Dr. Erel Margalit is Israel’s and, arguably, the world’s ultimate entrepreneur. Known as one of the chief architects of the startup nation – bringing innovation and entrepreneurial leadership to the country’s most pressing political, economic, and social challenges, he’s the founder and chairman of Jerusalem Venture Partners (JVP), which has raised over $1.6 billion across 11 funds. Margalit also is the founder of the nonprofit organization Bakehila (“In the Community”), which has helped tens of thousands of children in impoverished Jerusalem neighborhoods, as well as Margalit Startup City, which has established seven for-profit and nonprofit regions of excellence that combine technology and education in Israel and internationally.
Margalit earned a doctorate in philosophy from Columbia University, and then went on to join the Jerusalem Development Authority in 1990, where he led an initiative to encourage high-tech companies from the US and Europe to open R&D or manufacturing facilities in Jerusalem. In 1993, Margalit founded JVP, a globally recognized brand that combines business and social impact. JVP has raised over $1.6 billion from institutional and private investors, as well as from private equity, endowments, pension, and global corporate funds. JVP has been instrumental in building some of the largest companies out of Israel, facilitating 36 exits along with 12 initial public offerings on NASDAQ.
Margalit, 61, who is married to Debbie and has three daughters, served in Israel’s Knesset for nearly five years beginning in 2013 as a member of the Labor party.
The Media Line’s Felice Friedson spoke with Margalit ahead of the opening of the International ClimateTech Center in New York City on Wednesday. JVP, in partnership with MINI by BMW Group and the City of New York, is launching the center, which promises to bring technologies such as cyber, fintech, food tech, and health care IT into the frontline of protecting our planet.
Erel, in preparing for this interview it was tempting to simply list each of the organizations you are responsible for, asking for a comment and maybe calling it a day. But what stands out in the myriad of organizations is they link to a larger picture, multiplying their effectiveness. At the end of the day, what is it that you have accomplished?
Margalit: I think that Israel from 25 years ago changed its economy, changed the way my generation is involved and created a new, creative industry, technology, which is changing the country and creating bridges to the world. But in order to do that, it’s not just about business. It’s about the business of inventing and creating the ecosystem in each of the cities that we are operating in to be able to let many people participate in the creativity. So here in Jerusalem, we’re sitting at Margalit Startup City Jerusalem, we have created an initiative between Jews and Arabs, between secular and religious, between Christians and Jews and Muslims that is bringing people together. For us innovation was about bringing the city together and creating a current creative narrative as much as we have a historical narrative. And then in the Galilee [in Kiryat Shmona], we brought a whole new vision of creating the food tech initiative that is the international next big thing that Israel is doing. In Beersheba, cybersecurity, combining between the defense forces, the universities and the technology sector to create a lot of new jobs in the South, in the desert city of Beersheba. Everything that we’re doing is about creating great companies that are international and creating a lot of jobs and creating profit for people who are involved, but also enabling other people that are not necessarily among those who have today to be part of this. This is what we’re doing in Margalit Startup City Bakehila (“In the Community”), where we’ve already reached about 50,000 kids around the country, Jews and Arabs, that are able to come forward and participate in this great generation of the technology and the creative chapter of Israel.
A recent article described you in three characteristics. They said a visionary leader, a champion of innovation and an engine for social change. If you had to give back two, which ones would you give back?
