Powerful visions

'Instead of being the best in the country, we want to be the best in the world and, well, why not?'

high- tech vision 88 (photo credit: )
high- tech vision 88
(photo credit: )
The event was perfectly, quintessentially Erel Margalit. Earlier this month, Margalit and his venture capital firm, Jerusalem Venture Partners (JVP) took over the open areas surrounding the old train station to launch Israel's first-ever multimillion dollar animation and gaming studio. JVP's promotional materials promise that in southern Jerusalem, "where Hollywood Meets Silicon Valley," JVP will establish "a creative hotbed in the Israeli field of animation to support original creativity in Jerusalem." When it reaches full operation capacity, in about 15 months, the studio is expected to employ nearly 200 people. Max Howard, who was involved in Disney hits such as The Little Mermaid and Aladdin, and Douglas Wood, formerly director of animation and story editor on Tiny Toon Adventures and Animaniacs while at Steven Spielberg's Amblin Entertainment, will be heading up the project. The politico's were there, too - including Ehud Barak and Matan Vilna'i, who studiously avoided each other, while Acting Prime Minister Ehud Olmert spoke to the crowd, praising Margalit's drive, vision, creativity and persistence. Margalit was pleased. He had every right to be. "I especially liked the mix," he later tells In Jerusalem in an in-depth interview. "The major content people who came from Tel Aviv, the high-level investors from around the world and artists from here... The combination of people tells a lot about the direction we want to go and the vision we have. "This is the point we want to make," he continues. "There's another dimension to the international business drive that Israel and Jerusalem could have. We could move beyond hi-tech and security, beyond technology, to other forms of creative ventures. Jerusalem has the energy." Ventures, vision, creativity, dimension, energy are the words that Margalit uses often as he describes his company, himself and his vision for this city. He acknowledges that these may not be the worlds most commonly associated with Jerusalem, with its heavy burden of history, religion and conflict. But when Margalit says them, these words are very convincing. Erel Margalit, 44, is managing partner of JVP, a company valued at nearly $700 million. He is also chairperson of JVP Community, a nonprofit organization established by JVP to fund Margalit's philanthropic activities. According to its own corporate overview, the bulk of the JVP's activities are led out of its Jerusalem headquarters, where companies and management teams are created and built. JVP also has offices in New York and London, as well as portfolio companies in Tokyo and Shanghai. His personal capital is valued at well over $10m. Margalit is compelling, passionate and engaging. Born on Kibbutz Na'an, he's a former budding academic who today ranks 48th on Forbes magazine's prestigious Midas List of 100 hi-tech investors with the "golden touch," He's the only Israeli and the highest ranking non-American on the list. Trim, attractive and even sometimes self-deprecating in a Harrison Ford sort of way, Margalit's energy is tightly bound; he studies, then pounces. As he probably did when he was a budding basketball cadet player for Hapoel Jerusalem nearly 30 years ago. As he probably does when considering an investment. His offices in the Malha Technology Park are spacious but not ostentatious. True to creative fashion, employees, and Margalit himself, walk around in jeans and casual shoes and order take-out to the office. His own office is filled with pictures of his three daughters and his wife, Debbie. Margalit's visions and plans for Jerusalem are well-thought out and carefully articulated. Yet he doesn't seem to mind in the least that his interviews are interrupted several times by his youngest daughter, who, she makes very clear, has every intention of keeping her daddy on the phone. And just before he puts down the receiver and returns to exactly the point he was making before his cellphone rang, he doesn't forget to ask her what she had for lunch, either. Since he returned to Jerusalem from a two-year stint at JVP offices in New York - where he and his family, living in lower Manhattan, experienced the collapse of the World Trade Towers up close and very personally - Margalit has involved himself in everything from culture and media projects in southern Jerusalem, to nonprofits, to active financial and organizational support for Amir Peretz and the Labor Party. He seems to be intent on acquiring social and political capital almost as quickly as he has acquired his financial capital. Creativity is the new corporate buzz word these days and Margalit uses it freely. His vision for Jerusalem, he explains, has been changed by the writings of Richard Florida and his studies