Erel Margalit: ‘Innovation can change the situation in the Galilee’

Erel Margalit returns to the business world.

Dr. Erel Margalit, Founder and Chairman of JVP (photo credit: Courtesy)
Dr. Erel Margalit, Founder and Chairman of JVP
(photo credit: Courtesy)
Six years in politics were enough for hi-tech veteran Erel Margalit. A year ago, he retired from the Knesset and from politics and returned to the offices of venture capital fund Jerusalem Venture Partners, which he founded with his partners.
In spite of this transition, the change in Margalit is undetectable. His acquaintances say that in all of his roles he was both an entrepreneur and a politician, as well as a hi-tech man responsible for some of the most renowned deals in the industry, while also representing and promoting the interests of his industry colleagues. Margalit is a true capitalist, with a personal fortune estimated at $400 million, yet the characteristics of the Israeli “kibbutznik” will never fade.
Instead of returning to his air-conditioned office and reviewing the business plans of promising hi-tech companies, Margalit travels to hi-tech sites across Israel and abroad in a relentless effort to set up hi-tech centers, such as the media technology center established by JVP in Jerusalem and the cyber center in Beersheba.
The hi-tech investment story started in Jerusalem, with companies such as Intel, Teva, Digital, NDS and others opening centers. JVP’s breakthrough was in bringing the smaller startups and young innovators to the city, and establishing the renowned Malha tech center near the railway station.
“A hi-tech center that is concentrated in one city can lead the entire industry in the State of Israel,” says Margalit.
The work that followed was even more ambitious and challenging: Margalit and the fund joined an initiative co-sponsored by the government to establish the national cyber center in Beersheba. Hi-tech company EMC also joined the project. The initiative was set in accordance with the government plan to transition the large hi-tech units of the IDF Intelligence Corps, headed by Unit 8200, to the Negev. The center was inaugurated three years ago, generating a great buzz when Margalit announced an initial investment in four cyber companies that began operating in the new cyber hub.
Margalit has a lot of experience and achievements in the industry. He was the main shareholder in Cyber Ark, a leader in new technologies for dealing with cyber attacks, now traded on Wall Street and worth $2.58 billion. But Beersheba has not yet produced giant companies, and it is doubtful whether any hi-tech company will emerge from the area.
“There are 5,000 workers there, but there should have been 20,000,” he notes. “The Defense Ministry promised to transfer the IDF’s cyber units to the South in 2012, a move that was postponed from year to year, and last year, when the ministry announced that the move was postponed yet again, 10 tech companies packed up and left Beersheba.
“Without strong leaders to manage this big move at the level of a defense minister and prime minister, it cannot succeed,” says Margalit, indicating he will push on.
A FEW months ago, the government joined JVP’s initiative to establish a hi-tech center in Kiryat Shmona, this time specializing in the food sector. Margalit drew the plan as part of his political activity, but it was launched only this past April, in cooperation with the Finance Ministry.
The plan to establish a technology center in the Galilee is based mainly on the developed food industry in the surrounding communities, and on the desire to attract a young population to the region. To motivate young entrepreneurs, the government is offering benefits worth NIS 100m. The attempt to establish the cyber center in the Galilee proved that financial benefits are not enough to entice hi-tech entrepreneurs to move away from the traditional centers in Israel’s central region. That being said, at a recent conference hosted by UBS investment bank in Tel Aviv, Margalit spoke passionately about the initiative and about the bright future he envisions for Israel and the Galilee thanks to the food technologies and startups in which he himself has already begun investing.
Innovation can change the situation in the Galilee, lift the region and provide jobs. It may be a bit of an overstatement to declare that Kiryat Shmona is a “global food-tech center,” but a big title helps create buzz and shakes the whole industry. ALONGSIDE THE establishment of cyber and foodtech ecosystems in Israel, Margalit is also developing international ventures. The “Yalla 10” initiative is an attempt to promote collaboration between Israeli innovators and hi-tech companies and centers in friendly or at least non-hostile countries in the Middle East.
The details of the initiative are still under the radar.
“We want to establish ties in the hi-tech centers of 10 different cities, in order to promote cooperation between Israeli companies and companies and customers in the Middle East,” says Margalit. “Cities like Amman, Casablanca, Tel Aviv, Jerusalem, Cairo and Ramallah – we already see the fruits of this initiative, and many Israeli hi-tech companies are moving around in countries where we did not have a foothold. The business is still not massive, but it is growing.”
Margalit’s latest initiative is the establishment of a cyber hub in New York City. The JVP fund won the tender for the establishment of the hub and is expected to develop 10 cyber startups per year.
The cooperation between American entrepreneurs and Israeli cyber companies is almost natural.
“Israel is the second country in the world in the scope of its cyber industry, and our capabilities are also advantageous in international arena,” says Margalit.
“The center we are setting up will assist Israeli hi-tech companies in collaborating with customers and companies in the US and around the world. As a result of our expertise in the field, giant corporations that had no interest in us in the past are now coming to Israel.”
Do you think that the hi-tech industry also affects Israel’s stance in the global arena?
“Of course. A lot of countries see the value of the Israeli hi-tech industry on a global level. For example, if France wants to compete with the German industry, it will want to use Israeli innovation for competitive advantage to boost its economy.”
You’re supposed to be a businessman. Tasks such as developing the Negev or the Galilee regions do not sound particularly businesslike. What do your partners say?
“It’s true that sometimes there is difficulty [in balancing these social and business goals], but my partners support all of these initiatives. I am looking for investments that will have both a social and an economic impact, but at the end of the day, we do not invest in initiatives that are not economically sound or profitable. As a result of our experience in establishing hi-tech hubs in Jerusalem and the Negev, we have won a tender for the establishment of a cyber technologies center in New York City.”