The Israeli venture capital industry is taking a long-term view of the current military situation in northern Israel and Lebanon, but investors said Wednesday the real test will be in coming weeks as startups try to complete financing rounds amid ongoing violence.

Local industry officials report that fund-raising efforts are continuing. So far the hostilities have had little impact on ongoing operations of the country’s venture funds, and there has not been en masse cancellation of visits by foreigners.

But the next few weeks will determine whether Israeli startups succeed in completing their financing rounds or if the fighting has an impact on these efforts.

“We’ll only know at the end of September whether third-quarter fundraising efforts continued at the rate witnessed during the first half of the year,” said Yoram Oron, managing partner at Vertex Venture Partners and chairman of the Israel Venture Association (IVA).

In its quarterly survey, released Monday, the Israel Venture Capital Research Center reported local startups raised $404 million in the second quarter of 2006 (see Israeli Startups Raise $404M).

Dozens of startups are currently in the process of trying to raise funds. “Financing rounds take months to complete, so if the fighting ends soon, the impact will be very minimal,” predicted Mr. Oron.

Members of the IVA board of directors meeting in Tel Aviv Wednesday reported that fund-raising efforts were continuing uninterrupted in the meantime.

Diplomatic Efforts Bode Well

The consensus among venture capitalists is that the current situation differs from the period from 2001 to 2003, when the local high-tech industry was hit by a wave of suicide bombings and the violence between Israel and the Palestinians, along with a global downturn in the technology sector.

“Back then it was difficult to see an end in sight, but diplomatic efforts to end the current conflict are already taking place,” noted Erel Margalit, managing partner at Jerusalem Venture Partners.

So far the local venture capital industry reports that most foreign visitors are still arriving as scheduled. That was often not the case during the years of the “intifada,” when Israelis in the high-tech industry had to conduct all their meetings with investors and customers outside the country.

“We’ve had only one visit canceled since the operation began,” said Carmel Sofer, general partner at Gemini Israel Funds. Even delegations from Singapore and China arrived in Israel as scheduled.

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