The hi-tech industry is by far the fastest growing segment of the Israeli economy and one of the main contributors to the rapid growth of the domestic market. The sale of numerous Israeli companies to leading international players, combined with dozens of public offerings in the United States and European markets, only serves to illustrate this point.

As remarkable as it is, the vibrancy of Silicon Wadi is by now well known. The news, however, from close observers of this sector is that the Israeli startup industry is currently undergoing a major change. The technology sector is entering its second phase of development, laying the groundwork for the creation of larger companies positioned to become major global players.

In this context, it is worth recalling that Israel’s hi-tech industry is young by any standard. It started emerging as a significant force only in the mid-1990s with the establishment of the government-backed Yozma venture capital fund. Yet even in its infancy Israel’s hi-tech sector ranks second only to Canada with its number of non-U.S. companies listed on Wall Street.

The success has long been driven by startup companies using innovative skills provided by local talent to create cutting-edge technologies and solutions. The tangible result has been Israel’s disproportionate representation on the Nasdaq exchange, with more than 70 companies, with a collective market capitalization of more than $75 billion.

What is changing is that it would now be a serious mistake to view Israel as solely an incubator for young and promising technologies. As the country moves into its next stage, in addition to seeing a continuation of companies going public and seeking million-dollar deals, Israeli companies will start to become billion-dollar entities.

The tech sector’s first decade (1995 to 2005) was characterized by a series of firsts, especially first-time entrepreneurs and first-time funds. All sides were looking for the quick exit. This resulted in many local companies being sold for a price that did not reflect their real value, or going public too early.

Many of these companies failed to realize their full potential. Some witnessed a sharp drop in market capitalization, others had to change their business models, and some were forced to shut down altogether or be transferred abroad. Only a handful of Israeli companies — giants such as Checkpoint, Amdocs, Orbotech, Nice Systems and Comverse — managed to become world leaders and maintained their position.

If entrepreneurs, managers and venture capitalists had demonstrated more patience and had access to additional funding, the entire Israeli economy could have benefited. Companies would have produced higher returns for their founders and investors, created more jobs and brought in more revenues to the state of Israel. One can only imagine what the Israeli economy would look like today if the country had become a home to a dozen or more multibillion dollar companies.

Now, however, the trend is changing as entrepreneurs, managers and investors are willing to adopt long-term approaches aimed at growing companies into significant market leaders in their fields.

As the technology sector evolves from selling technology to building world-class technology leaders, the time and cost required to bring a company from inception to exit has substantially increased.

Since 1998, the average number of years between the founding and first exit for Israeli technology companies has increased by roughly 25 percent. At the same time, the average amount of capital raised by Israeli technology companies prior to exit has increased more than five-fold, from $3 million 10 years ago to an average $16 million in 2006.

Israeli entrepreneurs are more experienced than they were a decade ago, and there are a growing number of second- and third-time entrepreneurs coming back again for the gold. Their successes have endowed repeat entrepreneurs with the knowledge, resources and respect of their peers to impact the Israeli hi-tech community as a whole.

Venture capital funds also understand that the market is changing and that they will fail to generate returns if they do not focus on building billion-dollar enterprises.

During its formative period, the majority of funding available for the Israeli hi-tech community was seed- or early-stage finance. Today first-decade tech companies are migrating down the pipeline into later developmental stages, creating a bulge effect with an attendant need for capital at later stages.

Late-stage capital allows successful companies to focus on further improving their products and marketing instead of being forced to find the fast exit. Israel’s remarkable initial success in its startup sector will provide the bed from which will grow even more compelling and lucrative investment opportunities during the next 10 years.

As entrepreneurs, managers and investors begin to adopt a “go-the-distance” approach, the entire landscape of the local hi-tech sector will reach new heights, bringing enormous benefits for the entire Israeli economy in its wake.

Shlomo Kalish is the founder of Jerusalem Global Ventures, which is now raising a $200 million fund that specializes in late-stage investment.