Etan Rozin

Herzliya Municipality Seeks to Retain Scitex by Offering Building Rights, Tax Breaks

By Elazar Levin

The Herzliya municipality is seeking to prevent Scitex’s departure. Negotiations with Scitex were accelerated after “Globes” reported last week that the company was negotiating to rent 30,000 sq. m. in Rosh-Ha’ayin, Kiryat Aryeh or Netanya. Scitex currently occupies 25,000 sq. m. in two buildings in Herzliya Pituah.

Deputy Herzliya mayor and chairman of the Town Building and Planning Committee Haim Peled, Scitex vice president Erez Meltzer, and Bayside general manager Hanan Nitzan met to discuss the issue last week. On the agenda was a plan whereby the municipality will allow Bayside to demolish the single-storey building occupied by Scitex, and put up a seven-storey building that will be leased to the company. Peled and town engineer Meshulam Granot, who attended the meeting, said that the municipality would speed up the approval of the building plan. The municipality will also allow Scitex to construct a 700-vehicle parking lot.

Municipal accountant Aryeh Rahat said he would look into Scitex’s request for municipal tax concessions. The municipal tax gap between Herzliya and other cities is one of the major reasons for Scitex’s plan to relocate.

Published by Israel’s Business Arena September 13, 1999

By Eliav Alalof

It’s no secret that the really big money is currently chasing high tech’s next success stories. And the really big money comes mainly from Israeli and US venture capital funds, which are on the outlook for the next hit. One of Israel’s most prominent venture capital funds, Giza is run by Zeev Holtzman (chairman), Zvi Schechter, and Giora Bitan. Bitan, a former vice president for finance with Scitex, joined the Giza group in 1997, and, in his capacity as Giza agent, led Libit’s sale to Texas Instruments for $360 million.

“Globes”: Don’t you have a feeling that Israeli venture capital funds have missed out on the Internet revolution?”

Giora Bitan:“I don’t think so. I haven’t seen a single Israeli eBAY yet. In fact, with the exception of Mirabilis, I don’t know of any serious Internet company that’s not American, so it’s impossible to say that the venture capital funds have missed out on anything if no such companies have emerged. In the past year, to be sure, massive investments were made in the Internet sector, but their results will be visible only in a year or two. Even Kleiner-Perkins took two-three years to get eBAY off the ground.

“As for Giza, we’ve looked into dozens of Israeli Internet companies, but I’m not sure that Israeli .com companies can become international success stories. On the other hand, the companies we considered attractive are Internet companies involved in enabling technologies, namely technologies for constructing the network’s infrastructure and the services provided over it.”

What kind of companies are you referring to?

“Take, for instance, companies such as Libit or Orckit. Without the Internet, such companies wouldn’t exist, although they’re not involved in the Internet themselves. The very notion of high-speed data transmission over telephone or cable lines wouldn’t have acquired such importance if it were not for the Internet.”

Zvi Schechter:“Israeli companies have a problem with building up an advantage in the marketing concept area – to race ahead with an idea, to hit the market in four months, and to get sold in a year. Take, for example, the issue of online chats between two or more people on the same site. Israel is the only country to have five such companies already. Of course, they have competitors from the US, so that the Israeli companies don’t have a competitive edge in terms of the speed at which they hit the market. Proximity to the market is very important, because the technological threshold is very low.”

Zeev Holtzman:“I’d like to draw attention to a problem currently facing non-Internet entrepreneurs, which is that fund raising has become extremely difficult. Venture capital funds are busy only with hype, to the neglect of areas, such as medical technology, which are expected to become attractive in the years ahead.

“Nowadays, investors aren’t interested in companies developing various medical technologies. Who wants to invest in a complicated thing that may be realized in 4-5 years, when you have a fashionable hot item that’s realizable in 6-12 months, such as the Internet?

How will the Internet fever affect the financial aspect of corporate management?

Zeev Holtzman:“Because the Internet sector is attracting all the attention, the Wall Street bar for non-technology companies is being set ever higher. That’s why we see many Israeli companies turning to Europe. I’d describe this trend as ‘private placements on public stock exchanges.’ With the exception of the German Neuer Markt, investor interest is scant, and there’s hardly any trading activity in stock exchanges such as the Nouveau Marche in France and Belgium.

Recent weeks have seen a heated controversy over the Chief Scientist’s role, the size of her budget, and the intention of Finance Ministry officials to raise the royalties technology companies pay the Chief Scientist’s office. The Ministry of Finance’s initiative was rejected at last Sunday’s cabinet meeting.

Do venture capital funds have an interest in the existence of an institution such as the Chief Scientist’s office?

Giora Bitan:“Foreign investors intending to put money into venture capital funds like to see a supportive environment created by the government. It’s important to realize that, by putting up relatively tiny sums, the government creates a favorable, nurturing environment for the high tech industry.”

Zeev Holzman: “To put things in perspective, the Chief Scientist’s budget, including incubators, amounts to $400 million. If we add to this the royalties received from companies every year, the net budget ranges from $250-300 million. This is peanuts compared with the funds allocated to haredi (ultra orthodox) associations.

