When a start-up company wants to raise money from venture capital funds, it knocks hard on many doors. Sometimes it gets thrown out of the door and comes back through the window. Even when the funds have money looking for investment, the companies still need to prove with graphs and research, with signs and wonders, why they really will fulfill the promise. After all, statistically, the chances are that they will evaporate.
The company that took first place in the Globes "Most promising start up 2007-2008" rankings was spared this Via Dolorosa. If anything, OpTier had the opposite problem: many funds were clamoring, and still are clamoring, to invest in it, and it is highly selective about its investors.
When OpTier co-founder, chairman, and CEO Israel Mazin (47) said at the time of one of the company's fund raising rounds that "we could have raised almost any amount we wanted from any venture capital fund in Israel", it would have been easy to suspect him of vainglory. But the fact is that venture capital funds, and investors in general, love putting their money where there has already been a proven exit. They believe that if a certain group of people has succeeded in the past in growing a company to a value of more than half a billion dollars, it stands a good chance of doing it again. "The Mazin gang" grew Memco to a value of $550 million, when it was sold to Platinum, which itself was sold to CA, in 1999 the biggest exit of that period. Their current start up benefits from that experience, and from the fact that the team is made up of many second timers.
OpTier is estimated to have raised some $53 million up to now. "When we founded the company in 2003, we started it without investors," Mazin says. "It turned out that many investment firms heard about the intention of founding a company even before it happened. Many investors wanted to invest, but I knew Carmel and Pitango from the past, and so I chose them as firms that could give us added value. That's very important when you approach customers, and even helps in closing deals."
Until 2004, Carmel and Pitango were the only participants in fund-raising rounds. That year, US fund Lightspeed joined the group. Last June, in the fourth round, Gemini joined too, and a month later, telecommunications giant Cisco came along with an investment that was not entirely financial, combining strategic cooperation on data network management with a cash injection of $3-5 million. "When you do business in the millions of dollars, who stands behind the company matters to customers. This is a list of good names, people who try to help wherever they can," Mazin says.
The product OpTier has developed enables enterprises to cope with managing performance and loads in decentralized information systems efficiently, taking full advantage of available computing resources. "Even before the company was founded, we saw that the systems on the market were becoming more complicated and were built in a mutli-layered structure," Mazin says. "So, for instance, if you go into your computer to look at your bank account on the Internet, from the moment you execute a transaction it goes through many layers until you receive a response. Response and service time are therefore critical to customers these days, but, because the systems are very convoluted, these times vary. They can vary between a second and a minute.
"It's clear that anyone who has to sit in front of a computer screen and wait for a minute for something to happen after pressing "Enter" will lose patience and switch to a competing company. Our system is able to track all the transactions that take place in real time from beginning to end and to see what isn't working and exactly where time is being wasted. As a result, it's possible to know at any given moment what the level of service is. Most of the other solutions are partial. Mostly, they go into depth only at one stage along the way, they do a deep dive, and then it takes weeks of guesswork to find out in what layer the fault occurred. With our system, it's located immediately." OpTier's main competitors are HP, IBM, and Symantec.
"Globes": What did you do well in founding the company?
Mazin: "Thank to our experience from previous years, we didn't develop a product that might look great but for which the market has no need. We met dozens of customers and we analyzed what they were lacking. This is a critical stage in the process. Our product was born out of the needs of customers banks, insurance companies, industrial companies, and others from all sectors. We met a great many companies to hone the product."
This was Mazin's method when he founded software company Memco. Then too, he met customers to identify the need. But there's a considerable difference: in those days, at he beginning of the 1990s, he met five customers. In founding OpTier, he managed to speak to fifty.
"To my mind, the second outstanding thing that was good in setting up the company was that we built a very strong management team that had worked together for a long time. This gave us the ability to continue working together as the new company took shape," he says.
