By Ari Shavit
Erel Margalit is obsessed with Jerusalem. He loves the city, breathes the city, cleaves to it at any price. In the early 1990s he worked with Teddy Kollek, the city's legendary mayor. Afterward, when Kollek was defeated after a quarter of a century in office, Margalit established, with the former mayor's blessing, a venture capital fund that bears the city's name - Jerusalem Venture Partners - and is located in its Malha area. Today, though, he also views himself as having been on loan to business, as one whose true object of devotion is Jerusalem.
Margalit is tall, exudes warmth and is a tough businessman. Forty-five years old, married and the father of three, he lives in a lovely stone house in the city's colorful Ein Kerem neighborhood. In the high-tech community, he is considered a control freak who is also capable of swimming against the current. He has frequently been prescient and ahead of the trend. He was the first Israeli to appear in Forbes magazine's prestigious Midas List. Wall Street and Silicon Valley believe in him, and in the past few years he has made the breakthrough into China and achieved an exceptional status there. The $700 million he has raised in the past decade has spawned more than $2 billion.
In the recent Israeli elections, Margalit was one of the few business people who supported Amir Peretz, the Labor Party's candidate for prime minister. There was nothing accidental about this support. A few years ago he discovered the social distress in Israel, and initiated a program of involvement in several of the city's weak schools. At the same time, he established The Laboratory in the compound of the old train station, as part of an effort to restore to Jerusalem a little nightlife and artistic ferment.
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So the direction is clear: Erel Margalit is making his way into the public arena. He is engaged in a flurry of activity. Even though he holds no public office, he thinks and behaves like a mayor. Many people are urging him to run for mayor. Some say he is already running for mayor, though Margalit himself will not yet admit this. It's a bit too early.
Erel Margalit, you are well-known in the business community but far less among the general public. What do you actually do, what is your job?
"I connect the world of capital to the world of the great inventors. In the early 1990s I worked with Teddy Kollek in the Jerusalem Development Authority. I tried to promote a high-tech revolution in the city. And then I read a book by Robert Reich that talked about the importance of those who were capable of mediating between big capital in the world and the great creative thinkers who don't know how to approach capital, and I understood immediately that this was me.
"I'm not an engineer or a technology person, and at the time I had no capital. I had an overdraft of NIS 40,000. But I knew I was a person of connections. I love to connect between different people and between different disciplines. So I established my venture capital fund, JVP [Jerusalem Venture Partners], which was the second such fund in Israel. We announced it in May 1993, and in January 1994 we raised the first $20 million."
What did you sell to those first investors, who were asked to risk their money in an adventure being touted by a young Israeli without any business experience?
"Nothing. My energy and the vision that a huge high-tech revolution was about to occur in Israel. Since then we have created four funds.
"JVP-IV raised $400 million immediately after the fall of the market and the collapse of the Twin Towers in 2001, and it is extremely successful. It's still too early to report exactly regarding profits, but I can say that it will be very impressive."
Your big failure was with Chromatis - you lost hundreds of millions.
"Not exactly a failure. Chromatis is the biggest deal struck to date in Israeli high-tech: $4.9 billion. We were unlucky, because between the declaration of the transaction and its realization, the company to which we sold Chromatis, Lucent, collapsed before our eyes. That was actually a point-specific crisis that heralded the big crisis of the high-tech world - half a year before the crash of Nasdaq. So our profits, which were based on the value of Lucent's shares, were in the end about half of what they should have been.
"But even so, our investors multiplied their money by a factor of 60 or 70. But in Israel people like to turn you into a hero one day and burn you at the stake the next. That's why the talk was about our huge loss without reference to the fact that it was due to the vast size of the deal. It was a transaction that was unexampled in Israel, before or since."
Are we now facing a new bubble, like the one in 2000?
"The world has now reached the price level of 2000, but with far more rational multipliers. There is no bubble right now, but there could be waves. Those among us who went through the brutal training camp of 2001-2002, when the end of the world seemed to have arrived, must be prepared for good waves and for those that are less so. There is big growth in the United States and China, but at high tide one should save and at low tide one should invest."
What is Israel's place within this universe?
