Erel Margalit
Are digital startups getting a COVID-19 created premium? Erel Margalit, who knows a few things about startups and taking them public, believes valuations are in overheated territory. Image Credit: Supplied

Dubai: COVID-19 has done its bit for technology and tech firms everywhere, by making them central to everyday lives. But there have been unforeseen consequences too.

Investors – whether private equity or venture capital - are finding even tech-focused startups in the Middle East are too “overvalued” for their own good. “We have a few companies that are raising money at over a billion dollars,” said Israeli investor whiz Erel Margalit, who has an enviable trackrecord of taking tech businesses into big money generating IPOs.

His company, JVP, has raised over $1.4 billion from institutional and private investors, as well as from private equity, endowments, pension, and global corporate funds. It built some of the largest companies out of Israel, facilitating 36 exits along with 12 IPOs (initial public offerings) on NASDAQ, including CyberArk Software, QLIK Technologies and Cogent Communications.

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Piling into tech

Despite having the pandemic to contend with, investors – local and overseas – had a busy time committing sizeable investments into UAE based digital startups, or those that had scaled up their online offerings. Grocery e-tailers suddenly became a hit with investors, as did those fintech companies offering ‘buy now pay later’ options to consumers.

Margalit’s way

“We like companies to reach $300 million to $500 million in ARR (Annual recurring revenue),” said Margalit, founder of Jerusalem Venture Partners (JVP), which has $1.4 billion worth of assets under management.

When the crisis began, Margalit urged firms in his portfolio to do three things - rethink expenses, have enough cash for two years, and reposition their products to take advantage of a wildly different market. “We invest early stage, but also in the expansion phase; we have both early stage and later stage funds,” he added.

A Knesset stint
Erel Margalit had served as a member of the Security and Foreign Affairs Committee and Finance Committee in the Knesset. He also led the Knesset’s Cyber-security taskforce and the taskforce developing the North and South of Israel.

Startup ‘city’

Apart from launching taking tech companies public, Margalit is also building startup cities. He has got them in Jerusalem and Tel Aviv and also in New York.

Now, it looks like the UAE is on his radar as well. “We're looking to create a place, either in Dubai or Abu Dhabi,” he added. “There are about 10 of our companies that are beginning to invest in in Dubai and Abu Dhabi.

“Instead of each of them going their separate route, the first thing is for us to just co-locate them, give them business development, access to customer, and legal advice. As we co-locate our companies, we're inviting Emirati companies in the same areas to come in.”

The hubs will facilitate investments in different sectors, especially healthcare, which is a big area of focus for the billionaire investor.

Why health?

“Healthcare is going to change – post COVID-19. In almost every country you need large medical centers, but you also need community medicine,” said Margalit. “You also need to have diagnostics from home - It needs to be cheap and affordable.”

Food is also big on his agenda. “Cities need their own agricultural strategy,” said Margalit. “We also need alternative sources of protein, because we cannot continue to slaughter 5 million cows in the world.”