The Israeli venture capital market has returned to a healthy normalcy.Just how deep are the troubles of Israel?s high tech sector? The country?s venture capital industry is as good a barometer as any, and a simple reading seems to point in the direction of severe storms ahead. The IVC Research Center, a Tel Aviv research house that tracks private equity capital, estimates that Israeli companies raised just $1.7 billion in new funds in 2001, down 45 percent from 2000. The number of startups shrank last year to an estimated 150 from 850 in 2000. More mature companies, starved for cash, have been closing. People in the industry all express confidence that there will be a recovery and that global high tech isn?t in permanent decline. But few will predict confidently when the turnaround will begin and even fewer are prepared to speculate what technology can provide the same kind of powerful driver the Internet did nearly a decade ago.

But that?s a simple reading of the situation. Look more closely at the numbers and the basis for a less dreary forecast emerges.

The IVC Research Center estimates that Israeli VCs will take in some $800 million in new capital this year, which is down 75 percent from 2000 but still a substantial infusion of new cash. Foreign VCs continue to announce Israel-dedicated funds, and foreign investment in Israeli tech companies had as of the third quarter picked up from a low in the first three months of 2001. Israel?s Treasury announced in September that the much-hated tax on foreign venture capital investors would be cut to zero until the end of 2003 by which time, it?s hoped, a permanent policy will have been installed. If the Israeli VC industry?s available capital can only finance a fraction of the startups that need money over the next few years, it will almost certainly get help from some of those foreign funds.

In any event, a lot of the companies that won?t get funding in these lean years don?t deserve it. And, that points to the bigger picture: As much as the high tech and venture capital industries seem to be suffering what they are really doing is scaling back to realistic proportions. The record levels of venture financing in 2000 were the crest of a wave that had already grown too high in the exuberance created by the New Economy dreams of the late 1990s. Push back the horizon beyond the aberrant year of 2000 and the industry now starts looking remarkably like it did the middle of the last decade.

The IVC figures show new VC fundraising at approximately the same level as 1997?s $727 million. High tech fundraising is closer to 1999?s $1 billion level than 2000?s. The estimated 150 startups formed over 2001 are in the 1995-96 range of 100 to 200. IVC doesn?t offer any estimate on valuations, but these have certainly come down to levels investors might remember before they inflated to absurd and unsustainable levels in the final stages of the technology-driven bull market. The Internet is no longer the only industry that attracts funds. All these are the benchmarks against which this past year?s developments should be measured.

A return to the middle 1990s isn?t good news for a lot of the late-comer VCs, entrepreneurs with fuzzy and thoughtless business plans, and all the others who jumped on the technology bandwagon at the end of the decade when it looked like a smooth ride to easy money. But serious, committed investors and entrepreneurs will make it through the turbulence.