Special: Leading Israeli venture capitalist Erel Margalit helps Sweden develop its startup industryOne of Europe’s strongest economies takes advice from Israelis
A crowd of some 400 Swedish entrepreneurs, managers and venture capitalists gathered in a small conference hall in the town of Kista, near Stockholm. The occasion was the 10th anniversary of entrepreneurial incubator STING, one of the biggest in Sweden. Erel Margalit, veteran Israeli entrepreneur and founder of the JVP Fund, got up to speak.
Margalit came to Sweden for a quick two-day visit to try to help fix or at least improve the Swedish startup industry. In some respects this seems to make little sense – how come Sweden, one of the strongest and wealthiest economies in Europe that has produced giant enterprises like IKEA, Ericsson, H&M and Skype, is turning of all places to Israel for advice on developing successful startups? But this is exactly what happened.
“Israel has created a large quantity of technology in relation to its size,” says Margalit. “It’s wonderful to see that the world is very interested to learn from us. When I visited Spain they practically tied me up to prevent me from leaving. They are simply astonished by Israel’s success.”
The JVP Fund, which is based in Jerusalem, was founded by Margalit in 1993 and manages eight venture capital funds totaling more than $900 dollars. JVP’s strong connection with Sweden began with an investment in t Swedish company Qlik Tech. After the stock was issued successfully on NASDAQ the Swedes realized that Israeli know-how and experience in establishing startup companies and encouraging entrepreneurs could be of benefit to them.
In his recent visit, Margalit met with local high-tech business leaders, venture capital managers, government officials, economists and top advisors of large Swedish corporations. “We came out of the meeting with many new ideas,” one Swedish business leader told Margalit.
The Swedes explain that one of the main problems they confront is how to expand into the international market. Swedish entrepreneurs are skilled and creative, but with a population of nine million people, the local market is small and limiting. Sweden has created many international companies, but the startups that have developed there in recent years have had difficulty breaking out of the country’s borders.
Another interesting problem is that Swedish high-tech workers are reluctant to leave secure and stable positions in a large company and are anxious about taking a chance on a small startup.
To cope with these problems Margalit recommends that the Swedes give incentives to entrepreneurs and investors in the way that Israel has done for the last 20 years, including the Initiative Program of the Ministry of Industry Trade and Employment and the Chief Scientist, which in the 1990s aided in establishing Israeli venture capital funds.
Margalit also recommends lowering taxes that prevent companies from giving employees options. “When a person risks his career and moves to a small company you must give him a way to make a profit,” he says.
The Swedes agree, but it is also clear to them that this will be difficult because such measures contradict the social democratic, equality-for-all tradition that also demands collecting high taxes.
‘Israelis love to invent’In one of the meetings, a local venture capitalist asked Margalit how Israel has succeeded in attracting so many international companies to establish development centers in Israel – from Intel and Google to Apple. “American companies understand that Israelis love to invent”, Margalit replied. “And this is contagious.”
In his speech to the participants of the STING incubator conference, Margalit stressed the principles on the basis of which startups succeed. “You need to join technology experts with artists, writers and authors, and understand that we are in a cultural revolution that also integrates technology. Art schools are as strategically significant as engineering schools,” he said.
Per Hedberg, STING’s director, says that Sweden and Israel are essentially very similar. “Israel is a small country without a local market that tries to focus on innovation, just like Sweden. The focus on creating international companies attracts me to Israel.”
Margalit adds that Israel can also learn from the Swedes. “The combination between Swedish equality and the state’s readiness to invest in the private sector, and the innovation and creativity of Israel can conquer the world,” he says.
Swedish-Israeli relations were tense in recent years. There were tendentious stories and coverage about Israel in the Swedish media – like a 2009 report that Israeli soldiers harvested the organs of dead Palestinians – and this created strong negative feelings about Sweden in Israel.
“Most Swedes people do not have a position about Israel, positive or negative,” says Joseph Ackerman, the economic attaché of the Ministry of Industry Trade and Employment in Stockholm who accompanied Margalit on his visit. “There are anti-Israel extremists, but there are also extremists who love Israel very much. The media is relatively unified in its views against Israel – but this is true also in Israel. Everyone goes beyond sound proportions.”
However, Ackerman stresses that visits by Israeli high-tech experts like Margalit and trade agreements between Swedish and Israeli companies increase the possibility of talking about what is positive in Israel.
“Indeed, when political events happen, it also influences business relations. Why will companies go to Israel with all the security problems? It means we must be better and more innovative, and bring added value that will attract them to do business in Israel.”