The OpTier team of 2003 is almost identical to the entrepreneurs of Memco in 1990: Mazin, Ori Mazin, his brother, and Eli Mashiach, who are now consultants to the company, CFO and COO Dov Gal, CTO Amir Alon, chief product officer Yori Lavi (who was not in the Memco group), and EVP marketing and business development Motti Tal. Shortly after the company was founded the management team was joined by EVP global sales Jamie Georgeson, and EVP and general counsel Scott Lenga.
And what did you do less well, or would like to have done differently?
"It's too early for us to analyze. I've no doubt there are some things; when you run forward hard and strong you don't do everything right. But it's too early for us to tell where we made mistakes."
Mazin doesn't delude himself. He knows exactly why there was such high demand to invest in the company. "I can't deny it, it's mainly because we are entrepreneurs who have already done it. But it was a great advantage every financing round we have held in recent years closed very quickly and so we didn't waste too much time. When a company's management sets out to raise money it diverts a lot of their attention. In our case, it was only for short periods."
Why did you bring Cisco in as an investor?
"Cisco opens doors for us very quickly, and from within the company we benefit from assistance. It's good to be one of its portfolio companies, one in which it isn't a financial investor."
Will we perhaps see an acquisition by Cisco one day?
"We haven't talked about that, and that's not our direction. Our aim is to build an independent company that goes it alone. In the future? Anything can happen, not just with Cisco, but that's not what we are aiming at."
On the other hand, Mazin certainly sees another kind of exit ahead -- a Nasdaq IPO. It won't be new territory for him, he's familiar with it from the Memco days, but for the time being he benefits from having the status of CEO of a private company, free from the worry over what every move will do to the share price. His shareholders aren't so much interested in the next quarter as in the general trend.
"An IPO is still a long way off, it won't happen in the next year or year-and-a-half. Not before 2009 for sure, but we see it as part of the life of the company, as part of our growth process. For the time being, the aim is to build a healthy company, and as people with experience with a public company we know that there are advantages to being private. The competitors and the market don't know what my sales are and to whom. Therefore, the more time we have the better, and it's worth making an IPO only when you need money or you want a currency that isn't just cash shares to make acquisitions and expand your portfolio."
Cisco apart, has the company had acquisition offers?
Mazin becomes evasive. "I prefer not to say anything. People are interested in us, in doing all kinds of things with us, and yes, there have been approaches of that sort as well."
OpTier is not keen to disclose financial data. Mazin is prepared to say that its contracts are in the millions of dollars, and that it seeks to expand them all the time. Asked whether there are contracts worth more than $10 million, he replies, "I won't go into details, but we're getting there. Deals like ours are with huge entities that see our product as strategic, at the heart of the enterprise, and as touching every system. So they are willing to pay many millions of dollars."
What's your sales turnover?
"We'll finish the year with higher sales than we planned, we'll be very aggressive. In 2006, our sales were at least four times what they were in the previous year, and our present aim is to at least double sales every year." It is estimated that the company's sales are in the tens of millions of dollars.
What about profitability?
"Here too I can't be specific, but I can share our focus with you. We're currently focusing on growth. Even if we are a little profitable, losing $2 million or earning $10 million is of less interest to us than planning the company's growth. High rates of profitability can come later." We get it. The company makes a small profit.
OpTier's business model is to go back to more and more existing customers, most of them in the US and Europe. "When customers buy from us products that they agree will be at the heart of their systems, they believe in us," Mazin says. "Our intention today is to develop new products by ourselves, and there are also tangential fields that we can get into through acquisitions. Even so, each customer we go back to is a world of its own as far as we are concerned. It has dozens or hundreds of applications, and initially we sell our product only for three or four of them. Deeper penetration of each customer is what brings the large deals. This is what leads to higher valuations as well."
What do you wish for the company?
"That we should continue to build. That we should succeed in building a global company, large and independent. The entire group that came from Memco wants to build something even bigger at OpTier, and believes we can do it."
Published by Globes [online], Israel business news - www.globes.co.il - on October 25, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007