One Friday evening in early March, Amiram Shachar, CEO and founder of startup Spot, received a phone call from a senior NetApp executive: "What do you say, maybe we should start talking about your acquisition?" said NetApp VP Anthony Lee. It’s hard to say that Shachar was surprised. The two had formed a bond a few months earlier, and Shachar recounts that he emerged bright-eyed from their initial meeting: "I believed their story. They’ve made an amazing transition over the last five years."
In retrospect, he realized that NetApp had come to the meeting prepared, apparently already thinking in that direction. But Shachar says he was one of those CEOs who strongly opposes selling a company he’s founded, and his emphasis was on growth followed by an IPO. He had previously refused at least three takeover bids, and when he received the call from Lee, he was in the midst of a large funding round at a $300 million valuation. Nonetheless, this time he reacted differently, deciding to enter into negotiations that led to the sale of the company at close to $ 450 million.
"Anthony told me something I’ll never forget: 'NetApp has $6 billion in annual revenue. Putting that aside, we don't need to acquire Spot, but Spot needs to come into NetApp and change it. You were born for the cloud, and we do transformation. Together we can do something much bigger.' That statement changed my way of thinking," Shachar said in an interview with "Globes", his first after the exit.
Spot’s board of directors wanted to continue as an independent company. Most investors had achieved a return of at least 7-8 times their investment, but felt a higher value could be achieved. The company had a turnover of tens of millions of dollars, new investors were lining up, and Shachar needed to persuade his shareholders to sell.
"We received some offers along the way, but I explained to them that this was the first time it really felt right to me. I realized I could continue to do the same things, but with greater resources. We had numerous discussions, and that's the difference between good and not-so-good investors: the good ones go with the CEO. They saw that it was very important to me, and they supported me. "
Globes: Was there an offer from another buyer at that time?
Shachar: (Thinks for a few seconds) "I won’t answer that one."
The professors and investors who didn’t believe
Spot’s (formerly Spotinst) backstory begins at the College of Management in Rishon Lezion, where Shachar (31) was studying for a computer science degree on a track designed for graduates of the IDF Mamram (Center of Computing and Information Systems) unit, where he had served for seven years. In his last semester, in 2015, Shachar was to prepare a final project. He was also working at digital marketing company Ybrant Technologies and saw how that company’s cloud account was swelling. "I wanted to save on these expenses, so I developed a solution as part of the final project. I implemented it in the company where I worked, and I saw that it brought results."
Spot was not necessarily a predictable success story, and its underlying concept is not one of those ideas you hear for the first time and think is brilliant. Perhaps quite the opposite. The company helps its customers save up to 80% on their cloud computing costs. How does it do it? Cloud service providers keep some servers in reserve, in case their customers need more storage. To take advantage of these unused servers, they offer customers server space at reduced cost, but on the somewhat illogical condition that if those servers are needed, customers must vacate them.
Customers were in no hurry to use this service, mainly because of its uncertainty. This is where Spot entered the picture: the company knows how to predict the availability of computing resources, and transfer customer data transparently between various servers, thus saving money.
"I suggested the idea for a project to my college lecturers, and they didn’t understand why anyone would use it. The responses were negative until I brought the idea up with Dr. Yehuda Elmaliach (then dean of the School of Computer Science), and he and another lecturer agreed to advise me and the four other students who did the project with me. When the college held a project competition, we didn’t plan on submitting it, because we knew the project was controversial. At the last minute, we saw that our pitch was really slick, we applied, and we won first place."
With a score of 100 for the project, and his girlfriend’s encouragement, Shachar decided to found a start-up, a decision that led to him not completing his degree to this day. "I tried to bring in my college friends, and everyone found an excuse for not joining. So, I took a space at WeWork and called Liran (Polak), a friend of mine from the army. He decided to quit his job and came in the next day. We started the company together. A year and a half later, one of the students who did the project with me, Lavi Ferdman, joined and is a senior manager at the company to this day.
"At the beginning, I made the rounds in Herzliya and on Rothschild Boulevard and the number of times I heard 'No' was 100 times more than any positive answer. I wasn’t explaining well enough why people would want to put their information on servers that were about to crash.
"I decided to travel to Seattle to meet the team that deals with this at Amazon. When I worked at Ybrant, the Amazon Web Services (AWS) offices were two floors above us. I just took the elevator and talked to someone who connected me with someone who connected me with someone else. I understood from Amazon that they were very committed to the idea, because they believed that whoever used cloud services efficiently would keep increasing their use. They gave me a seal of approval. A month after the company was established, we brought in our first paying customer."
The first investor to put his trust the company was Elie Wurtman of PICO Venture Partners. "He teases me that we could have reached an exit without additional fundraising, but you do need money in the bank when recruiting employees and investing in new developments," says Shachar. Along the way, Springtide Ventures, Vertex Ventures, Highland Europe, Intel Capital and other investors joined in, investing a total of $52 million in the company.
