When Sam Glassenberg, a former gaming division manager at Microsoft, began to advocate building a games industry in Israel, he found support from Jerusalem Venture Partners (JVP), a venture capital firm focused on digital media technologies.

Today Glassenberg is CEO of Funtactix, a JVP-backed developer of online games mostly based on movies.

In the past year it has created Web-based games for Oscar-nominated animated film Rango and the blockbuster Mission: Impossible - Ghost Protocol. This month it signed a deal with Lions Gate Entertainment to launch a social game for the film adaptation of young-adult novel The Hunger Games.

Israel has had success in semiconductor and security and Israeli VCs tend to focus on those sectors, Glassenberg told Reuters. Folks like me in the games industry saw an opportunity in Israel but it was tough to get VCs (venture capitalists) on board in an area Israel doesn't have a track record. It took a lot of vision on the part of JVP.

Headquartered in Jerusalem rather than in Israel's high-tech hub around Tel Aviv, JVP has over $900 million under management and is invested in 30 companies. Over 90 percent of the funds raised come from prominent U.S., European and Asian funds of funds, endowments, pension groups, foundations and individuals.

Founder and managing partner Erel Margalit created in Jerusalem a media quarter that serves as headquarters for the fund and includes JVP Media Labs, an incubator for early stage companies, as well as a performing arts centre and music club.

JVP has had 23 exits, including the sale in 2000 of optical networking firm Chromatis to Lucent Technologies for $4.8 billion. In 2010 QlickTech went public on Nasdaq and JVP turned a $9 million investment in the Swedish software company into a $450 million return for investors.

Most recently cloud encryption firm Navajo Systems was acquired by Salesforce.com in August.

In the 1990s Israel was building technology infrastructure, converting defense technology into civilian applications such as wireless communications, optics and software.

But as the premium for building infrastructure declined JVP decided to dedicate itself to media, where Margalit sees the next high-tech revolution taking place -- the blending of technology and culture in companies like Google and Facebook.

If you look closely at JVP you can see a big change, Margalit said.

ENGINEERS AND ARTISTS

It's a totally different mindset. It's not just a world where an engineer meets another engineer, it's a world where an engineer meets an artist, a movie person, an advertising person, said Margalit, who has a doctorate in philosophy from New York's Columbia University and is a former director of business development for the city of Jerusalem.

If Israel is going to thrive in the next generation of high technology it needs to be a broader, creative hub. That's our biggest competitive advantage versus India and China, where you have quite a bit of engineering talent.

Though Israeli VCs have faced difficulties raising money in the wake of the global financial crisis, Margalit said JVP raised $220 million in the last 2-1/2 years. In comparison, since 2009 Israeli VCs raised in total about $1 billion, according to the Israel Venture Capital Research Center.

JVP has a broad network of co-investors such as HarbourVest, Accel Partners, Goldman Sachs and Battery Ventures.

Besides Funtactix, JVP's portfolio includes Siano, which develops receiver chips for mobile digital TV; Animation Lab, an animated feature film studio; and AnyClip, a web service that allows users to find any moment from any movie in its database.

AnyClip has contracts with Vivendi, Warner Bros. and Universal Pictures and deals with at least two more major studios will be announced soon, said director of content Maor Gillerman, who credits Margalit with the idea for the company.

Erel was the visionary here, Gillerman said. He saw how we could move one step further and create a platform that could serve other programs and developers.

(Editing by Andrew Callus)