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Even though 2009 began with a limp it will be remembered as a good year for Israeli high-tech, which racked up a fair share of amazing exit stories. Optonol and Starlims are just two examples from the past few days.

These successes make the failure of Poalim Capital Markets' technology investment fund all the more upsetting. In 2000 PCM raised NIS 78.8 million for Poalim Ventures 1 from Bank Hapoalim's small private investors. A decade later, not much is left. Although Poalim Ventures 1 has so far returned NIS 24.3 million to its investors, the remaining investments have eroded by over NIS 36 million and are now worth just NIS 13.6 million. Add in the fund's cash and financial assets worth NIS 9.7 million and you get NIS 47.6 million - which means that the value of the original investment has eroded by 40%.

Poalim Ventures 1 was launched at the height of the dot.com bubble at the start of the decade, when newspapers were filled with stories about investors raking in hundreds of millions. Most of these stories were about private funds, whose minimum investment was out of reach of the average investor. Hapoalim's fund was designed to enable smaller clients to get a piece of the action. Shortly after the fund was launched the high-tech bubble burst and dreams evaporated.

In the years since, however, many funds managed to reverse their fortunes. After the crisis passed they got back onto the glowing exits track. Unfortunately, this did not happen for Hapoalim customers who invested in its venture capital fund. The minimum investment in the fund was NIS 80,000, for which investors received 40 participation units worth NIS 2,000 each. Today those 40 units are worth just NIS 48,000.

PCM's managers, lawyers and accountants, however, were handsomely rewarded all along. From 2000 until September 30, 2009 the fund had cumulative losses of NIS 50 million (it earned profits in two years and recorded losses in the other eight), but that didn't stop PCM from collecting NIS 20 million in management fees during those years. Members also paid NIS 4 million in administrative and general expenses.

Today Poalim Ventures 1 has 13 portfolio companies. Two are already in liquidation proceedings, while three more have applied for court protection from creditors.

PCM owns between 0.8% and 4% of the share capital of each of these 13 companies, in which it invested a total of NIS 49.2 million. The fair value of those investments is now only NIS 13.6 million. All told, Poalim Ventures 1 invested in 21 companies, three of which had substantial exits: PowerDsine, Cyota and Appilog. Three other companies were sold with no significant profits, while six either closed or suspended operations.

The only consolation for Poalim Ventures 1 investors is that things could have been much worse. Among other venture capital funds launched in 2000, Israel Seed 4 and Pitango 3 each lost 50% of their initial capital. But funds such as JVP 4, Carmel 1 and Gemini 3 performed considerably better.

Management fees for Poalim Ventures 1 are also higher than usual for the sector. Investors were charged 3% per year for the first two years, 2.5% for several more years, and then 2%. In addition investors had to pay the fund's administrative and general expenses separately, whereas other funds paid these expenses from the management fees.

The VC funds launched in 2000 had a rough decade, with crises in 2000-2001 and again in 2008-2009. Still, the investors in Poalim Ventures 1, most of whom are Hapoalim clients, will find no comfort in the fact that the bank wrote off a large percentage of their investment while the managers continued to collect management fees totaling 25% of the fund's capital.

Poalim Ventures 1 is managed by Eran Gersht. Nir Brunstein, the current CEO of PCM, served as the fund's chairman for most of its existence, until recently. He was among the highest earners in the Hapoalim group in 2008, thanks to bonuses for previous years. The Israel Securities Authority recently submitted documents from an investigation against Brunstein to the State Prosecutor's Office. Brunstein is suspected of using inside information on Hapoalim. "We have so far paid investors NIS 24.3 million," responded Gersht, adding that this sum, combined with the value of the funds cash and assets, show that the fund's performance was in line with that of other funds launched in 2000. "We acted with professional responsibility, but macroeconomic trends are sometimes stronger than we are."

Next week the fund's investors will convene to vote on extending the life of the fund for another three years, one year at a time.

"We believe extending the fund's duration will be good for the investors," Gersht said.