High-Tech Chutzpah

Two Israeli Net companies to watch are Alchemedia, which targets the entertainment industry, and NewChannel, which focuses on targeting e-consumers.
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Adam Lashinsky traveled to Israel to check out a high-tech scene that arguably is second only to Silicon Valley for its explosive growth, wealth creation and consumption of venture capital. His reports on specific companies to watch, trends in Israel's high-tech sector and the small country's booming VC industry continue this week.

BEIT SHEMESH -- In this land of contrasts,


, known until this week as


, just about takes the sponge cake.

It's an Israeli Internet company focused exclusively on the U.S. entertainment industry. Its founders and Israel-based technology team all come from outside Israel, but unlike typical Israel high-tech entrepreneurs, are deeply religious. And its headquarters is in a "development" town once populated mainly by North African Jews, nestled between, but a world away from, tony Tel Aviv and modern Jerusalem.

And yet, Alchemedia is one of the most exciting start-ups I saw in Israel. It makes server software that allows Web site operators to protect the reproduction of images at the site. Using Alchemedia's technology, owners of content can designate which images are to be protected and which aren't. This way, a Webmaster can allow viewers to see an image -- a photo of

Meg Ryan, for example, at the

Warner Brothers

site -- but not enlarge, alter or save it.

"We're not at all concerned about access," says Daniel Schreiber, Alchemedia's England-born CEO and co-founder. "We're about usage control, not access control. We're drawing up a way to look but not touch."

The 19-month-old company is one of the many in Israel's high-tech industry that's there because its founders are, not because it has anything to do with Israel. Schreiber is representative. He lived in Israel as a child, was educated in Jewish schools in London and returned to Israel as an adult. He flaunts the notion that there are no native Israelis in the company, in part because the company doesn't take on the military-style culture of other Israeli concerns.

And Alchemedia -- where employees host a daily prayer service, or


, for workers at other companies in its gritty complex of high-tech as well as industrial enterprises -- absolutely stops working on the Jewish Sabbath. Schreiber says his investors and U.S.-based clients find it difficult to accept that he's unreachable on Shabat. But he suggests that he and others make up for it the rest of the week.

"We don't have a problem working through the night," quips Schreiber. "Just not Friday night."

The company quietly is attracting attention for its development of what looks like a killer app for the entertainment industry. It hired as its president and chief operating officer Steve Miller, formerly an


(ORCL) - Get Report

marketing executive. Typically, the company is moving its head office to San Francisco. The product even has a clever name: CleverContent.

Investors so far include Jerusalem-based

IsraelSeed Partners

and two funds based in California:

Entertainment Media Ventures

, headed by ex-

Creative Artists

executive Sandy Climan, and

Attractor Investment Management

, the tech-laden fund run by Gigi Brisson and Harvey Allison.

Says Climan, the talent-agent-turned-VC: "We have enormous conviction that their technology is critical right now."

Perhaps because Israel is a serious country, the "Internet" companies there tend to be serious too. At least according to my not-necessarily-random sampling, the inventory of never-gonna-make-money ideas in Israel is low.

One company with a serious application for which e-commerce sites are likely to pay real money is


, located in the Kiriat Atidim neighborhood of Tel Aviv, where shiny office towers host numerous tech firms.

It's tough to explain what NewChannel does without devolving into a lot of Web-technology mumbo jumbo. So consider this. The best retailers go out of their way to give personal attention to their customers. If you're well-dressed and you walk into a


dealership or a high-end furniture store, you're certain to be solicited by a friendly salesperson.

Not on the Web. The best merchants can do is send annoying emails to good customers.

Enter NewChannel's "targeted engagement technology." By using NewChannel's software, an e-merchant can identify top prospects and solicit them with pop-up messages

while the customer is on the site

. Hot prospects get targeted messages offering special assistance or offers to phone a toll-free number for more information.

Following what seems like a mandatory model, NewChannel already has a U.S. headquarters, in Redwood City, Calif., and a U.S. chief executive, Chris Risley, formerly with software maker

On Technology

, who apparently is teaching his young Israeli colleagues how to spend money.

And they have plenty of it.

Bessemer Venture Partners


Vantage Point Venture Partners

have joined three Israeli venture firms in funding the company. NewChannel currently is raising another $20 million. Early customers include



Unlike Alchemedia, NewChannel is more representative of the Israeli tradition of ex-military minds profiting from their expertise. Co-founder Aviv Eliezer, a personable 25-year-old, cut his teeth studying computer science at Tel Aviv University and in an elite intelligence unit of the army that recruits home-grown computer experts to work on security projects.

By the way, the item here

Monday on

Chromatis Networks

should have mentioned the company's first and largest investor,

Jerusalem Venture Partners

, an Israeli venture fund. JVP also invested in

Scorpio Communications

, the first company started by the Chromatis founders.

Also by the way, a number of readers have wondered what all this talk of private companies does for them and if there isn't any way to invest in Israel


. A few answers: First, you might take note of the 24% uptick in

Check Point Software

(CHKP) - Get Report

since a favorable review of the company appeared

here. And though my bearish comments on

Orckit Communications


on our TV show never found their way into "print," that stock is down 27% since then, a result of comments the Israeli company made last week pushing out its profitability forecast yet again.

Second, my next column will focus on ways to invest, both in individual stocks and funds. And third, though there's so much on this site that does help you make money


, not everything does. Sometimes investors make money by paying attention to trends or learning about developments coming down the pike. Patience is required.

After all, the Israelites wandered in the desert for 40 years before arriving in the Holy Land. Right?

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at