PacketLight Networks: Hush-Hush Optical Solutions

PacketLight Networks began like many companies in the portfolio of Israeli company Teledata, which was acquired by US-company ADC Telecommunications in 1998. Teledata wanted to strengthen its products line with strong technologies, and understood that it needed strong technology people to do this. But it isn’t easy to get such people, and those whom Teledata managed to bring to the negotiating table – all five of them headed by Yuval Porat – were a dream-team start-up.

The deal appealed to both parties: the entrepreneurs got financing and the back-up of a veteran company, while Teledata got a team that would carry out successful projects under its custodianship that, in exchange for pennies (a $100,000 investment) and professional guidance, would agree to handle a greater part of its holdings.

Thus was born TLink, which over time became PacketLight Networks. Then Teledata deputy general manager for marketing Meir Kollmann met the group, and after Teldata’s acquisition, decided to cleave a new path. He was offered the post of TLink general manager. It was clear to him then that it was necessary to separate the group into an independent company. Kollmann says, “There are problems with the model of a group providing long-term services to a company. There is pressure from individuals within the company to break away, although the model is a good one for the short term.”

Kollmann accepted the offer, and the group set out to find its path, less one founder, who went his separate way. Kollmann says, “We entered a very complicated period, at least from my perspective. You pick a direction, surf the web, go to conventions, and then discover that the field is too crowded. We were working opposite ADC, and compared our idea with them and with their customers in the US. We then understood that we had something good going. We faced an interesting situation: this young company of five people was profitable thanks to the Teledata projects. Every investor who was exposed to the company wanted to invest in it.”

Kollmann says that he could choose which investor to go with. He chose Polaris III Venture Capital Fund because the company needed heavy investment and, “Polaris seemed to us to be the strongest fund in Israel.” Portview Communications Partners also jumped on the bandwagon, together completing a financial round of $11 million, at an estimated company value of $35 million, after money (interested parties have not revealed precise numbers E.J.B.).

Kollmann is a silent type. It takes a lot of entreaties to make him reveal even a hint of the company’s activities. The man is so secretive that he thought it would suffice to tell us about PacketLight’s exit from Teledata and the names of the funds he was working with. He explains, “There is a lot of competition, mainly in the US. No-one says what he is doing.”

After the entreaties and the third degree, the man was willing to reveal a bit about the company. “We are making innovative communications systems, based on advanced optical technology, designed for service providers in the US,” he says. Kollmann adds to this rather enigmatic declaration, “Our perspective is to enable customers to make their communications more effective, including broadband services, on all protocol types.”

As for competitors, Kollmann says that they too are quite secretive, mentioning Terra-Wave, Sirocco (which was acquired by Sycamore), Astral Point and several other start-ups. Does the fact that ADC Telecommunications is a shareholder sharpen the company’s competitiveness? ADC is not a newcomer, but an established medium-sized communications company, currently traded at a market value of $23 billion. Kollmann says, “The fact that we are a part of ADC does not limit the entry of other players. Otherwise, the venture capital funds wouldn’t invest in us.”

But, says Kollmann, this is precisely the reason the company decided not to maintain ADC’s controlling position in it. The US telecommunications company owns 30% of PacketLight’s equity capital. A similar percentage is each held by venture capital funds, founders (Yuval Porat, Yaki Luzon, Michael Mesh, Hagay Katz and Kollmann), with employees holding the remainder. “We will also need tens of millions of dollars in financing, which could hurt their profits,” he says. According to Kollmann, the company’s ability to raise financing is greater than similar US-based companies. “There are many US start-ups, and people are far more mobile there than in Israel. We only recruit very strong people.”

Globes: Do you think that companies with deep technology find it easier to attract good employees?

Kollmann: Workers want to be at the cutting-edge of technology, and want to learn from somebody. Things snowball, with good people attracting more good people. We reject most of the people who want to join us. This is very different from the US model, where the quality of the staff is less important, and everyone tries to prove that he has more than the others. Also, Israeli engineers are more daring and creative, and have a greater chance of reaching the objective first.”

Published by Israel's Business Arena on 2 October 2000 <--/Article-->