Management Toolkit

Investors brave Israel conflict

Michael Kanellos CNET News.com

Published: 31 Oct 2006 13:41 GMT

Venture investment is continuing to flow into Israel despite the recent strife in the area.

In the third quarter, 87 Israeli high-tech companies raised $381m (£200m) from venture investors. That was down about 6 percent from the $404m raised in the previous quarter, but was 13 percent above the $336m raised in the third quarter of 2005, according to the Israel Venture Capital Association.

In the first nine months of the year, Israeli companies have raised $1.15bn, up 7 percent from the $1.07bn raised in the same period last year.

"The small decrease in investment in Q3 indicated that the war, which took place during the third quarter, had only a very minor impact on venture capital investments," said Zeev Holtzman, chairman of Tel Aviv venture firm Giza Venture Capital, in a statement. Although the large skirmishes have ended, military tensions near Lebanon and the Gaza Strip continue.

Israel, and to some degree Singapore, are carving out a niche in the global tech market through novel intellectual property. Neither country can compete with China and India on cost, but both countries churn out a large number of engineers and scientists.

In Israel, that has resulted in a plethora of start-ups dealing with everything from water purification to video websites. While some Israeli companies go on to become multinational giants like Check Point Software Technologies, most of the time these companies focus on narrowly tailored niches. Eventually, many are bought by larger, established companies.

While venture investors have put money into Israeli companies before, activity has increased in the past few years. Israeli companies have been receiving more money than companies from European nations.

Roughly 30 percent of the funds went to life sciences during the quarter. The country and local universities like the Technion are placing a greater emphasis on pharmaceuticals and medical devices.