Using innovation as diplomacy

Israeli venture capitalist charts new course

EGrowth Curve ntrepreneurs need to think bigger, says top Israeli venture capitalist Erel Margalit.

But then, he’s always been mission-driven. At age 30, as head of economic development for Jerusalem, he helped attract 70 hightech firms to the Holy City. In 1993, he founded Jerusalem Venture Partners (JVP) to help the city grow its own tech talent. He showed a golden touch for spotting winners: in 2004 Margalit made Forbes magazine’s Midas List as the top venture capitalist (based on value created) outside the U.S.

Having raised more than US$1 billion for startups, launched 100 companies, and taken a dozen of them public on Nasdaq, Margalit is one of the pioneers of Israel’s “Startup Nation” brand. He is certainly the most visionary person I met in a visit last month, as a guest of the Israeli government, to experience Jerusalem’s startup scene. My previous column explored what Canada could learn from Israel in building a more innovative, entrepreneurial future. But Margalit represents the next step in the evolution of a startup nation: from creating wealth to exporting it.

He calls this Innovation Diplomacy. And in this area, too, Canada can learn much.

Margalit, 56, has always linked entrepreneurship and social change. Once JVP was making money, he founded a non-profit to reduce social inequality among Jerusalem youth. After 11 years as a selfdescribed activist, Margalit went into politics. He joined Israel’s opposition Labor Party determined to promote job creation and economic development. After winning two elections, he failed this year in a bid to lead his party. So this fall Margalit returned to JVP, more certain than ever that business is the best vehicle for social change.

In 2011, JVP wanted to kick-start growth in the struggling desert city of Beersheba. So it opened a cybersecurity accelerator there. Today Beersheba is a world leader in cyber, attracting scores of startups as well as multinationals such as IBM, PayPal, Oracle and Lockheed Martin.

To stimulate the north, Margalit and JVP are working with the mayors of the Galilee panhandle to open a Food-Tech Hub to promote food-production research and entrepreneurship. Agricultural innovation — from irrigation to hydroponics — was key to Israel’s initial economic success. Now JVP is focusing on nutrition-related food, such as modified and functional foods, and the burgeoning field of macrobiotics. “We’re rewriting the story of Galilee,” Margalit says. “Wellness and food will create the next frontier for Israeli technology.”

Having demonstrated that focused innovation investments can change a country, Margalit says, “We asked ourselves the next question: What if we could use innovation to transform an entire region?” Israel has always had trouble with its neighbours. But when Margalit studied the ecosystem, he realized the main challenge is not Arabs versus Jews: “It’s extremists versus pragmatists.” Poverty — compounded should step back and entrepreneurs lead.”

Can business really open these doors? Margalit notes Abu Dhabi is one of many Arab governments that have invested in JVP. And he meets often with Arab leaders to hear their ideas. Next step: Margalit is helping organize a trans-Mediterranean innovation conference, to be held in Sardinia.

Of course he’s hoping that Israeli know-how and capital will make the Jewish state a key partner in these new projects. Innovation leadership could boost the Israeli economy, attract top talent from overseas — and make Israel’s geopolitical future more secure.

Utopian as this sounds, similar approaches are already working. In Jerusalem, my global group of journalists met with PICO Venture Partners, whose activities include teaching entrepreneurship to children from the city’s Arab and Ultra-Orthodox communities. We met Jonathan Medved, founder of OurCrowd, a global platform for investing in private companies. His goal is to create new, local sources of capital for entrepreneurs around the world. And in Tel Aviv, I attended a demo day for Hybrid, an accelerator for early-stage Arab entrepreneurs. The program is led by veterans of Unit 8200, famed intelligence specialists of the Israeli army. As Margalit likes to say, “Innovation builds bridges, not walls.”

Can Canada practise its own innovation diplomacy? We’re old hands at this. We’ve helped Asia, the Middle East and South America build telecom systems, transportation and utility infrastructure, and even governance and banking systems. But now we must pursue this purposefully. Canadians are innovators-in-progress in many ways that matter: artificial intelligence, reinventing finance and health care, creating more effective educational tools, planning for a post-carbon future, developing new trade protocols, and building specialized communications systems that solve real problems for specific markets (think Kik, HootSuite and Shopify).

All these issues are global. If we can brand our innovations as the Israelis do, countries will pay top dollar for Canadian solutions. The world already trusts us; now we must demonstrate why they should work with us. In a world in which America’s economic clout and influence are fading, Canada must brand itself — or fade as well. let