Despite Unrest, Israel Still Popular with Overseas Technology Investors

In the “good old days” — just two years ago — venture capital conferences were commonplace occurrences.

Such conferences were held nearly every month in Silicon Valley in California or Silicon Alley in New York City – – and four to six times a year in Israel.

Then came the Nasdaq stock market crash in the fall of 2000, and the outbreak of the Palestinian intifada in September of the same year.

In Israel, these prolonged parallel crises became known as the “Nasdaq-Nablus effect,” and not even the best technology companies in Silicon Wadi, as Israel’s technology belt is called, were spared the devastating effects.

The market value of Israel’s most vaunted publicly traded companies, from Check Point to Comverse to Commtouch, plunged along with the share prices of their American counterparts. Israeli high-tech business leaders have been cutting back heavily on their globetrotting networking.

Thus, the scheduling of Capital Summit: The Forum on Technology Fundraising, organized by Garage Technology Ventures in Silicon Valley at the end of last month, was, in the vernacular of many of the speakers, an attempt at B2N — back to normal.

The emphasis, however, was trying to redefine normality back to the pre-bubble behavior patterns of private equity and technology investors and markets.

In other words, even in the current depressed climate, venture capital investment continues — albeit within more rational parameters.

“We’re in a funk,” admits Garage, or GTV, CEO Guy Kawasaki, who moderated many of the panel discussions over the course of the two-day conference.

At the same time, attendance was a respectable 400 registered participants, mostly entrepreneurs, in an audience that was refreshingly multi-ethnic, comprising large numbers of Asians particularly Indians and Israelis, groups that have left indelible impressions on the Silicon Valley landscape.

Indeed, GTV itself is a true reflection of its larger environment: the top executives of the company formerly called Garage.com are of Japanese-American, Israeli and Sikh origin, together with a few faces that typify traditional corporate America.

One of GTV’s Israeli imports is General Manager Gideon Marks, who organized a conference panel on international capital.

One somewhat surprising conclusion that emerged from that panel is that Israel remains popular among U.S. and global venture capital funds, in spite of violence that unceasingly plagues the region.

“I am bullish on Israel,” declared Lip-Bu Tan, chairman of Walden International, one of the world’s most prominent venture capital firms, which maintains a permanent office in Herzliya.

“Israel, with its tight network formed in the military, is still quite entrepreneurial, and we continue to invest — although now we are seeing more repeat entrepreneurs than before,” Crocker notes.

Crocker is one of a number of California representatives of leading Israeli venture capital funds — Vertex, Gemini, Genesis and Apax — while U.S. corporation Applied Materials, a major player in the semiconductor industry, has established its own venture capital fund with a representative in Jerusalem.

In fact, another conference panel, “The Company Line: Corporate Investors,” featured mostly multinational entities that have long been and still remain active in Israel-based research and development, including Cisco Systems, Siemens Venture Capital, Intel Capital and Applied Materials Ventures.

“Israel has always been at a political disadvantage, but it is a technology superpower that is used to operating under adverse conditions,” explains Marks.

“In fact,” he recalls, “when it was business as usual in Israel during the Gulf War, Silicon Valley was shut down because of the earthquake.”

The latest figures from Israel bear out the experts’ assessments. An Israel Venture Capital survey shows that 92 private Israeli companies raised a total of $266 million in the third quarter of this year from local and foreign investors. Moreover, more than half of this sum, $148 million, was raised from entities that were not Israeli venture capital funds.

Most importantly, the $1.2 billion invested in Israeli high tech companies to date in 2002 is higher than the amount invested in 1999. Software and the life sciences — biotechnology and medical devices — have become the most attractive sectors for investment, displacing the Internet.

And while it is no secret that Israel has suffered from the reluctance of foreign business representatives to visit — especially in view of the U.S. State Department’s travel advisory — there are signs of a thaw on that front.

For example, Israeli media reported that a delegation from Korea’s largest cellular provider, SK Teletech, was recently in the country in an effort to identify joint venture and investment opportunities.

Another promising recent development was the announcement of the formation of a brand-new U.S. fund that will invest exclusively in Israel: the Illinois-based Israel America Discovery Fund.