The old adage in the technology industry meant to explain the caution typical of large enterprises is that no-one ever got fired for buying IBM. DriveNets says that in communications, Cisco Systems and Juniper Networks have replaced IBM, but in the past four years, the company has been working to change this - mostly far below the radar. During this time, DriveNets founders CEO Ido Susan, 33, and chief strategy officer Hillel Kobrinsky, 57, have met with all the senior executives in communications companies such as AT&T, Verizon, and so on.
Full list of "Globes" 10 most promising startups of 2019
To put it simply, DriveNets wants to help these companies cope with the growing load on their infrastructure and their challenging financial situation. The bills we pay to Internet and mobile telephony providers haven't changed, but we are viewing more online videos, the apps that we use are downloading more data from the Internet, and we are more connected to the Internet in general. Companies are having to chase after the growth in Internet traffic, and are installing more and more equipment from communications equipment companies - Cisco, Juniper, and others. This also takes up a great of real estate along the way.
DriveNets has developed a software solution designed to free companies from the burden of buying this expensive equipment. It doesn't eliminate equipment procurement, but instead of being based on sophisticated routers, it uses cheaper and smaller "stupid" equipment, while the brains are in the software instead.
DriveNets explains that communications from homes to communications companies' central router passes through many junctions. Every home, every neighborhood, and every region has a central router, which gets bigger with the quantity of information passing through it. "One of the problems is that there are routers from different companies on this path in order to cut costs, and you have to cope with different software and different types of hardware. Furthermore, the fact that the brain is on the routers themselves detracts from flexibility, and it's impossible to manage the traffic and channel the loads," Susan explains. "When we talk with communications companies, they themselves cite this as their main problem. It's a nightmare for them.
"We chose to begin from the most complicated part, from the core of the network. After that, we would have an easier time with the less complicated parts," Susan says. The company is exploiting the connections acquired by its personnel when they were at other companies to obtain meetings with senior executives in communications companies, and it wants to begin from the top - from the leading companies. "The sales process takes the same amount of time for large customers as for small customers, and in any case, the small companies look at what the big companies do," Susan says.
"We still have the first sketches we made on the garage window"
Susan, who served in an IDF intelligence unit, and Kobrinsky, a veteran entrepreneur, founded DriveNets in late 2015, and financed its activity by themselves for a few years. Last February, the company announced a $110 million financing round, one of the largest first financing rounds ever in Israel, from two venture capital funds: Pitango Venture Capital and Bessemer Venture Partners.
The reported company valuation for the financing round was over $500 million. "That enabled us to control the company's fate, and we decided to raise capital when we felt that we were readier and more sure of ourselves. Raising money is a commitment to the investors," Kobrinsky says, and Susan adds, "It enabled us to give more options and percentages to the employees. We give three or four times as much as is customary in the industry. We want to build a big company, and this enables us to attract the best talent."
DriveNets has 200 employees, 150 of them in research and development. Its offices are in Ra'anana in a building constructed in the past for Comverse that has the communications infrastructure that companies in the sector need. The company also has a new small office in Romania. DriveNets' revenue is already in the tens of millions of dollars, and it has signed contracts that will provide $200 million revenue in the next five years. The company was profitable before the financing round, but its managers realized that the customers wanted them to advance faster than they were capable of, and they therefore decided to double their staff.
Susan and Kobrinsky met in their previous jobs. Kobrinsky founded several companies, sold one of them to AT&T, and based the latter's development center in Israel on it. He managed this center for eight years, during which time it expanded from 35 to 500 employees. At the same time, he founded a group in the Israeli center that scouts for new technologies for AT&T, so that it will be able to adopt them more quickly. One of the companies that he presented to AT&T was Intucell, founded by Susan. Intucell was sold to Cisco in 2013 for $475 million, when only $6 million had been invested in it.
"I left Cisco in late 2014 and tried to found a satellite venture. It was a crazy project, and we couldn't raise money for it, so I decided to return to my comfort zone. I know my strengths and weaknesses, and I needed someone to provide what I lacked," Susan says.
Kobrinsky, who took part in the founding of the Yesh Atid Party and was a close advisor to MK Yair Lapid, its chairman, decided to leave AT&T and join forces with Susan in order to found DriveNets. "In order to be a startup entrepreneur, you have to be naïve, innocent, or crazy, because you get up in the morning and say, 'I'm going to beat Cisco, Microsoft, or some other giant company.' Nothing is more enjoyable than founding a startup. We're used to going to things that stay the same - a restaurant or a workplace. In a startup, one minute there's nothing, and the next minute, there's something. We really did start in his garage," Kobrinsky says. "The first sketches are still on the window," chimes in Susan, who lives in Sde Warburg.
"We want to see huge companies in Israel"
"Globes": Your technology serves companies in their most important place - the network itself. Aren't they nervous about this change, not to mention relying on a startup's technology?
Kobrinsky: "These companies are basically very conservative. If you look at their history, they didn't put startups into the network very much. We decided to look for a business problem, and then develop the technology, not the other way around. The financial pressure on these companies motivated them to leave their comfort zone. It's not really a risk for them; they begin with proof of capability, and then do small tests in specific areas and with specific customers - all very slowly and gradually."
