Entrepreneur Erel Margalit to TML: ‘Real Victory’ Is Not Just Military Success but an Innovative, Creative Economy

Israel’s high-tech industry serves as an extension of the nation’s resilience, even in times of conflict, Israel’s leading venture capitalist

In an exclusive interview, The Media Line’s Felice Friedson talks with Erel Margalit, Israel’s leading venture capitalist and founder of Jerusalem Venture Partners and Margalit Startup City. A former member of the Israeli parliament, Margalit is not just a business mogul but also a social entrepreneur dedicated to fostering Arab-Israeli cooperation. His initiatives extend to countries such the UAE, Bahrain, and Saudi Arabia, making him a key figure in regional coexistence and business innovation.

TML: Thank you for joining me.

Even before the Hamas war, there were indications that many startups were abandoning Israel, opting to move elsewhere. Compounded with the Hamas war, what is the fallout? How economically deadly will it be for Israel’s “startup nation”?

Margalit: Israel is a country that builds its high-tech industry at times of strife. We built here the JVP Center in Jerusalem when the Second Intifada was going on, when suicide bombers were blowing up buses and cafes. Then there were difficult times in Gaza and Lebanon. It was 9/11, for people who have been in New York.

And you need to understand that the Israeli high-tech industry was able to succeed out of the time of difficulty, and a time of crisis and a time of strife. Israel is determined, A., to win the war. It’s very important. It’s an existential war against the deadly organization Hamas, and we are unified in the need to do so. And B., Israel understands that the real image of the victory is not only on the battlefield, but is the continuation of the high-tech industry, the innovation, the economy, and the creative society that Israel has, which it cherishes so much.

TML: I spoke with you a few months ago, and you were unveiling all kinds of new projects, but there was also that sense of divide economically and in terms of judicial reforms and so much happening here in the country apropos what I just said. What are you seeing that’s happening on the ground now? What has changed in terms of the war?

Margalit: This is a crisis, but I think that what we do is we learn how to manage the economy in the country in a time of crisis.

You need to look after the welfare of the employees because many of them are recruited and some of them are affected, or their family members [are affected]. You need to make sure that the companies are financially sound with the CFOs, and you need to make sure that the international strategy of making 2023-2024 goals, the companies are on it. And the people of Israel together with the international employees of each and every one of the companies are working together as a team to meet their goals despite the difficulties.

TML: Reservists are being called up. How is that impacting the different startup companies at the moment?

Margalit: Of course it has an impact, but it also brings society together. After a long process where we marched for democracy, now the different parts of Israel are coming together to defend the country. Yes, I was leading cooperation with the Arab world. Yes, I was leading cooperation with moderate Palestinians here in Jerusalem and elsewhere. But at the same time that we’re reaching our hand to moderate people in the Middle East, we need to fight the extremists. We need to understand that Hamas is like ISIS. Hamas is like al-Qaida after 9/11. You need to fight it with all your might. You don’t negotiate with terrorists. You fight it. You beat them, and you open the next chapter.

The Palestinians need a moderate set of leaders that will work on win-win strategy in the region including cooperation [with Israel]. Israel is determined to wipe out Hamas. And it needs to be clear that the same forces who want cooperation in the region, the same forces who want a security alliance of the moderates, need to understand that there are extremists.

Hamas is the representative of Iran in Gaza. Hizbullah is the representative of Iran in Lebanon, and Assad became the representative of Iran in Syria.

TML: My question to you has to do with the leaders in the UAE and the other countries [that] you are working with, and you just started relations with Saudi Arabia. What are you hearing from them?

Margalit: Well, it’s not an easy time. Conflict is not an easy time. And most of the Arab street has a hard time making the difference between what it is [that is] the deadly attacks of Hamas. We need to understand that Hamas was killing women and children and slaughtering people in parties, and people that were working for cooperation with Gaza. The people on the fence near the Erez Gate together with me, we were working years ago in allowing about 20,000 Palestinians and maybe more to come into Israel and to have a job. We were the people.

The people that they decided to slaughter are the people that were working for them. And so, today, when we have to retaliate, we cannot negotiate with them. We have to go after them. But, at the same time, we’re saying to the Palestinians, like the Palestinian Authority, like some of the people within the Palestinian leadership that was cooperating with Israel on a military level and also on an economic level, we are reaching out a hand to you just like we are reaching out the sword to Hamas. The extremists, the terrorists, [and] the killers need to be confronted. The people who want to live here together, should be addressed.