of what he terms "The Creative Class." "There's something powerfully creative about Jerusalem," he says. "Jerusalem is about content. Jerusalem has story-tellers, intellectuals, religious zealots, animators and entrepreneurs. Jerusalemites have a passion that is not quantifiable in business terms." Enthused, he continues, "We're the people who told the greatest story to the world, and our story has been celebrated since antiquity. But we've copped out of all of that. We're great at technology, but we've stopped telling our diverse stories. That's what we have to bring back, because Jerusalem can flourish only as a multidimensional creative city. "Sure, in Jerusalem we feel that we walk with a heavy burden and that our passions collide with each other. But that is because of the security situation. Today, Jerusalemites feel that our diversity is a liability, but it doesn't have to be. Our diversity is our creative energy. He continues, "When we talk about the creative class, we're talking about people who are entrepreneurial in their thinking, whether they do it for profit or not for profit. These are the people who use their minds to reinvent or do something about their their society. These are people who are exciting and excited about their lives." JVP serves as an incubator for new technology companies, investing every year in five or six new start-ups. But Margalit's real energies, it seems, are invested in what he views as the synergetic interaction between art, business and hi-tech. "When you take your kids to a movie like Shrek, you start to realize - that character was not built by an engineer alone, and the story can't be told by an animator or a story-teller alone." It takes all three, he says, to generate both capital and culture. "More traditional technologies have somehow reached their glass ceiling in terms of the valuations you can get for them. You can still get very good valuations, but people invest with us from around the world because they expect phenomenal returns. "You can get phenomenal returns when you invest at an industry at the moment of inflection. We sensed that shift in the world of media and content a few years ago. We planted some seeds and they're growing very nicely." The synergy will generate profits and regenerate Jerusalem. "Jerusalem does have a center, and it's filled with energy. The train station, the Russian compound, the shuk, which has a different kind of energy, the old Shaare Zedek building, which is supposed to be the Channel 4 of Israel, but for some reason that isn't happening - these are the assets that Jerusalem has. It's something that's ingrained in our intellectual property." What about Tel Aviv, more commonly considered Israel's creative hub. He answers definitely. "Tel Aviv has great bars and there's great nightlife - although Jerusalem has great nightlife, too. But that's not why people come to Jerusalem. Jerusalem offers people something they can't get elsewhere. From Los Angeles, from New York, from Paris, from London, when people think of Israel, they think of Jerusalem." Building the media mecca in southern Jerusalem is a crucial part of this vision, as is the establishment of "The Lab," which integrates theatrical art with cutting-edge technology. Margalit has spent more than NIS 400,000 of his own money to renovate the old hangar to build The Lab and contributes an operating budget of several hundred thousand dollars. But the progress has not been hassle free. Margalit has hired and fired two artistic directors, Oded Kotler and Opira Henig, at the Lab, as well as other senior artistic and administrative staff. Speaking anonymously, previous employees contend that he is unreasonable, capricious, and difficult to work with. Margalit acknowledges that he is "very demanding." Undoubtedly, together with the Khan Theater, the Cinematheque, the newly opened restaurants and pubs and the open-space railway yards, used most recently for the ice skating rink, Margalit has, in fact, rejuvenated Jerusalem's southern district. His thinking goes further. "Jerusalem's cultural mile doesn't end at the Khan or even at The Lab," he declares. The cultural mile continues to the Via Dolorosa and the Western Wall and the Dome of the Rock Mosque. We have culture - and it's not culture that we've had to invent in the past 20 years. It's culture that people have had for millennia. We're working with energies that are there and our stories are incredible!" His ultimate vision for the region includes the international animation studio, which will develop feature-length animated movies; an international studio for gaming; and a development lab for animation for cellular phones. To complete this project, Margalit is eying the old Government Mint building, a massive 25,000-square-foot structure, unused for years, adjacent to the train complex. Asked about his negotiations to obtain the Government Mint building, Margalit