"During a collapse in the economic-technological world, Israel stood out as one of the only two global centers capable of continuing to produce in the roughest period. The Israelis proved they can come up with new ideas even in bad times. With new horizons. They are extraordinarily adaptable. Therefore we now find ourselves in a situation in which Israel is the No. 2 power in this technological world. Israel has effectively become the world's research and development laboratory. The big-league technology is now being developed in California, around Boston and in Israel. The public does not always grasp the dimensions of the revolution that was fomented here. Within 15 years we became a central factor, considered to be a leading player by the Americans, the Chinese and the Europeans. A true revolution.
"Israel has more companies that are traded on Nasdaq than any country in Europe. The number of Israeli companies on Nasdaq is approaching that of all the European countries combined. We're the strongest country in this sphere apart from the United States, stronger even than Canada."
Where does that come from?
"There is tremendous energy here. Many people still don't comprehend the force of the creative power here. We had science, which was always part of the Jewish people. And there was Ben-Gurion's emphasis - that if Israel was going to stand up to the Arab world it would have to preserve a technological advantage. And then in the 1980s, a few American companies came, bringing along with them American management culture. That was followed in the 1990s by venture capital, which I represent. It was like throwing a match into a field of dry straw. It was as though all the elements were here and waiting, and suddenly erupted. What was stored up in academia and in the security realm was suddenly realized economically and companies were born out of nothing, with incredible quality and at an incredible rate. Israel became one big startup."
Are we really ahead of the Europeans?
"No doubt about it. We and the Europeans are like two different races. They are closed in their big companies, with their caution and their fear of losses. Whereas in Israel people aren't afraid of losing. They understand that failure is sometimes part of the process, and because we are an immigrant society, everyone wants to prove himself. Every Israeli thinks that the difference between him and Bill Gates is just a bit of time. Calm is not the supreme goal. We are a kind of cultural chameleon. First we adapted ourselves to the American management culture, and now we are very quickly internalizing Asia. That's why the Chinese view us as a very strong partner today; a very potent business alliance is being forged with the Chinese.
"But there's something deeper at work here. When my grandfather came to this country, at the beginning of the 20th century, his name was Kaufmann - whose roots are in the German for 'merchant.' He changed his name to Avraham Ikar, meaning 'farmer,' because there was a feeling, as the state was being established, that we had come here not to make a profit but to be a nation on our soil.
"That's why the notion of profit, which is very powerful in the Jewish genius, became almost anathema in the new Israeli ethos. Until the arrival of high-tech. High-tech made it possible for the Jewish mother to be proud of her son for inventing and not just rushing to make a profit. So it caught on. It integrated the old ethos and the new ethos. To that one could add the commercial abilities and the I-can-do-anything feeling of the Jewish entrepreneurs, together with science and information and intelligence. That turned the high-tech people into the new farmers. It gave us that ultra-Israeli capability to create something out of nothing."
Not a brilliant campaign
If everything is so good, why are you supporting Labor Party leader Amir Peretz, who claims that things are not so good, that the socio-economic situation is intolerable?
"Because I think that the vast energy I'm talking about is today concentrated in a narrow geographic region and in a small social stratum of the Israeli society, and I do not believe that it is possible to be shut into the Kfar Shmaryahu-Herzliya Pituah-Ramat Aviv triangle. I do not believe that these great developments can be limited to one particular Israeli group. To conquer the world is wonderful, but one day I understood that from my offices, which are located in the Technological Park in Jerusalem's Malha neighborhood, I have more contact with Tokyo and Shanghai and London than with the disadvantaged Katamonim neighborhood nearby. Because when you are part of the research and development economy, when you develop a niche in other places, your know-how and your achievements and your creativity do not trickle into your own society. It doesn't have to be like that. Nokia, in Finland, is an example: The company is spread across different geographical areas and social classes.
"That's what we need here. In the same way we fomented a high-tech revolution, we have to foment a revolution of the periphery - by which I mean a geographical periphery and a social periphery. We need a business plan for the Negev and a business plan for Galilee and a business plan for Jerusalem. We need partnership between the government and the business sector, to generate intensive regional development, because otherwise we are forgoing whole populations. We are forgoing much of the talent and the creativity within us, and those forces can be released only through the fusion of an economic message and a social message.
