Reports of the death of the Internet have been greatly exaggerated, as Israel start-up Zend Technologies demonstrates. The company’s founders helped develop the new programming language PHP (Hypertext Preprocessor), and Zend sells the main component needed for programming. PHP is used to develop web-based applications. The backbone of PHP is a Zend engine, which has been installed at over 12 million sites and Internet applications. Zend has reached profitability, with 2003 sales estimated at a few million dollars.
Zend recently completed a $6 million financing round from venture capital fund Index Ventures, together with previous investors Walden Israel and SFK Technologies. Index Ventures has previously invested in Israeli companies FilesX, BeamExpress, and VCON Telecommunications (Nouveau Marche: VCON ). Sources close to Zend said that the financing round had not been closed, and would be increased by $2-3 million from US funds expressing interest in the company. Zend has raised $12 million to date. It was founded by CTO Zeev Suraski, VP technology Andi Gutmans, and president and CEO Doron Gerstel.
Gerstel says that Zend’s product covers the main essential components surrounding the development language. Zend’s engine is needed to run the language. “We founded the company in early 2000. Zeev and Andi were actively involved in the development code, and sat on the steering committee that wrote the PHP code. They later constructed the engine for the language, without which PHP cannot be run. The software complements the language; millions of websites use this engine.”
”Globes”: What do people do with this language?
Gerstel: ”They write applications for open code: Linux and Apache. For example, Lufthansa’s global reservation system is written using this technology. Electronic Arts (Nasdaq: ERTS), a large computer games company, uses the language, as does Boeing’s (NYSE: BA) supplier management system. It was used in Israel to write Babylon and ICQ. We’re the only company specializing in applications written in PHP, because we developed the engine.”
If the code is open, how long will you be able to preserve your status?
”It’s true that everyone can see the code, but customers, especially large enterprises, prefer to go to the “manufacturer”, who knows how to meet their requirements.” Gerstel stresses that the company achieved its successes with the Internet model and development of open code with very limited capital. “Up until the end of 2003, we had raised only $5 million, and we finished the year with a positive cash flow. The company made sales within 30 months of its founding,” he points out.
How will you use the money from your still-open financing round?
”The capital-raising round is designed to enable us to provide a quick solution for a large number of potential customers in the US. We realized that we had to expand our connections and presence in the US. We recently signed two significant cooperation agreements with tier-1 software houses that require us to have a presence in the US. That’s why we raised money from foreign investors. We’re looking for added value from US investors for the US market. We decided to hold the round in two parts. The first part was the $6 million we raised from Index Ventures, and we’ve opened another window to additional investors. We feel we’re in a good position to raise money.” Gerstel adds that Zend hopes to recruit a strategic investor in the second part of the financing round.
Where are you headed?
”We’re marathon runners. Nothing is happening quickly; nothing will happen tomorrow morning. We’re riding the PHP wave. Wherever it goes, Zend, the company identified with it, will be there. That’s why, in contrast to most young start-ups, we have an active office in Japan.”
That sounds very optimistic, when only a year ago, Internet companies were the untouchables of high tech.
”First of all, being an Internet company enables us to spend less on marketing and sales. I think that everyone realizes that the Internet has changed the rules of the game; it’s everywhere. Despite everything, the Internet has created a commercial platform that enables young and beginning players without resources to reach niches directly and very effectively. It is affecting large companies, as well as small ventures. Look at what happened to Dell Computer (Nasdaq: DELL), which no longer maintains an inventory; it now makes computers to order. Look at what happened in tourism and banking. The revolution is only beginning. The only problem was that people thought they could make money with a click of their mice. Everyone now realizes that you have to bring people value in order to get them to pay you. Companies invested a lot of money, but few used to spend time on changing their model to enable them to make money. That vanished with the boom. Internet today is moving towards commerce and services. I feel proud to be a part of it.”
Published by Globes [online] - www.globes.co.il - on March 24, 2004