Securing Investors and Structuring the Deal 299Connecting Different Worlds
Erel Margalit has been at the forefront of the
high-tech revolution in Israel, but his back-
ground is in philosophy, not engineering or
computer science. He sees himself as a
visionary who is good at making deals. “I
love to connect between different people and
between different disciplines,” Margalit says.
“So I established my venture capital fund,
JVP [Jerusalem Venture Partners], which was
the second such fund in Israel.” He was just
32 when he founded the fund in 1993; today
JVP manages more than $680 million in
investment funds.
Margalit was the first Israeli included on
Forbes magazine’s Midas List, an annual
ranking of individuals who deploy capital to
create wealth for investors. In 2006 he was
#88 on the list. At JVP (www.jvpvc.com)
Margalit has supervised more than 14 suc-
cessful deals. One of those was the sale of
an optical networking systems company with
a research facility located in Tel Aviv to
Lucent Technology for 78 million shares of
Lucent stock in May 2000. The sale of
Chromatis Networks was heralded as the
most impressive high-tech harvest in Israel
before it turned into one of the most visible
failures. While Margalit bickered with Israeli
tax authorities over how investors in Israeli
funds should be taxed, he postponed distribu-
tion of the Lucent stock and the price
dropped from US $58.125 to less than $1 per
share. JVP’s investors saw their Chromatis
holdings fall by almost 80 percent. Margalit
insists it was still a good deal, noting that in
the end “our investors multiplied their money
by a factor of 60 or 70.”
Margalit says that, because Israel is a
society of immigrants, many individuals are
anxious to prove themselves. “Every Israeli
thinks that the difference between him and
Bill Gates is just a bit of time,” he says. High-
tech firms have produced approximately 40
percent of Israel’s growth in the past ten
years and make up about 55 percent of
Israel’s exports. This explosion has been
fueled by the mass immigration of engineers
and scientists from the former Soviet Union,
by national grants to scientists and military
research projects, and by the growth of the
foreign semiconductor industry. Today Israel
has more companies with stock traded on the
U.S. NASDAQ exchange than any other
Middle Eastern or European country.
In the early 1990s Margalit served as the
Director of Business Development for the
City of Jerusalem, a job he says he got
through a combination of personality and
connections. In that position he helped bring
more than 70 technology firms to Jerusalem,
including Intel, Digital, and IBM. That was
his first experience connecting “the world of
capital to the world of great inventors.”
Margalit’s current venture capital focus is
media technologies, particularly projects that
bring engineers and artists together to merge
animation with gaming. He was also recently
nominated to be chairman of the Israel
Broadcasting Company.
Margalit’s connection to Jerusalem is still
strong, and many expect him to run for
mayor one day. If he does, he will use his
deal-making skills not only to bring new busi-
ness to the city, but also to build cooperation
between Jerusalem’s Arabs and Jews. “I
don’t know if it will take five or seven or ten
years, but there will be an agreement—and
then Jerusalem will become a gateway to the
Arab world. The 200,000 Arabs who live in
Jerusalem will enjoy the advantages 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 beingPERSONAL PROFILE 8