"That was Benjamin Netanyahu's big mistake. He's a good accountant. He did the right thing in maintaining fiscal discipline and creating convenient conditions for investors, but he gave up on millions of Israelis. He didn't understand that the creative process must include not only millionaires and engineers but also technicians and teachers. They all have to be part of it."
All well and good, but why Peretz?
"Amir is not only what he says but what he demonstrates: that he is from Sderot, came from Morocco, sprang from the Second Israel and picked himself up with his own hands. I thought there was something very strong in that; I thought he was the most interesting social startup in the country."
But didn't that startup turn out to be a disappointment? Didn't the revolution end in a thin, small voice?
"Labor ran a mediocre election campaign. It was not brilliant, and to generate the change that is needed, a brilliant campaign was needed. But Amir is a politician in every sense of the word. He understands political power and he has political power. So I think this story is not over; it is just beginning. Amir Peretz will get the opportunity to be prime minister."
So you are a socialist.
"I have always voted Labor; now I've also joined the party. That's where I come from. I was born in kibbutz Na'an, the first kibbutz of Hanoar Haoved [youth movement]. My grandfather, Avraham Ikar, was the commander of the Haganah [pre-state forerunner of the Israel Defense Forces] in Tel Aviv and Jerusalem, so the ethos of the Labor movement is part of me. I grew up with it, including its social-welfare aspects.
"I have very strong social sensitivities. Not Bolshevik, but socialist. We have two options in life. One is to build very high fences that will fence off our neighborhood, our city, our country, and then we will live in a kind of ghetto with people who look like us. A kind of South America; something you can feel in Ramat Hasharon and in Ramat Aviv Gimmel. But that option does not interest me.
"In my perception, life is not only a pilot training course in the Air Force, it is also the May draft of Golani [the tough infantry brigade]. And for me, the most creative and fascinating places in the world are places of immigrants. Places of encounter. Places where different people meet and have to prove themselves. I remember also what Adam Smith said, that the market can only work in a place where a certain moral norm exists and a certain basic compassion of people for one another."
And that kind of compassion exists here?
"I think it is part of the meaning of life. It is innate in all of us. Part of the meaning of your place are your ties with the people of the place. And the question is whether you see the place as a club or as a people. I'm not turned on by a club, I'm interested in the place in the broad sense. Otherwise why be here? Why not be a capitalist in New York?"
And really, why not? After all, you come from globalization, and globalization can be experienced in any place and from any place.
"Because Israel is in my DNA."
And if tomorrow I were to offer you an amazing venture capital fund in Vancouver?
"No, no."
Why not?
"Look, we think we are very materialistic creatures, that this is a very materialistic culture, but that's only part of the story. Because the story is not only to succeed. The satisfaction is to succeed in your place, to do things in your place. The meaning is completely different when it is in a different place."
Are you trying to tell me that there is meaningfulness to living in Israel?
"Of course. Meaningfulness is the thing. Listen, we are some kind of early Indian tribe. And that tribe has a story. And I'm plugged in to my tribe. And to my tribe's story. When all is said and done, we are the greatest victims of the 20th century. That's how it is: the greatest tragedy happened to our people. We repress that most of the time, but we are here as people to whom something terrible happened but have to go on living. And we are continuing to live. And for me that is riveting. It makes our country one of the most meaningful countries in the world in terms of depth and creativity and the density of life."
You sound almost religious.
"My teacher at Columbia, the late Professor Sidney Morgenbesser, told me that I was the most religious secular person he knew."
So you admit the charge.
"It's difficult to look at our historical story without seeing it as a narrative. You can interpret it religiously and you can interpret it as the movement of the spirit of the Jewish people in history, but there is a story here. And the story has meaning. Thus, we have the right to take an attitude of forbearance and forgiveness toward ourselves as well. And we have the right to see how astonishing what we are trying to do here really is."
The music that will save Jerusalem
Is it true that you will run for mayor of Jerusalem?
"In recent years people have asked me to run for mayor. Just before you came in, a senior figure in the city called and asked me to run. Teddy Kollek asked me to run years ago. But I have a very large commitment toward an extensive group of investors. I'm busy carrying out my commitment to my entrepreneurs."
