Take a look at what can be achieved in 14 months: found a company with a $30 million financing round; bring it to the break-even point; have several million dollars in sales; keep healthy cash reserves in the bank; employ 250 people at offices in Israel, India, and the US; take pride in an impressive list of investors; and beat Cisco Systems (Nasdaq:CSCO) in tenders. Veraz Networks looks like a model study in any business school textbook.
Veraz has been a start-up star ever since it was founded. Judge for yourself: in January 2004, Frost & Sullivan honored Veraz's executive team with the VoIP Executive Team of the Year Award. The industry award honors leadership, vision, and successful risk-taking. "Internet Telephony" magazine gave Veraz's product its "Product of the Year Award". Norwest Venture Partners general partner Promod Haque, chosen by "Forbes" as the outstanding venture capitalist of the year, is chairman of Veraz, thereby contributing to the company winning the award.
Veraz was founded as a spin-off from ECI Telecom's (Nasdaq: ECIL) next-generation telephony solutions (NGTS) division, and ECI still owns most of the company. When founded, Veraz merged with NexVerse Networks, a US VoIP start-up. NexVerse brought to the merger its investors, including Norwest Venture Partners, Kleiner Perkins Caufield and Byers, and Argoquest. NexVerse had raised $80 million prior to the merger.
The men behind Veraz's establishment are Barak Hachamov, former VP business development at Clal Electronic Industries, and a serial entrepreneur who was previously involved in the founding of Atrica, Axonlink, Corrigent Systems, and Siliquent, who currently serves on Veraz's board of directors; CEO Tal Simchony, former managing director of the NGTS division at ECI; and EVP global marketing Amit Chawla, formerly CEO of NexVerse.
ECI transferred NGTS products to Veraz, mainly because two years ago, when ECI had to concentrate on its core business, VoIP showed no promise, and it was impossible to raise money for development within the framework of ECI.
NexVerse had developed a switch and ECI had a media-gate. Combining the two products made Veraz into one of the most promising companies in the field. Simchony says Veraz is making a product that seemed like an unfulfilled promise only until two years ago, but is now gaining momentum. He adds that Veraz is positioned to become a leading company in the market, competing against the industry giants.
Simchony does not need to say this in person: the media is full of reports about the contracts and tenders Veraz has won against Cisco, Nortel Networks (NYSE; TSX:NT), and other companies. Veraz, in other words, is trouncing Cisco, and the headlines in the trade journals are cheering it on. In August 2003, "Light Reading" reported that Transcom Enhanced Services was replacing its Cisco network communications equipment with Veraz's. "Light Reading" wrote that Cisco had ended up with egg on its face in a tender offered by one of the largest VoIP services providers.
"Globes": How were you able to do so much so quickly?
Simchony: "The merger [with NexVerse] gave us a product, cash, a marketing network, and sales. We have labs in the US, which facilitates finding customers. Buyers of this equipment want to see it working, and telecom executives have been in no rush to fly to Israel in recent years. The company was founded in advance as a global entity. We have development centers in the US, Israel, and India.
"Veraz didn’t need to set up a completely new sales network, but relied on ECI's. It was therefore able to start selling in Asia, Europe, and the US within the first year. The successful merger meant that Veraz could offer better products to a broader range of customers. In addition, most of the money raised when we were founded is still in the bank, guaranteeing our customers that we'll still be around in two years, and even four years."
Sources close to Veraz believe that it will not have to hold another large-scale financing round ($50-100 million, the size needed by other companies at a similar stage) in order to achieve profitability and provide a successful exit for its investors. If goes as planned, Veraz will hold a Nasdaq IPO in the second quarter of 2005, provided that the IPO will be a good one. Veraz's shareholders are not anticipating an IPO at a company value of $150 million - they're anticipating a much higher value. Veraz may in fact be Israel's largest start-up, with 250 employees, including 150 in development.
You need hutzpa to bid against the giants in tenders.
"Not necessarily. It's true that we, like the large companies, provide VoIP products and services, but we developed a completely new product. The major players have products developed with older technologies at their core. Their hearts are old."
Veraz fervently believes that telecommunications is about to expand beyond telephone calls or integrated video and voice services. Simchony says that Veraz's products will be used in completely new areas in the future, including integrated wireless and fixed-line telephony. "The user's experience with fixed-line telephone still lags far behind what network communications can provide. We're looking at integrating fixed and mobile lines in order to facilitate and consolidate the use of different devices to bring multimedia to the home. It's true that Microsoft (Nasdaq:MSFT) already has products, but anyone who has tried to use their Net Meeting knows that the service is unstable and the connection procedures are exhausting. We hope to provide operators with innovative services for their subscribers, and I know it's going to happen very soon."
Veraz is planning to go whole hog. It opened its Indian development center in November 2003, which currently has 20 employees, and is set to double this year.
Do Israeli programmers have reason to fear the Indian development center?
"Not at all. Our development centers in India, Israel and the US will operate in parallel. The Indian center has different advantages than the Israeli one."
What did you find in India?
"First of all, it's an emerging market, and we're definitely considering entering it. The Indian development center enables us to expedite development with trained, available, inexpensive, high-quality and high-performance manpower. Outsourcing is highly developed in India."
Simchony stresses that Veraz not only has no plans to reduce its Israeli development center, it wants to start selling here, too. "Veraz is also looking at the Israeli market, because Israel has 800,000 households with broadband access that can be offered a broad range of channels. There is competition between the international calls carriers, and the cable companies are due to set up a telephony network in a few months. We're definitely trying to sell equipment to Bezeq (TASE:BZEQ) and the international calls carriers."
Published by Globes [online] - www.globes.co.il - on March 15, 2004