Axerra: Who’s the boss

After talking to Gil Biran, one of the most determined, clear and sharp entrepreneurs I have met recently, I find it puzzling why he needs to sit on the Zisapel brothers’ lap. Biran was VP Development of RAD and fifteen years in the group when he was bitten with the entrepreneurial bug. “When Zohar understood that I would not be staying at RAD, he gave me the alternative of setting up a company within the group.” The start-up was named IPRad, and recently changed its name to Axerra Networks with an eye to making it easier to penetrate the US, Biran says.

”I spoke with several funds but ultimately decided to accept Zohar’s offer. It’s important to know who your boss is, and my independence is very important to me. I did not know what to expect from working with a fund,” he says, adding that he has a free hand under Zohar Zisapel, plus a better chance. Only 10% of RAD group start-ups fail.

Biran also mentions the strategic advantages. He believes he would not have had access to investors like Morgan Stanley without Zisapels’ help. Thanks to the relationship with the group, he also received ready manpower – 20% of his staff are former RAD employees. Another bonus with RAD is an investment by Garage.com, which brought in the group’s former finance manager, Gideon Marks. In an unusual move, Garage.com is not placing its incubator services at Axerra’s disposal, alongside the investment, nor is it taking care of financing rounds. Biran says he doesn’t need it, mainly due to a promise by an old friend to enter as an investor when he leaves the group.

"Globes": Nevertheless, you’re paying the Zisapel brothers in hard currency in the form of equity.

Biran: ”Correct. It’s no secret that I have been harmed from this viewpoint. However, the important thing is what happens at the end. I would not succeed in raising capital at such a high company value without Zohar’s backing and it is better to have 2% of a successful company. Zohar and Yehuda are perceived as tight-fisted, but the differences (between the equity they take and that of the funds – E.JB.) are not what they used to be, if it ever was true. The ‘fine’ is relatively negligible, if it exists at all. It’s true that I gave up a few percentages. So what. I have in the meantime surpassed the most optimistic forecasts.”

Biran is talking about a beta product on the market in April 2001, eighteen months after the opening shot, to be followed six months later by entry into the market, and sales as early as the fourth quarter of next year. The product is complex. Biran relates that at the end of 1997, he understood that ATM would not make it in a big way. Everyone thought it would serve as the infrastructure for many things on the market and many large and sound companies gambled on it. “Take, for example, 3Com, which has reached its current situation because of it,” Biran says.

”They said the Ethernet would disappear off the face of the earth four to five years ago and that switches would no longer be needed. All service providers currently talk about IP being the future and that there will be full IP services in ten years,” Biran says. “However, this is where the problem lies. Service providers do not live from IP today, but rather from old services. We enable them to support IP and non-IP services over IP infrastructure.” Axerra’s product is a box, which includes hardware and software development. The box is a sort of door for selling additional services. Since service providers need the service, prior to their moving over completely to IP, getting into their infrastructure will enable Biran, or so he hopes, to have a presence there when the IP revolution is completed.

So you are really a short-term company, until the transition to IP is completed.

“We also provide IP. There are today complete access solutions. IP is a brand new technology and whoever is engaged in it exclusively does not sell very much. Company values in this sphere are fixed according to future forecasts. The future leading players are not necessarily today’s. The idea is that the boxes will already be there and they in fact constitute a two-stage strategy for entering the market.”

You’re offering mainly a business model then.

“No, not at all. No product currently exists that can take all the services and put them on an IP level. We combine many technologies. There’s a window of opportunity of 5-20 years. Many companies do only IP, and we therefore were not crazy about doing it as well. Today’s products do not resemble products that will be available in another five years. There are disadvantages to this. Sometimes when I’m meeting with customers, they look at me as if I’m crazy.”

Axerra has done what not many Israeli companies do – it has opened an office in Sweden, a wonderful place for market surveys. The company has already recruited an American general manager with “all the right shortcuts,” as Biran calls it, and offices in Boca Raton, Florida. The company will raise capital when it has a beta site also in Europe. On paper, the company does not require the money until the end of 2001, Biran says, which means it will hold the round in mid-year.

To date, Axerra raised $1.5 million from the Zisapel brothers when it was set up and $16 million from Morgan Stanley, HarbourVest Partners, Garage.com, JAFCO of Japan and the Tlcom Capital Partners fund at a company value of $51 million, after money. Biran says the company has no real competition, but there are several young companies working on similar solutions, and presumably there will be many competitors in the future.

Published by Israel's Business Arena on 11 December, 2000