In other words, you intend to run, you are actually already running, but you can't declare yet because of prior business commitments.
"One of our worst sicknesses in Israel is cynicism. The cynicism here is like acid that is eating away at all of us. It robs people of belief in other people and makes change impossible. In the United States they have this Jeffersonian thing in which you do something for your community. But here, the moment you start to do something that has no profit motive, people immediately think that an economic or political interest is lurking beneath it. And I'm trying to protect myself against that cynicism. I don't want that cynicism to hurt what is truly important: saving Jerusalem."
What is wrong with Jerusalem?
"Jerusalem is channeling a great deal of the Israelis' anger over things they are fed up with: the ultra-Orthodox Jews, the conflict, the government. The way to deal with this anger is not by arguing but by taking action that shatters stereotypes. But there is no one to take action, because the city is not behaving like a capital but like the village beggar that gathers crumbs from the government. Instead of believing in itself and helping itself, Jerusalem has entered a downward spiral of lack of direction and pessimism."
And who screwed up Jerusalem?
"The local leadership is so weak that instead of blaming them you pity them."
Did Ehud Olmert fail as mayor?
"Olmert was a better minister of industry and trade than he was a mayor."
Has Jerusalem not recovered from the loss of Teddy?
"Absolutely not. It is waiting for a new Teddy."
And if a new Teddy appears, what does he have to do?
"He will have to rehabilitate the city center, to bring back to it creativity, young people and content. To foment a revolution in the disadvantaged neighborhoods in order to bring them into the 21st century. To include the Haredim in the creative vision, make them part of the work force. But above all, he must celebrate and sanctify the creative forces in the city: the university and Bezalel [the art academy] and Hadassah and the Broadcasting Authority and Sam Spiegel [the film school]. Because there are any number of forces in the city, a great deal of creativity.
"All that has to be done is to get those forces into the open, to get them into the streets of the city. The city has to be turned into an arena in which all these forces converge. And then suddenly everyone will see what resources we have here, resources that no other city in the world has."
Sounds good, but a bit fantastic.
"Not at all. At the time, when I worked with Teddy Kollek on bringing high-tech to the city, my guru was Michael Porter, from Harvard, who showed that regions can develop a business focus just as companies can; that in order to develop a city or an area you have to build a cluster of interlocked industries. We did that, but today I understand the limitations of our activity, because what we in fact built is a series of sterile ghettos of high-tech that are largely cut off from their surroundings and from the community. And today I also understand that business by itself does not change a place.
"The thing is that Jerusalem is not Herzliya Pituah. Its redemption will not come by having a flourishing business attached to it. What's needed here in Jerusalem is for the different dimensions of creativity that exist in the city to find a common arena in which they will operate coherently. What you have to do is transform the advantage inherent in the fact that you have here writers and artists and thinkers and people from technology, a situation that exists nowhere else.
"So my guru now is not Porter but a fellow named Richard Florida. What Florida says is that the cities that are strong over time are those that have a creative class, cities in which there are people who make use of their intelligence in their activity. It could be high-tech people, but it could also be physicians and teachers and musicians and journalists and people from the third sector, which is exactly what we have in Jerusalem. All these people, who need one another, can create among them an encounter of content, an encounter of disciplines, and that encounter is what in the end generates the urban vibrancy. It releases the creativity."
Do you envisage Jerusalem as the capital of the creative class?
"Exactly. In Celia and Reviva, the well-known Ramat Hasharon cafes, the cakes are terrific, but the conversations you hear around you are about business. In contrast, when you sit in a cafe on Emek Refa'im in the German Colony of Jerusalem at midday on Friday, you hear people talking about this research and that book and about an article that infuriated everyone. What I am saying is that this is not a disadvantage, it is an advantage, it is inspiration, a type of depth.
"Do you know what the mayor of Austin did to make his city a high-tech center? He brought music to the city. The music made Austin hip, and once it was hip, the high-tech came, too. In Jerusalem there's no need for anything artificial like that. Everything is already here. The strength and the depth are already here. It's enough to relocate the Bezalel Academy into the Russian Compound and establish the big animation project that we are doing in the old train station and rehabilitate the Broadcasting Authority - and you already have three big centers of creativity in the city center that will nourish one another.
