Who determined that issuing on the stock exchange is vital for a company to be valued according to investors' expectations? Anyone who has invested in new companies that held several rounds of financing, or took part in the process on the other side of the fence, is familiar with "the increasing value law", the first law in the physics of setting up a technology company. The principle is: in order to attract new investors, a company's valuation must be raised, and in order to raise a company's valuation, investors must be brought in. If you don't get this wheel of fortune moving, you're not in the game. You have no chance of getting serious investors.
Expand is very successful at the game of increasing its valuation at each financing round, getting a foothold in the most sought after market in the information industry, that is Fortune's top 500 companies, and continuing to raise more capital. The company was founded in early 1999, and in January this year, already held an initial $1.5 million round of financing from a group of investors that included Ophir Holdings, the Cedar fund, and a group of former Memco senior executives, Israel Mezin and Eli Mashiah among them.
In February, the company raised another $4 million, this time at a company value of $16 million. The investors in this round included the original investors, Eurocom, a group of individuals, and investors affiliated with Aurec. Last month, the company's valuation stood at $22 million for a another $3 million round, raised from existing investors and Discount Investments.
How does a tiny company, founded by three 26-27 year olds, not all with formal technological education, manage to grow so rapidly , register a patent and start registration for another four? To raise more than $8 million, employ 50 staff, open offices in the US, and sell initial products to the best of customers?
One possible answer is the company's sector. "We are doing things with data that ECI does with voice," Expand president Marco Talmon explains. Then he gives another explanation, simple yet complicated at one and the same time, and thus perhaps more important: "Our technical background does not come from the Israel Defence Forces' computer and data communications network center, but rather from sitting from birth at a computer, and using the keyboard. Ziv Haparnes has chalked up 15 years' experience in designing software for VLSI chips, and his background includes stints at the IDF center and at Butterfly, which was sold last year to Texas Instruments."
This accurately describes in a nutshell Expand's technological solution too. This data communications company developed a set of customized solutions in one package for improving point-to-point communications.
Expand Networks' patent pending technology has created a "networking paradigm" shift. No longer is the only option for increased throughput and bandwidth the addition of or higher speed circuits. Expand is focused on "bandwidth acceleration" for all communication infrastructures including TI. Frame Relay, VPN, Voice over IP, T-3 and OC3.
Adaptive Acceleration has three main parts: Analyze - an ongoing process that analyzes and learns various attributes of the specific network traffic; Adapt - a continuous process that uses the results of the analyze phase to fine-tune the acceleration "strategy"; and Accelerate - the phase in which the actual process of acceleration is performed. The packet is represented using fewer bits. The adapt phase constantly modifies the parameters used by the accelerate phase, thereby improving the acceleration process.
In effect, the product differentiates between two types of information. Internet communications consist of a mixture of data, and therefore more difficult to speed up. The system speeds up communications by 50-100%. Corporate communications consist of more standard information packages, and are therefore easier to speed up. Here, the system can speed up communications by 100-300%.
Another secret of Expand's success is the box. The system does not require complicated installation. All that is required is a pair of boxes the size of a standard 19" screen priced at $25,000. Take the box out of the wrapping, connect it to the communications line, electricity outlet, switch on, and the accelerator works.
Computer World magazine examined the system and its operation, largely following the response it received from initial customers: Israel's Internet Gold and Texas Instruments of the US. "Our bandwidth requirements on the US-Israel communications channel are growing significantly," said Ofer Amsalem, Internet Gold technology manager. "We installed the Accelerator and within a short time increased communications speed by 150%. Our 2Mbps line actually performs like a 6 Mbps line."
Marco Talmon packed his suitcase a month ago and relocated to New Jersey in the US, to coordinate marketing efforts and position Expand in the key US market. Despite his "innate" knowledge, Talmon managed to become addicted to entrepreneurship and dove deeply into the data communications pool. He holds a bachelor's degree in computer science and management from Tel Aviv University, and served as an officer at a large IDF data communications center. He was also senior software engineer at Qronus Interactive which he joined in 1997, developing advanced data communications applications; he set up Syntex Software for development of Autodesk solutions in 1990; and co-founded Nortex in 1995. A veritable serial entrepreneur.
The background may explain the self-confidence with which he explains the company's aims and strategy. "Expand was set up as a US-Israeli company, with R&D in Israel, and sales, marketing and support in the US." Marketing has only recently been put into operation, and it already has a 20 strong staff.
Published by Israel's Business Arena on November 9, 1999