Margalit: I don’t know. I like all of them. I like creating great companies, and successful companies. I love the fact that I took 12 companies public on NASDAQ and brought some of the best Israeli unicorns [privately held startup companies valued at over $1 billion] to the forefront. But I also love the fact that this is now the 20th year that we’re working with kids all over the country and creating math, Hebrew, English, Arabic, but also innovation, allowing the people that are sometimes behind, kids that are behind, to participate in this great new thing. And I like cities in general, I like other cities to participate. I like the fact that between Jerusalem and Tel Aviv and the Galilee, we have New York. New York is participating with Israel. Because in Israel we’re a small country, and if we’re going to win in a big way, we need to partner with other cities and other nationalities. Probably one of the most moving things that happened in the last few years is the ability of Israel to be part of the Arab world and the Middle East in a way that’s win-win. Our first major trip with 15 companies to Dubai and Abu Dhabi, to the UAE, was a new chapter. Because now we are cooperating around cybersecurity, around fintech, around agriculture, water, health care IT, and what we’re saying is that innovators are creating the new bridges in the region. And we're saying, 10 cities, 10 ideas, 10 projects that will change the way you think about the Middle East. Let technology lead you. Politicians will follow.
You touched on many different areas. Let’s take one at a time. Having been in government [as a member of Knesset from 2013 to 2017], do you feel this is something that Erel Margalit can do alone, or do you need government involvement?
Margalit: I think that all big projects require public-private partnership. Here in Jerusalem, when we started, there were no technology companies whatsoever. Today we have more than 20,000 employees in the technology sectors. We have some of the world’s largest [capital] exits out of Jerusalem. We needed incentives to be able to bring financial investors, large companies, and startups. We did the same thing in Beersheba. We brought 40% of the wages of every employee in the cyber sector for four years that the government donated. We also agreed with the government that it would move the army’s technology bases to the South. And we agreed that they would fund the university in Beersheba, Ben-Gurion University, to become the major hotbed for cybersecurity and computer science. Every new initiative, even in New York when we created the International Cyber Center, the City of New York partnered, the EDC, the NYC Economic Development Corporation, Columbia University, Cornell, NYU, CUNY partnered with JVP as we created the International Cyber Center in Soho.
A stone’s throw away from here, you’re going to be building more additions to your dream. What does that look like? Share it.
Margalit: I think Jerusalem needs the Rothschild Boulevard of Tel Aviv in the center. With the train station, with light rail, with cafés, with live music and artists. With piazzas, because you like to meet people. And with technology that will change the world for the next generations, together with apartments. People that live together with innovation, together with small businesses, with culture, with commerce, with a great grid of a city between the German Colony and Abu Tor and the Old City of Jerusalem. Jerusalem needs a vibrant neighborhood that will bring the different people together, to create, to live, to enjoy themselves. And this is what we’re doing here. We’re using innovation to open a new chapter for the city of Jerusalem. A chapter of creativity which is current. A chapter that sees the history of the city but invents something new.
Erel, what’s going to bridge the gap between those that have and those that don’t?
Margalit: I think what we’re doing with Bakehila, In the Community. My mother was an educator. My father was the head of a community center. So that’s what I learned when I was a kid. We have four schools in the neighborhood and one community center, a Matnas [in Hebrew], in the middle. The volunteers, year of service volunteers, they’re postponing their army service for one year and living in the community − we have 66 of them per year − are coming in and working in the schools in the morning, creating learning centers in the afternoon, and then working in the community center in the evening, whether its basketball or hip-hop or whatever. And then together these kids are being part of a community where they get great grades, but they also get attention, they have a big brother or a big sister. And the thing that is most moving in the last few years is that in these cities, in these neighborhoods, every school creates an innovation center. For example, in Kiryat Shmona, a city in the North, 2 kilometers from the Lebanese border, all the kids, in all the schools, are now entrepreneurs as well. In food tech, in agtech, robotics. And they don’t have to be the geniuses of the class. They can be very good at soccer, or basketball. But they are a part of a group that allows itself to have its word, to invent, and to be part of the innovation economy that Israel has, but in the far North. That’s what moves me, and that I think is what gives these kids a chance to be part of the next generation of Israel’s creativity.
Is there anywhere in the world that you see bear comparison to what you’ve built?
