Israel21c, June 3, 2002
Israel's tech sector: myths and facts
| by Jonathan Medved
|Within the span of one week recently major business papers were writing drastically different stories about the progress and overall health of the Israeli high-tech industry.
On April 29, Business Week printed a story entitled "Israel: The Economic Cost of War," and reported the beginning of the end for the Israeli economy. The article states that because of the war being waged against terrorism, the Israeli economy has been badly injured - and will soon "slip back to what amounts to a charity project sustained by donations from the United States and world Jewry." Furthermore, the report claims that in the shadows of war, combined with the fallout from the global technology crash, Israel has been denied its right to grow in the regional market, and "will not see any foreign money in the venture-capital industry this year."
Contrast this view with the Tornado Insider's article from May 8, "Deals in Europe: Good Week for Israeli Startups." The article says that almost $50 million was invested in several Israeli deals in one week, all backed by leading Israeli and international venture funds. The story also reported that in the same week, Star Ventures, the Israeli-European fund, closed its ninth venture fund with $400 million in commitments to new investors.
What is really going on here? The reality of the high-tech investing situation in Israel is far more complex than a simple war-related downturn as Business Week would like the world to believe, while it is not always as rosy as the "good week" reported in the Tornado. While the politics of terror is clearly not good for business, Israeli startups still raise huge sums of capital. For example, Chiaro has raised $80 million, Atrica $75 million and Mellanox $57 million in the past few months. These are truly large amounts, not only for Israeli companies, but for any startups seeking capital in today's market.
Let's look at the numbers. According to the Israel Venture Association's latest report, Israeli venture startups did nearly twice as well on a percentage basis between 2000 and 2001 as their American counterparts: Israel declined by 36 percent and the United States fell by 64 percent.
Additionally, the level of Israeli venture investment in technology is still far stronger in absolute terms than any European country. In 2001 it was more than three times that of the United Kingdom, France and Germany, and more than 10 times the level of Holland, which has more than double the population of Israel.
The political situation of the last 18 months is a risk factor that we have to deal with. However, Israel has grown its magnificent tech economy despite fighting seven wars during the last 54 years. Israel is still the world's second most vital tech community after Silicon Valley, and the current wave of violence has clearly not stopped innovation and creativity. In the past year we have seen impressive financing deals for new companies, which are led by experienced entrepreneurs with serious business plans and top-notch technologies. In the face of the current political environment, Israeli entrepreneurs are still determined to begin new companies in order to apply the technological knowledge acquired in their army training to the private sector.
The overall tech market slowdown has certainly affected the Israeli high-tech industry - as it has the rest of the world. But the real story is that despite our war against terror, we continue to make strides in building successful technology companies. When the worldwide recovery begins in the tech sector, Israel will definitely lead the way.