“In 1999, when we were trying to raise finance, we approached venture capital funds. They told us, ‘Look, we believe you’re a good company, and you can reach a value of $50 million and even as much as $200 million, but we deal with companies worth billions.’ So while every Internet dream was raising millions only to crash afterwards, we were left with nothing. I really envied all those who raised $8 million with a piece of paper.”
This story, told by CEO Boaz Grinvald, co-founder and CEO of Shunra Software Ltd., a developer of testing and simulation systems for applications on enterprise networks, says a lot about Israeli venture capital funds (names have been supplied). But most of all, it says a lot about Grinvald himself, who apparently took the failure to raise funds back then really hard. Don’t get me wrong, Shunra did go on to become a success and even raised a respectable sum in a financing round later on. But the way in which Grinvald recalls those days indicates that that this comes from somewhere else. Grinvald has proved his success and all that remains now is to show them.
Grinvald and his co-founders, general manager Moshe Haddif and Benny Daon, were unable to raise finance, and in 1999, a year and half after they founded Shunra, the company became profitable. “We founded our company in a garage. We worked from home to begin with, but the kids wouldn’t let me work so I switched to working out of my partners’ homes,” recalls Grinvald. “At the beginning our sales were so low that when we hired a sales representative in the US to manage our global sales, I ended up selling more in Israel than the rest of the world together. We simply grew slowly, organically, and we actually have done pretty well that way.”
Grinvald is a rare bird in an industry which likes to celebrate both financial and technological success. This is the first time he has officially talked to the Israeli press, and one of the rare occasions on which Shunra has initiated an appearance in the media. As mentioned earlier, its beginnings were a long way from venture capital finance and the start-up mindset that took root in Israel during the 1990s.
”Back then there were often instances that to anyone living from hand to mouth looked like total madness,” recalls Grinvald. “We once made a sales pitch to a company with swank offices. We stood there in the conference room between the table tennis table and the billiard table. You felt like a complete idiot. I imagine that if we had managed to raise money, the investors would have forced us to do the same thing. Looking back, our lack of success saved the company, since we didn’t have any money and had to set up a real business as quickly as possible and start turning a profit. I am convinced that if we had succeeded in raising money we wouldn’t have survived.”
Grinvald admits that Shunra subsequently managed to persuade a venture capital fund to invest in it, but finally abandoned the idea. “We had an agreement for $1 million and then we concluded that we didn’t need it anymore. They wanted to take legal action to force us to take the money but we held our ground and were lucky.” Shunra eventually raised $11.2 million in 2004 from Carmel Ventures I and US venture capital fund Insight Ventures. Despite already being fairly successful Grinvald admits that after the round, “we managed to sleep better.”
"Sometimes the multitude of opportunities makes our heads hurt”
Shunra specializes in testing the performance of network applications. The company managed to discover a virtually empty niche and quickly became the leader in the field. Shunra’s Virtual Enterprise (VE) technology lets enterprises with web-based applications know how they will work by simulating characteristics such as access speed, workload capacity, potential user volume and others. The product itself is a combination of hardware and software and is situated, like a switch or router, in the enterprise’s “laboratory environment - between its data center and applications servers and the network.
Shunra has succeeded in turning every market development into an opportunity and as a result it has found itself with an interesting problem. “We offer solutions to customers in a number of different categories and we definitely need to decide what to do,” says Grinvald. “There are lot of trends that are driving our technology forward and sometimes the multitude of opportunities makes our heads hurt.
"Our solution is very horizontal. We see high-tech companies that buy our products along with the IT and also the development. We have customers who are infrastructure or network specialists with a diverse range of applications. For example, we can sell to a Cisco laboratory specializing in testing VoIP applications, and at the same time, we can also sell to a bank that needs to test the Cisco-made application in its system.”
Shunra’s business opportunities include some promising collaborations. A number of big computer and telecommunications systems manufacturers have identified the company as a sales catalyst and have provided their sales representatives with Shunra’s products. Grinvald names one example. “Oracle’s sales team name Shunra as an official system testing partner when they sell the company’s application servers. In this manner Oracle, or Microsoft, can demonstrate ideas that are totally amorphous but are still central to the IT world, such as scalability (the system’s response to real-time increases in user numbers), or operational flexibility (the system’s response following the addition of modules or variables).”
Grinvald expresses his displeasure at the IT market’s view of application testing. “An enormous market for network management has developed. Its value is ridiculous, because it shows how an application actually works in practice. They don’t connect sensors to finished products in any other engineering industry. IT, which is a young and rapidly changing industry, lacked our technology, and people got used to the idea that there was no way of knowing beforehand, and that the only way of finding out whether a technology worked or not was to go ahead and roll it out.”
