By Avi Machlis
Small Times Correspondent

TEL AVIV, Israel, Dec. 10, 2001 — Israeli venture capitalists took a first dip into small tech on Monday at a Nanotechnology Forum in Tel Aviv, the country’s opening conference bringing together 220 investors, entrepreneurs and scientists from the field.

But even though Israel boasts one of the biggest venture capital markets outside the United States and has a deep pool of scientists, particularly Russian immigrants who arrived en masse during the 1990s, investors are racing to catch up with their counterparts overseas.

“VCs here are behind the curve on nanotech,” said Jon Medved, managing partner at Israel Seed Partners, a Jerusalem-based venture capital firm.

“It is already the flavor of the month in the U.S., where there have been many conferences like this and deals aplenty, but we are just waking up.”

Indeed, the Israeli conference included a series of highly scientific lectures, some way over the heads of the investor participants, indicating that the divide between academic research and the financial community in Israel was only beginning to be bridged.

According to Ilan Birnfeld, the high-tech group leader at Deloitte & Touche Brightman Almagor, the Israeli affiliate of the Big Five firm, there are only 24 nanotech companies operating in Israel, despite plenty of academic initiatives. Nevertheless, he believes that Israeli research would make an impact in the field.

“It would be strange for Israel not to become a [nanotech] player, but we are still at the laboratory stage,” said Birnfeld. “If the government and research institutes put public money in this there is no doubt we will see hundreds of companies in this field in 10 years.”

To date, there has been virtually no investment in nanotech initiatives in Israel from Israel’s highly developed private equity sector. PricewaterhouseCoopers estimates Israel is the sixth largest venture capital market in the world, with $3.3 billion raised by funds last year and $3.2 billion invested. But investment has slowed dramatically this year amid the crisis in information technology markets, further clouding the financing atmosphere for unproven nanotechnology.

“It is a difficult time and there are a lot of people with good ideas that cannot get funded,” said Ze’ev Ganor, executive vice president of business development for Israel-based Nanomotion, which manufactures tiny precision electronic motors.

Nevertheless, the presence of dozens of venture capitalists from Israel’s leading investment houses indicated that Israeli venture capitalists are keen not to miss the nanotech boat. “We hope that nanotech [companies] won’t become the next dot-com companies,” said Nir Belzer, partner at Millennium Materials Technologies Fund in Tel Aviv. “We hope that this is not just a buzzword.”

Millennium is the only fund among dozens of Israeli groups to specifically target material sciences and nanotechnology. It has raised two funds worth $60 million and is in the process of raising $100 million for a third fund. Strategic investors include heavy hitters from several fields, such as Boeing, Siemens and Bayer. Its portfolio includes several small tech companies, such as NanoPowders Industries, which is already producing tens of kilograms of nanometal powders each month and Power Paper, manufacturer of a very thin and flexible battery.

Millennium has also just provided seed funding for Nanolayers, a Jerusalem-based company that is commercializing a patented molecular assembly method, developed by Dr. Shlomo Yitzchaik of the Hebrew University of Jerusalem.

Michael Weinstein, marketing coordinator for Nanolayers, said applications are imminent and the technology could be licensed within two years. The company is targeting LCD displays, and claims it can produce them 1,000 times thinner than conventional displays and at a cheaper price. Organic light-emitting diodes (OLEDs), tipped to be the successor to LCD displays, are also a potential application.

“Most Israeli VCs do not have expertise in this area,” said Weinstein, explaining one reason why the local market has been slow to pick up nanotech companies. “It is a difficult financing environment at the moment, but we are in an area that is very exciting.”

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