Of course, there’s a good reason for that, says Knesset Member Robert Ilatov of the Yisrael Beiteinu party. “Until now, the hi-tech industry was able to hold its own. But with the recent worldwide recession, investment money has almost dried up.” With hi-tech such an integral part of the economy – constituting as much as half of the country’s exports – the government really has no choice but to get involved, at least temporarily, in order to keep the industry alive to fight another day.

Of course, nothing comes for free – and with the government set to become an investor in Israeli hi-tech, entrepreneurs should prepare for at least some strings, if they take the cash, says Ilatov. “Obviously there must be a balance – a comfort level that both the government and private investors and owners will feel comfortable with.” But, he adds, “Like any other investor, the government has a right to ask for conditions from those who benefit from the taxpayer’s money,” he says.

There is a difference between the government and private investors, though; while an angel or VC looks at the bottom line, the government is likely to look at the “greater good” its money can bring about. “It’s not just about the developers and engineers,” Ilatov says. “For every worker in hi-tech there are six or seven supporting workers – the waitresses in the restaurants where they eat lunch, the cleaning staff who prepare the office for the workers, the taxi drivers who take the software people home at night.” If 7,000 hi-tech workers lost their jobs this year, that means some 50,000 other workers  are out of a job, too. Any help the government proffers to the hi-tech industry must go to help those support workers, as well as the elite tech workers, the MK says.

Clearly, Ilatov has done some thinking about the troubles Israel’s hi-tech industry faces – and he has decided to do something about it. Ilatov has established the Knesset’s first Hi-tech Lobby group, which he hopes will bring together government officials, leaders of varied hi-tech industries, university administrators, and members of Israel’s financial community, in order to give Israeli hi-tech a boost in the arm during troubled times.

The first meeting of the lobby saw well over 100 people get together at the Knesset to try and put together an agenda for a plan of action. Amazingly, this was the first time the Knesset saw such a comprehensive discussion of the problems and plusses of Israel’s hi-tech industry, Ilatov told me in an interview later. And, he added, by “hi-tech” he means all the advanced industries Israel is known for – computer networking and security, Web 2.0, biotech, medical devices, cleantech, etc. Representatives of those industries were present at the first lobby meeting, with speakers summing up what their businesses were facing as the recession continues.

Startups and established companies are, of course, just one aspect of the industry, he adds; it all starts in the universities, and maybe even earlier, at the high school level. So, there were also a number of top university officials at the meeting as well, discussing the difficulties faced by computer and science departments in the schools. Fact: The student to lecturer ratio in the country’s computer science departments are among the worst of any department, hovering at about 40:1.

With so many diverse ideas and interests represented, more than an initial exploration of the issues could not have been expected, says Ilatov. “The meeting was very helpful in clarifying a possible agenda, to help us decide what, if any steps to take or legislation to pursue in order to help the industries survive and thrive.”

One of those pieces of legislation is likely to be a rule that will require Israeli pension funds to invest at least some of their money in Israeli hi-tech. “Much, if not most, of the investment and VC money in Israeli hi-tech comes from abroad,” says Ilatov. But pension funds, arguably the Israeli investors with the biggest pockets, have barely given a shekel to local hi-tech, preferring to invest their money in far-flung places, says the MK. If it’s good enough for American VC’s to sink their money into an Israeli startup, Ilatov says, it’s good enough for a huge pension fund to allocate at least some of their funds to the same purpose. “It’s not like it’s any riskier than some of the other things they’ve invested in,” like Central European real estate, Ilatov says. “Americans who invest in Israeli hi-tech get excellent returns, and pension fund investors will as well. We intend to bring up the issue with the heads of the pension funds and try to persuade them that it’s in their, and the country’s, best interests to invest locally. If they agree, that’s fine. But if not, legislation of some sort may be necessary.”

Several other issues were brought up at the meeting: A number of speakers derided a new law that is to be passed as part of the “package deal” between the government and the Histadrut, which gives the union the right to organize among workers in any workplace, including in hi-tech companies (Ilatov thinks this is a bad law, because it will only scare off investors, and won’t help workers, who make far more than the average wage anyway). The names “India” and “China” were mentioned by more than one speaker, the latter for the potential business opportunities available, and the former in the context of the formidable challenge Israel faces in maintaining its position as a hi-tech power. And, there were calls to simplify the investment process, eliminate red tape, and generally do everything possible to encourage foreign investment.

One would have thought that many of these issues would have been hammered out, considering the importance of hi-tech to the country’s economy. But they haven’t, and that’s worrying. Where does one begin? With the universities? Helping existing companies stay in business? Helping fledging startups with great ideas to survive long enough to turn a profit, instead of selling their technology to multinationals for a relative pittance? Do we start with the universities, helping them produce more qualified personnel to fill the great need for top quality people? Or do we try and encourage a love of the sciences in high school and even elementary school students – many of whom, according to one speaker at the meeting, don’t know their multiplication tables as late as sixth grade? Yes, MK Ilatov says. All these areas are important, and we are just going to have to find a way to fund programs to work on all these levels. A tall order indeed, it would appear.

