OK, this one (from Nov. 20th) is the last article I'll post today:
Finegold’s Theorem
Hadass Geyfman
20.11.2000 14:21
A few months ago, Orsus Solutions Chairman and CEO Aryeh Finegold met his friend David Federman at Yad Eliyahu basketball arena in Tel Aviv. “Come meet someone,” said Federman, and introduced Kobi Alexander. “I think you have some matters in common and ought to do business together.”
A week later, Alexander turned up with several senior Comverse executives for a meeting at Orsus. A few days later, Comverse invested $10 million in Orsus through its Comsor investment subsidiary. The private placement was carried out as part of Orsus strategic capital raising in its third financial round, in which the company raised $20 million. One investor was Singapore Telecom, which invested $3 million. “Comverse’s people were very professional,” says Finegold. “Within a week, they already knew everything about us.”
“Globes”: Is an Orsus IPO on the horizon?
Finegold : “No. I like to build companies for the long haul, and I believe that only someone with a lot of patience will make a lot of money.
“In my opinion, it is a very bad thing to issue in the first 12-24 months following the founding of a company, because a company needs a quiet corner to work in and move ahead. So I try to take my time. On the other hand, I obviously cannot ignore investors, who came in for the IPO.
“In the final analysis, I would like to stay a private company for at least two years from today, while the investors would like to head for the stock exchange in two hours. I assume we’ll meet somewhere in the middle. Meanwhile, Orsus has raised $68 million in three financial rounds at a company value of $200 million.”
Why did you raise so much money?
“We believe that the value of many companies will decline in the coming year. There are already signs of a market chill. When the values fall enough, we can buy companies with technologies, or alternatively, just the technologies.”
Orsus has existed for just over a year, and has amassed millions of dollars in orders. Most of the investors in the company are not pressing to issue. Most already invested in Mercury Interactive. They have traveled a long road with Finegold and know every milestone on the route. At the moment, a person who invested 50 cents in Mercury is now sitting on $500 a share, even after the falls and splits.
“Company value at issue is unimportant,” says Finegold. “What the company does afterwards is what matters. I think that one of the major problems of issuing companies is that there are too many entrepreneurs trying to squeeze out every last penny from the issue, without leaving anything on the table. I think this is a mistake. One should never pressure underwriters to raise the share price at issue.
“For example, if your underwriter tells to issue at $12, bargain him down to $10. This is partially because if you really believe in your company, you know that there will be more issues in which you will get you money several times over.
“Moreover, public investors like buying shares at $10 at issue, and selling them at $12 six months later. If you give them this little satisfaction, they will buy you again and you will come out a winner. But if they buy your share at $14, and it then falls to $12, they will never forgive you and will avoid you like the plague.”
Why haven’t you sold Mercury shares, at least in the past year?
“I sold shares all the time I was at Mercury. If the chairman sells some shares now and then, investors think he knows something they don’t. But if every quarter he sells roughly the same amount after the publication of results, people won’t be worried. I am no longer a part of Mercury’s management, so sales are a matter of cold judgement of a private individual. I think that Mercury is a good share and I prefer not to sell.”
Orsus’s product has undergone several modifications since the company was founded.
“There are start-ups that know what they are going to do from the day they are founded. We don’t know everything from the outset. I always thought that a business has to begin like a paratrooper mission. In order to find the enemy you shoot at every hill and rely on him to return fire. The moment he does so, you’ve located him. I believe that business works in the same way. Orsus set out with a product that handles integration. Then the market said that we are excited by the cellular Internet integration, so we added capabilities designed for the cellular Internet market.”
How did the market receive Orsus?
“We entered the market at a good time. Had the field we work in hit the US market before we arrived, it would have been saturated and there wouldn’t have been room for us. In contrast, our private placement was in a very poor market. But we think that a good company in a bad market can make profits, and if it makes profits, it can always issue. There has never yet been a situation where a good company cannot issue.
“I believe that on any given day, there is no correlation between share price and the company’s situation, but over time, there is a high correlation. Therefore, a good company can always issue in any market. All in all, a “bad” market merely cleans out a lot of the marginal companies.”
Even so, there are good companies that postpone IPOs because of the market climate.
“This is a big mistake. The moment you stop, you take the wind out of the investors’ and employees’ sails.”
Do employees’ options lose their meaning in a falling market?
“I still a great believer in staff options because it turns the employees into owners.”
