JERUSALEM: With its perennial lack of water and an overabundance of sun, Israel has long been a global leader in water and solar technologies. An Israeli kibbutz company, Netafim, invented the first drip irrigation systems, while Luz Industries Israel developed the first commercial solar-thermal power plants. Now Shai Agassi, an entrepreneur who formerly was a top executive at SAP, the German software company, is leading the global charge to put electric cars on the road. A solid Israeli venture capital industry has also long invested in technology start-ups - an average of $1.6 billion a year over the past four years. Now those two strands are coming together, as specialized funds start to invest in clean technology, a market niche that is gaining traction in Israel's established technology sector. Israel Cleantech Ventures is one such dedicated fund, founded three years ago by two American-Israelis. For Jack Levy, one of the founders and a lawyer who moved into the high-tech industry when he came to Israel, clean technology offered the possibility of differentiating the fledgling fund from other venture capital operations in the crowded high-tech market. When he started, Levy and his partners gathered together a database of 170 Israeli companies in the sector. There are now more than 500. Not only was the number of companies small at the beginning, but the flow of capital to them was limited and potential Israeli investors were few, apart from engineering firms making small acquisitions or some high-tech companies making related investments, Levy said. Israel Cleantech Ventures raised $75 million last year for its first fund, tapping investors in Europe, Israel and the United States, including the institutional investors Robeco and Piper Jaffray. With ambitions to climb into the top quartile of venture funds, measured by performance, ICV has already invested in seven portfolio companies, including Project Better Place, the developer of electric cars set up by Agassi. Like any early-stage venture capital fund, it expects to invest for five to seven years before cashing out. Exiting an investment "takes time," Levy said. Still, he said, the global market is now hungry for these technologies, and Israel holds a significant advantage in the pool of skilled Russian immigrants who arrived in the 1990s. The wave of Russian migrants included many mechanical, chemical and metals engineers who had spent years developing concepts in their homeland. With technologies already developed, all they needed was financing and management. A good chunk of Israeli clean technology is "not even radically new," Levy said. "You're working with people with 20 to 30 years experience in these markets. They remember when such and such company tried this. It's not like the mobile phone market." This pool of expertise prompted Astorre Modena, an Italian-born physicist, and two partners to found Terra Venture Partners, a venture capital firm in Jerusalem that focuses on clean technologies. "The Russians were in water or energy or materials and other relevant topics, but they didn't possess that entrepreneurial spirit that Israelis have. That's where we come in," Modena said. Levy and Modena say that, as venture capitalists, they offer not just financing, but also knowledge and guidance in building and developing companies. In some cases, for example, they will bring in a chief executive to run a company that is floundering under an engineer-founder who lacks managerial experience. Israeli technologists, Modena said, are good at taking a process and optimizing it. A case in point is one of Terra's two portfolio companies, IQWind, which improves the efficiency of wind turbines, using a patented technology that helps reduce their cost and increase their output. IQWind is aimed at two markets, said Gideon Ziegelman, its founder and chief executive. Its main target is the market for new wind turbine machines - a global market worth an estimated $30 billion, Ziegelman said - which it plans to start penetrating at the start of 2011. But before then, it plans to start gearing up its operations in a second, smaller market for retrofitting existing wind turbines, starting next year. The problem is that although the company has built prototypes of its product, they have not yet been installed, and it needs additional funds to go forward, said Ziegelman, an electrical engineer by training. "The biggest problem in the Israeli market is raising enough money for an early stage company like ours," he said. "Most venture capital funds invest in Internet and software and they don't know anything about water, solar power or wind turbines. "There's a lot of buzz going around about cleantech, but there's not a lot of money invested in the early stage, because investors just don't understand the basic nature of these industries," he added. Raising funds for clean technologies is a challenge, agreed Modena, whose company raised $25 million in a first round of financing that started last year, tapping a mix of European investors. For now, Terra and Israel Cleantech are the only two Israeli venture funds dedicated to clean technologies. But Pitango Venture Capital, one of the largest venture capital firms in Israel, with more than $1.3 billion under management, is backing Precede Technologies, a U.S-Israeli unit that operates in the field. "We serve as a two-way bridge between the venture capital world and cleantech entrepreneurs," said Orni Petruschka, a Precede partner and a former co-founder and chief executive of Chromatis Networks, a U.S. optical networking provider that Lucent acquired in 2000 before closing it a year later. With financing from Pitango and Evergreen, another Israeli venture capital firm, Precede has established two companies, Pythagoras Solar and Coriolis Wind, and has invested in a third, Solar Power. Israel Cleantech Ventures has also invested in Pythagoras Solar, which uses innovative geometry to cut the cost of solar energy. Meanwhile, Gemini Israel Funds, another venture capital firm, has invested in what it terms "green information technology" companies, which produce energy-saving lighting installations and solar-cell manufacturing techniques. Last month, a new private equity venture, Israel Opportunity Fund, was announced, with a focus on alternative energy, water and agriculture. Behind Israel Opportunity are Dan Gillerman, a former Israeli ambassador to the United Nations, and Matthew Bronfman, a scion of the Seagram distillery dynasty, who is a major shareholder in Israel Discount Bank, one of the top three Israeli banks. "I think we'll see more action in this sector," Modena said. "I'm pretty sure that a general fund will come in, there's certainly room in the market. But they'll have to have the right people to get to know the market."