Commagine opens doors

The wireless Internet access industry still suffers from bubble-bursting flu, hurting many start-ups that want to develop supplementary technologies for wireless. Wireless networking systems have no unified standard, and every company is gambling on the standard it thinks will come out on top.

The problem is that companies cannot permit themselves to lose the gamble and develop new products based on alternative standards. Unlike in the past, it not possible to err even once now. Product development costs millions and when it is impossible to raise money, it helps if there is already cash in the till that can be used to make meaningful investments.

What, then, is the right move? In standardless fields, the key tasks of start-up entrepreneurs are to listen to the market, read analysts' reports, knock on the doors of the developers of the next great thing, and even to persuade junior engineers, in face-to-face meetings, to go in one direction and not another.

It sounds simple, but "listening to the market" is no easy matter. It is quite difficult for an anonymous entrepreneur to set up a meeting with the silverback gorillas of the communications field, whose precious time is battled for by competing entrepreneurs, each with his own sophisticated presentation and basket of merchandise.

Israeli start-up Commagine has to cope with these abovementioned difficulties, and has several means of dealing with them. Commagine develops technologies for cellular operators that will allow them to provide high-speed access for next generation cellular (GPRS, UMTS) in areas that can support wireless LAN technology.

Commagine's ability to listen to the market is in no small part based on the connections of its team of entrepreneurs and managers. Gideon Barak is cofounder and chairman. He is a serial entrepreneur who has been a high-tech icon since the early 1990s. His resume boasts of his successes at Butterfly (sold to Texas Instruments (NYSE: TXN) for $50 million) and DSPC (sold to Intel (Nasdaq: INTC) for $1.6 billion). He is a founder and chairman of Envra and IXI Mobile, founder and board member of RFWaves, and board member of WidComm, among others.

Another industry veteran is President and CEO Eyal Katz, who met Barak at DSPC, and worked at DSP Group (Nasdaq: DSPG), Motorola (NYSE: MOT) ,and Nexus Telocation Systems (Nasdaq: NXUS). Commagine cofounder, CFO, and COO Ilan Zorman founded and held senior positions at AppStream, Nexus, Wireless Online, and NextNet.

"It can be said that we're strong swimmers in the Silicon Valley pool. We've eaten at the same cafeteria at various companies," says Zorman about himself and his friends at Commagine. Zorman resides in Silicon Valley, and visits Israel periodically to help his colleagues recruit staff, an ongoing process.

Everyone needs $15 million to succeed

From the outset, Commagine's managers understood they could not develop only one product, and assume that everything would fall in place from there. They decided to focus their resources on listening to the market. At the same time, they decided to concentrate on Wireless LAN technology.

Zorman says about the gamble, "I'm gambling that the market wants what I develop, because there's no industry standard, but only customer desires. If we succeed, we hope to gain a critical mass of customers and become the next Comverse. We don't, however, rule out the possibility that one of the major corporations will buy us."

Zorman and Katz mention some points relating to wireless networking systems. Firstly, broadband is becoming mainstream. The quality of broadband is high, rich multimedia has arrived, and everyone is used to having broadband at the office. Wireless applications are even more far-reaching, but  everybody's hopes for the applications are riding on third generation cellular, which will not be ready in the near future for a variety of reasons. Nonetheless, the need for wireless access broadband has not disappeared.

Therefore, Commagine wants to meet this need by integrating two wireless technologies: 2.5 generation technology and next generation Wireless LAN access technology, which is already widely deployed.

"On one hand, areas with Wireless LAN are still not connected to each other," says Zorman. "On the other hand, GPRS has already been deployed, with some teething troubles. It's important to remember that the deployment of Wireless LAN is much cheaper than the deployment of third generation wireless. It's quite a different order of magnitude for the cellular operators."

Commagine says its technology also supports other wireless technologies, such as Bluetooth, so that if that technology takes off,  the company will not be found wanting.

As for consumers, Commagine's technology can be used where Wireless LAN has been installed (company buildings, airports, hotels, cafes, and other public places). Internet access can be provided in these locations at higher speeds than cellular providers can offer elsewhere, and the providers will have to pay accordingly.

"From the outset, we knew the market would be tough," says Zorman. "It doesn't matter which field you're in, you need $15 million to succeed. We therefore knew from the beginning that we would be a venture capital-oriented company. I think the [venture capital] funds would be disappointed if the company would remain with only 10 employees for years, living the simple life. Our approach is to go to the customers, and recruit senior executives."

Commagine raised $4 million from Evergreen Partners and Shalom, which are still pleased with their earlier joint investment in eXalink.

As for further financing rounds, Commagine's managers say, "We have sufficient cash to last us until 2003. We're not actively seeking investors now. We want some more things to happen in the company before we hold a real round, so it won't be too painful in terms of diluting the shareholders."

Published by Israel's Business Arena on 29 October 2001