“We want Israeli companies. Owing to the geographic distance, however, we want to make investments in partnership with local funds,” says Matthew Rubins a general partner in Boston-based M/C Venture Partners.
In early October, M/C Venture Partners led an $11.1 million financing round by Viola Networks with a $5 million investment. Rubins, who has been a director in Viola since the round, says that his fund’s investment will not be its last in Israel. In the near future, he says, MC Venture will appear more and more prominently on the Israeli start-up map. M/C invested in Viola in partnership with Evergreen Partners and Concord Ventures. According to Rubins, M/C Venture now plans to invest mostly in companies at a fairly advanced stage, with revenue and profits.
M/C Ventures manages about $1 billion, of which 75% is designated mostly for communications companies like Viola, which supplies management and testing systems for voice over Internet protocol (VoIP) networks. The M/C fund that invested in Viola has $550 million. Rubins says that Viola’s field is relatively new for his fund. “Our advantage is a good knowledge of end markets, which can help companies sell in their target markets,” Rubins explains.
Viola is likely to benefit from considerable interest if VoIP networks gain a larger market share in the coming years, and that is probably what will happen. Technological changes have boosted the quality of VoIP communications, and an increasing number of companies in the US and around the world are using VoIP as part of their telephony services. Various predictions say that within five years, most international calls will be made on IP networks, and a considerable number of business telephone lines will be based exclusively on VoIP.
Founded in 1998 by CTO Prof. Israel Cidon and chief scientist Prof. Moshe Sidi, Viola has developed two families of products for testing and managing VoIP systems. The money raised in its October round is designated mostly for expanding the company’s marketing and sales. Viola hopes that interest in the market and its enhanced activity will increase its sales to $10 million in 2005. Viola believes that it will reach break-even by mid-2005, and make a profit in 2005 as a whole.
The day after deployment
Viola’s first family of products is called NetAlly VoIP. These are testing systems that enable integrators and carriers to check a network’s capacity before it is deployed, and simulate how it will operate under various loads. In contrast to NetAlly VoIP systems, which are designed for use before a network is deployed, Viola’s second family, NetAlly RealTime, is designed for use after deployment. These systems manage VoIP networks, continuously checking for problems on the network, and examining the voice quality. “This is our flagship product,” says Viola president and CEO Uri Feldman. “We put our NetAlly RealTime solutions on the market this year, and we believe that, within two years, the ratio between sales of NetAlly RealTime and those of NetAlly VoIP will be 1:10, instead of 1:1, as at present.”
The VoIP testing and management systems are designed mainly for two types of customers: carriers and enterprise companies. Viola is counting mostly on carriers, where the number of customers is very large, and the money is really big. Carriers are also expected to spend money on pre-deployment systems, in addition to the necessary management systems. Service operators with millions of customers behind them must try to check how the systems will run before they are deployed, while large enterprises are likely to avoid this expense by buying only management systems.
In order to reach a large number of enterprise customers, Viola currently uses two major distributors: Mei Tal Engineering and Services and Agilent Technologies (NYSE: A), while looking for more distribution channels. Viola prefers the direct distribution to large customers, i.e. carriers, which it has used up until now. Viola is proud of its respectable list of customers, which includes Scandinavian company TeleSonera, Spanish company Gestel, Bell Canada, and Time Warner Inc. (NYSE: TWX), as well as Israeli company Amdocs (NYSE: DOX) and IBM Israel.
How much money can be made in management software? Viola quotes market research as saying that the market is expected to grow to $100 million in 2005, and $300 million by 2008. Viola points out that the market for management systems for VoIP consists of 60% software and 40% hardware products. Viola is expected to achieve a 30% market share over the next two years in its software sub-market.
”Globes”: Who are your direct competitors?
Feldman: ”The two companies specializing in this field are NetIQ and Brix. NetIQ concentrates on the enterprise market, while Brix focuses on carriers.”
Published by Globes [online] - www.globes.co.il - on December 6, 2004