Globes, May 12, 2003
Next Best to a Sure Thing
| Israel Seed Partners's Entrepreneur in Residence model is based on successful track records.
|Venture capitalists love nothing better than a sure thing. When they don’t have an absolutely sure thing, they rely on the next-best thing - an Entrepreneur in Residence (EIR). The EIR model asserts that as long as you have a entrepreneur with a record of success, the search for the technology that they will deal with is less importance.
There are just over ten EIRs at Israeli venture capital funds. The largest financing round based on the EIR model is CeLight, which has raised $50 million since it was founded in 1999 by Accord Networks cofounder Amir Shaked and Dr. Isaac Shpantzer. CeLight is an EIR of Concord Ventures, even though its largest investor is Goldman Sachs.
Jerusalem Global Ventures, Gemini Israel Funds, Walden Israel and Apax Partners also have a number of EIR ventures that have exited, or about to do so. Israel Seed Partners general partner Michael Eisenberg is a great believer in EIRs, preferring them to the better-known incubator model.
“When you build a company from scratch, it’s easier to raise capital later, and much easier to find managers,” he claims. Eisenberg is encouraged by the recent investments by US funds in early-stage Israeli companies. An example is last week, when Lightspeed Venture Partners joined Benchmark Capital, Carmel Ventures and Mofet Venture Capital Fund Management second round investment in Skybox Security.
Israel Seed’s previous experience with the EIR model was Qlusters, which started out as a storage technology company, before developing a processor cluster product. Eisenberg comments, “The company is doing well, so far, but can do better.” Israel Seed’s current project belongs to Sharon Azulay, a cofounder of Conduct Software Technology, which was later sold to Mercury Interactive Corporation (Nasdaq: MERQ).
Azulay, David Barzliai, and Ron Levy founded Conduct Software Technology in 1996. Investors included Telus Venture Partners, the investment arm of Cadence Design Systems (NYSE:CDN). Telus insisted that Conduct Software open a US office, and Azulay emigrated to California.
They raised $4.4 million to develop Siterunner, which enables companies’ IT staff to obtain a visual depiction of their network’s resources. Conduct Software’s second product - a website performance testing system that measures the rate at which pages are downloaded and the website’s reaction time to a user’s instructions - attracted Mercury, which acquired Conduct Software in 1999. Mercury “Prism” is based on Conduct Software’s product. The main difference between Prism and Mercury’s in-house product, Topaz, which simulates data reaching the network, is that Prism monitors real online events.
Mercury acquired Conduct Software when the latter was seeking investors for its second financing round. Mercury announced the acquisition in November 1999, in a share-swap deal worth about $30 million. The deal’s value quintupled to $150 million by the time its was closed in early 2000.
Azulay joined Mercury with the acquisition of Conduct Software, but left in mid-2001 to pursue dreams to found his own company, which were not realized. He returned to Israel in 2002, but did not abandon his entrepreneurial ambitions. He submitted a proposal to Israel Seed Partners venture partner Eran Yarkoni, then submitted to another one after realizing that the first would not succeed, business-wise.
Azulay gave the new company the temporary name “Coridan”. A web-search will reveal that this is the name of an imaginary star from “Star Trek”, for which this correspondent will award Azulay some credit points.
Eisenberg says, “I learned from conversations with CIOs in the US that there will be a problem in the not too distant future. I admit that my technological know-how is insufficient to precisely understand the problem, but it seemed to me to be important enough to find someone who could understand the problem, and solve it.”
What is the problem? All Azulay was willing to tell me, without me signing a non-disclosure agreement, was that large enterprises that develop applications for internal use are happy to recycle them for other applications. For example, an application for calculating interest can also calculate savings plans. The problem, according to Azulay, is that using the patchwork method to design applications from recycled parts of other applications creates interface problems that are liable to generate a lot a bugs.
The idea is to create a process that can exploit the core, or business logic, of the original applications to build new ones, like subcontractors assisting the chief contractor of a building.
Globes: “It sounds rather like web services.
Azulay: “It’s part of the web services vision, but from the enterprise side. You don’t develop applications for sale, but for you own use. Web services are also a methodology, not a technology. When I try to describe the underlying concept of my work, I tend to use the concept ‘web services’ because it provides an Internet context, even though I’m working with enterprise systems. You could say that it’s also part of the business process management (BPM) trend that is designed to monitor and examine the reciprocity between an enterprise’s various software systems.”
Companies like ItemField (which recently raised $4 million from Accel Partners, Gemini, and Evergreen Partners), Unicorn, webMethods (Nasdaq:WEBM), Mindreef, Power Data, and others, are working on XML data conversion. Besides offering an engine that can convert from monolithic environments of the kind characterizing the abovementioned enterprises, Coridan understands that XML will use up most of these applications’ hard drives. Coridan therefore plans to offer a mechanism that can drive small XML files among applications and databases without the need of a supercomputer.
The fact that Azulay has previously worked on performance measurement of websites and applications suggests that the product he and his team are developing will include mechanisms to measure the efficiency of XML transfer and conversion. Eisenberg ise satisfied that “Sharon worked for Conduct Software and Mercury. You know what you’re getting.”
Once he finishes formulating his concept and begins hiring development staff, Azulay plans to gain validation from financial institutions and insurance companies, as well as airlines, whose ticketing systems need a range of packages and options. “I don’t want to jump out of the bathtub shouting ‘Eureka!’ If there’s a better idea, you should devote the proper time to it, and not jump before it’s ready. Only afterwards can you begin thinking about raising money.”
Published by Globes [online] - www.globes.co.il - on May 12, 2003