-Caveat Lector- The Nasdaq isn't to blame for everything Security situation deterring high-tech VC investors By Oded Hermoni American investment organizations that had been active in the Israeli high-tech industry over the past few years recently notified Israeli high-tech companies and the venture capital funds through which they channel funds that they are suspending investments in Israel due to the security situation. Israeli VC fund managers have also reported that the drop in foreign investments in Israel - attributed to the Nasdaq crisis over the past year - is continuing even more so because of the security situation. The quarterly survey published by IVC indicated that direct foreign investments in Israeli high-tech companies in the first quarter of 2001 had shrunk by 80 percent in comparison with the first quarter of 2000. The Central Bureau of Statistics reported a 16 percent drop in high-tech exports during the period April-July. Matty Karp, managing partner of the Concord VC fund, which is currently raising capital for its third fund, said that recently, American investors who, over the past year, had expressed willingness to maintain their investments in Israel because of their knowledge of the market, were now changing their tunes and halting their investments. "Up until a few months ago, the problems were worldwide and stemmed from the Nasdaq," Karp said. "Now, investors are talking about the security situation." Yigal Erlich, manager of the Yozma VC fund and chairman of the Israeli VC Funds Association, feels that the problem is a serious one. "Politics and security dominate the conversations," he says, "and there are attempts by Israeli companies to transfer more and more of their operations abroad and downplay their association with Israel when speaking with investors. "The most painful change of heart is in the United States, which until recently had not been affected by the security situation as much as Europe had," Erlich explains. "We appeal to the finance minister and the prime minister to embark on an active information campaign abroad and to find ways to convince foreign investors to come to Israel by offering benefits." One of the ways in which certain companies are coping with the security situation is by transferring their intellectual know-how to places that are close to Israel, such as Britain, so as to attract investors, while maintaining proximity to their research and development centers at the same time. The CEO of one Israeli start-up said that the effect of the recent security events outweighed the clear business considerations. "One client canceled a deal on a product that we had developed and which he needs because, in his words, his company does not feel comfortable dealing with an Israeli firm. That sort of thing has never happened before," the CEO said. Roni Hefetz, a partner in the Walden VC fund, which is raising capital for its third fund, said that various organizations in Europe and the U.S. had notified him that they wanted to distance themselves from Israel. "We were in touch recently with a large European investment group that set clear criteria for an investment, and we met all of them," he related. "The investment manager told us that the problem was an additional criterion: They simply don't feel comfortable investing in Israel during the current situation." Hefetz added that even in Japan, which is considered less vulnerable to the influences of the security problems and had increased its business involvement with Israeli companies, the effects of the security situation were visible. "A Japanese company approved an investment in our fund, but then canceled it due to the political situation in Israel," he said. Although the influence of the Nasdaq is still around, people have got used to it and investors are focusing more on the effects of the security situation. Even so, VC funds continue to attract investors by emphasizing the advantages of the situation, which offers the challenge of developing even more sophisticated technologies. ------------------------ Yahoo! Groups Sponsor ---------------------~--> The Nissan Sentra Everything but compact http://NissanDriven.com http://us.click.yahoo.com/3vsIKC/txlCAA/ySSFAA/hkJplB/TM ---------------------------------------------------------------------~-> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/ <A HREF="http://www.ctrl.org/";>www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance�not soap-boxing�please! 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