Israel’s Arab Citizens Series: The Arab Glass Ceiling
Arab entrepreneurs who want to set up shop and establish start-ups in the Arab Galilee face large, systemic obstacles. “Until two years ago, there was no capital available,” says Said. “No venture capital funds, no investment capital was being invested in Arab society—not by ‘angels’ and not by institutional investors.” Additionally, he says, “A high-tech company in Nazareth could penetrate the market in the U.S.—one medical equipment firm met the standards of the FDA—but not locally.”
This is changing. Said’s Galil Software is one example. It was founded by Moroccan-born, Canadian-raised Jimmy Levy, a veteran Jewish high-tech entrepreneur who used to direct the mobile-content division of telecommunications software giant Comverse. “At Comverse,” he says, “I was responsible for some of the outsourcing, some of which went to India. And we had discussions about that: Why India? They were great companies, but we wondered, couldn’t we do it closer to home?”
Levy saw that there were many qualified software engineers in Israel, particularly Arabs in the north, who were unemployed or underemployed. Not having served in the army, where many Jewish entrepreneurs receive their initial training and, perhaps even more importantly, establish personal networks that will serve them throughout their careers, they are at a disadvantage before they even arrive for an interview.
Even before he had set up a company, Levy began collecting résumés. When he had about 80 in hand, he invited some 35 applicants to meet with him in a Haifa coffee shop. “Most of them were Arab, and I knew very quickly that I would have hired the majority of them at Comverse. They were people who had studied at the Technion and at Hebrew University and Tel Aviv University.”
Even after Levy stopped actively seeking CVs, they kept pouring in. Consulting with Jewish colleagues in the software field, he became convinced that if he set up a software firm, he would find clients. “People said to me, if you come to us with a good value proposition,” they would bite.
And bite they did. After only two years, Galil has contracts with GE Health Care and with Israeli firms ECI (networking infrastructure), AMDOC (business support software), Voltaire (networking fabric switches), DBMotion (healthcare software) and JumpTap (mobile advertising), among others. Now the company is expanding into a third office space in Nazareth and has more than 130 engineers, including around a dozen Jewish employees. Levy insists that he is looking to maximize profit before anything else and is convinced that his strategies at Galil make good business sense. “The cost of an individual engineer in India may be lower,” says Inas Said, “but when you add in the total costs, this differential shrinks. We can provide services at about 30 percent savings” over companies in central Israel.
In 2009 the government solicited bids for a partner to establish Israel’s first private equity fund specifically devoted to investing in the Arab sector. It chose the veteran private fund Pitango Venture Capital—founded and managed by Shimon Peres’ son Chemi—which raised another 97 million shekels ($27 million) in addition to the 80 million shekels ($22 million) the government put in. According to a press release, a new Pitango Fund subsidiary, called Al Bawader [Arabic for “buds”], aims to bridge the gap between entrepreneurs and investors and is hoping to capitalize on what it deems to be the Arab sector’s “strong ties” with “the expanding markets of the Middle East and the Arab world.”
Jimmy Levy, who is a co-founder and co-managing partner of Al Bawader (together with Habib Hazan, a former McKinsey and Co. consultant who also serves as co-chair of Kav Mashve), says it will soon be announcing its first round of investments. For that reason, he was reluctant to provide many details, but he did hint that he saw enough entrepreneurial skill among Arabs that he expected to soon see start-up firms offering products, and not just engineering services. Al Bawader is slated to invest 40 percent of its capital in technology firms, but Levy stresses this is far from the only area with the potential for growth. He mentions the same fields as Ayman Saif—tourism, food and plastics production—as holding promise and also notes the potential for start-ups based around the life sciences.