"And if you make the National Library a magnet for every young person in the country and if you also bring the university into the center and shake up the students and give artists and creative people a sense of direction, within two or three years you'll have a very different city."
Does Tel Aviv make you angry, or envious?
"Tel Aviv fascinates me. My family was one of the first 16 families that founded Tel Aviv. Israeliness needed a new place on the dunes in order to define itself, and that is Tel Aviv. But Israeli being is also that of nation and history and tribe, of the tribe of the Jewish people. And Jerusalem is the generations-long capital of the tribe. So what we are doing here is not on a blank slate: it is a dialectical process with all that has been.
"If Tel Aviv is the stylishness of now, Jerusalem is the depth of always. Tel Aviv is very physical and Jerusalem is metaphysical. But our role now is not to get immersed in metaphysics and history, not to let the city become a museum, but to bring it into contact with the now."
Do you really see the Haredim as part of all this?
"Israelis who are locked into the stereotype of the Haredim from the Bar Ilan Road dispute [this Jerusalem thoroughfare became a symbol of the battle over driving on Shabbat in certain areas of the city] do not grasp what's happening today in the Haredi sector. They are unaware of the Haredi women who work in the IT industry in the city's Har Hotzvim industrial area. They are unaware of the Haredim who work for us at JVP.
"I tell you that within a few years, the Haredi third of Jerusalem, which is currently not part of the creative-economic game, can be brought into part of that game. The potential of the Haredim is astounding. They bring focus and diligence and loyalty. They have a business mentality. They are terribly nice. So I don't care what their worldview is. Within a very short time they can become the greatest asset of the high-tech world overall and of the Jerusalem economy in particular."
And the Arabs?
"Teddy [Kollek] transmitted to me the belief that this city will not be divided. There will be no wall in it. Even if a few villages are removed from the city, it will remain one piece. But I believe that we are on the way to conciliation. I don't know if it will take five or seven or ten years, but there will be an agreement here - and then Jerusalem will become a gateway to the Arab world. The 200,000 Arabs who live in Jerusalem will enjoy the advantage inherent in the fact that they belong to the region and have access to the region. They will be the catalyst of a process of economic change throughout the Arab world - instead of being caught between worlds, they will become a bridge between those worlds. They will flourish as a result, and so will the city."
You sound like a little Teddy.
"'A little Teddy' is good. I like that: a little Teddy."
And you are an incorrigible optimist.
"I am not an optimist. I am an entrepreneur."
And the truth is that you are not only a public entrepreneur but also a private one. The project you're creating in the old train station is a business project. You talk about the public good, but in the meantime you're getting government land and government support and operating on a for-profit basis.
"There is no contradiction between my public activity and my business activity. None at all. We came to the train station as the tenants of the Greek Orthodox Church and we saw that it was good. The train station project is not a real estate deal. What we are doing there is content, not buildings. We are doing most of our activity there as leasers."
Still, there is something questionable here. Rafik Hariri rebuilt Beirut but in the course of doing so he also became its owner.
"Jerusalem needs a Hariri, but that's not me. I deal in content, not buildings. But I will follow up on your example. All the doubters and pessimists have to be told that just as Hariri changed Beirut, it is also possible to rehabilitate Jerusalem. Its treasures are being left to decay. From Teddy I received Isaiah 2, the vision of a city that is a light unto the nations, and the effort to give that vision a modern, relevant form.
"It pains me to see the neglect. It pains me to see the dirt. It pains me to see the pushcart mentality. It pains me to see the young people deserting the city. So, where no one is venturing, I am trying to venture. Not to achieve riches and not to reap a profit. But to say that I am not going to forgo this city."
Nir Barkat was already supposed to do all that. He is also from high-tech and he also wanted to save Jerusalem and he ran for mayor and is now on the city council. The two of you would seem to be coming from the same place.
"Nir's story is one of daring. It's a good story. He became active and I respect that very much. But apart from the fact that we both succeeded in high-tech and that both of us care about the city, we're not alike. The redemption of Jerusalem is related to inspiration. I think that in addition to the business side, I'm also bringing to Jerusalem inspiration."
You're speaking like a mayor, you know.
"I'm speaking like someone who lives here."W
