By Oded Hermoni
Ha'aretz Correspondent

Investments in high-tech in Israel have soared 74 percent in the third quarter of 2000, according to data compiled by IVC-Online. The research division of venture capitalists Giza and Zinook reported an increase in investments from $610 million in the second quarter of the year to $1.058 million in the third. The data, however, relates to the quarter that ended in September, before the riots in Israel, and the falls on the Nasdaq.

Some $2.3 billion has been invested in Israeli high-tech since the beginning of the year. Funds were invested in 153 private high-tech companies in the third quarter of the year, as opposed to 120 in Q2.

In line with global trends, communication firms received the largest investments per company, accounting for 53 percent of the total amount invested in Israeli high-tech in the quarter. Investment in Internet infrastructure went up 44 percent, but content companies, which took a hard blow on the Nasdaq in April, hardly registered any investments. Bio-tech is also on the rise, with $80 million invested in 17 companies - a 54 percent rise in relation to Q2.

One of the reasons for the significant increase is that investment sums, starting with seed money, are higher. In Q3, the average investment went up 35 percent, to $6.9 million, compared to $5.1 million in Q2. The median, however, was only $3 million.

Eran Mordechai, and analyst for Zinook, explains that the big difference between the average and median shows how the largest investments pull up the average; 15 of the 153 companies in which funds were invested raised $515 million of the total $1.058 million. Chiaro, an opto-electronics company, leads the list with $100 million, raised through the Israeli VC, Polaris.

Israeli VCs increased their investments in Q3 to $380 million, compared to $260 million in Q2. In 1999, Israeli VCs invested $435.6 million in total. Foreign investors still account for the bulk of the investment in Israeli high-tech. In Q3, off-shore investors put down $609 million, but the recent political upheavals and Nasdaq tumble have cast a heavy shadow on the future.

"The third quarter results show that Israel has become a central player on the global market and is now playing in the major league with U.S.," said Erel Margalit, director and partner of JVP, one of the largest Israeli VCs, which can take credit for this year's crowning event - the Chromatis deal. "However, it is still unclear how the political situation will affect the high-tech industry in the coming quarters."

The Nasdaq also has a direct impact on investments in Israel, Margalit said. "When the Nasdaq sneezes, the rest of the world falls ill. After Internet companies have taken a fall, rules on the Nasdaq have changed and selection now is tougher. Not every optics company is worth billions and not every wireless company will skyrocket. These are Israel's aces, and they can be hit ... We may see this happening as early as the fourth quarter of 2000 or the first quarter of 2001."

But Margalit is optimistic about the growth of the Israeli high-tech industry. "This is not the last peak we'll see; even investment levels may flatten out in some quarters."

Should the Nasdaq crisis continue, Margalit foresees Israeli VCs playing a greater role in local investment. "Foreign investors are influenced by the security situation in the region at large, and not only by isolated events. If an agreement is reached and some sort of negotiations are resumed, this would be a positive signal for continued investments. Should things escalate, this would undoubtedly have an adverse effect on the next few quarters.