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The year 2001 will be very tough for the local hi-tech and venture capital industries, predicts Matty Karp, CEO of Herzliya-based Concord Ventures. But, he adds, it has nothing to do with the election of Likud leader Ariel Sharon this week as premier.

"Barring serious deterioration in the security situation, I do not believe that the election of Sharon will have a substantial effect. Remember that there were very good years under the Likud government," Karp says. "All in all, the sector is much more affected by events in the American capital market and venture capital industry than by elections in Israel."

Which is just the problem. He does not see Nasdaq, to which the local industry is tightly correlated, doing particularly well in the next couple of years. "It will be very hard for VC funds and companies to raise money. Employment terms will worsen," Karp predicts.

"In Israel, the process has just begun, because the venture capital industry all over the world lags behind the public market, and the industry in Israel lags behind the global industry. But the process is evident, and things will get worse later on," he warns.

Israeli funds will suffer more

Moreover, Karp believes that Israeli funds will suffer more than their American counterparts. Again, this isn't because of Sharon, despite a widespread conviction that his election will deter foreign investors. No, it's because when times are tough, the first thing major investors abandon is foreign ventures, meaning endeavors outside the United States.

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One solution he sees is to enact laws encouraging foreign investment. For instance, the legislative could amend the Companies Law and income tax regulations to make them friendlier to foreign investment, as pundits like to point out. The government under One Israel leader Ehud Barak neglected to carry out such amendments, Karp says, because it had too many other priorities and not enough time. Or perhaps because it did not command a majority in Knesset to push such amendments through. Perhaps the new government under Ariel Sharon could pull it off, Karp says.

Aaron Mankovski of the Polaris fund shares Karp's opinion regarding Sharon's election. The key question is how Israel generally looks to the world, and to the foreign television networks, not Sharon's election

per se

. "If the situation escalates and all they see on CNN is us, the situation of the industry will slide. There will be less investment by both foreign and local funds," Mankovski says.

Mankovski adds that the U.S. still warns its citizens to avoid travel to Israel. People are still coming, he says, but they won't if the hostilities intensify. Not only will there be less investments, he predicts, but companies will buy less from Israeli suppliers, which is even more important.

He repeats that it isn't about Sharon. During the reign of Benjamin Netanyahu, he points out, investments in Israeli hi-tech reached an all-time high. It's simply too soon to say how the election of Ariel Sharon will affect the VC and hi-tech industries, Mankovski concluders.