VC funding continues in Israel despite war

Violence appears to have had minor impact on third-quarter investments in Israeli high-tech companies.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
2 min read
Venture investors in Israel weren't fazed by the war much.

In the third quarter, 87 Israeli high-tech companies raised $381 million from venture investors. That was down about 6 percent from the $404 million raised in the previous quarter, but was 13 percent above the $336 million 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 $1.15 billion, up 7 percent from the $1.07 billion 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 Web sites. 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 get 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.