How Israel's startup community shut down an IPO that one investor called a 'sham'
The tight-knit community, who knew the company's work intimately was appalled at some of the claims made in the IPO documents, with one VC calling the company a "sham."
They led an uprising on Facebook and eventually shut-down the IPO.
With no IPO coming to provide income, Shellanoo Group reportedly laid off half of its workforce, about 30 people, Israeli news outlet The Marker reports, and its future is uncertain.
An IPO and Blindspot
Shellanoo (which means "our" in Hebrew) is a tech accelerator founded by O.D. Kobo in 2014. It's a place where startups can work and raise seed money. It claims to have supported a number of successful startups, but "only one or two of them were active," one person involved in the uprising told Business Insider.
Blindspot is an anonymous messaging app that was heavily promoted on billboards and ads all over Israel.
"Kids in Israel started bullying other kids via this app," one person told us. "People approached Shallanoo and asked them to stop this app, please block it. And of course, they didn't do anything. This created a big negative buzz on them."
Everyone from media pundits to members of the country's Parliament had been criticizing the Blindspot app for months. At one point it was even the subject of an anti-Blindspot video, which depicts a family covering a coffin decorated with the app's logo. (The video has been taken down.)
When Shellanoo Group filed for its IPO, attempting to raise $200 million, the Israeli tech community was upset. Beyond Blindspot, they felt that other claims the company made in its prospectus didn't match what they knew about its business and its startups.
They were also concerned that the IPO valuation came from well-known accounting firm BDO, the securities were underwritten by local investment bank IBI Securities, and all of it had passed the regulators' scrutiny.
That almost surely meant a successful IPO where unsuspecting institutional investors like insurance companies and pension funds would be investing everyone's money into this company.
'Vapor' company and 'fraudulent' claims
"The Shellanoo Group filed to go public on Israel's Tel Aviv Stock Exchange at a valuation of almost $200MM. They claimed that their app downloads (9 Million) were users and it was abundantly clear that their projected revenues derived from 'businesses' and 'technologies' that did not exist yet.
"Immediately, Israel's high tech entrepreneurs took to Facebook to rally the troops against this IPO and the institutional investors who would dare or unwittingly invest our money in this vapor company. They decried the blatantly misleading use of celebrities who had "invested" in the company previously, the fraudulent claims in the prospectus, and the specious valuation performed by BDO.
"Some members of our community (who know a bit about how some of the pension funds and institutional investors in Israel act and invest), immediately became worried that those investors would deploy our hard-earned money into this sham."
Uprising successful
The outpouring on Facebook caught the attention of the local media and on Wednesday, Shellanoo Group withdrew its IPO.
David Strauss, head of PR for the Shellanoo Group, blamed the media and competitors for its cancelled IPO, telling us:
"In the last few weeks our company, employees and shareholders were subject to brutal attacks by certain journalists and local personalities (competitors). Our initial belief was, and still is, that Israeli tech companies can flourish on the Tel Aviv Stock Exchange. However, due to such out of proportions attacks on us by certain members of the press and local competitors we have simply decided to focus our business activities elsewhere. Therefore, we had withdrawn our Israeli IPO."
When asked about accusations of fraudulent claims in the prospectus, Strauss said, "It is completely preposterous. I assume they are simply jealous or angry competitors."
According to one person in the tech community that was not directly involved in the uprising, Israel's startup community is happy about the outcome, convinced that the good guys won this one.
"The general feeling is that they are shady and there was no justification for this IPO. And that the social pressure did its thing. Everyone is very happy they canceled the IPO," this person told us.