"It's easier to sell a startup than form a coalition"

Successful exit panel / Photo: Eyal Izhar, Globes

Guy Rinat, who founded and sold Demisto to Palo Alto Networks for $560 million told the EY Israel "Globes" Journey Conference what makes a successful exit.

Oracle announced this year the end of the product that it developed, based on the acquisition of Ravello Systems for $430 million. The acquisition was considered a success, and gave investors in the company, which raised only $54 million, a fine return. Now that the product has been discontinued, however, can the acquisition still be considered a success? A panel at the Journey conference held by EY Israel and "Globes," entitled "The Story behind a Successful Exit," moderated by Adv. Shira Azran from the Meitar Liquornik Geva Leshem Tal law firm, discussed this question. The panel focused on the question of what constitutes a successful exit from the perspective of the various players: the entrepreneurs of startups acquired this year, investors, the parties making the acquisition, etc.

Two entrepreneurs who sold their companies participated in the panel: Guy Rinat, who sold Demisto to Palo Alto Networks for $560 million, and Shmulik (Samuel) Wasserman, who sold LiveU to private investment funds San Francisco Partners and Israel Growth Partners (IGP), an Israeli fund. After each entrepreneur presented the story of his acquisition, a discussion took place with the participation of Georg Kniese from German software corporation SAP. The corporation has an extensive presence in Israel, including a development center with over 700 employees, a recently launched accelerator, an investment arm - Sapir Ventures, and SAP's mergers and acquisitions activity. Other participants were James Socas from the Blackstone investment group, which specializes in investments in growth companies; IGP partner Assaf Harel; and Jason Paltrowitz from the OTC Markets Group, an over the counter trading exchange in New York.

"In Israel today, it's far easier to begin a startup and sell it than to form a coalition. A startup is based on smart performance, starting from finding a right smart team. It's not necessarily what the right experience or background is; it’s the right person and the right fit with the team," Rinat said. "When I look at Demisto and the people I hired, we were very lean from the first minute. We only hired programmers in the first year, and eventually also sales personnel. We outsourced everything, from the office, by using a shared workspace, to finances and legal advice. When you go to an external company to find a consultant, you need the right person to help.

"The reason is that you to focus on the product and the customers, and that's what we did from the first day. Nine months after we began development, we released an initial version of the product to the first customers. One of them immediately became the first paying customer, so we knew that we were onto something. At the same time, we realized that we had missed a lot of points. That was the first part of the process - you make mistakes in development, in analyzing the market, and in employment. You have to correct these mistakes, and the way to do it is to be outside the office, close to the market and the customers. That was important for us, and we did it from the first day.

"The last thing that we did in smart performance was to use smart money. At every stage in the life of a startup, you have to rethink who is the right investor who will help you. When we started four years ago, we had approximately nothing; just a presentation that we took to venture capital investors. We decided to select an investor from one of the biggest venture capital funds in the US, Axel Partners. The investor was very helpful in understanding the market, the customers, and the product. That's exactly what you need at the beginning. As soon as we began selling the product, our second investor was another US venture capital investor, who was very helpful in introducing us to potential customers and security managers in companies."

"Globes": How do you define a successful acquisition?

Kniese: "Every acquisition is a separate case, but as I said, we have small acquisitions deals designed to improve existing technology, and in this case, the meaning of success is successful integration of the product. When you move to medium-sized deals, in which we add to things to the existing production lines, sales and revenue start to become factors. When we move on to big deals with new technologies that we couldn't do by ourselves internally, it's the success of the new product."

How do you keep the employees and founders in the acquiring company?

Rinat: "I think that a successful acquisition is all of these things: a return for the investors and integration of the technology, but it doesn't stop there; you have to consider what happens afterwards. We're very competitive now, like we were as a startup. We have to win and be the best in the market. I think that the acquisition and joining Palo Alto is something that helped us win a market and become better. They kept us partially independent within Palo Alto, but we get resources that we could never have gotten as a startup. The goal is to win and be the only ones in the market, and when they preserve this goal for us and for the employees, it's what helps them stay with us."

Kniese: "This is true, but this independent activity has to be supervised. Frequently, when you bring a small startup and give it enormous resources, if you don't closely supervise it, it can become a burden, because the small team suddenly grows from 30 to 50. One of the important things in mergers and acquisitions activity is keeping the personnel. There are many opportunities in a huge company like ours, and everyone wants to meet you and help you, and some guidance is needed."

Published by Globes, Israel business news - en.globes.co.il - on September 18, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Successful exit panel / Photo: Eyal Izhar, Globes
Successful exit panel / Photo: Eyal Izhar, Globes
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