It is unclear whether the restrained reaction of the holders of the controlling interest in companies, whose values dropped by tens of millions of shekels overnight, is evidence of calm or of tremendous acting ability. In the case of Eshed Robotec general manager and co-owner Rafael Aravot, we have been persuaded that he is simply indifferent to momentary commotion and believes that the force of the company's business potential will in the long run overcome the markets' instability.
Eshed Robotec was the epitome of the recent ups-and-downs of technological shares in the capital markets. From a low of $1 at the end of 1999, the Rosh Ha'ayin-based company's share, which is listed on both the Tel Aviv Stock Exchange and on Nasdaq, shot up by thousands of percents. At its height, the Eshed share was traded at $23, reflecting a company value of $250 million.
Even against a background of the craziness concerning technology shares, it was hard to understand the wildness of Eshed Robotec's shares. The explanation, offered mainly for appearances' sake, was immature high tech activity, following which the company received a notice in the column of renowned analyst Thom Calandra of CBS Market Watch.
The hulabaloo did not last long. By the time the company's owners thought about it and decided that it was better to realize their profits at such a wonderful value after 18 years of activity, it had all vanished. Eshed Robotec did not manage to implement its decision to raise capital on Nasdaq after the market crash struck it with full force. The share is currently traded at $5, reflecting a company value of $55 million.
Eshed Robotec was founded in 1982 by a group of high school friends in Holon, who, like many others, were dreaming at the time of the world of robotics. The disappearance of the dream did not discourage the high school bunch: Rafael Aravot, Haim Schleifer, Arie Kraus, Avinoam Kra-oz, and Attorney Nira Lahav, who were joined by investors Menachem Zenziper and Gideon Missulawin. All of them still hold company shares.
The company is currently advancing in three directions, headed by the traditional activity of robotics development for education and training. Eshed's robots simulate the environment of a computerized automated plant, through which engineering, industrial and management students learn the mysteries of the world of industry. The company raised capital for this activity in 1986 on Wall Street, at a time when, according to Rafael Aravot, at most ten Israeli shares were traded in New York.
"We didn't meet a single one of the draconian criteria required by the Tel Aviv Stock Exchange (TASE), and we needed money. We raised money in a third-rate issue, with underwriters who no longer exist. By dint of tremendous effort, we got $1.5 million", Aravot says.
In 1991, the company was also listed for trading on the TASE, and raised $6 million for continued financing of an activity at the mercy of the educational policies of governments around the world. Over the years, the field went through ups and downs, due to cuts in education budgets, particularly in the US.
Eshed Robotec understood that this would not bring growth and prosperity, and turned to new horizons. Starting with the company's training robots, and basing itself on electrically engined control of movement, the company developed technology for controlling electric industrial machinery, its second field of activity. The advantage of this technology is a shortening of the time required for control and reducing the number of errors.
Aravot estimates the automated manufacturing technologies market at $2-3 billion. Eshed made its big advance in this market when it set up YET jointly with Yaskawa of Japan. At the beginning of the year, an $10 million order came from the Japanese. Eshed Robotec's income from electrical machinery control, which was $13.6 million in 1999, will this year equal the income from its educational activity, and is expected to exceed that income next year.
The company's third field of activity is investing in start-up companies. With perfect timing, the company announced a $175,000 investment in an Internet venture for replacing merchandise (music, books, and other computer files), and the founding of another company, MemCall, which deals in information search technology.
"Globes": Is technology investment a matter of fashion for you?
Rafael Aravot: "There's nothing wrong with fashionable clothing, but the question is what lies under the clothes. During all its years of activity, Eshed Robotec was in the high tech field, and after years of work we applied our technology know-how to industry. MemCall was also set up on the basis of know-how accumulated by the company. We decided to invest only in start-ups operating on the basis of our technology."
How is SwapStation connected to your technology?
"The investment in SwapStation is unconnected to our activities, and was made at the request of a high school friend, Moshe Misgav (owner of construction company A.M.I. Misgav, D.Z.), who invested the same amount that we did."
How much is Eshed Robotec really worth - $13 million or $250 million?
"It's hard for me to answer that. It is very difficult at the moment to determine the value of our holdings in MemCall. The more we advance in developing the company, the more we gradually reduce the uncertainty, but the company may still fall apart. If it succeeds, it will appeal to giant Internet and cellular markets. In three meetings, we succeeded in raising $2 million for MemCall at a company value of $40 million."
And what about SwapStation?
"We believe that barter trade, which was the norm before the era of money, will come back with the shrinking of the world in the Internet era. The subject of swapping is relatively new on the Internet, and if it is successful, our company will be one of the leaders in the field, because of its high level of professionalism. The site is already active now, and we have even begun to see revenues. A rival venture in the US, WebSwap, recently raised $15 million from the Sequoia venture capital fund, which definitely shows the field's potential."
Won't the rules designed to coordinate downloading files from the Internet affect the venture?
"Bringing order to the field will boost barter. Technology exists for erasing music files after they are downloaded from their source, which is ideal for Internet barter transactions. Worldwide adoption of these technologies will contribute a lot to us, but it is important to realize that music is only one product that can be bartered on the Internet.
"Our site will facilitate trade between customers (C2C) and between businesses (B2B). Today you can already find, for example, the watch you want to trade for with the help of a huge bank of all the watch models that have ever been manufactured. The push of a button will release to the Internet an accurate picture of the watch, and the trade will begin."
In what other ventures is Eshed Robotec expected to invest?
"We don't intend to become a venture capital fund or a start-up investment company. At the same time, we have plans to invest in several ventures that are tangential to our activities. There is no reason why the e-learning field, for example, which is still undeveloped worldwide, should not develop. In a few years, I see the academic world focusing on the PC channel, and Eshed Robotec's experience in education and technology can definitely be adapted to the PC. Reality in the communications world has proven that the most important component is the world of content, and we have a foothold in that world in the field of education."
How do you see the company's development in the near future?
"Look, when our share was being traded at under $1, the company's value was less than even than that of our building in Rosh Ha'ayin. The company has great potential. The market in which we are operating with Yaskawa is large, and it has a lot of room for growth. Start-ups have enormous potential, which can go awry. I believe that within two years, the company will be based on a value higher than the peak we reached month ago, and if the potential of the start-ups is realized, we'll go much higher than that."
Published by Israel's Business Arena on May 17, 2000