What makes Datorama worth $850m to Salesforce?

Datorama  photo: PR

Datorama has grown rapidly into a company with significant revenue and major customers, but its contribution to Salesforce lies ahead.

The exit by Datorama, which announced yesterday that it would be sold to Salesforce, is the first "classic" high-tech exit of 2018. The price in the deal is estimated at $850 million. It's true that Orbotech Ltd. (Nasdaq: ORBK) was sold for $3.4 billion, but Orbotech has been around for more than 25 years - not exactly a startup. There was also the sale of NDS to Permira for $1 billion, but NDS previously belonged to Cisco, which originally bought it for $5 billion. The IVC-Meitar exit report for the first half of 2017 shows that besides these two deals there have been no large exits this year of the kind we have seen in previous years. That is, until now.

On the face of it, Datorama was not a company of which an exit like this might be expected. It is a fairly modest company, founded six years ago, that raised $50.7 million in three relatively modest rounds. Its product is aimed at a specific professional market: a platform that measures the impact of advertising campaigns in real time. The company is not a stranger to the tech press (and was even ranked tenth in the "Globes" list of the most promising startups of 2017), but up to now it has not been widely known. Still waters run deep, in high tech too.

"Datorama has never had a high media profile, but I think that we succeeded in building a unique technology that fulfils a need for advertisers dealing with many advertising channels," Datorama CEO Ran Sarig told "Globes". "What we do is to integrate these channels. How does a television campaign connect to a campaign on Facebook and to street billboards? It’s very difficult to measure these things. Each looks different and yields a different kind of information. A social campaign is measured in posts and likes, and how many people saw it. A search engine campaign is measured by the number of clicks on an ad.

"Our technology is capable of making all these things, automatically, speak one language. There are advertisers who connect thousands of sources of information to us, without writing code and without embarking on a long integration project. That has enabled us to become a large business, operating in seventeen countries and reaching an annual sales turnover in the tens of millions of dollars."

The sale, which at the moment is at the MOU stage, is due to close in the third quarter of this year, following which a new Salesforce development center will be set up in Israel on the basis of Datorama. As far as Sarig is concerned, at least in the foreseeable future, not much will change. "The enterprise structure will remain as it is, and we shall continue to do exactly what we are doing. We had plans for aggressive expansion even before the deal, and we are carrying on at the same pace."

The company that understood that 70 graphs help no-one

Sarig and his partners Katrin Ribant and Efi Cohen founded Datorama in 2012. Since then it has managed to reach thousands of large corporations like IBM, Ticketmaster and Ipsos. The advertising market in the US consists of thousands of media channels, marketing avenues, and various advertising exchanges, and a marketing manager has to analyze this welter of information sources in every advertising campaign. Datorama lightens his or her burden by consolidating the information and its visual display, making it easier to understand and act upon.

Eighteen months ago, the company started to sell its software to Israeli customers as well, as the local advertising market developed and spread over more media channels, and in the last six months it has become a significant force in the market, recruiting several major customers, such as Super-Pharm. Its customer portfolio probably boosted Datorama's attractiveness, but Salesforce doesn't exactly lack clients: it’s a giant company, with a $100 billion market cap on Nasdaq, that dominates the global CRM (customer relations management) market. Nevertheless, Salesforce cast eyes on Datorama, and in April this year signed a collaboration agreement with it that eventually led to the acquisition.

Market sources say that as far as Salesforce is concerned Datorama's main asset is not the product itself but the company's development capabilities. Its focus on development caused it to grow from a staff of 80 at the start of 2016 to 400 today, 130 of them in the Alon Towers in Tel Aviv. The sources say that the development center that Salesforce will set up in Israel on the basis of Datorama will focus on Marketing Cloud. This is a developing field that Salesforce seeks to enter in order to cope with the splintering of the advertising market into more and more media channels and information sources. Datorama's technological prowess in this area is apparently an important element of its attraction.

"In today's marketing world, large and mid-size companies contend with the need to run campaigns on many channels, offline and online, is several countries, in different currencies, at different times," Motti Vaknin, a partner at the Cedar Fund, one of Datorama's main investors, told "Globes". "Datorama's technology makes it possible to integrate all this information extremely fast. They are the only company, or one of the only companies, in the world capable of carrying out analysis of information from different sources on the same dashboard. The average Datorama customer uses 70 information sources. What use is it if they appear on separate graphs? What is of interest is to understand all marketing expenditure with a single glance, and to analyze it after it has undergone harmonization."

"This is a special exit," says Dror Berman, a founding partner of Innovation Endeavors, which is a prominent investor in Datorama. "Not only is this a company with significant revenue and an extraordinary growth rate, but this is also the first time that a company of this order of size has grown up in Israel on the basis of an SaaS model." SaaS (software as a service) has become one of the outstanding trends in recent years in enterprise software, saving the need to install complex systems on the enterprise's computers.

In the very good deals league

Over the years that it has been in business, Datorama has raised $50.7 million in three rounds. Although the acquisition price is more than sixteen times the amount raised, sources close to the company estimate that the funds that invested in Datorama, and not the founders, hold most of the shares.

The most prominent investors are Lightspeed, which led the third round in the company, and the Marker fund, which invested over $10 million in it, followed by Innovation Endeavors, which invested a little less than that and participated in all three rounds. It is estimated that the Cedar fund, which was an early-stage investor in Datorama, will enjoy an especially high return, of over twenty times. Innovation Endeavors will reord a return of over eight times. "The funds will enjoy a very good slice of the deal, certainly those that went in at an early stage," says one source. "As far as venture capital firms are concerned, this is the kind of deal that makes all the difference. For all the investors, this is in the very good investments league."

Nevertheless, the impressive size of the exit means that Datorama's founders will earn a decent profit, and the company's employees, who hold 15% of it, can also be content. "Most of them have shares or options, and there are many employees for whom this will be material." Datorama has been represented since it was founded by Adv. Dan Shamgar and Adv. Talya Gerstler of Meitar Liquornik Geva Leshem Tal & Co., while Salesforce was represented by Hogan Lovells.

The acquisition will of course considerably boost Salesforce's presence in Israel, but it will certainly not be its first acquaintance with the local high-tech scene. In the past it bought Implisit Insights for an amount estimated in the tens of millions of dollars, and BlueTail, as well as other startups whose names were not disclosed. In some cases the acquisitions led to the formation of new development teams, while in others the acquired companies' personnel were absorbed in Salesforce's existing activity in Israel. The Einstein artificial intelligence system, which interfaces with Salesforce's CRM system, was also developed in Israel.

Published by Globes [online], Israel business news - www.globes-online.com - on July 17, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Datorama  photo: PR
Datorama photo: PR
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018