Aren't Cisco and the other companies now developing a competing solution?
Susan: "Cisco is a family. I don't forget where I came from and where I'm going. There are people there I respect and I'm in touch with. But companies like that have no incentive to develop new technology. Cisco makes $1 billion revenue every week. When we began in 2015, they said in the market that our solutions wouldn't work. When they started seeing the technology work, they realized that it was happening, that there were many barriers to entry, but we had succeeded in doing it.
"So they started saying that they would have solutions like DriveNets. We know that these companies are making internal efforts to develop, but they have to start from scratch. Cisco, for example, isn't a company that creates things by itself; it buys technologies from outside. As for startups, there aren't too many, but we believe that more will come along.
"I met the founder and CEO of VMware, who also later managed Google Cloud. 'I was just like you," she said, 'except that our competitors were IBM, Dell, and HP, and they all told us at the beginning that the software couldn't replace hardware. When it worked, they also said that they would have similar technology, but they didn't succeed.'
"Dell acquired control of VMware, but Dell is worth $40 billion, while VMware is worth $70 billion. The customers told us, 'You're from downtown Ra'anana; you're going to replace Cisco and Juniper?' But VMware did it. What we're doing is a game changer. We're doing for the telecommunications industry what happened a decade ago with cloud computing."
Have you had acquisition offers?
How is it to be entrepreneurs again, but more mature?
Kobrinsky: "I'm not just talking about myself. I think that part of the technology industry's advantage is that gradually there are more people with experience. We and our management were in startups and companies before, and that's a big help. The fact that we started with the financial problem, not the technology, is part of this maturity. We also have the vision of building a big company in Israel. We're not against exits, but at the same time, it will be good if big companies arise, if the market allows it."
Globes 10 most promising startups of 2019 - sponsored by J.P. Morgan
"Globes" asks players in the local technology market: venture capital fund managers, investment firms, and development centers of multi-national companies active in Israel, to put forward the names of the startups that they see as having the greatest potential.The ten companies that receive the highest number of votes from the investor community are declared the most promising startups.
Cloud software for communication networks infrastructure
Founders: Ido Susan and Hillel Kobrinsky
Capital raised: $110m
Investors: Pitango Venture Capital and Bessemer Venture Partners
App for learning to play piano
Founders: Yuval Kaminka, Yigal Kaminka, Roey Izkovsky
Based: Tel Aviv
Capital raised: $43m
Investors: Qumra Capital Management, Insight Ventures, Aleph, Genesis Partners, Yelp founder and CEO Jeremy Stoppelman
Fast e-commerce delivery
Founders: Elram and Eyal Goren, Ori Avraham, Shay Cohen
Based: Tel Aviv
Capital raised: $136m
Investors: Corner Ventures, Innovation Endeavors, Temasek
Cybersecurity for IoT
Founded: 2015 Founders: Yevgeny Dibrov, Nadir Izrael, Tomer Schwartz
Based: Tel Aviv and Palo Alto
Capital raised: $112m
Investors: Bain Capital Ventures, Cerca Partners, Sequoia, Insight Partners, Michael Boodaei, Zohar Zisapel
AI-based transcription technology
Founders: Tom Livne, Eric Shellef, Kobi Ben Zvi
Based: Tel Aviv and New York
Capital raised: $34m
Investors: Viola Ventures, ClalTech, Vintage Investment Patrners, Vertex Ventures, Oryzn Capital, HV Ventures
Checkoutless store technology
Founders: Michael and Daniel Gabay
Based: Tel Aviv
Capital raised: $29m
Investors: Red Dot Capital Partners, Vertex Ventures, Hetz Ventures
7. Papaya Global
Payroll and payments automation platform
Founders: Eynat Guez, Ofer Herman, Ruben Drong
Based: Tel Aviv and New York
Capital raised: $50.5m
Investors: Bessemer Venture Partners, Insight Partners, Dynamic Loop Capital, WFF
Open code-based data analysis system for programmers
Founders: Tomer Levy, Asaf Yigal
Based: Tel Aviv, Boston and London
Capital raised: $100m
Investors: General Catalyst, Vintage Investment Partners, Giza Venture Capital, Next47, 83North Venture Capital
Battery-free Bluetooth chip for IoT
Founders: Tal Tamir, Yaron Elbaum, Alon Yehezke'eli
Based: Tel Aviv
Capital raised: 50
Investors: Amazon Web Services, Samsung Venture Investment, Avery Dennison, Grove Ventures, Norwest Venture Partners, 83North Venture Capital, Qualcomm Ventures, M Ventures
Technology for analysis of encrypted data
Founders: Rina Shainski, Dr. Alon Kaufman, Dr. Kurt Rohloff, Prof. Shafi Goldwasser, Prof. Vinod Vaikuntanathan
Based: Tel Aviv and New Jersey
Capital raised: $19m
Investors: Intel Capital, Hearst Ventures, Team8
Published by Globes, Israel business news - en.globes.co.il - on December 3, 2019
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