The Green Tech Fund plans to raise $10 million to $20 million to invest in environmental startups.

Green Tech, the environmental division of the Mofet B’Yehuda Technological Incubator, has started Israel’s first environmental venture capital fund with a plan to raise $10 million to $20 million to invest in startups developing environmental technology.

The fund gives investors the opportunity to buy into pre-seed companies with minimal risk because Israel’s technological incubators, including Mofet B’Yehuda, are supported by the Office of the Chief Scientist of Israel’s Ministry of Industry and Trade, which provides 85 percent of new companies’ pre-seed financing. The companies spend two years on research and development in the incubator and are given administrative support, office and research space, and assistance in running a startup.

With the establishment of the Green Tech Fund, private investors will give 15 percent of the initial funding. The fund will then continue investing in Green Tech’s successful companies. An added benefit for fund investors will be the ability to buy the government’s share of the company at the initial price.

“There is no other fund in which the government makes the initial investment and takes the initial risk and the investors reap the profit,” said Yossi Ron, Green Tech’s chief executive officer.

The fund was founded in response to the planned privatization of the incubator program. The government will continue to fund startups, but they will raise their initial investment to a maximum of $500,000 from the current $300,000, and the management of the incubator will be privately run.

Thus far, Green Tech’s companies have made breakthroughs in the fields of rubber recycling, production of coloring agents using scrap iron, livestock wastewater management, natural pesticides, and municipal sewage disposal.

Green Tech is not only making inroads in the environmental VC field in Israel, it is also breaking down stereotypes surrounding its location in the settlement of Kiryat Arba, which is better known for its political and religious extremism than its high-tech innovations.

Despite the continuing violence, entrepreneurs continue to come to Green Tech from all over Israel. Religious, secular, new immigrants and veteran Israelis meet here with one goal in mind – to develop their own startup. And in a country where “green” and “liberal” go hand-in-hand, Green Tech’s existence shows there are environmental programs and innovations led by people from different sectors of society.

“Despite the economic situation and political conflict, our region has many upwardly mobile, high-tech professionals who are committed to the growth of business and technology in the area, as well as understanding the importance of caring for the environment,” said Green Tech Chairman Shaul Goldstein, who is also director of the Gush Etzion Regional Council.

Today, environmental sustainability has become a buzzword in industry worldwide. If companies can find or develop technologies that are both cost effective and environmentally safe and friendly, they can reap major profits.

According to a new United Kingdom Trade and Industry Department report, the world environmental industry market stands today at $515 billion, and is expected to reach $688 billion by 2010.

The report states that this is comparable to the size of the pharmaceutical or aerospace markets. It further recommends greater development of innovative environmental technologies and services, and investment in research and development if nations don’t want to miss out on global opportunities.

“New technologies are emerging to meet rising market demand, spurred by declining natural resources and the economic effects of environmental damage… The potentially vast and rapidly growing market for these technologies is generating strong interest in the investment community,” said Simon Littlewood, chief executive of Enviro Finance, a European environmental investment fund. Green Tech’s management team will work with the fund’s portfolio companies to help them market their technologies internationally.

According to Hillel Lerman, Green Tech’s business development manager, the team’s accumulated knowledge and experience working in diverse environmental fields will help in matching companies with strategic partners and marketing channels.