suddenly turns laconic and says flatly, "It's still being worked on. It's moving forward, but since it's still in progress, I prefer not to draw attention to it. When pressed, looking stern, he says, "I really don't want to talk about it." And he doesn't. Yuval Rimon, on the other hand, is more than willing to talk about the old Government Mint. Rimon is director of the School for Visual Theater, the only school of its kind in Israel, currently housed on Rehov Yad Harutzim. Nearly two years ago, Rimon applied to the Israel Lands Administration, which has custody over the Mint building and suggested that the School for Visual Theater could relocate there and develop projects. "Our negotiations were progressing," Rimon told IJ, "and then, suddenly, I was told to drop it. That the building would go to someone else. Later, I found out that Erel Margalit wanted it, too, and that there probably wouldn't even be a tenure for the building." He continues bitterly, "We're just a small school. We don't have the kind of money and power that Margalit has. But we will take legal recourse if we have to. It's not fair that Margalit should receive this building for his project, without a tender, because he's well-connected and powerful, or because he worked for the Jerusalem Development Authority, or because he has connections in government ministries." Rimon says that he has offered to cooperate with Margalit, but "we don't interest him." According to media reports, Margalit has already invested vast sums in plans and designs for the center and has even commissioned Peter Bolan, who designed the Pixar building in Los Angeles and Bill Gates's home, to work on the project. The Jerusalem Municipality refused to comment on the issue and referred IJ to the Jerusalem Development Authority which, the municipal spokesman said, is responsible for these projects. Despite repeated contacts, the Jerusalem Development Authority declined to respond to IJ's inquiries. Nor would they confirm or deny reports that Ezri Levi, director of the Jerusalem Development Authority, has actively intervened on Margalit's behalf or that through Levy's efforts, Margalit has been awarded a preferred tax status in Jerusalem. Similarly, the Industry, Trade and Labor Ministry and the Israel Lands Administration did not respond to IJ's requests for information. "I'm not surprised that no one wants to talk about this," says a real estate developer active in the region. "It's not right that Margalit should get the site without even a tender. But that's the way things go in this city. And because he's so powerful, he'll get what he wants. "Margalit does a lot of good for this city," the developer continues, "but not always for the right reasons. In the end, he really only does things if they profit him - money-wise or in other ways." Margalit bristles when confronted with the accusations. "Some people have a passion, a vision, and they pursue it and get it done, and that's what I did. From Jewish culture, I take the idea of the shtetl. You talk about difficult decisions with a variety of people because there's a dialectical process that's stronger than one person. But in the end, I make the decisions. "True, I'm demanding, of myself and people who work with me. Instead of being the best in the country, we want to be the best in the world and, well, why not?" he says. As to his own profit, Margalit does mention, for the first and only time in the interview, the activities of JVP-Community, which is currently providing educational services to nearly 3,000 schoolchildren in more than a dozen schools in Jerusalem's poor neighborhoods. "It's an amazing program. The Jerusalem Education Administration and the Education Ministry have gotten involved, and we have 40 kids who are doing a year of volunteer service living in apartments in these neighborhoods. So judge me by what I do." Margalit didn't start out in the business world. After his family left Kibbutz Na'an, they went as Israeli emissaries to Detroit, Michigan, where Margalit perfected a mean game of basketball. "The black guys couldn't pronounce my name," he recalls, "so they called me Earl the Pearl. Being named after a famous basketball idol really did help my game." The family came back to Israel, first to Karmiel, then to Jerusalem. Margalit attended Rene Cassin High School in its best days and served in a combat unit in Lebanon during the worst days. After his army service, he studied math and philosophy at Hebrew University, where he met his wife, Debbie. His professors remember him as a sharp and determined student, with exceptional powers of concentration, and predicted that he would have a successful academic career. After completing his undergraduate degree, the young Margalits went to New York City, where he continued his studies at Columbia University. He even did a nearly-obligatory initiation stint with Moish Movers, hauling