It would be good a movie material. The saga of what was called Summit Design in the mid-1990s begins with the founding of a start-up financed by high quality funds, such as Star Ventures and Jerusalem Venture Partners, which later sold its share in the company for $180 million. The story continues with a Nasdaq IPO, and a share price that never exceeded $15; the acquisition of Simulation Technologies for $30 million; a merger with Orcad; and another merger with a large private US company. Then the Israeli founders leave the company and found a new start-up in the teeth of the severe high-tech crisis, with almost no external financing.
Today, 18 months after the new start-up was founded, Summit Design (or a clone of it, also named Summit Design) is back in the thick of things. The company had $13 million in revenue in 2003 and earned a profit. Management is again thinking about a Nasdaq issue. Hard to believe.
Summit Design marketing director Rami Rachamim, who was part of all the company’s incarnations, admits that, from the outside, it resembles a movie, “but when you’re on the inside, you just go from one stage to the next.”
Summit Design specializes in heavy computer aided electronic design automation (EDA) technology. This software enables computers to design any electronic device: computers, cameras, and telephones. Summit Design deals in the logic and functionality of developed products. Its software makes it possible to check the design at early stages with the help of computer simulation. Rachamim says that outside of Verisity (Nasdaq: VRST), there are few companies in this field, which is set to expand into new areas, such as military and auto industry applications.
The company’s ups and downs are not related to its technology; the Israeli founders, who have not previously gained exposure, are responsible. Summit Design was founded in 1994 as a result of a merger between SEE Technologies and US company TSSI. The merged company raised $127 million on Nasdaq in 1996 at a company value of $150 million. It merged in 2001 with Viewlogic Systems, a private company, and changed its name to Innoveda. The company’s market cap reached a peak of $250 million. In April 2002, the Israeli founders bought the Innoveda division in question for less than $5 million, assuming all its commitments to customers. Today, it is once again a private start-up.
”The risk is worthwhile”
Rachamim remembers, “We were a division within Innoveda, a large company, which was a merger of several companies. After six months, we decided that we wanted to separate. We thought we’d be more successful on our own. It’s hard to develop advanced technology in a large company. It’s complicated, and almost impossible. We made our decision in full cooperation with Innoveda. Our departure was by mutual consent.”
”Globes”: Who else was in the group that left?
Rachamim: ”Summit Design president and CEO Guy Moshe; two development managers, Ilana Achimeir and Amir Schreiber, myself, and a group of about 40 employees. We decided it was better to work by ourselves; we’d have a better chance. It was a calculated risk. We did it at the worst point of the crisis, when no one was buying or investing in new companies.”
Rachamim adds that the seceding group had no sales department. They made their daring step through Divestiture Growth Capital (DivestCap), a private US investment company, which financed the initial stages of the move. “We decided to recruit investors, in order to avoid assuming all the risk by ourselves. In retrospect, we could have done it without financing, because the company rapidly became profitable,” Rachamim explains.
How did you start all over again?
”We started building a sales department, because the technology was more or less ready. In addition, we based ourselves on a group of customers from whom we’d gotten positive signals about our future products. We set up sales departments in Europe and the US, and we worked with distributors. Today, our sales apparatus includes twelve people in Japan, twelve in the US, five in Europe, and one in China. Starting during the crisis enable us to focus on our technology, because there was no one to sell to. The minute we got a nibble, we were ready, and we took full advantage of it. It will take our competitors a long time to catch up with us. There was an element of calculated risk, which has unquestionably paid off, as of now.”
The crisis years
Rachamim says that the EDA market, estimated at $3.5 billion, serves an industry with a turnover in the tens of billions of dollars. EDA is set to explode, with rising demand in the auto industry and internal security. He adds that the business models changed during the crisis. “We used to sell perpetual user licenses, plus an annual fee for support and consultation. Now we sell licenses for limited periods, usually one year. That enables us to resell licenses, and sales have picked up.”
Rachamim asserts that Summit Design’s field suffers from poor public relations. “I think that Israel can lead this field, which will one day be essential for planning any electronic product, from cars to mobile phones. We have experienced personnel and superb technologies, and entrepreneurs are now going to start companies.”
The figures speak for themselves. Summit Design’s $6 million in sales in 2002 grew to $13 million in 2003, with $18 million projected for 2004. Rachamim says that if everything goes as planned, the company will certainly consider a Nasdaq issue.
Aren’t you fed up with Nasdaq?
”It’s true that taking a company public isn’t easy. It requires large resources to keep the investors happy and the share price high. On the other hand, there are obvious advantages. We believe that every company should desire to become a public company - the largest in its field and to raise capital on the stock exchange. Acquisition is another possibility, and an easier one. Acquisition prices are usually lower than the capital that you can raise on stock exchanges.”
Are you going to raise private capital?
”We’re thinking about it. The company makes a profit, but in order to reach the next level, we may raise capital for expanding our sales department. We don’t need capital for our current operations. As I said, we’re examining all our options.”
Published by Globes [online] - www.globes.co.il - on February 16, 2004