"We are audacious. We had the nerve to build a company not in order to take a niche but in order to burst into center stage on one of the world's largest markets and change it," says Celletra founder and general manager Dr. Yosef Shapiro. On the local start-up scene, the Yokne'am company is regarded as a sort of deluxe start-up that merely needs to blink for the funds to rush to stand in line to inject money, without demanding a rock bottom valuation.
In case anyone has any doubts, the fact that Celletra was the only Israeli company to be invited to the prestigious Venture 1 conference in California last month, should put an end to them. "I was told to go, so off I went. However, I didn't need to. I arrived with full pockets," says Shapiro, having completed a $6 million fund raising exercise on the eve of his trip. Since his return, he has been "bothered", as he describes it, by leading investment banks.
Founded: June 1997
Product: state-of-the-art architecture for cellular communications base stations.
Market: Manufacturers of base station equipment and cellular operators.
Competition: Spectrian, PowerWave, AML, Sinclair, Pilatron, Andrews, and others.
Ownership: Founders - over 50%; Clalit, Infinity, Gemini and Star Funds.
Published by Israel's Business Arena April 27, 1999
Shapiro reached the status of setting up his own start-up after thirty years' of key roles in Rafael (Israel's Armament Development Authority) and five years at QualComm International, during which time he also established QualComm Israel. His partner, Gideon Argaman, now the company's chief scientist, formerly worked under Shapiro at Rafael, then spent eleven years at Optomic Microwaves.
The market into which Shapiro wants to burst is cellular infrastructure, which is expected to grow exponentially in the next few years. According to predictions, which Shapiro claims are becoming pessimistic, the existing infrastructure will be required to absorb 400 million new subscribers in the next four years.
How will Celletra have a piece of this pie? 80% of the cost of setting up a cellular operators infrastructure, such as Cellcom and Pele-Phone's, stems from the deployment of base stations. These stations are set up on high locations and are responsible for reception and transmission of signals from cellular instruments to the cellular network and back. The stations cover a defined area.
These expensive communications base stations contain many components. A significant group of components is responsible for reception, processing and radio signal transmission (RF).
However, the reception process requires a combination of many components, among them cables, antenna, loudspeakers, filters, and so forth. All these components are manufactured by a wide range of different manufacturers, but built and marketed to cellular operators by fifteen major manufacturers, including Lucent, Motorola, Nortel, Ericsson, Nokia, Alcatel, Siemens and Hyundai.
Celletra appeared on the scene, offering these major companies and their customers, the cellular operators, a new architecture for the base stations' RF section. With the aid of a few smart modular parts, it turns the antenna into a more intelligent product. This is achieved by integrating some of the signal processing elements at the reception and transmission stages.
The result is that the antenna no longer merely relays the signals it receives, but is capable of processing them. These elements are both smaller and modular. Instead of relying on something large, cumbersome, expensive and complicated to assemble and maintain, Celletra offers a more flexible, less expensive station that does not require a qualified astronaut to assemble it, and can be remotely controlled, among other ways via the Internet. Moreover, Shapiro says, if any of the Lego-like parts ceases to function properly, the other parts take over, as back-up, which most likely prevents the entire station from crashing.
Shapiro believes marketing will be relatively easy. Celletra has two types of target customers. One is the group of major base station manufacturers that are few in number (Shapiro: "I only need one to close large contracts and enter the market"). The other is the group of cellular service providers. There are not many. Shapiro says 70% of the market is dominated by a small core of large players. Celletra has just completed field tests for one of these companies.
The company has just signed an agreement with one of the world's largest equipment manufacturers, and has even received an initial, albeit modest, order. Shapiro is careful not to divulge details. The company anticipates orders worth $1.4 million by the end of the year, and completion of tests in six beta sites. It already talks of $11 million in revenues in the year 2000, and $125 million in 2003. Shapiro: "These are the figures after I reviewed them. I insisted on some deductions, despite the optimism my finance manager displayed."
"Globes": Surely the exponential market growth will eventually die down.
Shapiro: "That's true. But you are hinting at this taking place any minute. Another five years of massive growth is first expected, and that's without taking the third generation cellular field into consideration. Some of the third generation innovations will require the splitting of transmission, which makes our solution even more ideal."
How do you intend to penetrate markets saturated with operators that have already deployed their infrastructures?
"We can easily enter existing stations, although it's not always worthwhile. Operators in Israel that have already deployed infrastructures are upgrading networks, both in terms of performance and capacity (in order to serve more users with any given station), and we are negotiating with them."
Shapiro claims that, in the meantime, Celletra faces no real competition. Of course, there are the manufacturers of base stations (Spectarian, PowerWave, AML, Sinclair, Pilatron, etc) but he estimates that it will take one of them two to three years to produce a solution that could threaten Celletra's Arm product.
Celletra started off with funds from its founders. Shapiro and Argaman worked for almost a year without reward, investing $100,000 out of their own pockets. Joining the board was Dr. William Lee, author of books which every cellular engineer keeps at his work desk, and also chief scientist of AirTouch, one of the world's largest cellular companies. Shapiro: "Bill told me he was honored to be on our board of directors. He believes we are a shining star."
Clal's Clalit fund, Omega (now called Infinity), and Gemini - a Clal and foreign investors' fund, participated in the company's initial round of fundraising, totaling $2.25 million,.
Another investment of $6 million was completed a month ago with the same concerns (each one contributed $1 million), and the Star fund, which led with a $3 million investment. This exercise was completed on the eve of the company's trip to the Venture 1 conference.
There are strategic groups that have also shown an interest, or more than that, but Shapiro is not interested. "It's foolish to marry one company at the moment. We have assets I still want to develop. Celletra is the adolescent home of two mature entrepreneurs. I am not interested in size, I'm not seeking profits or an empire for my grandchildren. I'm ready to help them get started, but they should grow independently. I want to enjoy myself. I believe we have plenty of innovations left in us, and that's where the fun lies."
An IPO is part of the fun?
"It's a headache I will have to live with."