Kaltura CEO: We're helping Vodafone launch Internet TV

Kaltura's founders Photo: Kaltura

Following Goldman Sachs $50 million investment, Ron Yekutiel tells "Globes" that the Israeli startup enables telco companies to provide TV over the Internet.

In the wake of Israeli video technology provider Kaltura closing a $50 million pre-IPO funding from Goldman Sachs' Private Capital Investing group, bringing the amount the startup has raised to $160 million, "Globes" spoke to cofounder, chairman and CEO Ron Yekutiel. He spoke about the financial reasons for the investment, plans for a future IPO, and the way in which Kaltura is helping Vodafone launch a TV over the video service similar to Israel's Cellcom TV.

Yekutiel said, "During the last year, we had three options: not to raise money at all, with no further acceleration of company growth; examine a public offering, or raise further funds in the private market and thereby boost growth. We chose the third option among other things because of the macro-economic mood regarding share offerings which does not support the IPO market, in part due to the upcoming US elections."

Yekutiel added, "An election year in the US is always a year of upheaval and the closer November comes, the greater the uncertainty, and it is not even clear what will happen after November. This is a period of uncertainty and we feel that there is no reason for us to rush and get our feet wet. One of the key reasons for a company to hold an IPO is the shareholders' demand for cash. The good news is that this is not the case for us. Shareholders place a large degree of trust in the company, even those who began investing 10 years ago."

10 years is a long time for an internet company and a long time for many venture capital funds looking to make an exit. Usually, a company has already held an IPO after 10 years.

"Not necessarily, the average age of a company holding an IPO is 13 years and even in 2000, in the midst of the boom, it took no less than 7 years. Therefore, there is nothing unusual in Kaltura not being traded after 10 years. On the opposite, we are below the average."

And in terms of financing, did you need the $50 million you had raised

"Need - no. Wanted - yes. Raising funds at such stages is usually optional rather than mandatory. A company can always decide to grow at the rate of X, rather than the rate of Y and realize X opportunities and not Y opportunities. A company does not need to make more money, unless it has chosen to. The calculation is usually 'return for money', that is, whether the company has decided that these additional funds will significantly improve its results. Kaltura is a SaaS (software as a service) firm and such companies have an appetite - the more momentum they gain, the more money they demand. Of course, we can always stabilize around a certain growth rate, but the question is whether the company could withstand a significantly higher growth rate, is it worthwhile and should it invest more money in this.

"In places where the market is saturated, or in cases in which money cannot be efficiently invested to grow, raising more funds is not worthwhile. The video market, which is still in its infancy, is undergoing a dramatic change, mainly concerning the television viewing experience. When you are smaller but growing, and you are a significant player that could have a big impact, raising funds is vital. In the world of SaaS, companies growing at an average rate of 25% are traded at a market cap 5-5.5 times larger than their revenue and companies growing at a faster rate are traded at a 6-7 multiple and sometimes even 10, at peak levels. That is, every dollar the company makes is worth more in terms of company valuation and this balance is usually generated by the investors' fear of company failure or the company's own inefficiency.

And yet, Goldman Sachs is not philanthropic. They did not invest $50 million in a company that would not begin trading in the short-medium term, which may lead to increasing pressure to hold an IPO, even if you do not really want to.

"If Goldman Sachs was a philanthropic entity it would have said that we are not worth the shekel it gave us. It has invested because it believes in the company's capability to boost its value from now on. And yes, Goldman Sachs expects an IPO and expects an increase in valuation. It invested in us at a company valuation of X and, for it to be profitable for them, we need Kaltura to be worth at least 2X in a reasonable period."

The presence of an investment bank such as Goldman Sachs among the list of stakeholders does not guarantee an IPO or a successful IPO.

"We have chosen not to hold an IPO right now because the markets are not ideal for an IPO. We are not ashamed of this, and it has nothing to do with Kaltura. These are forces greater than me, you and all of the people in Israel taken together. This is the global situation. While we could have decided not to raise funds due to these conditions, we must differentiate between two things: the need to start trading in order to generate liquidity for existing investors and the desire to gain more money because the company is accelerating and it is profitable. Those are two separate things. We are not being pressured to generate liquidity, due to the condition of the IPO market. There is no need to do anything stupid because there is no reason. On the other hand, we have been interested in boosting company growth, because we feel that we are in a wonderful place, in an amazing market, and we do not wish to be narrow-minded and say: 'we have made it this far, great.' We are going for victory, and we are going for it big time."