Margalit: I think that we see countries that are embracing their kids, like Finland in education, that are creating classes in which you have projects of participation. We’re doing these projects of innovation and allowing kids to participate. It’s not always about the competition. It’s not always about which kid is the best in the class. Sometimes it’s about the community. And it’s about working together as a team. We see this in sports; now we see this in education. And I think that in terms of innovation, I think Israel today is second to none. Because we’re a very small country, but we have big ambitions, entrepreneurship, and people want to be part of that. And the multinationals want to be part of the ecosystem. And some of the startups, and the universities. And the universities’ ability to participate in allowing their professors and their students, when they have a big idea, not only to write an article about it, but maybe to implement it in real life and to create a company around it. So these things that are happening here are giving me great satisfaction. And when we’re working in New York – there’s about 650 Israeli companies in New York right now – we are saying, well, if you’re a great Israeli company, and you want to be a true international market leader, you need to be present in New York, in London, in Hong Kong, in the different capitals of the world, so that you can be a big company not only in terms of the invention, but also in terms of the go-to-market strategy.
Let’s go back to the smart city scenario, which is feeding on a local economy. And each place that you built it in the center of each city feeds on that. How do they enter into it?
Margalit: I think after COVID, cities are either dying or reviving. And I think for a city to revive they need two major messages. One, create for the younger community. Your city needs to be a piazza of creativity in technology and maybe some other creative elements. The second thing – cities need to be sustainable. Because if you’re a polluting city, you’re a city the younger generation doesn’t want to touch. And so sustainable and creative cities – startup cities as we call them – are the two major elements that cities need today in order to come back and be relevant for the younger generation of the country or the people around them. I think that cities will have a challenge in the next few years. Because people are leaving the offices. They want to go out to the country after COVID. Because they’re not always coming to the workplace. We’re saying for a city to be relevant, create the place of meaning which is rare, which is interesting for the people, which combines the dialectic process of engagement, which combines the kind of values that you’d like to see. And the younger generation would like to see cities that control their air, control their water, control their energy, their transportation, the livelihood of the people, the health care system. These are sustainable cities. This is part of the climate tech initiative that we’re now adding to the cyber, to the food tech, to the fintech initiatives that we’ve already had in the last 20 years.
The Abraham Accords. There was a lot of secrecy over the years in terms of Israel’s relationship with the Arab world, although it’s been going on for decades. What about your personal journey?
Margalit: The Abraham Accords are wonderful. We have been having some of our cyber companies operating in the UAE, and maybe in some other places in the region. We’ve had fintech companies operating…. We now have food tech companies…. The Abraham Accords gave us the ability to bring it out to the open. And now 15 of the JVP companies actually have centers of excellence in each one of these countries. And through the UAE, through Dubai, Abu Dhabi, we’re actually reaching Riyadh in Saudi Arabia, which is a new chapter for us, Bahrain, the rest of the Gulf region, and even places like Malaysia, Indonesia, which we didn’t have too much dealings with. Even through India – we’re dealing with people from India that live in the UAE and are giving us a save when we come into this big country, which is buying new technology and new things for agriculture as well.
What can you talk about openly – and I know this is more sensitive – in terms of Saudi Arabia?
Margalit: Saudi Arabia right now, many of our companies are dealing with banks in terms of cross-border payments, in terms of cybersecurity defense, in terms of things that are stopping money-laundering or human trafficking or different things that countries want to deal with. So we are already dealing with about 10 banks in Saudi Arabia through our companies. Sometimes they look Israeli, sometimes they look international, and they come in. And it’s amazing, because we’re seeing that Saudi Arabia can be the next big chapter for Israel. We’re also protecting some of the energy sources, Aramco, some of the other sources. You have to understand that some of the biggest refineries and energy sources were the target of attacks from countries from countries like Iran and some other terrorist organizations. And when that happens, it’s not only stopping production of oil, it’s also creating the biggest pollution in the region. So for Israel to be able to help once in a while is great. Because some of us, what we’re seeing is not only a security alliance between sane countries in the Middle East that are working together against extremists, because our region has extreme organizations. Iran is not acting alone. It can act through Hizbullah in Lebanon, through Hamas in Gaza, through Islamic Jihad, through ISIS. So these are countries and organizations to deal with and say, “No, we are confronting you.” But you don’t have to confront these organizations alone. That’s the main message. So Israel can join forces with Sunni countries, with other countries to create not only a security alliance in the region but an economic development alliance. An alliance that creates goodwill, that allows young people in the region to have jobs, to have health care, to have water, agriculture in countries which are very hot, especially with the climate change, and have big challenges. So we can work together on a security level, but also an economic development level, and create goodwill in addition to the defense that we need because we need to protect ourselves in this region.
