Israeli Hi-Tech Industry in Bloodbath
VC's Blame High Israeli Taxes Deterring Investment


Jerusalem----July 26..........At a news conference held this week in Tel Aviv, global investment banker Bear, Stearns & Co. announced: "Bear Stearns has invested tens of millions of dollars into Israeli VC funds - but no more.....until the Israeli government creates a level playing field, Bear Stearns will cease investing in Israel." Bear Stearns announcement underlined Israel's dying Hi-Tech industry, bleeding from NASDAQ with the wound being ripped wide open by both the Israeli government's failure to reduce taxes on foreign VC investment and the present political instability in the region.

The Israel Venture Association (IVA), the local umbrella organization of local venture capital firms, has predicted that Israeli Hi-Tech companies would be lucky if they secured one third of the monies that they had received a year ago. A number of prominent venture capital firms attended the news conference, with all agreeing that crisis facing Israel's Hi-Tech industry is only deepening daily with no rebound in sight. Many analysts have suggested that up to 30 percent of Israel's Hi-Tech industry has already been wiped out, with 50 percent of the market on the brink. Analyst's pointed to the severe drop and lack of employment advertising in the country's newspapers.

The IVA stated that foreign VC investment in Israel is down this quarter to 500 million dollars - a fifty percent dropoff from last year's investment of 1.8 billion dollars. Other dismal predictions include: year 2001 will end with a total investment of one billion dollars as compared to last year's 3.29 billion. Addressing the survival of the individual Hi-Tech companies, 1,100 will go under from the existing 2,500, causing unemployment to rise to a catastrophic 20,000 professionals out of work. Only 5 percent of companies without VC investment succeed, while 95 percent flourish with VC money. From 1,000 VC backed Israeli Hi-Tech companies there remains only enough VC money to support fewer than 100 of these companies.

"To make matters even worse, those unemployed professionals will find jobs in Europe, the States and in Asia," says one VC. "Why should a talented professional stay in Israel, humiliating himself by taking 30 dollars a day from the unemployment office. We are facing a real 'brain drain' that only the Israeli government can stop. From the States of Illinois, Vermont and Virginia to India, the Netherlands and Korea - taxes are less for both the VC and the employed." The VC concludes: "The Israeli government has to wake up today and implement immediate, real actions to correct this crisis from it's effect on the whole of the Israeli economy.
If Hi-Tech has been the driving force of Israel's economy, what will we be looking at a year from now if there is no Israeli Hi-Tech?"