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Israel leads high-tech field

By Bryan Schwartzman · November 30, 1999

PHILADELPHIA, Oct. 16 — If you open the medicine cabinet or turn on the computer, chances are you will be using information or biotechnology developed by the finest Israeli minds. One of the most well-known examples is an innovation developed by Israeli software engineers that later was bought out by America Online and dubbed AOL Instant Messenger, now a staple of Internet communication. "That´s what Israel does — it exports brain power," said Paula Joffe, executive director of the America-Israel Chamber of Commerce´s central Atlantic region, which is based in Philadelphia. The possibilities for raising Israel´s status as one the leaders in the information- and medical-technology sectors appeared limitless in 1999 and the early part of 2000, but that was before the technology bust, a worldwide recession and the start of the Palestinian intifada ushered in a more sobering reality. The global economic downturn dampened the demand for high-tech products and has led to a severe decline of funds raised by Israeli venture-capital firms for start-up companies, according to Israel´s Finance Ministry. But members of Israel´s business community and U.S. investors in Israeli companies believe the tide is about to turn in their favor and that 2004 is going to be a strong year for Israel´s science-and-technology industry. To encourage potential backers, the Israeli government is teaming up with its venture-capital and high-tech communities to lure American, European and Asian investors to back Israeli companies. They are creating what they call a "national road show" to do just that. The Israel Hi-Tech Investment & Venture Capital Conference is set for New York City on Tuesday, Oct. 28. Similar conferences are in the works for London and the Far East, possibly China. "Israel is a global source of innovation, and the level of investment in Israeli technology is growing," said Chemi Peres, chairman of the Israel Venture Association, one of the groups sponsoring the one-day conference. During the first half of 2003, foreigners invested $1.16 billion in Israel, according to Peres, the son of Israeli Labor Party leader Shimon Peres. In the next two years, Israeli venture capitalists hope to raise between $2 billion and $3 billion to invest in technological innovation. One venture capitalist who expects to attend the New York conference looking to make contacts with Israeli-venture capitalists is Amir Goldman, of the Philadelphia-based TL Ventures. "We have been actively looking for investments in Israel," said Goldman. He said that even with the economic downturn, Israel´s high-tech industry still ranks among the top five in the world, second only to the United States and Canada for the number of publicly traded companies on the Nasdaq exchange. And why does Goldman want to invest in Israel? "It all has to do with their innovation," he said. Part of the problem for foreign investors is that embarking on a venture-capital project in Israel involves traveling there and making contacts on the ground, which many people have been unwilling to do for fear of terrorism. "You want to look people in the eye and get a feel for what you are investing in, which is people," said Goldman. And when investors decide where to put their money, geopolitics cannot be ignored. "The uprising made people more reluctant to do business with Israel — investors were more reluctant to go the extra mile," said Rafi Amit, a native Israeli and a professor of entrepreneurship at the University of Pennsylvania´s Wharton School of Business. But, he said, now is a great time to invest in Israeli companies because scores of businesses there are developing breakthrough technology. Also, Amit added, because of the recession, the price of an emerging company´s stock will be lower. "The rule in venture capitalism is to buy low and sell high," he said. According to Uri Har, director general of the Israel Association of Electronics and Information Industries, the Jewish state is moving further from its socialist roots and closer toward an American-style free-market economy, making a more appealing environment for outside investors. Har said Israeli companies need to develop a "two-leg model," with the development leg standing is Israel and the marketing leg operating where the markets are throughout the industrialized world. "We have no local markets," Har said, referring to Israel´s small population. "Israel has to address the global market." One Israeli company that seems to have developed such an approach is Teva Pharmaceuticals, which was founded in Israel but is now a worldwide company. The largest manufacturer in the world of generic, nonpatent drugs, the company´s U.S. headquarters is based in Pennsylvania. "We have a strong relationship with Israeli science," said Kevin Mannix, the director of investor relations for Teva USA. He said the majority of Teva´s $2.5 billion in sales are generated in the United States and in Europe, but that the company also sells $700,000 of drugs every year in Israel. "That is not such a small market," Mannix said. The investment environment is getting better, Wharton´s Amit said. "I think investment is now coming back. I think the best we can do is hope and pray that this will happen," he said. The Israel Hi-Tech and Venture Capital Conference will begin at 8 a.m. on Tuesday, Oct. 28, at Pier 60 in New York City. For more information, visit the organizers´ Web site at http://www.veriwiz.com/oscar/news.html.

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