1. The OPM approach, mentioned above, is often used for portfolio companies that have preferred shares.  This model uses parameters which may result in a 20% to 40% discount on the value of ordinary shares – the shares that we typically hold initially – compared to the value of the preferred shares.  This is because the preferred shares have priority as to any increase in value of the portfolio company – but up to a limit. Beyond that limit, the preferred and ordinary shares participate pro rata in the increase in value. When Exits occur at values significantly higher than the valuations of the investment rounds, as has usually been the case for our portfolio companies, the significance of the preferences can be reduced, or even eliminated.  In such cases, the value of our share in the portfolio company increases by both the value of the Exit and by the elimination or marginalization of the preference.
  2. In some cases, the external third-party, independent valuation firm applies other discounts to their valuations.  For example, they sometimes apply a discount based on the fact that a portfolio company is a private company and, as a result, there is no ready market for its shares.  In other cases, they may apply discounts based on identified risk factors.
  3. As previously mentioned, we have generally experienced large “jumps” in value at the time of Exits.  Actual exit values for our portfolio companies have been at least twice as high as the carrying value on our books before we knew there was going to be an exit, and, on average, much higher.  These higher exit valuations are only fully reflected on our balance sheet when the transaction agreement is fully executed.  In our eight exits, the average value of our exits has been approximately 10.1X compared to the value in our books prior to executing the transaction agreement.

What is “Deferred Revenues” in the Liabilities section of your balance sheet?

The Group, through its incubators, covers most of our portfolio companies’ overhead expenses, such as rent, insurance, and legal and accounting services, in their first two years. Additionally, we support our portfolio companies in technology development, business development, capital raising, access to government grants and administrative support.  In consideration for the incubators’ obligation to provide these services to the portfolio companies over a company’s first two years, in accordance with our commitments to the Israel Innovation Authority (the IIA), the Group receives equity interests in the portfolio companies at the formation of the portfolio company. In our books we initially record the fair value of these equity interests as an asset with a corresponding liability which reflects our commitment to provide these services over a two-year period. As the services are provided, we reduce the amount of the liability and report income from services as we “earn” the equity that we received in the portfolio companies.  The deferred revenues, although classified as liabilities in our balance sheet, are non-cash liabilities, but are our obligation to provide the services.

Your balance sheet as at 31 December 2017 reports almost US$20 million in long-term liabilities. Isn’t this a lot of debt?

Although reported as debt, about 99% of our long-term liabilities are non-recourse and, as such, are conditional debt– coming due and payable in cash only when certain value-building events occur. Our two largest items in this section, loans from the IIA and deferred taxes, only come due upon successfully exiting portfolio companies. If we write off or write down a portfolio company, the part of our long-term liabilities attributable to that portfolio company is also written off or written down.

There are three main long-term liability items:

1. Roughly US$1.3 million of our long-term liabilities as at 31 December 2017 are the long-term portion of Deferred Revenues, which, as explained above, represent our commitment to provide two years of services to some portfolio companies in exchange for shares that we received.

2. About $3.8 million of our long-term liabilities as at 31 December 2017 are made up of Loans from the IIA. This debt is primarily comprised of non-recourse loans received from the IIA under an old funding program, and are presented at fair value. Each loan was granted in regard to a specific portfolio company and is only repayable if we exit from that specific portfolio company for which the loan was received. This method of funding by the IIA is no longer in effect and IIA funding is now given as a grant directly to the portfolio company and not through our balance sheet.

3. The largest part of our long-term liabilities is Deferred Taxes, which at 31 December 2017 was approximately US$13.8 million. Deferred taxes derive mainly from the difference between the carrying value and tax basis of our portfolio companies and are recorded mainly when there is an increase in the carrying value of our investment in portfolio companies. These taxes only become due upon a taxable event, when we sell all or a portion of our holdings, such as in the event of an exit. When the value of a portfolio company increases or decreases, the corresponding deferred tax liability will increase or decrease accordingly. If we write off or write down a portfolio company, the deferred taxes attributable to that portfolio company, are also written off or written down.

Why do you show over US$4 million of Income from Services to Portfolio Companies (as at 31 December 2017)?

As mentioned before, in response to Q4 on Deferred Revenues, the Group, through its Incubators, provides our portfolio companies with services in the area of technology development, business development, capital raising, access to IIA grants and administrative support. In consideration for these services, the Group receives equity interests in the portfolio companies, which interests are initially recorded as Deferred Revenues and certain fixed cash payments from portfolio companies as per the franchise terms. The amortization of Deferred Revenues and cash payments for rendering these services over the two years of incubation, are booked into this line item.

How do you explain your Operating, General and Administrative expenses as at 31 December 2017?

Our total operating, general and administrative expenses (“G&A expenses”) for 2017 were US$8.58 million. Our G&A expenses may look high but, in fact, a substantial portion of our G&A expenses are actually investments into our portfolio companies. As mentioned above, the key to our business model is being extremely involved in our portfolio companies; accordingly, we provide services to our portfolio companies that cost us approximately US$4.9 million in 2017. We believe that these expenditures significantly increase the chances of our companies succeeding. At the same time, the expenditures effectively reduce the amount of working capital that our portfolio companies require by spreading overhead expenses over a number of companies and by providing this support at cost rather than requiring the companies to hire profit-focused third-party consultants who – unlike us – do not have major holdings in these companies. Because the cost of these services are concurrently recognized as income as we earn shares in our portfolio companies, we are essentially capitalizing these expenses as an indirect investment.

Our total 2017 G&A expenses of US$8.58 million also include approximately US$1.7 million of expenses related to our being a public company. Net of portfolio company-related operating expenses (of approximately US$4.9 million as mentioned above) and estimated public company related expenses, our operating expenses totalled US$2.7 million in 2017.

Why do you show R&D expenses?

R&D Expenses represent expenses incurred by our Trendlines Labs unit; they are divided into two parts. A portion of the R&D Expenses represent expenses incurred in performing funded contracted R&D services for partner companies (for which we record revenues).  The other portion represents our investments in Trendlines Lab’s research and technologies for our own account; under accounting rules, these R&D costs are expensed as incurred and not capitalized, even though we typically invent and develop these intellectual property assets with the expectation of monetizing them.  We do not currently record any value for the research and development work of Trendlines Labs – their value is not reflected on our balance sheet until we either bring external investors into a project or sell them off.

Do you plan to pay dividends in the future?

We aspire to pay dividends in the future.  The form, frequency and amount of future dividends for any particular financial year will be subject to the factors outlined below as well as other factors deemed relevant by our Directors:


(a)   the level of our cash and retained earnings;

(b)   our actual and projected financial performance;

(c)    our projected levels of capital expenditure and expansion plans;

(d)   our working capital requirements and general financing condition; and

(e)   restrictions on payment of dividends imposed on us by our financing arrangements (if any).


With regard to item (a) above, it should be noted that the Israeli Companies Law, similar to the Companies Act (Chapter 50) of Singapore, places restrictions on the payment of dividends from paid-in capital.  A company may only pay a dividend out of its profits and the distribution amount is limited to the greater of retained earnings or earnings accumulated over the two (2) most recent years.  Should our Board of Directors determine it is appropriate to pay a dividend even if we do not have the legally required accumulated earnings, we can apply to the court for permission to pay a dividend.  Dividends may be subject to withholding tax. For further information, please read the “Dividend Policy” section contained in pages 71-72 of the initial Offer Document of the Company dated 16 November 2015.


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