Kagoor’s playing field reinforcements

Kagoor Networks is the sort of company venture capital funds look for. They even have a definition for such companies: “Chronicle of a success foretold”, due to the resume of the company’s founders. In Kagoor’s case, this means graduates of the famous Israel Defense Forces 8-200 unit with business experience (three 30- something): CEO Ofer Kahane, VP R&D Shai Mohaban, and VP, business development Itzhik Parnafes. Kahane set up a start-up that developed VoIP technology which was merged into VocalTec, where he served as VP development. Mohaban and Parnafes had worked at Class Data, later acquired by Cisco in its first deal involving an Israeli company.

The trio quietly built up a 40-staff company from zero, starting in February 2000, 35 of whom work in the R&D facility in Herzliya. They raised capital solely from top-tier US funds and investors.

The recipe has so far proven itself. Kangoor’s founders chose not to accept investments from Israeli investors and as compensation, were invested in by well-known investors. The seed round included several angels, the most famous being communications guru Raj Singh. In the latest just completed financing round, ComVentures, which invested in Chromatis, and Vantagepoint joined in. In addition, former Cisco CTO Ed Kozel invested and joined the team as strategic development manager. The company raised $18 million in the latest round, at a company value of $60 million, after money. The money is designed for the completion of the beta stage and a number of potential overseas customers, including some of the best-known names in the telecom world, are waiting for the product.

The fact that Kozel joined as an investor is a fitting anecdote to the way the silicon world’s social networks operate. ComVentures’ fund managers wanted to examine the business potential of Kangoor’s technology and sent it for an assessment to none other than Ed Kozel. Kahane says that Kozel was so impressed with the company and the entrepreneurs that he was not content with merely warmly recommending it, but produced a personal check of his own.

The Kagoor team is trying to navigate the company’s path quietly, almost secretly. In fact, even the comprehensive review Kahane agreed to provide about the technology still leaves some enigmas. “Our product is aimed at enabling IP network telephony service providers to manage traffic much more effectively, which at the moment is deficient, due to the IP and VoIP immaturity. We do not manage applications but deal in the more basic level of voice services, unrelated to the type of application used at the upper levels of the network.

“Our experience shows that IP voice traffic does not succeed in reaching the quality of existing voice networks. VoIP technology appears to have gaps in the lower layers (1-3) of the network, which prevents smooth transmission of voice over IP. We want to solve these problems so that the quality will be similar to the traditional telephony world. When we achieve this, the traditional telephone network will go into retirement. Our solution comprises hardware and software, without any relation to the voice gateway on the network. It makes no difference whether it’s Cisco’s or VocalTec’s. We solve the problem by placing our box, both in the center and the edges of the network.”

Kahane says that the merger between the start-up he founded and VocalTec, positioned the latter as the world leader in VoIP.

“Globes”: What has this experience enabled you to bring to Kagoor?

Kahane: “A great deal. It was good training for me to see how a market is created from nothing, develops and reaches maturity. We applied some of the lessons I learned in Kangoor, among other things, that we are in a far more mature market than the one VocalTec was directed at. It makes it easier for us to navigate and recognize the competition in the market. We hope the niche we are seeking will really grow into a considerable market share. We’re trying to identify all the cracks in the application of VoIP and create solutions for a demand.”

How do you succeed in managing a company when the entrepreneurs all work in the US and the development team is in Israel, particularly in these stormy times?

”On the practical level, all three of us spend a great deal of time in Israel and Shai has been in the country this past month. The business front is in the US and it is therefore vital to build marketing and sales there, the business core, not by remote control from Israel, but in the US. Thanks to the fact that we all have technical backgrounds and business experience, we can jettison between Israel and the US, while simultaneously attend to the technological and business side of operations. We are constantly amazed at the achievements of the R&D team in Israel. We’ve already built a box in the short time the company has existed and it is being tested by our first customer.”

Your resumes are impressive, but how did you succeed in recruiting such top-tier investors at such an early stage?

”The initial investment was made with the usual parameters – who are the entrepreneurs, the size of the potential market and the quality of the technology, in that order. I assume the main reason, however, is the assessment we and the investors had that we are facing a gigantic market. The dream of VoIP transmission can be realized with our technology. Since it appears that most future networks will work on IP and people will want to continue to talk to one another, the result is obvious – the potential market is gigantic.”

How did Raj Singh reach you, or did you reach him?

”This investment came via personal connections we cultivated over the years in Silicon Valley. We had not met Raj Singh. He came through Gur Shomron, an angel in many companies. There was immediate chemistry with Raj, which led to his investment in an early stage. We continue to be contact with our angels, holding meetings with them every few months to update them.”

What led you to the technology you developed?

”The technology is the easier part, since all three of us deal with tangential aspects for years. In contrast to VocalTec, we emerged from the market. Before we even wrote one line of code, we sat with customers and tried to understand what they were looking for and what solutions they would like to have. When you start developing a technology, the saving element very quickly moves from the application side to the business side, particularly from a country that does not have the target market or a strong marketing tradition. Most of our attention is therefore aimed at organizing sales, marketing and strategic cooperation agreements.”

Published by Israel's Business Arena on 20 November, 2000