THE WORLD IS ENTHRALLED with Israel as the “Start-up Nation,” as recounted in Dan Senor and Sol Singer’s bestseller, published just over a year ago. But Israeli start-ups are now in mortal danger. They are being deprived of the vital oxygen – venture capital (VC) funding – that they desperately need to survive. Unless prompt action is taken, “Start-up Nation” may be a thing of the past.According to a study by IVC Online, a venture capital research firm, in 2010 a minuscule 3 percent of VC investments went to “seed” money (i.e. investments in very young companies, or what are termed startups), or a total of just $38 million.Only 45 start-ups got such funding, out of a thousand or more existing ones. Total venture capital investments rose a bit in 2010, compared to 2009, but were 40 percent less than the pre-global crisis level in 2008.The writer is senior research fellow, S. Neaman Institute, Technion.Moreover, only 30 percent of venture investments were made by indigenous VC firms, the lowest proportion in over a decade.Foreign VCs are far less likely to invest in “seed” companies, simply because they understand the local landscape less well and hence are less likely to take risks.What is the underlying cause of this rather sudden drying up of start-up funding? A leading venture capitalist revealed the reason.Venture funds are putting what little money they have into existing companies in their portfolios, to keep them alive, so they don’t have to write them off as losses. This leaves far less money for investing in new start-ups. This reminds me of Japan’s blunder.There, after the property bubble burst in 1990, banks shoveled money to losing firms (so they could keep them from defaulting on loans and forcing banks to record losses), rather than lending to dynamic profitable firms desperate for new loans. This helped usher in over a decade of stagnation in Japan’s economy.American management guru Peter Drucker noted long ago that in any population, there can be no birth without death, or as he termed it, no innovation without abandonment. If failed firms are not abandoned, new promising ones cannot get the funding they need to survive. This now appears to be the case in Israel.Venture capital worldwide is in crisis, as pension funds and institutional investors slash their exposure to risk, in the wake of losses incurred in the 2007-9 global crash. As a nation vitally dependent on VC funding, Israel is feeling the pinch.There is a tried and true solution. In January 1993, the government established a VC fund called Yozma, headed by former chief scientist Yigal Erlich. Until then, no government had undertaken such a bold step.Yozma provided matching funds for any VC fund willing to invest in Israel, thus reducing their risk by half, or doubling their rate of return. It was a huge success. Total VC funding in Israel rose by 60 times, from only $58 m. in 1991 to $3.3 b. in 2000, at its peak.It is time to revive Yozma, which was privatized after a decade of success. No one is better qualified to grasp the situation or take prompt action than Director General of the Ministry of Finance Haim Shani. Shani has a long and brilliant track record in high-tech, leading Nice (an innovative market-leading firm that pioneered video surveillance hardware and software) to great success. Let Shani revive Yozma. And why not bring back its original daddy, Yigal Erlich, to lead it again? As a management educator, I have been teaching entrepreneurs how to bootstrap – launch companies without money. It is possible but difficult, and some technologies simply have to have investments to be properly developed. In an age when many nations are striving to imitate “Start-up Nation” through innovation, speed is essential, and bootstrapping causes long delays. It is not the answer.What worries me most is the atmosphere of complacency. I see no evidence of deep concern in government circles, or of any attempt among policymakers to take the start-up bull by the horns. It is time for them to wake up. Start-ups aborted before birth because of lack of funding mean that in a decade Israel will lack the dynamic innovative companies that currently drive half its economic growth.SOS – save our start-ups, before it is too late!