The professional number crunchers and venture capital industry surveys that are published are suggesting that the future of high-tech in Israel may be less than rosy when compared to its development since the beginning of this decade. The streamlined budget for research and development supervised by the office of the chief scientist is the subject of discussion, and soothsayers or those who are likely to be affected predict a crisis of the high-tech sector.
The commentary appearing in our newspapers, fueled by the comments of "interested parties" including industrialists and various industrial organization, can only lead to the erroneous conclusion that the forward progress of the high-tech industries may be slowed. This is far from being the case. The high-tech industries are attracting some of the best professional minds in Israel. A second generation of managers and entrepreneurs are heading innovative start-ups. They are showing an ability to avoid the shoals created by the so-called Asian flu and last fall's Russian economic debacle.
Neither are the ups-and-downs of Middle East politics a deterrent to foreign investment in this field. It is obvious that foreign companies are not likely to invest in garment companies to be located in Israel with the hope of supplying Middle Eastern countries. However, high-tech products are easily shipped and in many cases include software which can be marketed easily anywhere in the world. The masses of money paid by multi-national corporations in acquiring technology- laden Israeli companies has also attracted the attention of a slew of major household name companies who maintain a universal watch on technology developments. In this issue alone we report on Intel's investment in TelsciCOM, and the Swedish giant's Ericsson investment in NovaNet. Merrill Lynch, the global investment banker, has just announced that it is investing in Walla, Israel's Hebrew language leading Internet portal. The hottest global game involves the Internet. The worldwide exponential growth of individuals going on-line and the even more astounding increase in electronic commerce has fueled a global search for technologies related to the Internet.
The Money Tree Survey by Kesselman & Kesselman, Price Waterhouse Coopers details that Venture capital investment in Israeli Internet companies increased sharply, to a record level of $30 million, representing Q1 1999's most attractive industry. Nearly one quarter of each of the $130 million total invested by 46 Israeli and two American venture capital companies was invested in backing Internet related companies. The Israeli venture capital companies, since they are managed by Israelis, generally take a shorter-term view towards their investments than their American counterparts. They measure and estimate how quickly they can cash-out on their investment and since Internet companies are showing an incredible resilience in getting Initial Public Offerings on the world's stock markets they will continue to attract investment.
So while young start-ups in the medical and electronic fields may find it more difficult to raise capital in their infancy and seed capital continues to be scarce, (with only 5% of the total venture capital invested in the first quarter of 1999), they will continue to get a portion of the investment funds available, though to maintain their piece of the available money it will take a greater effort on their part.
From our vantage point the second half of 1999 will be a banner year for Israeli Internet companies. We are have tracked two of them in the pages of this newsletter. They are quietly preparing to move from private to public company status. One of these has the potential of achieving an American stock market capitalization of more than $350 million.
The Israeli high-tech juggernaut is fueled by its immense number of start-up companies. Never accurately counted the generally accepted and oft-quoted figure puts their number at 3,000. Added to the startups are the nearly 150 public companies listed on NASDAQ and more recently, a trickle to European stock markets. To these one may add the tens of high-tech and high-tech related companies listed on the Tel-Aviv Stock Exchange.