Israeli Venture Firm
Invests in Coexistence

Talk about a tough sell.

An Israeli high-tech incubator is courting American investors with pledges of sizable profits -- and peaceful coexistence between the country's Jews and Arabs.

New Generation Technology was founded in July 2002 by five private Arab-Israeli investors and a Jewish partner, Israeli-American entrepreneur Davidi Gilo, with the goal of helping entrepreneurs in the country's minority Arab community. Supported by the Israeli government, NGT (http://www.ngtnazareth.com/) says it is the first high-tech venture between Arabs and Jews in the country. Based in Nazareth, a city with large Arab and Jewish populations in northern Israel, NGT has two fledgling companies in its portfolio.

Sharon Devir

"If we want to keep the relations peaceful between Arabs and Jews in Israel, we have to help the Arab community in economic matters," says Omar Mssarwa, one of the founding investors and a director at NGT. "So the Israeli government must do something. But we also have to help the government. As Arab businessmen, we have to take some of the responsibility."

While NGT's vision is certainly ambitious, its timing couldn't be worse. Israel's economy is mired in recession, a victim of the global downturn and nearly three years of violence in the Palestinian areas. The once-booming high-tech sector -- breeding ground for such names as Check Point Software Technologies Ltd. and voicemail firm Comverse Technology Inc. -- has been hit especially hard.

Sharon Devir, NGT's chief executive, is well aware of Israel's image problems. He says that despite the frightening headlines, most Israelis lead normal everyday lives. He also stresses that Israel's Arabs, unlike Palestinians in the West Bank and Gaza Strip, are citizens with a stake in the country's future, although he concedes that the Arab minority, which makes up about 20% of the population, has often been neglected by the government.

Giving Arab businesses a chance to operate on a level playing field "is one of our most important missions," says Mr. Devir, who was recently in New York with Mr. Mssarwa to meet with potential investors.

Their message? "We're not politicians. We're saying, 'Don't be too sophisticated. Just live and make business,' " says Mr. Devir.

Mr. Mssarwa, who runs an agricultural seed business in Israel, concurs. He says politics is left at the door when NGT's board of directors, mixed of Arabs and Jews, gathers to meet. Only the best ideas, regardless of the entrepreneur's background, will receive funding, he adds. "When people go into business, there is no difference between Jews and Arabs. Business is business," he says.

NGT's first two investments have gone to Arab-owned businesses, but even those reflect the deeper subtleties of Israeli society. One venture, which is developing a diabetes treatment using locally grown herbs, is led by a member of the formerly nomadic Bedouin community. The second, which is working on infant formula for premature babies, is led by a Christian Arab. The formula will include insulin, which is meant to help babies' gastrointestinal systems.

By venture-capital standards, NGT is tiny, with just $1.3 million raised so far. Messrs. Devir and Mssarwa have been traveling the U.S. in hopes of raising an initial $2 million, and a longer-term goal of raising an additional $10 million.

For now, they have focused their pitch on audiences receptive to the coexistence message. They recently met with investors affiliated with the Abraham Fund Initiative, a nonprofit group that funds coexistence projects in Israel. They have also approached the American Arab Chamber of Commerce in Dearborn, Mich., which has 1,100 members nationwide.

Executive Director Nasser Beydoun says the chamber is trying to form an advisory board and to identify members who would be interested in the project. "There's always interest if there's a way of using economics to promote peace and to help improve the living and economic situation for people in the region," he says.

But can the message appeal to a wider audience? In his roadshow, Mr. Devir says NGT hopes to invest in about four companies a year. He is confident that investors can expect an overall annual rate of return of 25% over six years if one in six of those companies is successful.

A key selling point to investors is the Israeli government's to provide $500,000 loans for each project. NGT must repay that money only if it decides the company is commercially viable and wants to continue to invest in the firm. "The risk of the loan is on the government," he says. "This is the core of our franchise."

During Mr. Devir's recent presentation in New York, he faced some pointed questions from the small audience, mostly demands for more details on his financial projections. But in a positive sign, no one questioned the premise of Arabs and Jews working together.

"I see this is a intertwined business and mission project," says Mr. Devir. "I hope that in five years it will be one of many. If it is the only one, I think we will have missed something."

Write to Josef Federman at josef.federman@wsj.com

Updated June 26, 2003 2:30 p.m.

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