Jungo: "If they offer us money, well say no"

Thats how sure Jungo president and CEO Ofer Vilenski is that his start-up will be successful.

Jungo cofounder, president, and CEO Ofer Vilenski is afraid of reporters. But my partner enjoys talking even less, so I got the job, he says, apologizing for the absence of cofounder and CTO Derry Shribman. Vilenski tells how they both have played with computers and programming since third grade. Even their business careers began early. Shribman programmed manufacturing floor applications, and Vilenski sold educational software and games.

Shribman left high school in ninth grade and studied for a BA in computers and mathematics at the Open University. When he went into the Israel Defense Forces, Vilenski decided to stay away from computers and serve as a paratrooper, eventually becoming a combat pilot. After 11 years of working with computer games and a degree in computer science from the Haifa Technion, Vilenski began working at Check Point (Nasdaq: CHKP), where he met Shribman for the first time.

Why did they leave Check Point? Vilenski: It was always clear to both me and Derry that we would start a company. When we met, we realized we had to do it together. A Check Point spin-off on the Comverse (Nasdaq: CMVT) model was out of the question, although Check Point later had thoughts in that direction, and invested in SofaWare Technologies." Vilenski and Shribman therefore decided to leave the firewall cocoon and become independent.

The two men founded their joint company in 1998. Vilenski claims that Shribman is more talented than he is, and was appointed to head the development team (which initially consisted of himself only) for that reason. Vilenski became head of the marketing team (which initially consisted you guessed it). The new companys first product, called KRFTech, was a program for creating drivers the definitions that enable the operating system to recognize new hardware.

The company has grown a bit since then, acquiring 2,500 customers, including Intel, IBM, Cisco, Nortel, Compaq, Nokia, General Electric in short, anyone putting together hardware that functions under any kind of operating system. Vilenski rates the companys original business model - selling a shelf product without added payment for long-term use - as poor (he actually uses much cruder language to describe it). But every market has its own model, Vilenski says. In my opinion, it's impossible to base a model on license sales for this product.

Even if the model was not so great, with a product priced at $1,000-2,000, it is easy to see how the company managed to make ends meet. The company later developed other products, such as GO-HotSwap, which enables computer system components to be replaced without physically turning off the computer. For example, an individual circuit board in a console can be replaced in this way. The price tag for this product reached $60,000 and also included royalties for long-term use.

At the beginning of 2000, Jungo learned of the developing trend towards residential gateways, the anchor linking computers and electrical appliances to broadband Internet, but, A refrigerator hooked up to the Internet is a bit of nonsense. The time for it will come in another 4-5 years. In our world, its like talking about dot.coms. If a company is founded based on an electrical appliance that hooks up to the Internet, it wont make money within a year. We will, Vilenski elaborates.

Nevertheless, a vision for the near future involves finding a way to hook up to the Internet, whether through DSL, cables, wireless, satellite, or something else. On the other hand, people will still have a PC on their desk. Even if all you want to do is add another computer for the kids and connect it to an internal network, fairly exhausting definition work is required. This is even more true if other computers and components are involved in the project.

What does Jungo have to offer? All the capabilities needed to manage the network for you. This includes quickly hooking up new devices, defining separate IP addresses, and everything else. It all must be located on the device you use to hook up to the Internet, i.e. a broadband modem of some kind. The software that does this is designed to sit on the modems flash memory. It must not make the modem significantly more expensive, you should be able to upgrade it, and it should recognize components that will be relevant several years down the road, such as irrigation computers for the garden. In addition, the software is designed to enable the components in the home to be connected by whatever means the user chooses: telephone wires, wireless devices, and so forth. Both the service provider and the home user himself should be able to manage the components.

A key requirement for this type of system is security, since exposure to hacker attacks is no longer confined to individual computers. Jungo (the companys current name) has developed security that can be integrated into its operating system, but customers wishing to use a different security system will not be left out to dry. A short anecdote for those who dont know: Check Point, Vilenski and Shribmans alma mater, has a subsidiary named SofaWare Technologies, which develops security systems for cable modems and DSL. There's always room for cooperation, Vilenski says. My goal isnt to compete with Check Point, but I couldnt develop an operating system without any security base.

The software can also provide VoIP services over a regular telephone link to the home network. The companys business model is built on user licenses, according to the number of units and sales to companies that manufacture the boxes. Another sum is included as an aperitif when the contract is signed. In addition, all or most of these services form a basis for cooperation and profits. Internet telephony services can be implemented through one of the companies that provide that service, with the profits being divided between the companies, and other cooperation of a similar nature is possible. For reasons of convenience and economy, Jungo is currently developing the operating system on the basis of Linuxs open code. The company notes, however, that it can be based on other operating systems, upon request.

Last April, Jungo completed a $7 million financing round at a company value of $35 million, after money. US fund Telesoft Partners, which manages capital of $650 million in two funds that focus on communications, led the round. Telesoft previously invested in Israeli company Lynx Photonic Networks.

Other investors in the round included Intel Communications Fund (ICF) and Infineon Ventures, controlled by Siemens. These two investments were strategic, since the two companies plan to provide the processors for products in which Jungos software is to be included.

Jungo raised $1 million in its seed round in 1999 from the Israel Industrial Resources Fund (IIRF), which invested in TimeSquared, CMT, and Aliroo. After the last round was completed, Jungo received more investment offers, but decided to rely on revenue from sales, without diluting holdings. I dont anticipate another financing round in the foreseeable future. Even if they offer us money, well say no. We believe sales will come very quickly, Vilenski says.

Jungo, which has 50 employees and is still recruiting, now plans to leave the two development lines, OpenRG and the previous products, in one company, although they are located in separate buildings connected by a wireless network. It has advantages, too, Vilenski explains. Two months ago, I went to Samsung to demonstrate the new product. I put a list of seven Samsung divisions that used our previous products on the table, including the names of the people who know the product. It gives me a lot of credit with the customers, not to mention the revenue we still get from the previous products.

Business Card

Name: Jungo

Founded: 1998

Product: An operating system for residential gateways

Employees: 50

Owners: Telesoft Partners, Intel Communications Fund, Infineon Ventures, Israel Industrial Resources Fund

Previous financing rounds: $1 million in seed round in August 1999, $7 million in first round in March 2001

web site: www.jungo.com

Published by Israel's Business Arena on July 5, 2001

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