Here is another story of an Israeli start-up that tried, and did not really succeed, and is apparently about to be sold to a larger company for far less than previous valuations attached to it. WhiteSmoke Inc., which has developed English grammar and composition correction software, is in talks to be sold for $10-20 million. The identity of the buyer is unknown.
WhiteSmoke almost went public on Nasdaq last year. The company, founded ten years ago by the couple Hilla Ovil-Brenner and Liran Brenner, tried to raise $17 million at a company value of $38 million, but the prevailing market uncertainty (along with poor financial results) forced the company to give up its dream of an IPO.
According to the latest prospectus filed with the US Securities and Exchange Commission (SEC), the Brenners' own 8.6% of WhiteSmoke. If it is sold for $10-20 million, they will make $1.3 million at the most.
WhiteSmoke's largest shareholder is Evolution Venture Capital, with a 16.6% stake. Serial entrepreneur Yair Goldfinger owns 4.1%, which means that if the company is sold, he will make a few hundred thousand dollars.
WhiteSmoke has raised a few million dollars, so the return on investment at a sale of $10-20 million is meager.
The WhiteSmoke Writer software corrects grammar, spelling, and style errors in English business, high-tech, biotech and other texts, and includes a multilingual dictionary. The software is adaptable for different programs. It is designed for native English speakers rather than for learners of the language. The software used to be the company's primary source of revenue, at least initially, but ahead of the planned IPO, the company was earning revenue from its joint search application with Google Inc. (Nasdaq: GOOG).
WhiteSmoke cancelled its IPO in November, and the company found itself in liquidity problems, with just $165,000 in cash. It was forced to seek help, and obtained a $550,000 loan from an undisclosed lenders group. Revenue in January-September 2011 rose to $8.7 million from $3 million in the corresponding period of 2010, mostly driven by revenue from the search application.
Despite the improvement in revenue, WhiteSmoke posted an operating loss of $742,000 in January-September 2011, compared with an operating loss of $876,000 in the corresponding period of 2010, and its net loss rose to $1.7 million from $1.4 million.
So far as is known, WhiteSmoke's faltering activity and its liquidity distress have forced the Brenners to give up. Sources inform ''Globes'' that the Brenners have resigned their positions at the company. WhiteSmoke CFO Itay Meroz took over as CEO from Hilla Ovil-Brenner.
WhiteSmoke's shortage of cash has forced it to fire almost half of its staff, and it now has 30 employees, down from the 55 employees on the eve of its planned IPO. So far as is known, the company's business has improved, but not enough, at least for the Brenners, who are urging its sale.
Published by Globes [online], Israel business news - www.globes-online.com - on July 2, 2012
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