IP convergence network

Haim Sedgar, manager of Sequoia's Israeli fund, Sequoia Capital Seed Fund, has already met strong entrepreneurs. Some of them, of course, like the founder of Cisco, were senior partners in Sequoia International, regarded as one of the world's best funds. But Stephan Ouaknine, founder, president and CEO of Airslide Systems managed to surprise even him. At 26, Ouaknine belongs to that rare breed of young entrepreneurs that knows exactly what they want, have the vision to see the horizon, and the ability to take the company there.

"I always knew I'd found a start-up before 40," Ouaknine says. "I did everything early from the day I was born. My parents tell me that the umbilical chord fell off a day after I was born, instead of the usual ten days later." For all his daring, he owes a little credit to luck too, or as he puts it, "I was lucky in that I made the right choice." He landed at Geo Interactive when it was still a start-up with fifteen employees, with a not-particularly-high technical degree, but with an international MBA from Canada, where he was born.

Within four years Ouaknine had travelled the globe to exhibitions, learning a great deal about Internet technology and closing deals for millions of dollars. When he had had his fill of Geo, he decided to set up a start-up, not in the Internet field, but in telecommunications. "It's more meaningful. It's easier to get into Internet, which requires less money and fewer experts. Telecommunications is a club that is harder to join, but once you're successful, you earn more. It's also more for the long-term. I'm not here to build something nice and sweet and sell it for $100 million. That eventuality doesn't interest me."

Ouaknine wants to compete with the giants. He therefore compiled his business strategy very carefully. His start-up did not begin with a technology idea, but thorough market research. "I came to the conclusion that cellular was the way to go; it's a field which is growing at a crazy pace." He linked up together with Oren Shmulevich, 30, a man with extensive technical knowledge who did very well at Vocaltec. The two of them started on R&D and circulated among investors. Four months later, they relocated their office from coffee shops in the heart of Tel Aviv to the Herzliya industrial zone.

By this time, they already knew what they wanted to do: connect cellular operators to IP networks with just a simple little box, irrespective of their protocol or complicated network. The goal: to give them the ability to transfer data on existing backbones by increasing the bandwidth by up to 45%.

Cellular operators networks consist of three different backbones, each with their own expensive boxes and equipment to enable them to talk with one another. One is for initiating the call, the second for transmitting voice, and the third for data. It's the third that cellular operators are betting on.

Add to the expenses column the costs involved in support of all this tiresome structure, stemming from the rush to deploy infrastructures to quickly enter the market on time and face the increasing competition and growth by users. Technology, which is slower and often accompanied by ad hoc solutions, can't match the pace.

Airslide plans to offer several enterprise applications on its gateway which will converge all three meandering backbones. The applications will enable the user to exploit the cellular handset for information on the enterprise network. For example, a manager at a meeting in the Far East will be able to hook up to the electronic calendar software of his colleagues and set up a multi-participant meeting - via his cellular telephone.

It also plans to build interfaces for Microsoft applications and to develop this cellular platform.

"Globes": Exactly how do you plan to make a profit out of this?

Ouaknine: "I'm not saying I want huge earnings in the initial stage. I want to create a wide user base."

In effect, the activity you have just described is merely a means for stepping into the market.

"Certainly. Our final goal is to develop a switch for transferring calls to the handset and connection to the landline. Developing a switch in this market exacts a great deal of work and sales are difficult. A sound company is needed which can show it has customers, even if it isn't very profitable. At the moment, it would megalomaniac to attempt this."

To this end, Airslide will have to raise a great deal of money in the next financing round. After the $2 million raised from Sequoia Capital Seed Fund (Sequoia International's Israeli fund), based on a company value of $6 million after money, Ouaknine does not foresee a problem. He also thinks the next valuation will be well above $50 million.

Sequoia's investment, however, comes with a price. The companies in its portfolio not only have to be truly American companies, they must also work out of Silicon Valley. Ouaknine, is working on setting up a marketing, sales and distribution spread in California. He's planning to have 70 workers by the next round in eight months, plus two successful beta trials and strategic ties with large equipment suppliers Lucent, Nortel, Cisco, Ericsson and the likes.

Beyond the friendly relations, Cisco has a special interest in helping tiny Airslide. Ouaknine anticipates that competition with his company's products, when it happens, will come from large equipment manufacturers (he claims that currently only slight competition exists, from Tekelek). What does it cost the mighty Cisco to be nice to a start-up likely to give a place of honor in the fierce competition with its rivals?

At the same time, the ties with Sequoia gave Airslide a particularly flexible springboard. Ouaknine likes working with them. "Terms are better, they invest because they believe in you, and they're not cynical. We had three draft contracts with Israeli funds when Sequoia entered the picture. Within 48 hours a draft contract with Sequoia was ready, and we closed the agreement within two weeks." Moreover, Ouaknine says they are aggressive and know what they want, which suits him nicely.

Published by Israel's Business Arena on January 31, 2000