You have to understand Amazon’s rules
If someone had made a list of Spot's potential buyers, NetApp probably would not have been at the top of it. Such a list would have included, for example, cloud providers, but Shachar does not say whether they received offers from them in the past. NetApp, founded in 1992, is a relatively traditional company that deals in data storage and databases. Its revenue fell 12% last year to $5.4 billion. The stock has lost about half its value over the last two years and market capitalization now stands at $10 billion.
In a conference call following NetApp's latest reports in May, the company's CEO noted that repeat revenue from cloud operations had reached $111 million in 2019, but was expected to grow to $400-600 million within two years. Now, after the acquisition, Spot will essentially absorb NetApp's cloud activity, and Shachar will head the merged activity, which employs about 750 people, 200 of them from Spot, and revenue 4-5 times higher than that of the Israeli start-up.
"NetApp has made an amazing change - it has put all its good hardware and software solutions on the cloud. It tells a clear, easy and accessible story. Why would anyone use cloud storage and not do it via NetApp? It's cheaper, faster and more secure. That's what we said about them, and that's what they said about us. Then we realized we had synergy, and started building the relationship." This shared vision includes offering technological solutions to cloud customers, from managing computing and storage services to optimization. Let's go back to the beginning, because it's still relevant: why don’t Amazon, Microsoft and Google offer solutions like yours?
"They do, and they have products that compete with us. Our strength is that we are agile, we’re ahead of them by a year - year and a half. Amazon has a lot of customers and they can do one good thing at a time. Their system is Swiss cheese with a lot of holes. If you’re a start-up that knows how to fill those gaps, you’ll make sales, succeed, and move forward A startup can always tell itself that the giants can do the same thing, and that inhibits the courage that makes it possible to solve a customer's problem faster."
Still, you’ve developed something that’s highly dependent on the technology giants. This is exactly why they’re criticized - they can damage startups like yours. Isn’t it dangerous?
"You describe it very accurately. There are many companies that have been hurt by the giants who’ve changed things a lot. A startup that says it's entering the Amazon playing field knows the rules are cruel. Every few months I would travel to Seattle to meet with them and understand their roadmap. That's how I knew how to build our strategy accordingly, and as quickly as possible. We've always talked about the need to get into Amazon's mindset, and to give the customer added value in order to be protected from change. Many investors have said what you say and decided not to invest because of the risk."
"No matter what you do - you're wrong"
Half a year after founding the start-up, Shachar, who grew up in Jerusalem, decided to move to San Francisco to run the company, once again with the encouragement of his girlfriend (now his wife).
You moved to the US relatively early. Isn't it better in these cases to build the company first?
"In retrospect it was the right thing, but it was very difficult to move there when the entire team was in Israel. You have to manage people, the product, and instill a corporate culture, it’s very hard. It cost us quite a bit in miscommunications and unpleasant situations. In terms of results, the move was very important, because we raised money in the US and brought in customers, but not everyone is built for it. It’s impossible to know what would have happened if I’d stayed in Israel. I still think it was best to move and reach customers, because within a few weeks we started closing deals worth hundreds of thousands of dollars a year, which we could not do from Israel. It really was a turning point. "
You had a baby girl a few months ago. What’s it like to combine work with family?
"It's a very hard job to be an entrepreneur and a CEO, its thankless, because no matter what you do, you’re wrong - in the eyes of your employees, your family, your friends. There’s a great deal of sacrifice. I learned a lot as a young CEO. I changed with every quarter - I simply became someone else. Each time you have to understand the mistakes and how to adapt the company to the size of your staff. It means a different management style for each stage of the company. It’s a fascinating process, very different. The hardest moments are when good people leave, generally because of mistakes you’ve made. You have to find the strength to get through it."
How does it feel post-exit, when a pile of money goes into the bank?
"I thought it would change a lot of things for me, but everything's the same. We’re just starting a new chapter.My wife and I talked about the fact that we probably won’t buy more expensive clothes. Probably the ones who will benefit the most will be our kids."
You say you won’t change anything, but two years ago you considered purchasing the Beitar Jerusalem football club. Where did that idea come from?
"I don’t know what your dream was when you were little, but mine was to be a footballer. Once I realized that wasn’t going to happen, I knew that one day, if I had money, I would be involved with a football team."
Is there a chance that you’ll try again, with Beitar or with another team?
"Love of football has always been there for me, so yes, there is that itch. Maybe in the future it's something I'll do."
Published by Globes, Israel business news - en.globes.co.il - on July 30, 2020
© Copyright of Globes Publisher Itonut (1983) Ltd. 2020