“The significance of investments in start-up companies is tremendous, and the budget should be increased to foster economic growth and create jobs. In my view, the original model of venture capital funds should be duplicated. Under the practice of ‘matching funds’, the Israeli government put up 40% of the capital to be invested, and the entrepreneur and private investors put up the rest. In a $30 million fund, $12 million were a government loan, repayable to the government with interest and linkage after seven years. Israel’s first venture capital funds were fashioned on this model.

“If the same model were introduced into the biotechnology sector, I’ve no doubt that a serious biotechnology industry would develop in this country. A $30-40 million budget on the ‘matching’ model, would have made it possible to set up venture capital funds with world class expertise. We’ve reams of knowledge in our universities and research institutions, but it takes money to apply. Just as the Israeli government has built transportation and communications infrastructures, it should set up an infrastructure of technology and biotechnology entrepreneuring.”

Giora Bitan:“I’d like to take up the feasibility of selling companies versus floating them. We’re seeing dozens of Israeli companies traded on NASDAQ at scant turnovers and low value. This is apparently the outcome of premature issues held when issuing was just too easy.

“Selling is a reasonable solution for an Israeli company with a good technology but without the marketing arms of a well-established US company.

“If we take a look at the US market, we’ll see that the number of start-up companies being sold is eight times higher than the number of companies holding an IPO. If we take a look at stock markets across the world, we’ll see over 100 Israeli companies traded on public stock exchanges. Has this figure been matched with 800 acquisitions and mergers among Israeli companies? I don’t think so, which only goes to show that Israeli companies may be choosing the wrong exit.”

So your conclusion is that selling is pretty good at the international level?

“Definitely. The sell-or-float controversy in Israel is outdated. We’re talking mostly about R&D activities rather than about plants. In most cases, Israeli companies that have been bought turn into local development centers and their staff grows significantly. Each new high tech sector employee has an employment multiplier, because he consumes services (catering, cleaning, accounting, lawyer’s services, etc.), which is why the acquisition of start-up companies whose operations are exclusively R&D is a blessing for the Israeli economy.”

At the national level, there’s yet another conceptual problem. Nearly all the money in Israeli venture capital funds comes from abroad.

Giora Bitan:“This is certainly absurd. For me, as a venture capital fund, it doesn’t make any difference, because I’ve got the money. But, as an Israeli, I notice that foreign investors are the major beneficiaries of all the big successes of Israeli high tech.

” I don’t know whether it’s funny or sad that the pension fund of Detroit’s construction workers invests in an Israeli venture capital fund and enjoys an annual 30% return, when Israeli pension funds are making do with a 5% return on government bonds.

“Every US institutional body allocates some of its portfolio to high-risk investments such as venture capital funds. Only Israeli institutional investors are scared of doing so, and the losers are funds’ beneficiaries. Can you tell me why things are different in Israel?”

Perhaps because Israeli institutional investors aren’t exactly famous for their courage.

(Laughs)”You said that.”

Published by Israel’s Business Arena August 25, 1999

How does it feel to “buy” Efi Arazi, one of Israeli high tech’s founding fathers? I ask Terayon’s founder Shlomo Rakib the day following the announcement that Terayon bought Arazi’s Imedia for $100 million. Rakib, whose rags-to-riches story has been told innumerable times, replies that Imedia is a wonderful company with remarkable staff and technology. But what does it mean to you emotionally speaking? I insist. Rakib is not a man to display his emotions. His answers are always correct, dignified, respectable. “Clearly it’s a great honor,” he finally pronounces. “After all, Arazi is indeed the grandfather of Israeli high tech.”

Brothers Shlomo and Zaki Rakib are believed to be worth more than $100 million each. Their modest beginnings have been much reported. They graduated from high school at age 16 and went on to university. Shlomo studied electric engineering, and Zaki did a PhD in mechanical engineering and post-doctorate studies in applies mathematics. He taught for a while at Tel Aviv University’s computer science faculty, and then joined Helios. After Helios was sold to US company Cadence, Zaki moved to the US, and urged his brother to join him and set up a company. This is how Terayon, a maker of modems for high-speed Internet communications over cable, came into being. Terayon held an IPO in August 1998, and its market value has already crossed the $1 billion mark. When I ask Shlomo where he would like to be in five years’ time, he replies that he’d like to become a 3Com.

“In all respects, except for the share price,” he adds. “I’d like to be as solidly based and as decentralized as 3Com, and I’d like recognition. I’d love to be a blue-chip company.”

Such aspirations contrast with the prevailing trend in Israel, dubbed “the gold rush” by BackWeb founder Eli Barkat. Entrepreneurs can’t wait to sell and “run off” with the money. Do you find this trend disquieting? I ask. “I see a negative side to it,” he replies. “But I also see the positive side. I believe that entrepreneurs who sell off at an early stage will invest the money in something new. Israel’s objective is, naturally, the establishment of longer-surviving companies, but it’s perfectly all right to sell at an early stage. Some venture capital funds specialize in early selling. It takes a long time to build up a company. Sometimes the economy is stronger when there are a lot of small companies. Diversity is a hedge against risk.