TML: When it comes to high-tech and venture capital, your name is at the top. And Erel, right now people want to know what were the sectors that were hit most and it’s going to happen, whether it just began or we’re going to see it happen in the next few weeks.

Margalit: Yes, every company has a challenge today, but you need to understand a few things. One, cybersecurity is a big need after the [Russo-]Ukraine War, after this [current] war, and it’s a big need around the world and Israel can provide it. Two, the AI systems that are needed in every walk of life, whether it is medicine, whether it’s enterprise, whether it’s the ability to have agriculture with AI is needed more than ever before.

So, Israel is going to be suffering. Yes, this war is a crisis, and it’s also a crisis for the high-tech industry, but at the same time that we are coming together as a nation to fight the battle and to fight the war, we’re going to be able to come together as a nation to put the economy on our feet, to put the high-tech industry back in the international arena. And what we’re doing today is making sure that the international managers and those managers that have not been recruited, and employees in each and every one of the companies are working double shifts to make sure that these companies continue and that these companies thrive despite the crisis.

TML: I asked you a question about defense companies and tech. Is there anything related to defense and war? I wanted to know are there companies that you’re dealing with that have direct impact on the war and are actually going to do well during a war?

Margalit: Defense is one of those areas that need AI more than any sector. Defense is one of these areas that needs cybersecurity. Defense is one of these areas that need computer vision and detection of different cases, so yes, there are companies who are selling also to defense organizations and not just to civilian organizations. And yes, these companies will be getting orders and are getting orders, because it’s needed on the battlefield just like it was needed in Ukraine. It’s needed now in Israel, and some companies are providing it.

TML: Having served in Israel’s parliament, how do you see the war playing out?

Margalit: Well, I think the fog of war, as someone said, is not that easy, but Israel is acting with determination, with consensus. It brought together both sides of the House [in the Knesset] in order to stand behind the IDF in the need to retaliate in a major way.

So, there’s a few principles that we need to understand. One, Israel will never be attacked again in the same manner, and if Hamas stays, we are staying vulnerable. People will not go back again to live in the South [of Israel] with that kind of threat lingering over the head. So, the air force is starting. The air force is targeting very specific targets. It’s not targeting civilians. It’s not targeting civilian facilities. It’s targeting those terrorist infrastructures of Hamas that it’s been building for years, underground, underneath the hospitals, underneath all of these places which use civilians in order to camouflage themselves.

This time, Israel says, “We’re not going to stop. We’re going to urge the civilians to get out; to move south, but we need to address and take care of this infrastructure. And we need to address and take care of those terrorist heads that were orchestrating the attack together with Iran on Israel, in the South. We need to confront them. And the country is standing together.”

TML: On that note, you are very vocal in terms of judicial reforms, and nobody knew what would happen if a scenario like this played out.

Margalit: Well, Israel was attacked, and every Israeli understands that it’s an existential process to defend ourselves. And every Israeli understands that we need to stand as a nation whether we like this government, and you know that I have big criticism about this government, the country needs to exist and the country needs to thrive. And in order to do that, you need to confront your enemies.

And I’m saying all of this to all these people who want to see coexistence in the Middle East. If you don’t fight the extremists, if you don’t fight the terrorists, if you don’t fight the people that are trying to kill the people that are moving forward, you will have these issues all of the time.

The US didn’t want to fight anyone in the Islamic world, but it was hit by al-Qaida in the biggest way [on 9/11] and it had a wake-up call. Israel today had a wake-up call because Hamas is not a partner to live next to. Hamas should be taken out of the equation.

It is the Palestinian Authority that we have been living together with. It is the Palestinian Authority that we had years of security cooperation [with], and these are the people that need to take charge in Gaza for things to continue to be win-win between the two populations.

And yes, these are difficult times, but taking care of the terrorists is a necessary condition in order to move forward and build this region forward. There are countries in this region that want to work together for their people, connected to the world [and] not shut off from the world, not shooting at the world, not accumulating nuclear arsenal in order to fight in this region like Iran, but countries that want to build this region into a different level, and these are the countries that Israel will be cooperating with. But in order to cooperate with the moderates, you need to fight the extremists with all your might.

TML: Will Israel be afforded the ability to complete its mission, or will the world pull it back?