Shunra’s technology is closely related to the testing and implementation businesses. There are a number of software products in the infrastructure market that perform similar tasks, although not with the same precision. One producer of such software is Mercury Interactive Corp. (Pink Sheets:MERQE), which was recently acquired by Hewlett Packard (NYSE: HPQ).
Globes: Is there any chance that you will operate closer to Mercury, or another vendor in this field?
Grinvald:”We have been looking into the Mercury option. VoIP is also very popular today; look at the number of companies which focus on VoIP technologies and its testing systems. On the other hand, we are also collaborating with a company that does testing for Data Center applications and SOX compliance, so we’re being pulled in all directions.”
"The market’s thinking is simply warped”
Shunra is now a successful company. The company has annual sales of $25 million and, according to Grinvald, has had year-on-year growth of 50%. It ended 2005 with a profit.
Shunra recently launched an adaptation for cellular environments. Do you consider this, or wireless environment solutions, as a growth engine?
”Wireless is a developing field, and we have tailored a new version for cellular access suppliers. The basic technology also supports load capacity on wireless devices, and we have customers who use the system to test wireless environments.”
As for Shunra’s overall technological strategy, Grinvald says, “We are currently aiming to separate our product lines and focus each one on a different type of user. Until now we sold the same product to everyone. We want to sell different products to the various development, infrastructure and network management environments. Additionally, we also want to offer a suite of products that will help manage application performance from the development stage onwards.”
Shunra says its customers include cellular network providers as well cellular applications and computer games manufacturers (“Sony does not launch an online game without our product testing it first”), the BBC for simulation of satellite broadcasting, and e-commerce websites that test multi-user access of its services.
You are operating in a market that has quite a few threats. You will need money if you want to keep moving fast.
”We will need to raise more money at some point but we don’t need any present. We will certainly consider any opportunity that comes our way. We are looking for strategic partners because of the size of the market.”
What about an acquisition or business partnership?
”I won’t say upfront which offers we will or will not look at, certainly not after the lesson we learned with the funds. I won’t say that we’re worth hundreds of millions or billions. Building testing products for applications is in our genes, and that’s what we focus on. We’ll be happy to consider any good offer for an acquisition or strategic partnership.
”As for business partnerships, we are constantly working to strengthen our ties with companies, like Computer Associates, Mercury, HP Borland, that have solutions which interface with one another. Our view is that even if it doesn’t result in an exit, it will educate the market. This technology has an amazing variety of applications. We come to companies which tell us they have a problem in running a certain application, and we can solve the problem for them. On second thought, what’s amazing is that some of these companies don’t even know that we exist.”
Perhaps what’s amazing is that you have done nothing about it
”You have to understand that we are operating in a market that educates people to think that the application has to be up and running and once that happens you do whatever you can to make sure everything will be OK. For example, BMC Software has a commercial showing people standing in a queue and then disappearing. The tagline reads, “We can let you know when people disappear.” This sounds ridiculous. It trains the market to think that the best solution possible is one that lets you know when there’s a problem. The market’s thinking is simply warped. You need to know that there is chance that something might be wrong with your system before you roll it out and that’s what we do.”
Have you begun to think about an IPO?
”We are aiming for this but it will take a bit longer. This does not mean that we will rule out any other form of collaboration but we are building the company in a manner that will ensure that if all goes well, we will able to float it.”
"We were lucky”
Shunra’s problem actually originates elsewhere - its ability to define the market and run forward in the right niche. The company defines the niche in which it operates as ‘business production and readiness,’ a name that means absolutely nothing to anyone who doesn’t work for the company, or is not one of its customers. The market is so ill-defined that even technology analysts (at Gartner, for example) don’t know it. “When we talk to analysts, they understand what it’s all about but haven’t yet defined it,” says Grinvald.
He estimates the existing testing market to be worth billions of dollars. The big question is why the infrastructure giants in this area of technology have still not identified the need to enter it. “We were lucky,” says Grinvald, and is quick to knock on his desk three times. “So far we have managed to evade these companies’ radar but as we get larger, someone will eventually notice us. It may well be that they have not spotted the niche because it is not yet profitable enough.”
To give an example, Shunra’s product can record user and network behavior, and in this manner it can help detect faults. This application brings to mind a number of moves that recently took place in the enterprise resource management market, such as the acquisition of SMARTS by EMC Corporation (NYSE: EMC), and the acquisition of Israel’s Identify Software by BMC.
For the time being, Shunra is still managing to exist alongside these companies and do everything, although it is highly probable that in the near future, one of the giants will notice the company and either swallow it up or trample on it. Grinvald and his colleagues will need all the creativity, tenacity, and persistence that they showed when they first started out, in order to break through this glass ceiling and move forward.
Published by Globes [online], Israel business news - www.globes.co.il - on September 7, 2006
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