The headlines make grim reading. Venture capital investments sink to all-time low and so forth. Kesselman & Kesselman's periodic MoneyTree survey shows that venture activity continues to decline, falling another 37% in the second quarter compared with the first.

That sounds bad, especially when compared with the gleeful headlines of the boom years.

But the truth is that the startup industry is still enjoying a tremendous influx of money. Even today, in the grip of recession,


and the global telecom crash, some 70 startups raised $217 million about a billion shekels.

For the half year, the figures show the same trend: 146 startups raised $561 million, 60% down from the parallel period of 2001, but still an enormous sum by Israeli standards.

That is several times more than was invested in any other Israeli sector, probably. There were hardly any stock issues, and the few that took place were tiny in scope. Aside from a few public-sector projects, there were hardly any new capital investments worth mentioning. How much money was invested in traditional industry over the last three months? In services? In commerce? Financing? Not much, if any.

Investment did go down, it is true. The venture capital funds had less resources to invest. That makes it interesting to see where the money that came in, went. What do the 146 lucky companies have, that the other 1,000 gasping for financing don't?

Kesselman & Kesselman's analysis shows that telecommunications is still king, raking in 27% of the new investment. The other stars were biotechnology and medical technology, which took in another 27%.

The report does not distinguish which companies attracted the most financing, and why. The average per company in the first half was $3.8 million, but that figure is misleading. Most of the money went to a handful of startups, the elite, with the hoi polloi getting peanuts.

Atrica getting $75 million, Chiaro $80 million, Mellanox counting $56 million and P-Cube winning $30 million. Banter brought in $20 million, Lasercom $21 million. That's a short list: there are other companies that brought in huge sums this year.

Are tremendous financing rounds by portfolio companies the best use of the funds' money? Might it not be better, in these days of shrinking valuations and modest demand by the companies, to scatter more money among new companies with fresh ideas more suited to today's economic environment?

The funds apparently don't think so. Otherwise how could it be that five companies, just five, received seed financing in the second quarter, totaling a pitiful $7.5 million. Nor was the picture different in the first quarter: six seed rounds totaling $6 million.

From the perspective of the fund managers, the logic in such investments is clear. After having poured tens of millions into the companies, they have little choice but to keep them floating on further infusions. Letting the companies collapse into the void would be a terrible blow to their portfolios.

Worse, allowing a company marked as a diamond to crumble to dust would be bad for the reputations involved of the fund and its managers. It would hamper future efforts to raise money from investors. Better to keep the companies on life support, the funds figure, even if its chances of breaking even don't look particularly heartening.

That is why we keep seeing financing rounds in the tens of millions in certain companies despite the grim times, even though sums like these could serve to breathe life into hordes of new ventures.