Israeli technology company Ethernity Networks became a public company in late June with an offering on the London AIM stock exchange at a company value of £45 million. Less than two weeks later, the company's market cap is £62 million (NIS 283 million), following a 36% jump in the company share price in the interim.
Ethernity provides a technological solution that provides speedier performance on communications networks by utilizing hardware that can be programmed. According to company founder and CEO David Levi, the competitive advantage of Ethernity's patent-protected solution lies in the silicon surface it uses, which is 80% smaller than that used by the competition, "and in the speed of code-writing." In other words, Levi says, Ethernity's solution is both faster and cheaper.
Talking to "Globes," Levi compares it to the smartphones market. "Let's say you have an iPhone, and there's a software update that can be downloaded that adds another feature to the phone. To switch from an iPhone 5 to an iPhone 7, on the other hand, requires a new chip. In networking, every time the requirements change, a new chip is needed. We said, 'This isn't a huge consumer market like the iPhone; there's no justification for working this way.' We saw no need to spend tens of millions of dollars for each new chip just because the requirements change, and you have to add another component and another one, and in the end, the investment isn't worthwhile. Our advantage is that we're looking inside a component that can be programmed (a Field-Programmable Gate Array - FPGA). You can write algorithm code, and it will do it. There are now half a million systems with our technology."
According to Levi, a major change in recent years made FPGA a key technology in cloud computing today. A great many apps run on the cloud, and for them to run optimally, it is necessary to accelerate the server's performance.
"Globes": Ethernity was founded in 2003. What led you to become a public company now?
Levi: "Up until now, we've done well in a niche market, in which the business was to buy FPGA and sell it to someone else. Now, I'm selling a network adaptor (network card) that goes inside the server, and I need more working capital. It's no longer a niche market; it’s an important cloud platform. I can't play around anymore; I need enough money in the kitty to work with the very large companies I want to work with."
No fund investments
Levi says that Ethernity was founded and has operated without any investments by venture capital funds. Levi previously founded another company, BroadLight, acquired by Broadcom in 2012 for $230 million. Before that, however, the venture capital funds that invested in the company diluted the founders' holdings, and it looks like Levi was burned by the fund, and preferred to do things differently with Ethernity.
In retrospect, was the value for the IPO too "modest"?
"We wanted to raise £10 million, and there was excess demand; they wanted to give us £21 million. In the end, we cut it down to £15 million, and there were investors who wanted more. There's one fund (Miton Group from the UK, S. H.-V.) that went on buying after the IPO, and reached a 9% holding in the company. One of the important things for us was that existing investors didn't sell shares in the offering. This was an important part of trust, which for us is only the beginning. Our sales are set to grow significantly in the coming years, and the company's value is likely to much higher."
Published by Globes [online], Israel Business News - www.globes-online.com - on July 10, 2017
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