"And as for Goldman Sachs, in such a situation we could have sought venture capital or private equity funds. However, because we are in such an advanced stage and will be interested in an IPO when the markets recover, we wanted to be seen as winners, so we chose an investor such as Goldman Sachs, which brings this victory banner. We are thinking ahead not looking back."

What do you mean by "we are in a wonderful place?" Are you talking about financial results?

"The company's rate of growth is above average for an SaaS company. We are growing by about 40% each year and we have chosen at the moment, as part of the additional investment we have received, to be temporarily for a period of several months, slightly unprofitable. We will speed things up with the money that's coming in, otherwise there was no reason to take the money. Therefore, at the moment we'll remain on the cusp of profitability and we will become a profitable company when we are a public company."

"To be a TV provider over the Internet

Kaltura has developed a platform for creating video content although that does not mean it is competing with YouTube or Google. Yekutiel said, "YouTube in a nutshell is a video portal that serves individuals as an end-user and is not a portal for companies. Video is a type of new data compared with audio and text. This data is a method of communicating that can be utilized for very many things such as marketing, teaching, entertainment. There are a 1,001 places that video is used that aren't exactly YouTube just as text can be either a book or a newspaper. Kaltura creates very many products based on video as a medium."

He continued, "Firstly, our products are designed only for companies and not directly for end users. Secondly, we provide these customer roughly 20 video products for various aims and they use them for a broad mix of things. We have three main target markets: the first is media and telecom companies. In recent years, these companies have gone through a real revolution in which on-line video has captured a respectable position as a genuine alternative to the regular TV broadcasts of the past what was called broadcasting."

"And then companies like Netflix changed the TV model and media companies like Walt Disney , Warner Bros. and others began going directly to the end-customer, just like Netflix and giving them video content. Then cable and cellular companies began to provide TV packages like Cellcom TV in Israel. Because they understood that there is no growth in just providing telephony, cellular and Internet services. And the next growth in consumption is to provide TV services. In other words, these companies wanted to launch services like Netflix, pay-TV, but they cannot build it themselves. Netflix has done it by itself but media companies don't understand this sector."

And so they need companies like Kaltura

"Correct and we give media and telecom companies an infrastructure to provide TV services over the Internet. We simply allow them to be TV providers over the Internet. This trend has grown so much we have seen Netflix's Wall Street market cap reach $40 billion. We aren't competing with Netflix but let other companies compete with them. For example, Vodafone, the world's largest mobile operator after China Mobile, is our customer. It has 450 million subscribers as a cellular company and the TV infrastructure that it is slowly launching is Kaltura's. Vodafone wants to become a TV provider just as Cellcom TV has done in Israel."

"And the money we receive and will receive is related to Vodafone's number of subscriptions. The more end-users it has for its TV service, the more annual licensing payments we will receive for use of our technology."

What is the company's business model?

At this point, Yekutiel stresses that Kaltura has a presence in this market thanks to its acquisition of Israeli startup TVinci in 2014 for "tens of millions of dollars." He said, "We put one and one together and made three and that's no trivial matter for Israeli companies."

Kaltura's second target market, according to Yekutiel, are corporations such as Intel, Bank of America, Oracle and Israeli pharmaceutical company Teva. "For these companies we provide solutions that are a kind of YouTube but within the organization. In this instance, Kultura's platform serves internal communications within the organization, information sharing, training employees and marketing and sales. Indeed, some of these customers call the platform Corporate Tube."

The third target market are educational institutions and edtech companies such as Harvard University, Stanford and other schools that use Kaltura's solutions for teaching (installing video in teaching schedules), research, contact with graduates, registration, marketing and more.

Kaltura's uniqueness is that the company has an above normal number of markets with an above normal number of products," stresses Yekutiel. "We are not Cisco. We are simply creating very modular and flexible systems that are all like lego kits for providing video solutions. And that is the innovation. Once, we built separate systems for each purpose and all the systems were closed and inflexible, and 10 years ago we decided it was possible to build lego platforms for video applications and from that we have succeeded in developing an unprecedented number of different markets for different aims."

Kaltura was founded in 2006 by Yekutiel, president Dr. Michal Tsur, chief revenue officer Dr. Shay David, and VP R&D Eran Etam. Kaltura is headquartered in New York City, its R&D center is in Ramat Gan, and it has offices in San Francisco and London.

Published by Globes [online], Israel business news - www.globes-online.com - on August 14, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016 >

Kaltura's founders Photo: Kaltura
Kaltura's founders Photo: Kaltura
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018