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Tuesday, 17 September, 2002, 08:05 GMT 09:05 UK
Israeli science seeks shekels
Robot being used in surgery
Professor Shoham's robot can be used in delicate spinal surgery

Professor Moshe Shoham's medical robot is unusual - in more ways than one.

In delicate spine or knee surgery, it pinpoints where screws should be drilled and the angle of the fixing, so avoiding complications and post-operative pain.

It is also one of a shrinking number of hi-tech, high-value projects that has managed to get off the drawing board in Israel's battered economy.

There was a time when investors could not get enough of Israeli technology.

In 2000, $3bn (1.9bn) of venture capital was pumped into start-ups. But so far this year the figure is only about $500m.

Out of favour

Tech companies globally are out of fashion anyway. But to make matters worse here, investors are treating the conflict-ridden Middle East like a no-go zone.

"Two-thirds of the reduction in the growth of the economy is because of the Intifada and one third is because of the Nasdaq," says Yoram Gabbay, director of Peilim Portfolio Management in Tel Aviv.

The international computer and software companies still maintain research and development centres in Israel.

Microsoft and Hewlett-Packard have their offices overlooking the golden sandy beach at Haifa.

But for first time inventors, the way into the market is extremely limited.

Unless they have means, they may want to consider the beach themselves - until the investment market recovers.

"Today, if you have a track record - you've done it before and you're a known name in the industry - then you can still get financing quite easily," says Jonathan Half, Executive Director of Equity Research at UBS Warburg Israel.

"If not, you have to revert back to either government incubators or go to friends and family and try to raise money from people who know you personally."

State cash

According to Deloitte and Touche's latest survey of investor sentiment in Israel, 44% of venture capital fund managers believe the economic climate will deteriorate over the next six months.

Pictures from a Steadicopter on a laptop
The Steadicopter can beam images back to a laptop
So for most new ideas, the cash-strapped government may be the only option.

One company that went down this route is Steadicopter, which got the green light in January 2000 to join one of Israel's 24 hi-tech incubators to develop its PC controlled miniature helicopter.

This can be fitted with a camera for surveillance work, while the next, larger, version can be used for crop spraying.

Steadicopter received $300,000 in funding over two years to develop the project - which should be paid back gradually from sales.

The incubator also took 20% of Steadicopter's shares.

Few options

This might seem a high price to pay, but the alternative was to risk the whole project by waiting around for investors to return.

"I believe that if time is critical, it's better to go to this programme - then you can get the money faster than any other way," argues Gadi Kalisch, Steadicopter's managing director.

But competition for government cash is hot. A typical incubator receives 300 applications annually, and usually only five are approved.

Until the Middle East conflict subsides, this could be all that's on offer for Israel's hi-tech start-ups to get off the ground.

See also:

25 Jul 02 | Business
21 Jun 02 | Business
29 Aug 02 | Business
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