How does the capital market situation affect the ability to recruit staff?
“The more shares fall, the easier it is for start-ups to recruit staff, especially from the large companies.”
Has Orsus been affected by the situation in the capital market?
“Orsus provides tools that improve customers’ productivity. When time are tough, company managers are prepared to spend money on solutions that will improve employee productivity and on products that will open new market vistas before them. Therefore, the more market conditions intensify, the greater are the opportunities for start-ups like Orsus.”
To what extent has the security situation damaged Israel’s high-tech sector?
“I am much more worried by the government’s behavior. It can destroy the activities of start-ups regardless of the security situation. The greatest problem facing high-tech companies in Israel is the uncertain economic climate, which is unrelated to the security situation.
“There has been an interminable argument in Israel for years: Yes to capital gains taxes; no to capital gains taxes. Investors don’t like uncertainty.
“As for the effect on companies, I think nothing will put a stop to real business. The same is true for Wall Street. If a company’s sales and profits grow, Wall Street doesn’t care what the security situation is.
“High-tech is like sport. The only thing that matters to investors, from the CEO to the lowest employee, is victory. They know that if the security situation prevents a company from functioning, within two days it can be transplanted to the US. If the security situation hurts someone, it will only be those companies that had nothing to offer in the first place”
The Courtside Strategy
Maccabi Tel Aviv basketball players can be found among Orsus’s investors. Finegold, an enthusiastic supporter of the team, takes almost every overseas customer to their games. “In the US, it is quite normal for high-tech companies to have season tickets for baseball, football and basketball teams,” says Finegold. “Whenever the Americans want to reward their customers, they take them to the ball game.
“While I was at Mercury, I decided to import this custom and we bought many season tickets. We are now doing the same thing at Orsus. It gives the customer a feeling of receiving special attention.”
What does Orsus’s product actually do?
“Orsus’s software enables the integration of one company’s data processing system with another company’s. For example, if the user is at the KLM website and wants to go to Lufthansa, he can carry out all his operations on Lufthansa’s site without having to exit KLM’s.
“Present systems require six months to a year to carry out this kind of integration, because all the connectivity is done at the level of communications pipelines. Every participant has to show the others what database and communications protocols he uses, which then have to be translated.
“Our method ignores the communications pipeline and databases. Instead, it offers to unify operations at the user level. We create a kind of virtual man who mediates between the companies’ websites.
“All the solutions our product offers are based on identifying business processes. To some extent, the software world has invested considerable efforts to make communications pipelines between connectors more efficient, and referred to software scripts. When Orsus CTO Amir Weinberg decided to develop the software, he told us: ‘Forget what’s hiding in the communications pipelines. Let’s look at how I access to Lufthansa’s business from the KLM site.’ This is why most of Orsus’s users are not programmers.
“Our system does not the crack codes or confidentiality of a company’s websites accessed by our customers. It only does what the site itself permits. While it is true that companies don’t like mediators in the network, we are convinced that in the end, companies that work with companies such as DealTime.com will pay them for the service of directing buyers to them, just as they now pay for links. The alternative is to be ignored. They will therefore learn to live with sites like DealTime.com.”
What market segment are you aiming for?
“Our market is composed of three types of customers. One group is communications providers, including Internet portals and providers of other Internet services. The second group is more interesting from our viewpoint. It is the zillions of existing Internet applications. We take them from the Internet and enable them to be provided via cellular devices. The third group are the large companies, which I call the Fortune 500,000. This group is actually the largest market for our product. It includes large organizations such as airlines, banks and others, whose activities constitute 80% of global business operations.
“These organizations have websites through which they offer goods and services (airline tickets, online banking etc.). They need Orsus’s product for three reasons: first, to increase the number of users and revenues; second, to create cooperation with other market players and distributors; and third, to streamline their internal operations.
“By the way, it is possible to use Orsus’s product as a pure development tool. In any event, our current marketing focus is on the cellular world. We are concentrating on the US market, because it is the largest potential market for our product.
“Comverse, for example, which is a strategic investor in Orsus, is opening the doors of its communications provider customers to us. Each of Comverse’s customers receives a box into which it enters applications. Comverse will now add our application. This gives us exposure, while Comverse gets another application to sell. At the moment, we are talking about an OEM agreement. When that happens, we’ll share the profits; they will receive a percentage of the software price.”
Published by Israel's Business Arena on 20 November 2000 |
