G-Connect the Giant-Killer

Israeli start-up G-Connect, which competes with Cisco, Lucent, Nortel, and 3Com, is breaking even this quarter, to everyones astonishment.

The big bonus that ADC got when it acquired Teledata was three subsidiaries, all of which are expected to succeed. Two of them are well known. One, Tdsoft, has developed the worlds leading standard for voice transmission on DSL systems and has submitted a prospectus for capital raising on Nasdaq. The second, MIND CTI is a billing company that was issued on Nasdaq a few weeks ago. The third, G-Connect, is less well known, but no less interesting. The company is managed by Joseph Lehmann, who was Teledata VP for business development and marketing.

Lehman, 46, married with seven children, served in Israel Defense Forces unit 8200. He worked in Elscint and Teledata, and founded G-Connect in 1997 jointly with fellow unit 8200 graduate Erez Kedem. ADC currently holds 62% of G-Connect, while the Genesis fund holds 20%, and the rest is held by the founders and employees.

A few weeks ago, G-Connect signed an MOU for the sale of $9.6 million in Internet Access equipment over one year to Gigabell, a large German Internet telephony provider, which also operates in other European countries.

G-Connect first announced its product, a local telephone call system for Internet service providers (ISPs) called the POPgate Internet Access Switch, at the Geneva Telecom 99 exhibition in October 1999. The system became commercially available in January, and since then the company has had $3 million in sales.

During the past year, G-Connect negotiated with various investors and venture capital funds to raise $12 million, but finally decided to call off the financing round. Lehmann says that the company has no financing problems, and if it succeeds in continuing its present sales pace, submission of its prospectus in 2001 for an IPO on Nasdaq is feasible.

Lehmann makes no secret of his pride in the new agreement signed by G-Connect: This is a Israeli record for a three and a half year old company. Its not merely a CEOs presentation; its an accomplished fact. Since November 1, the beginning of G-Connects new year, we have supplied $5 million in products. During the last quarter, which ended July 31, we already broke even. All around us, everyone is losing huge amounts, and we are selling and breaking even.

Globes: It sounds like you are from another planet.

Joseph Lehmann: We didnt adopt the model of raising money on the stock exchange, wasting it quickly, and then coming back for more. Today, companies that lose money dont always manage to raise capital. We planned not to lose much. Another reason we have broken even is the assistance from the Chief Scientist. That has had a dramatic effect.

Tell me about your product, and why you think it is so successful.

The company manufactures in the heart of the action, not in a niche. It is a very important Internet product, like a switchboard. You have to compete with the largest companies in the world.

Isnt this also different from what most companies do?

Most start-ups try to attack in fields where there is no competition. We came in on center stage, claiming that we are the best.

It looks like weve reached a stage where discussion about start-up philosophy are taking place. How do you fit into this scene?

It feels very nice to build a successful model. It is very stressful being in a start-up. It begins under difficult conditions. You have to set up the team, the development, the marketing.

Who are your competitors?

We have four competitors: Lucent, Cisco, Nortel, and 3Com. First we built technology infrastructure, then we developed two things that no one else has. We got the Gigabell order because we have a unique application in the application layer above the infrastructure layer. We have built a program that enables customers to beat their competition.

What do you mean?

An ISP wants more subscribers and higher revenue. The software facilitates differentiated services the sale of different products to different customers. You can manage customers according to bandwidth or type of web site. The software allows an employer to limit company employees Internet access to work needs. This layer was first presented at the February CeBIT exhibition in Hannover, and has been commercially available for six months. As far as we are concerned, that was only the beginning. We are working on two additional projects.

Give us an example.

Take e-commerce. That is an application by which you enter a store, and from the moment of entry until the moment you leave, the store pays the surfing cost to the ISP. You look around the store at someone elses expense.

You sound very satisfied with yourself.

Look, we entered a very technological, rapidly growing field, and we are nevertheless apply to it a model that doesnt involve huge losses.

And it worked from the start?

We had a hard time at first. Many places just threw us out. They feared competition with the giant companies. Today, however, more and more companies are competing in the mainstream, not just in niches. We intend to position ourselves very centrally in Europe, because all the competitors are from the US. In Europe we are on an equal footing. Although ADC could have helped us in the US, we prefer to do it ourselves.

Meanwhile, you are ignoring the US market. For example, you had no presentation at the SuperCOMM 2000 exhibition in Atlanta last June.

Our strategy utilizes an indirect approach. First of all, we will establish ourselves in Europe; the US will come later. US entry is good for niches or OEM. With OEM, however, you have no connection with the customers. Successful Israeli companies have gone the same way first of all consolidation in international markets, then afterwards the US. Look at Gilat, ECI, RAD.

How involved is ADC in the G-Connects activity?

ADC is very aware of Teledatas subsidiaries. Their CFO sits on our board.

It appears that ADCs investment in Teledata is a success story.

ADC is very satisfied with its Israeli branch, and is looking for more investments here. It wants Israel to be its international branch. It has great faith in Israeli technologies. It doesnt want just a development center here; it wants a center for penetrating the international market. Nowhere but in Israel does it have operations like this. ADC will enter Europe through Israel.

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