For a moment there, we couldn't believe our ears.

Venture capital fund managers? Israeli venture capital fund managers? Begging for a government handout?

Are these the people whom Intel president Andy Grove once compared with self-touted Wall Street 'masters of the universe', to the detriment of the Americans? Are these the omnipotent giants who raised billions, who skipped lightly from raising money in Silicon Valley in the morning to a Wall Street offering in the afternoon? Are these the people whose workplaces on Tel Aviv's prime beachfront look like the plushest of California's offices?

Are they that detached from reality?

Yes, they are. Yesterday Ha'aretz reported on a meeting between certain venture capital fund managers and Finance Minister Silvan Shalom. Giza manager Zeev Holtzman warned that unless the government steps in and helps the funds revive, within two years Israel's entire venture capital industry could shrivel up and die. He asked the minister to encourage venture investing by institutional investors by providing government guarantees.

Ah, before you leap -
Before discussing the remarkable request itself, coming from people living the life of Riley, we'd like to ask Israel's institutional investors ¿ the mutual funds, pension funds and insurance companies whose money the venture capitalists would like to access ¿ for a favor. Namely:

Don't do it! No! Stop right there! Don't even think in that direction. Nobody said you could invest our pension money in venture schemes.

Every day that passes since the hi-tech and VC bubble burst, we thank the Lord, or whoever was responsible, for sparing the greater public of Israel at least one financial disgrace. Joe Israeli was burned in the bank shares scandal of the 1980s, shattered by the broad-market bubble of 1993, but at least he was not forced to his knees by the battering technology companies took as the new millennium began.

Israel's institutionals can bless their lucky stars that Nasdaq crashed in March 2000, before their managers "discovered" the wonders of Wall Street. If the bubble had held out a bit more, somebody might have persuaded them they were irresponsible for failing to invest at least a few percent of their assets in broadband, Internet, or chips.

It helps to know what you're doing
In theory, Giza's Holtzman is right. It makes sense to route long-term pension monies into hi-tech and venture capital, just as it makes sense to invest some in stocks. We are aware that over time, venture capital funds and funds yield high returns.

Thing is, between the lip and the cup stands Israel's pension establishment and its managers, who aren't geared towards venture investments. They lack the expertise.

This is evident in the yields of most long-term savings tracks in recent years. Flings with stocks generally ended in tears. Sticking to savings plans linked to the consumer price index would have brought greater returns.

Until Israel's mutuals are split off from its banks, and life insurance assets are allowed freedom of movement, and the Histadrut labor union-run pension funds lose their functional monopoly ¿ until then, don't expect change.

Until Israel fundamentally reforms its long-term pension savings, institutionals shouldn't be allowed to even sniff at investments they don't understand even slightly.

Even leaving out the skills and shortfalls of Israel's pension managers, the mere idea of the government guaranteeing venture investments is a non-winner.

Until a year ago, the Israeli VC scene was awash with cash. It is the only sector still able to raise foreign capital. It's the only one unaffected by interest rates, whose entire crisis is merely a mirror image of events abroad. Why risk national resources by granting it guarantees?

The industry's lack of funds today results from its improvident investments yesterday, and from madcap investments by their portfolio companies. Billions were thrown at silly projects, enormous salaries and inflated standards of spending.

The road to heaven doesn't pass thru the Finance Ministry
Okay, Israel's venture capitalists didn't invent all that. It just aped what it saw in the States. Which is exactly why the Israeli government shouldn't pull its chestnuts from the fire.

The industry should cure itself by reducing costs to sustainable levels, changing business models, focusing on what it used to focus on ¿ products, not financial finagling. The road to recovery is the painful one to eliminating overcapacity, not the cushy one to the Finance Ministry coffers.

Times have changed. Israel doesn't have to attract foreign investment through government involvement. We're on the hi-tech map. The moment the storm abates and the sun comes back out, when investment opportunities arise again, the foreign investors will flock back to risk their money again.

The only assistance the government should grant the hi-tech industry is ¿ not to get involved. Don't contribute to inflated wages, don't increase the tax burden, and do create a positive social and defense environment that will encourage the best people to stay and produce at home, in Israel.