Israeli high-tech entrepreneur turns his focus to politics

By Luke Baker

JERUSALEM (Reuters) - Erel Margalit has packed a lot in, from frontline combat in Lebanon to a PhD in philosophy at Columbia University, advising Jerusalem's former mayor and launching a billion dollar venture capital firm. Now his focus is politics, and trying to reboot the original "start-up nation".

Dressed in a designer black t-shirt and dark jeans, 53-year-old Margalit retains the air and style of a multi-millionaire high-tech entrepreneur. With fluent, American-accented English, he is as much at home in Silicon Valley or New York as Israel.

But after 20 years of building up companies via the Jerusalem Venture Partners fund that he created - including some of Israel's most successful start-ups - he stood as a candidate for the left-of-centre Labour Party in elections last year and won a seat in the Knesset, Israel's parliament.

He has not withdrawn from the domain of technology and finance since then - he keeps an office in JVP's headquarters and is an advocate for innovation centres around Israel - but his focus is on better connecting the worlds of politics and high-tech to reinvigorate Israel's economy.

"Technology in Israel needs to move from the category of the few to something that sweeps the country in a much bigger way," he said in an interview at his JVP office, decorated with paintings by his wife, an artist.

"I'm interested in some of the new communities that could get involved, so if the Arab community gets involved it's exciting and it can help us open up the economy and the way we are doing things."

One of Margalit's projects is getting central and local government to back technology hubs around the country, including a cyber security one in the south, near a new Israeli military headquarters, one in the agricultural north focused on medical food and biotechnology, and others centred on the Israeli-Arab and ultra-Orthodox Jewish communities.

Around 20 percent of Israel's 8 million people are Arabs, mostly living in and around the cities of Nazareth and Haifa. Like the 12 percent of the population that is ultra-Orthodox, they are not always well integrated into the wider economy.

If Israel, surrounded by often unfriendly or extremely wary Arab nations, is to expand its economic influence in the region, its own Arab population, which is broadly bilingual, business-minded and tech-savvy, could prove critical.

"The Arab community in Israel today is one of the biggest untapped potentials," said Margalit, explaining that many new media ventures would quickly succeed if duplicated in Arabic.

"Israeli Arabs are in a great position to do it. There are a lot of educated young Arabs that got their education both in Israel and the Arab world and understand the region."

LEADERSHIP AMBITIONS?

Prime Minister Benjamin Netanyahu's right-wing government is a strong supporter of the cyber security innovation centre, but beyond that his vision and Margalit's diverge dramatically.

Rather than relying solely on the private sector and equity, Margalit argues there needs to be far more government engagement in building up the tech industry to expand its reach.

"If I were the finance minister, I would make sure that there is a new ecosystem that is being created," he said, mentioning the need for debt to help finance longer-term growth and nurture companies towards later-stage development.

"If you just build yourself on venture capital you have a 10-year cycle. Whatever it is you can achieve, it has to be in 10 years and then there is the pressure to sell."

Labour, the party Margalit belongs to, was once the dominant force in Israeli politics but the past decade has been hard.

Now the third-largest party, it has struggled to build a bloc of like-minded forces that combine social-democratic values, a pro-business orientation and a commitment to peace with the Palestinians based on a two-state solution.

Having served in one of Israel's top combat units, taught PhD-level philosophy and logic at Columbia University in New York and helped create companies worth around $18 billion, Margalit is not used to failure.

Asked whether his ultimate goal was to lead Labour and become prime minister, Margalit said: "I'm an ambitious guy...I don't buy the Netanyahu world view and I think we have a much stronger one for Israel. I'd like to get into a position where this could be properly heard and change could be effected."

One obstacle is that Labour already has a leader. Another is that Netanyahu's power base remains strong. But Margalit hints he may have long-term plans for the top.

"I understand that partisan politics in Israel is probably the most unrewarding journey, but I'm willing to take it," he said. "It's like a start-up - you don't succeed immediately."

(Editing by Anna Willard)