As a former politician, if Iran were not in the mix, do you really think that you would see Israel aligning with these counties at the pace that has happened? Mind you, there haven’t been new countries added to the list of those signing the Abraham Accords.
Margalit: I think that sometimes when you have a common enemy it brings people together. But it’s not only that. Countries in this region need a new chapter. They need a chapter in which the Middle East is not viewed as a place of strife but a place of innovation. Let us remember – the Middle East was the Fertile Crescent in biblical times. This is the time where we had the first places of agriculture with Jericho. The first places where you had communities and cities were around here, anywhere between Turkey and Israel. These places want to come back and play a major role in terms of innovation. And sometimes cities are stronger than the countries that surround them. So we say: 10 cities, 10 ideas, 10 projects that will change the way you think about the Middle East. And if it’s health care here or agriculture there, or food tech or cybersecurity, these are large things that would not only allow cities to participate but would allow younger people to be part of it. In our city, Jerusalem, I know that sometimes you see the political battles, but we have so much cooperation with the Arab and the Palestinian communities, between Jews and Arabs. We see Tel Aviv as the exciting city of Israel. For sure, you have the great bars, and the great beach. We still don’t have a beach in Jerusalem – we’re trying to think about how to bring it here – but you do have diversity. So we think that Jerusalem in the next phase of this region will be the exciting city of the Middle East. It’s the only city where you have real inhabitants that are facing West and are facing East and are meeting at the same time. So we think this city can create some of the great visions of cooperation, even though there’s passions that sometimes work against each other. These passions are also a source of energy that can work with one another. So if we need innovation in order to bring these passions together, let that be innovation, but this city is going to play a role that I think is going to surprise some people in the region.
Climate change. We just left that out completely in that whole list, and it’s something coming up soon. Why New York? And tell us about what you’ve planned.
Margalit: Climate change is the next big frontier because technology needs to start relating to climate. Not only in mobility, which we already have, or alternative energy – everybody knows these are the two categories of climate. But also cybersecurity. Today, cybersecurity is protecting the banks. Tomorrow it could protect the grid of the city that protects the energy and the livelihood of the city. Fintech. Fintech trades between people, and so you have organizations which transfer money between all kinds of organizations. Well, you also need to trade CO2 emissions between companies, between countries. The fintech model of blockchain will be the new model that will allow you to do that and make sure that you’re kosher from a climate standpoint. And then food – our food needs to change. We cannot continue to slaughter 1.5 billion cows and 50 billion chickens a year. We need alternative protein, like we have in InnovoPro and some other companies which provide alternative protein. We need smart agriculture because 97% of the world today still uses water in flooding. You just read today about the drought in France. In Europe, too, there’s a water shortage. You need drip irrigation so you can save water and provide the best nourishment for the plants. So food tech, climate, health care, fintech – all these are new categories that are coming into climate. In New York, where we have a Cyber Center, we started the International Cyber Center with eight countries two years ago. We now have 35 scale-up companies. We now have companies that are coming into the climate sector, and together with BMW, with MINI, with the City of New York, we’re launching the International Climate Tech Center in New York, because New York is the city of cities. And cities are responsible for 75% of the CO2 emissions in the world today. So cities change, the world is saved. And the technologies that surround these cities are the technologies that are going to provide hope. So what we’re saying is: Let Israel and New York partner together in order to bring the next paradigm shift in climate change, which will allow you to think not about polar bears when you think about climate, but about unicorns. And so you think that climate change will need not only declarations and politicians, it will need actions of business, business that will change the climate equilibrium with new technologies, with new inventions. And so we’re calling on Israel and New York, but we’re also calling on Copenhagen and Paris and Stockholm and London and Hong Kong and Singapore to participate in this initiative because it’s not going to be done by one city alone. We’re creating the first major center but we’re looking for other cities to be part of it.
