When entering IncrediMail Ltd.’s (Nasdaq:MAIL) office in Textile House in Tel Aviv (yes, Textile House), the first thing one notices are two colorful notice boards. On the right-hand notice board next to the door (on which, by the way, hangs a poster of one of the company’s animated characters) are posted clips from Israeli and foreign newspapers that mentioned the company before it went public. They begin with a small table rating companies in the sector and end with a full-page spread about the company.
On the other notice board are pinned newspaper reports about the company since it filed its first prospectus with the US Securities and Exchange Commission (SEC), alongside greeting cards from friends and partners sent to IncrediMail’s co-founders, CEO Yaron Adler and chief product officer Ofer Adler, who are cousins.
“Yaron and Ofer, congratulations on the successful IPO,” reads one flower-decorated card. “Yaron and Ofer, you did it. Congratulations” reads another, and so on. There are few Israeli companies whose lobby has two notice boards covering the company’s activities as seen through the eyes of the press. Today, there are also few Israeli public companies, if any, that define their business in one word - “fun”.
IncrediMail is an exception in this way. The walls of the company’s small offices are decorated with posters of animated characters created by the company, such as a snail and duck, and the colorful and relaxed atmosphere reflect the founders’ world view. “Once, we took care to use the word ‘experience’ to describe the purpose of the company’s activities,” says Yaron Adler in his first interview since the IPO. “We recently discovered that the word ‘fun’ better describes the goal, and we prefer using it.”
IncrediMail develops e-mail software that creates an out of the ordinary experience for users. If you want to receive an e-mail alert in the shape of an animated bow-tied butler who says, “You have mail, sir”, then IncrediMail’s software can give you the pleasure.
Alternatively, if you want to create your own writing paper, personalized signature, or merely express your feelings with different Smiley faces, all you have to do is download the company’s free software.
The bow-tied butler and dog holding your letters in its mouth helped IncrediMail become listed on the Nasdaq SmallCap market at the end of January 2006. The company raised $18.8 million at a company value of $70 million. It is now traded at a market cap of $73 million.
“This isn’t simply fun,” says Ofer Adler. “This is a need to create an emotional dimension in textual communications, and send something beyond information. When you send an e-mail to someone, you can’t make a face expressing your mood. This is what the Smiley faces and the slew of animated characters are meant for; they can help send a message of laughter, sadness, or simply a bad mood.”
“Globes”: I guess this is part of the process whereby most people now prefer communicating via e-mail, rather than face-to-face or by telephone?
Ofer Adler: “Exactly. A large part of daily communications is now done by e-mail. IncrediMail’s software takes such communications to another level, to include emotion in the message. There are people satisfied with text, which is fine, but there are others who want to express emotions when writing an e-mail. It’s weird to write, “I’m laughing now’. It doesn’t sound good. It’s much easier to put a Smiley face or add a sunrise as a backdrop to the e-mail.”
Family cooperation between cousins Yaron and Ofer Adler began shortly after Yaron left Tecnomatix Technologies (now a subsidiary of UGS Corp.) Before Tecnomatix, he worked for a year at Intel (Nasdaq:INTC) as a software engineer. Between Tecnomatix and IncrediMail, he was a consultant for start-ups. Yaron and Ofer Adler raised $270,000 in initial capital in late 1999.
“We were very lucky,” says Ofer Adler. “We approached the market at the height of the dot.com boom, when people were hungry for innovation. We consulted two attorneys, one of whom still advises IncrediMail, and both invested in us. We added a couple more friends, and that’s how we closed our first financing round.”
Yaron prefers to call the process “amazing”. “Within a week, we raised $270,000 with a presentation that included maybe two or three pictures. A few months later, in April 2000, at the height of the bubble, we raised $3 million. We haven’t raised money since.”
Yaron continues, “It’s amazing how little we knew, especially compared with the know-how of people who now seek our advice.”
Yaron’s comment reminds Ofer of a conversation he recently had with one of the attorneys who initially invested in IncrediMail. “One of them recently asked me whether I would have invested in a company with two guys like you and me. It seems to me that the answer would have been, ‘No’,” he says with a smile.
Luck seems to have played quite a big role.
Ofer Adler: “Absolutely.”
Yaron Adler: “Besides luck, I think that one factor behind the company’s success is the different attitudes of Ofer and me. IncrediMail is a combination of our approaches. This combination was the magic that worked.”
How did you survive when the bubble burst?