heavy furniture throughout Manhattan. But then, at some point, decided that academia wasn't for him. Many years later, would return to Columbia and is about to complete his PhD in leadership and society. He left New York and returned to Jerusalem with an idea - to turn Jerusalem into a hi-tech capital. Through his father's Labor Party connections, he hooked up with then Mayor Teddy Kollek and Margalit, barely in his 30s, became responsible for development in the Jerusalem Development Authority. For the next three years, Kollek and Margalit traveled throughout the world. Kollek was the seasoned symbol of Jerusalem and Margalit was the precocious entrepreneur who knew how to draw the investors. Which he did. Yet, thinking retrospectively, he says that now he realizes that the city needs more. "What I did with Teddy, 15 years ago, was great for what it was. I understood the revolution that was happening, and I wanted Jerusalem to be part of that. But hi-tech didn't, and couldn't, revolutionize the city." Maybe, he says, Herzliya Pituah could be developed around clusters of business, but to succeed Jerusalem needs to offer more than business. "People have not come to Jerusalem for ages because of technology and defense. They have come because Jerusalem is ancient, theological, philosophical, spiritual - whatever it is. Jerusalem has inspired prophets, thinkers, mystics, artists and zealots." And, apparently, venture capitalists. When Teddy left the municipality, Margalit left, too, and established JVP. And with Margalit's sense for the right investment and the best deal, JVP grew quickly. JVP was responsible for what is reputedly still one of the biggest deals ever cut in Israel - the sale of Chromatis Networks, in which JVP had invested heavily, to Lucent Technologies, for nearly $5 billion. Margalit was the new wunderkind on the investment block - for a while. Much of that famous sale was effected in stock options. But Margalit wanted to cut a deal with the Israeli tax authorities, too, and, while he was arguing with them, the hi-tech bubble burst and the stock lost much of its value. "That incident says a lot about Margalit," says a Jerusalemite who has worked with Margalit for over a decade and who, like most people interviewed for this report, would speak only on condition of anonymity. "Margalit is brilliant. But he's stubborn and sometimes, he's really immature. He wanted to arm wrestle with the authorities. He had temper tantrums. He threatened to leave the country. And he lost." Given his investment in Jerusalem and his business acumen, Margalit is often compared to Jerusalem's other hi-tech winner, Nir Barkat. But Margalit, observers note, plays in another league. And in another party. While Barkat has pledged with Kadima, Margalit is supporting Amir Peretz and the Labor Party. "Of course I'm a capitalist," he says in response to the raised eyebrows, "but I care about social values. This country needs to transform itself with its major assets and those include the periphery as well. You can't build a country that would be a world powerhouse just on the basis on a small portion of the population. And the other thing is that it's not fun to do it that way. You become a South American country and you miss out, because you can get a kick out of meeting with smart people, wherever they come from, whether they're poor or rich. "This country needs a social agenda, and I thought that Amir Peretz can lead this." But he acknowledges that some of the optimism and enthusiasms for Peretz has evaporated and, perhaps hedging his own bets, he adds, "I also believe that Labor and Kadima could do great things together. I'm happy that Olmert and some of the others are not in Likud." He is a member of the Zionist Council, which broadly advocates for a shared Jerusalem, but elegantly avoids talking specifics. "I think that any solution needs to leave the city as one city while the Palestinians will have a political connection to the Palestinian State. And that diversity will be beneficial." Effortlessly and deliberately, he segues, "I think that the haredim could become part of the story of creative cities, and I think that we argue too much about the borders of Jerusalem and the ultimate beliefs of certain populations, instead of focusing on what they could do so that those communities would participate in their own way in making this a creative city." Margalit may be, as his detractors contend, deliberate and even calculated, but he is tremendously convincing when he talks about this city. "Jerusalem is about ideals and passion, not just materialism. In other cities, when you go to a cafe, all you hear about is business dealings. But in Jerusalem, when you go to a cafe, you see someone working on his book, and at another table they're talking about 15 ways to recognize God, and at another table they're talking about an educational project. And that's great."