- The Washington Times - Thursday, July 13, 2000

TEL AVIV Yossi Vardi leans dangerously far back in his chair amid foot-high piles of paper, a bust of Zionism founder Theodor Herzl and a laptop, answering phone calls from young Israelis trying to make it big on the Internet.

Mr. Vardi is occasionally interrupted by his son, Arik, a high school dropout-turned-multimillionaire, who wanders into the office barefoot, long locks flowing behind him.

In 1998, the two sold Internet start-up Mirabilis to America Online Inc. for $407 million. The company, founded by Arik and three friends, created the instant-messaging program ICQ (I Seek You), which lets people find each other on the Net and chat.

Yossi Vardi has since become the go-to Internet guru in one of the world's hottest breeding grounds for "new economy" success stories.

He helps Israelis new to the game chart strategies and has himself invested in several start-ups, including R U SURE?, whose software runs automatic searches for on-line shopping deals and which employs Mr. Vardi's middle son, Oded.

Over the past decade, high-tech start-ups have flourished in Israel, where an increasingly skilled work force bolstered by a million immigrants from the former Soviet Union benefits from a highly computerized military and government policies encouraging entrepreneurship.

If Israel were an American state, it would rank seventh in the venture-capital funds it receives, according to the U.S. accounting firm PriceWaterhouseCoopers.

About 100 Israeli high-tech companies are traded on the Nasdaq stock exchange, third in number only to Canadian and American firms.

Venture-capital investment in Israel surpassed $1 billion for 1999 and rose 79 percent in the first quarter of 2000 compared to the year-ago period, according to the accounting firm Ernst and Young-Israel and the U.S.-based VentureOne Corp.

Mirabilis, an instant-messaging trailblazer in a market with tens of millions of users, was the first of many Israeli Internet success stories.

Several Israeli companies have been bought for hundreds of millions of dollars by U.S. companies, including New Dimension, which develops business-management software whose users include the U.S. Internal Revenue Service, the Pentagon and Social Security Administration.

"Now every Jewish mother wants her son to be a dropout and work with computers," the wiry-haired Mr. Vardi said with a smile.

One hot fledgling Israeli start-up is www.Babylon.com. In three years, more than 4 million Internet users have downloaded its software, which can instantly translate any word on the computer screen from English into 12 different languages.

Every day, 15,000 more Internet surfers join, making the program the eighth most popular address on www.download.com, an Internet software clearinghouse, says Amnon Ovadia, the program's creator.

Mr. Ovadia, who grew up without electricity in the early 1950s in a tent city for immigrants from Iraq, thinks the daily tensions of life in Israel provide a perfect climate for start-ups.

"We live in a pressure cooker, but it also activates the adrenaline," he said, his computer whirring next to him in his office in a high-rise overlooking the port city of Haifa.

Several trends converged to create the right climate in Israel for a burgeoning high-tech industry. About a decade ago, Israel began privatizing its economy, and the state offered capital and support for high-tech start-ups.

That prompted many like Mr. Ovadia who once worked for the government-owned electric company to set out on their own.

Israelis have another clear advantage over many competitors abroad: the military. In compulsory army service, many oversee high-tech projects worth millions of dollars.

Many talented engineers see duty in Mamram, the Israeli Defense Forces' elite computer unit, which develops programs that do everything from helping defend the country against missile attacks to simulating war games.

"Because there is relatively high turnover in the technology ranks of the military, young recruits quickly assume serious responsibilities," said Col. Zvi Gleichman, commander of Mamram.

Drawn by the growing supply of skilled workers, top companies like Intel, Motorola, IBM and Microsoft began setting up facilities in Israel in the 1990s. On June 26, Intel announced it would build a $2 billion plant in Israel, the largest direct investment in the country ever.

In late May, high-tech wonder Chromatis Networks, whose new technology increases speed in local communications networks, grabbed the spotlight when the U.S. telecommunications giant, Lucent Technologies, bought the company for $4.5 billion.

It was the most ever paid for an Israeli company.

The Internet is appealing for many Israeli entrepreneurs because it helps them have an impact far beyond their tiny country.

It's almost as if the relationship was predestined, mused Mr. Vardi.

"Israel and the Internet waited for each other for 2,000 years," he said. "When they met, there was this big explosion."

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