Do you think Israel played a role in your success? Would there have been another country that could have given you this impetus and its natural growth and its natural capabilities?
Margalit: Well, you know, I’m from Israel. I was born in a kibbutz [Kibbutz Na’an, near Rehovot], the kibbutz that invented the sprinkler, although today we need drip irrigation, as I said. But it’s also a kibbutz that beat Maccabi Tel Aviv, the national [powerhouse basketball] team, on a Friday night after it wasn’t beaten for 10 years. So the David and Goliath story is something I grew up on. And David can win. Israel is a small country with big dreams. I think it gave me and my generation, after we heard Yitzhak Rabin and some of the great leaders, it gave my generation a new chance. Because the old economy in Israel was very centralized. The new economy is one which is about innovation, and it includes different parts of the population and allows them to create new things. OK, so Tel Aviv is strong in certain industries, it’s wonderful, but the Galilee can be the center in food tech. Beersheba can be the center in cyber. Haifa can be the center of health care IT, and Jerusalem, with the Bezalel Academy of Arts and Design, with the Sam Spiegel Film School, with the Musrara Naggar School of Art and Society, here we bring together creativity, art, and technology. So some of the next things we are going to be doing here in Jerusalem will surprise people around the world and even in Tel Aviv.
You’re about education and entrepreneurship, you’ve studied in this area extensively during your life. But if we look at the universities and the schools, and even starting younger, are they prepared for all this change? It’s a different world.
Margalit: It is. Well, some universities are, and some are not. But I think the main thing that I got in university – I was studying mathematics and philosophy and different things that were not immediately practical, logic, but you learn how to think, you learn how to study. And if you’re curious, you should give yourself the gift of studying what you really like, not the immediately practical. Because if you nourish your mind, your mind will nourish your livelihood. If you find a path for yourself, you can then find a path to anywhere you want to go. And I think that for many of the young generation, they owe it to themselves to understand what they’re really interested in, what is their passion. And then they can build upon that. And I think that the world today is ready for so many new technologies. It’s not just about engineers and mathematics and physics. It’s great if you like that. But if you like food, food tech is a big thing. If you like health care, health care is changing so the hospital is not going to be the only place where you give care. If you like to write, if you like to draw, if you like to do creative things, then you should know that the biggest problem with a lot of the computer games that you have today is that you need a good story, you need good visuals. So engineers, artists, doctors, storytellers – people can come from all different angles to the innovation economy, and this is a time where new ideas and new initiatives are being created. And if you need to understand what countries need to do, countries need to foster innovation. They need to give incentives. They need to provide an arena to the younger people. The arena is the cities. Cities will be visited and thrive when they’re sustainable, not when they’re polluting. And where they’re part of the startup city, where you have startups and ideas that you can create, the younger generation will see their cities as relevant. They will flock to them in ways which will bring people together that I think we can enjoy.
Who’s Erel Margalit’s mentor?
Margalit: My mentor? Well, I wrote my doctoral thesis at Columbia. It was called “Entrepreneurs of History.” And I was comparing great business leaders and great political leaders. And I was saying that a great business leader, an entrepreneur, changes the rules of the game of their market. Pixar changed animation forever even though Disney was a giant. Starbucks changed coffee in America forever, even though in America they were drinking coffee from plastic cups. So these ideas changed their markets.