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The Israeli venture capital fund, Concord Ventures, decided to stop its third round of fund-raising, aimed at drumming up NIS 150-200 million, after both old and new investors in the fund declined to participate in light of the country's security situation. For now, the capital drive is being put off until 2002.

As a result of the postponement, Concord will not be making new investments in young Israeli start-ups and will use the remaining capital in its second fund for further investments in existing companies.

Concord is considered one of the five best-performing venture capital funds in Israel, with its portfolio companies including Accord, CommTouch and Oridion. The fund, which was born out of the Nitzanim VC fund, currently manages $260 million in capital in two funds. The fund directors include Matty Karp, Yair Safrai, Batsheva Elran, Shai Schiller and Avi Domoshevizki.

Managing partner Matty Karp said that foreign investors, even those who have invested in Israel in the past, do not want to invest here at present.

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"The investors asked us to slow down the fund-raising process until the region calms down or until a re-examination next year," Karp said. "Ever since the attack at the Dolphinarium [in June], foreign investors have been apprehensive about investing in Israel. I believe that in the foreseeable future, it will be almost impossible for the Israeli funds to raise capital."

The decision to freeze the capital drive points to a new problem for Israeli venture capital funds: long-time return investors - limited partners who fear investing in the country. A well-performing venture capital fund can usually make up the first closing date - or even the entire fund, if it is less than the previous one - using these limited partners, who see the fund as a long-term deal. Some of Concord's regular investors, who had planned on putting their money in the third fund as well, asked the managers to postpone the closure date on the grounds that they do not wish to be "identified with Israel," although they believe the country offers good business opportunities.

It should be noted that some of Concord's longest-serving investors, like those in other funds, made their decision to reduce their exposure to venture capital as a result of the international high-tech crisis, rather than in light of the security situation in Israel.

Players in the venture capital community have viewed Concord's capital-raising efforts as a touchstone for ascertaining the damage done by the security situation.