To all those who think being a Knesset member is a cushy job: Take an example from MK Ilatov. I’m sure he didn’t think setting Israel’s hi-tech policy right would be easy, but I’d guess he didn’t realize it would be this complicated. Like Charlie Brown, he has a chance to be a hero, if he succeeds. Let’s not think about the alternative.

“Trade” shows aren’t always the best place to get detailed information about the specifics of a company or a technology, but they’re a great place to get an overall impression of an industry. So it was with this year’s mid-May IVA show, coming after the traumatic financial events that have rocked the world in recent months. No doubt about it – Israeli hi-tech is limping as a result of those events, which have resulted in layoffs and company closures. Venture capital funds, meanwhile have become much more conservative in disbursing their largesse on startups; the performance bar has been set higher, so only ideas with the most merit – as in moneymaking potential – are going to get funded. It makes sense.

In the past, shows have been great places to score fun fan fare – T-shirts, hats, keychains, etc – all those little “status symbols” that show you “know someone” in the business (don’t try to deny you think those trinkets are cool!). But as usually happens in a downturn, the giveaways are the first to go; I was lucky to get business cards out of some people! Clearly, if we are to judge by the “freebie index,” Israeli hi-tech is in a major funk.

Without freebies to pursue at the show, I was forced to pay attention to the presentations and the technology of the companies attending; for balance, I sought out some investors as well (these were far more reluctant to speak than the tech people, of course, and demanded absolute anonymity). Thus I was able to gage the opinions of several people on the investing side of things, including one (very) heavy-hitter.

To tie these diverse observations together: It’s possible that next year’s freebie index will be somewhat improved, as investors are itching (at least one told me) to get back in the game, and if the recent good news on the stock markets continues, investors will feel more confident to invest in some of the technologies that clearly are going to have a major impact on the way we live, when they finally come to market. And those technologies are definitely worth investing in!

First, the technologies: At the show, I spent a lot of time in the area called the “Startup Pavilion,” where the real bootstrap companies hang out (as opposed to the more established startups that were presenting in the show’s sessions). Among the very cool companies I came across were: InphoDrive (http://inphodrive.com/), which is developing a voice-driven “infotainment” system for vehicles that will make driving safer; MobileRL (http://www.mobilerl.com/), which has a product that lets advertisers and media researchers determine with much greater accuracy the effectiveness of their campaigns; Leviathan Energy (http://www.leviathanenergyinc.com/), which believes that wind is a much better bet for alternative energy production than are solar photovaltic systems; and BioSpiral (http://www.biospiral.com/), with a technology that uses cooling & heating technologies to destroy prostate cancer, without need to resort to a knife.

I may have summed up their ideas in a line (because of space considerations), but rest assured that all four of these companies – plus numerous others – are doing unique stuff; VC’s would already have pumped millions into these and other technologies if this were 2007 (I intend to profile many of these companies in future articles). But 2009 isn’t 2007, as so many of us have found out in recent months (it should be noted that a number of these companies have products and services that are ready for market, and some are even working on ‘big deals’).

While trying to secure funding for a great technology nowadays is perhaps harder than it’s ever been, being an investor in times like these is no picnic either. VC’s are in business to make money, not lose it – hence their conservatism in matters fiduciary at this juncture. The investors just aren’t handing over the money the way they used to. But what are their alternatives? Sticking the money in the bank for a grand 1% return? It works for awhile, several investors have told me, but banking investment money is not a long-term strategy; they didn’t get where they are today by avoiding risk. Just the opposite.

This is where the strategy being pursued by many governments around the world, which are pumping money into the local economies, comes in handy, one major investor told me. “A trillion dollars is big money,” he said, referring to the potential deficit in this year’s U.S. budget, “and there’s certainly a risk of inflation. But it’s helping to build confidence, without which investors are just going to be too scared to invest in hi-tech. And we do want to invest in hi-tech, especially Israeli hi-tech, because Israel has traditionally had some of the most important startup technologies anywhere.” Among the people I spoke with were representatives of the New York Stock Exchange/EuroNext, who told me there were four IPOs so far this year on their global exchange. Considering where we were last October, it’s a good sign – and hopefully augurs a change for the better.

When things turn sour, it’s customary for pundits to push the “grim slide” theory – that things are bound to get worse. But keep in mind that some of the greatest innovations were actually first sold or marketed during recessions and depressions (http://tinyurl.com/cuwt8m). Sooner or later things bounce back – and no doubt some of the technologies that are going to be poised to help turn things around were right there at the IVA show. And I expect some cool freebies when those companies do start making it big.