Some venture capital investors are concerned about the effect of the conflict on the health of Israeli startups.Leaders of the Israeli venture capital community are hoping the country’s great technology will keep the pipeline of investment money coming despite the downdraft the conflict is placing on confidence in Israel and its security.

Venture investors are concerned, but not distraught about the security crisis, keynoter Jon Medved, a partner at Jerusalem-based Israel Seed Partners, told the annual Israel Venture Association conference in Tel Aviv April 15. Still, the concerns of investors have shifted from “the Nasdaq to Nablus,” Medved said.

The real effects on venture investment due to security issues in 2002 aren’t yet known, but results posted for 2001, a year of conflict, didn’t indicate a calamity. Although venture investment declined 36 percent in Israel last year, according to the Israel Venture Capital High-Tech Survey 2001, VC investment also fell a full 61 percent in the United States during the same period.

“We are starting to hear feedback that investors are getting skittish,” Medved said. “Customers haven’t yet pulled out, but they are asking questions. Old friends are there for us, but new contacts don’t know.”

One telling sign of what has become known in Israel as “the CNN effect,” the fear of traveling to Israel after viewing the bloody scenes of the conflict telecast on the nightly news, was the attendance of foreign visitors at the two-day conference. Only around thirty people flew in to attend out of a total of several hundred who were present. In previous years, the number of overseas guests was closer to 150.

Business development is continuing, despite the army call-ups that are taking away some male employees, Medved said. He advised companies to try to get politics off the table in business transactions, but not to avoid questions from jittery investors and customers.

“The crisis can’t be ignored any more,” he said. “Tell (overseas investors) that what you see on CNN isn’t the whole story… No one has ever failed to deliver because of some kind of political problem here. What we have built here is not disappearing.”

Israeli venture funds still have money in the bank, and many of them came to the conference to examine the fifty or so startups pitching their technology in the computer, communications, biotechnology and medical device fields. And Israeli companies are raising money, despite the hard times. Companies receiving venture infusions at the beginning of April included BladeFusion, providers of online security software, which raised $1 million; VersEdge Technologies, which develops document-sharing technology for corporate-wide area networks, raised $8 million; and vision-based 3D-measurement company Cognitens raised $3 million.

New presenters at the conference included Doc-Witness, which is developing a CD that can’t be pirated; IC4IC, which focuses on wireless access network solutions; voice recognition startup Commodio; optical networking equipment developer RedC; Glucon Medical, whose flagship product is a non-invasive glucose monitoring device; IDgene, which is working on new drugs and diagnostic tools; Remon Medical, whose telemetry technology communicates wirelessly from inside the body; and Movious, which is developing a platform for mobile communications.

More established startups looking for a further round of funding included online translation startup Babylon; speaker authentication company SentryCom; RADWIN, whose products enable wireless broadband access; and Aliroo, whose focus is PC, email and document security.

Venture investors are particularly interested in security companies of all kinds, said Shlomo Kalish, the founding partner of Jerusalem Global Ventures. A session at the conference was devoted entirely to the impact of Sept. 11 and Israel’s advantages in the security technology market. Kalish also pointed to the demand for business continuity systems, that enable companies to continue operating from other locations if one location is damaged or disabled.

Biotechnology is also attracting a great deal of interest, as investors look for slightly longer-term investments. Other sectors that are receiving attention include enterprise software, integrated optics and information networking, according to sources at the conference.

“There is some slowdown in some sectors,” said Josh Segal, the Israeli-based principal of the U.S. fund Applied Materials Ventures. “But foreign venture capital funds are increasing their presence in Israel. They see a lot of advantages here. The top people are still coming.”

Singapore investors have looked very closely at Israel over the past three years and made several investments, said Yishai Klein, the regional director for Asia Pacific for the Israeli Giza Venture Capital fund, who put particular emphasis on the potential of Israeli biotechnology.

“I think the investors are in it for the long term,” Klein said. “And, I am still very positive about finding new investors. Singapore understands the strong potential in Israel.”