Margalit: Israel needs to complete its mission quickly and swiftly and pointedly and be focused. Criticism will probably come, because [some] people don’t make a difference between the terrorist organization of Hamas and the legitimate right of the Palestinians. Many of us here in Israel fight for the legitimate right of moderate Palestinians that want coexistence with Israel, but these are the same Israelis that will fight with all of their might against those that are coming up to kill us, to act in terror against us, and to cooperate with organizations and regimes like Iran both in Lebanon [as well as] in Syria, and here in Gaza, where it’s the deadliest assault against Israel.

TML: What went so wrong? It took hours for the Israel Defense Forces to respond. There was so much time that lapsed until they were able to come and help the people in the communities along the border.

Margalit: In many places in history, if you read the history of war, lines of defense are often penetrated. It was the Maginot Line in World War II, it was the Bar Lev Line along the Suez Canal [in the Yom Kippur War], and now it’s the line on the [Gaza] border. People feel that technology can be something that will protect them, and Israel made a mistake, the IDF made a mistake.

It’s the troops, it’s the people, it’s the readiness, and we have criticism against this government. The readiness in order to give the priorities to the defense forces to defend the southern border [and] the northern border had to be there.

We have criticism of the government just like we had criticism in 1973 [during] the Yom Kippur War of [the late Prime Minister] Golda Meir. Now we have criticism of [Prime Minister] Netanyahu and his gang for having the wrong priority and not defending his country.

TML: High-tech was infiltrated.

Margalit: High-tech was infiltrated. I am from the Golani special forces anti-tank unit. We use technology in order to hunt the tanks of the enemy, but we also know that the human factor being on the ground, being connected, being on the ground there you don’t have a substitute for that. And in that respect, we made a mistake. We need to make up for it. We paid a high price for it, but now we need to retaliate, and I think you’ll see the soldiers do their job.

Because when the soldiers came to the front, those special forces that came to the kibbutzim, they saved people. When the people, the civilians, that were protecting the kibbutzim, they were heroes: men [and] women. People that were heroes in heroic acts that took care of 3,000 Hamas militants that came into Israel. They retaliated. They didn’t have enough backing. And now the army is going to do its job in Gaza. It’s not going to be easy, but it’s necessary.

TML: Before the war, there was growing concern about friction between Jew and Arab. What is civil society going to look like after this war?

Margalit: I think that the kind of things that we’re doing here in Jerusalem—and every day—we have Jews and Arabs working together in the high-tech industry. We have Jews and Arabs working together in our social projects. We have Jews and Arabs working together in coming to the performing arts shows here in our theater. And that’s going to continue, and that’s important.

And there are many Arabs which are disgusted with what Hamas has done, which are disgusted of the murder of men, women and children and these people are speaking up. And there are many Jewish Israelis and Arab Israelis which are cooperating even in these difficult times. Yes, there are extremists who are trying to derail the situation, but many of us are determined to say that this is the time to quiet things down.

This is the time for quiet cooperation. This is the time to understand that we have a future here together, and we want to live together. We don’t want to kill each other here. And yes, if Hamas is attacking us, we will retaliate in a big way. If Hezbollah will attack us tomorrow, we will retaliate in a big way. But here in Israel, we want to cooperate. We want to work together, and we want to see this society thrive after the war.

TML: You say that they are speaking up, but there aren’t enough of them. So, what will encourage Israeli Arabs to speak up against horrific violence?

Margalit: We see many Israeli Arabs speak up. We even see some of them speak up in the Knesset. We see some of the Arab Knesset members say that they want to be sort of the in-between in the negotiations for the hostages, so we are seeing Arab leaders around Israel step up for moderation; step up for coexistence; step up to be together and to be against the killers who slaughtered innocent people.

We are seeing some tension as well. There is no doubt about it. These are two societies that can immediately go into tense situations at times, but I think that it’s up to people like ourselves—the leaders of the high-tech industry, the leaders of education, the leaders of the peoples in the defense forces—that will say, “We want to cooperate, we want to continue to live here. We are going to be against anyone who tried to kill us, the terrorist organization in the South. Perhaps were going to need to fight against the terrorist organization in the North, but please stay calm. Stay calm and work together, because we have a country to live in together in the future. And let’s make sure that the moderates stay connected while we fight against the extremists.”

Hamas needs to be fought against, and we need to move in and take them out.

TML: Erel Margalit, thank you so much for joining us at The Media Line and this very difficult time!

Margalit: Thank you! And let’s hope that peace will come to this region after justice will be done.