Outside the box

Kagoor Networks is developing a Border Controller to handle VoIP communications and security.

Even though they never studied together, the founders of Kagoor Networks can almost definitely be termed classmates. VP business development Itzik Parafes and CTO Shai Mohaban came from Cisco Systems (Nasdaq:CSCO), which they joined when Cisco acquired Class Data. Kagoor CEO Opher Kahane met his cohorts while serving in the IDF, after which he co-founded ClassX with Dror Tirosh, Ofer Shem-Tov, Avi Tshuva and the late Elad Zion, then joined VocalTec Communications (Nasdaq: VOCL) when it acquired ClassX in 1993.

Kahane, Mohaben and Parafes founded Kagoor in February 2000 as a US company with a development center set up almost immediately in Herzliya Pituah, and managed by Kagoor VP R&D and general manager (Israel) Ovad Harari, who joined the company shortly after its founding. Kagoor had no trouble completing its seed financing round from private investors during the high-tech boom. These included Redback Networks (Nasdaq:RBAK) and Raj Singh, founder of Cerent and Stratum One (sold to Cisco) and Siara [sold to Redback Networks (Nasdaq:RBAK)] and former Cisco CTO Ed Kozel. Kagoor has closed three financing rounds since then, the last one only last week, raising a total of $27.5 million from VantagePoint Venture Partners, ComVentures, Intel Communications Fund, and Venture TDF.

Kagoor develops VoIP Border Controllers (or Session Controllers) - boxes located at the service provider or enterprise that handle a variety of VoIP-related issues.

In the spirit of Lord of the Rings, one can liken VoIP Border Controllers as the ring that controls the other rings, except that they are all located in a single box. These branded boxes were originally designed to handle voice communications problems on VoIP networks, and have acquired more capabilities over time. The boxes were originally a platform that allowed service providers to ensure SLA and QOS service. Security was later added to the VoIP Border Controllers functions, to block unauthorized computer access by camouflaged conversations over IP networks. They also had to prevent firewalls from hindering service quality.

One problem the boxes had to solve was the need to provide every user with an individual IP address (in effect, a sub-address within an enterprise), thereby providing outside callers with direct access to the user. Anyone who has ever tried to call a user at an enterprise via an IP telephone while simultaneously trying to send a video file, knows how hard it is, even when there is ostensibly sufficient bandwidth to do so. This assumes, of course, that the IP conversation is possible at all from another enterprises IP telephone.

Regulations have also done their bit. The US authorities require that the boxes smart routers can be used to identify a users distress call sent by IP telephones, without getting stuck at the switchboard, in order to locate the source of the distress call.

Kagoors competitors include start-ups Acme Packet, Jasomi Networks, Netrake and Nextone Communications. The giant communications equipment companies are not competitors, because they havent entered this market yet. Yankee Group analysts do not expect them to do so, either. Kagoor claims it is one of the few companies with a solution for both communications providers and enterprises.

Kahane also believes the start-ups, unaffiliated with any corporation, will continue to dominate the border control market. He says the corporations do not include these product lines in their core businesses during this period of cutbacks, the corporations, preferring to work with start-ups, rather than developing in-house products. The fact that the major carriers would rather not buy products directly from the start-ups forces them to collaborate with the corporations to the benefit of both parties.

Although the border controllers have security capability, Kahane notes that is usually a second-line defense that supports the firewall, but does not replace it. Kagoors product does not yet have video over IP capability, since the company is focusing on voice communications. Harari claims there is no technological barrier to adding video capability later.

Low-end border controllers are designed for enterprises located near firewalls, while border controllers designed for carriers are placed in the providers switchboards, serving several enterprises simultaneously. Prices vary accordingly, from a few thousand dollars for an enterprise product, to tens of thousands and more for a service provider product.

Kagoors partners will sell its border controllers. The company has signed several such agreements to date, although the only agreement so far revealed is with COM3 (Nasdaq:COMS) subsidiary CommWorks. Kagoors first customers were ITXC Corp. (Nasdaq; XETRA:ITXC) and Interoute, a pan-European telecommunications provider managed by Israeli Ohad Finkelstein, who is on Kagoors board of advisors.

Given time and assuming border controllers are welcomed, Kagoor plans to over a product for private customers, for when VoIP becomes a household product. The company meanwhile hopes to break even in late 2004.

Name: Kagoor Networks

Founded: February 2000

Founders: Opher Kahane, Itzik Parafes and Shai Mohaban

Product: VoIP border controllers

Financing rounds: $27.5 million in three financing rounds

Ownership: VantagePoint Venture Partners, ComVentures, Intel Communications Fund, and Venture TDF and private investors

Employees: 30 in Herzliya, Israel, and 10 in San Mateo, California

Website: www.kagoor.com

Published by Globes [online] - www.globes.co.il - on February 17, 2003

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