Yaron Adler: “In general, when you raise money for a dot.com, a lot of thought and a lot of rationalization takes place. When the bubble burst, we realized we wouldn’t be able to raise more money. We returned to our original presentation and the rationale on which it was based, and applied it.”
Yaron Adler says the magic was quickly translated into profits and cash in the till. Although IncrediMail lost $3.2 million in its first two years of business in 2000-01, revenue grew to $4.1 million in 2002, and the company posted a profit of $1.3 million. Revenue rose to $6.2 million in 2004, and the company posted a profit of $2.8 million. The company posted a profit of $542,000 on $5.3 million revenue in January-September 2005, and the company’s cash flow totaled $2.9 million at the end of September.
When did you begin thinking about going public?
Yaron Adler: “We tried our luck on London’s Alternative Investment Market (AIM) in 2004. We reached a very advanced stage, when a company made a large offer to buy us. We suspended the flotation process when we got the offer, but the acquisition ultimately did not take place. In retrospect, we’re very pleased about that.”
What went wrong?
“Put simply, incompatibility. It took us a long time to realize the parties were incompatible. At the time, we really wanted to be bought, which was why we called off the flotation in London. Although the acquisition ultimately didn’t take place, it was a pretty good lesson. In January 2005, we examined where we should go, London or Nasdaq. It wasn’t an easy decision, because we’d invested $500,000 in the flotation process in London. We finally concluded that Nasdaq was the natural place for us, and initiated a process that lasted for 11 months.”
Were there difficult moments?
“It was a quite long and exhausting process, but our experience in London helped us be more prepared for the process on Nasdaq. All in all, it wasn’t an unpleasant process, and the IPO went smoothly.”
IncrediMail was floated at $7.50 per share, $0.50 below the upper threshold of the price range.
Were you surprised by the IPO’s success?
“I can’t say that we were surprised by the success. Without getting into superstition, I think there were signs, from the attempted IPO in London through the acquisition offer, indicating the success of the IPO on Nasdaq.”
Your underwriter, the Maxim Group, is unknown in Israel.
“It certainly wasn’t known at the time. Its only link with Israeli companies was the flotation of Answers Corporation (Nasdaq:ANSW) (formerly Gurunet). IncrediMail is a SmallCap company, and during our road show, some people went so far as to say that we were a MicroCap, or even NanoCap. Maxim Group is considered a leading player in the SmallCap niche. It is the Merrill Lynch of SmallCap, and I tip my hat to them.
“An IPO of almost $20 million isn’t something that a good underwriter can close on its own. We insisted on holding a lengthy road show, including in Israel, in order to create a global profile for the company. We spent a day or two in Israel, a day in Zurich, one in Stockholm, one in London, two days in New York, a day each in San Francisco, Milwaukee and Chicago, a week of rest, following by a day in Connecticut and two more days in New York. It wasn’t easy, and Maxim Group was with us throughout.”
Do you monitor your share price?
Yaron Adler: “A lot less than people think. We’re not addicted to the share price, but we look when we have to.”
Ofer Adler: “Truthfully, no, not really. Every few days, I glance at what the share is doing, but no more than that.”
Yaron Adler owns 16.2% of IncrediMail, worth about $12 million, and Ofer Adler owns 20.3%, worth about $15 million. Yaron has an option to sell a block of shares worth $1.2 million, and Ofer has an option to sell $1.5 million. The options expire in two weeks.
Has your wealth, even if it’s on paper, changed you in any way?
Yaron Adler, answering on behalf of Ofer as well: “No, not really. It might sound funny, but we’re both modest people.”
Why funny?
“Because, in my opinion, the goal of most entrepreneurs is to make millions. Neither I nor Ofer dream of becoming Shari Arison. All in all, I think we’re quite a success story, especially because we raised only $3.3 million before we went public.” Yaron Adler doesn’t miss a chance to compliment the company he heads.
“That said, there’s one thing we’ve completely failed to do, and that’s branding. We have almost 60 million users worldwide who love us, but no one else has heard of us. The reason is that we always relied on viral marketing, which is very cost effective, but does little else.
“Therefore, one of our main goals now is to boost awareness of the company’s products, and this was one reason we chose a public offering rather than a private placement. We’re now in a funny situation in which “PC Magazine” rates the best consumer e-mail client, and we’re not even in the ratings. We want to be included in its next ratings.”
Published by Globes [online], Israel business news - www.globes.co.il - on March 6, 2006