“I, for one, am in favor of judging each case on its own merits. Mirabilis, for instance, had an option to sell. They could have refused to sell and, perhaps, later face competition from AOL, which bought them. The Lord created Mirabilis, and the Lord will create others. I don’t know Yossi Vardi personally, but I tend to trust his judgment. Another example is Libit, which was sold to Texas Instruments. Libit considered all the alternatives and assessed the competition, and reached the conclusion that joining a big company would help it cope in the market place.”

“Globes”: What do you think of the idea of imposing restrictions on the sale of companies in which the Chief Scientist’s Office has invested?

Shlomo Rakib:I’m not familiar with the details, but, above all, I believe in a free economy. That’s the right way to do things. When the government invests, it should set commercial terms, such as receiving shares, so that if the company is sold, the government will also get some profit. By the same token, you can’t force people to stay in Israel. And anyway, I don’t see it as a brain drain, but as an excellent way for Israelis to learn how to do things. If engineers or entrepreneurs want to leave, you can’t keep them. The world’s free. If someone leaves, the State should offer him enough attractive reasons to come back.”

Do you believe Israel will produce a Nokia?

“Israel has ECI. Elbit is a large company. I believe one day Israel will produce a really big company. Not of Cisco’s size, but big. It takes maturity to run a company so that it gets really big. I believe it’ll come with time.”

Of the tendency to sell companies at an early stage, Zaki says: “The Israeli high tech industry used to have the reputation of an industry prone to premature, and sometimes disappointing, IPOs . In the last few years, there has grown a better understanding in Israel of what a public company means. Some entrepreneurs who opt for selling recognize the fact that it’s very difficult for an Israel-based general manager to bring a company to a situation in which it’s visible enough. In Israel it’s difficult to get high valuations. A wonderful company such as ECI is traded at a market value of $2.5 billion, whereas a company such as RedBack, whose sales turnover is only $5 million, already has a market value of $3 billion.

“This combines with various personal considerations. The liquidity of a listed company is limited. You can’t make a fast couple of million, because if you sell too many shares, you’ll drive the share value down. A merger, on the other hand, gives you a lot of money right away. And as far as the company is concerned, there’s the advantage of obtaining marketing and sales infrastructure.

“Life in a public company is very difficult. I live in the Valley, not in Israel, and I still have to spend seven months a year away from home (the interview with Zaki was held on the telephone, with Zaki calling from Japan -MSM). I have to spend at least three months a year with investors, which is necessary if you want a higher market value that will enable the company to make investments and progress. I opted for expanding the company, because it suits me. I’ve always dreamt about it. To make a change. To bow out of business leaving something that will be remembered. I don’t underestimate the remarkable capacity of some people to sell off their company, but I find it hard to believe that the name of Libit will mean anything to anyone five years from now. I want Terayon to be remembered. We’re competing with giants like AT&T, and it’s important to me that people will say that David overcame Goliath.”

When you first came to the US, did you dream of success on this scale?

Zaki Rakib:“I refuse to call it a success. Thank you for the complement, but I’m paranoid. It’s very premature to call it a success. As for my aspirations, I have believed we would succeed since I was very young. My father was an electrical engineer in Egypt, and he had a contracting company. From early childhood, Shlomo and I were interested in the technical side of things. We used to take things apart and put them together again. I remember that, when I was seven, I told Shlomo we would build a company together. I said, ‘I’ll be the general manager, and you’ll report to me.’ And it all came true.”

It was the urge to strike it big that prompted Zaki to try his luck in the US. “I left because at that time the atmosphere in Israel didn’t make it possible for young people to make a breakthrough. That’s why I take of my hat to all the Israeli high tech industry,” Zaki says. “It’s difficult enough to set up a company and make it a success in the US, but it’s even more difficult in Israel, because you’re far from the sources, far from the market. There’s a smartness surplus in Israel. I’m not saying it in any negative sense. It’s simply a fact. Everybody’s smart. Everybody thinks: ‘Who are you to be general manager?’”

Like his brother, Shlomo has profound respect for Israel’s top high tech people. “The brothers Zisappel, for instance, have left their mark everywhere, cultivating start-up companies. I also have deep respect for Uzia Galil, for Shimon Peres, who set up Tadiran and other electronic companies, for the BIRD fund, Dan Tolkowski, and Ed Mlavsky. DSSP’s Davidi Gilo has set up some very successful companies.”

“Is money still a driving force for you?” I ask. “Money,” replies Zaki, “gives a sense of power. But what’s more important, money is a gauge. Your quality of life will be the same at $10 million and at $100 million, but money becomes a measure of your success. A good general manager must have criteria against which he can measure himself all the time. Comparison is also important. The industry has its heroes, and you look to them as role models. It’s important to be jealous. If you’re not jealous of another company or don’t envy another manager, it detracts from your urge to succeed.

“One of the important things for institutional investors is to know that the general manager has an insatiable hunger to build up shareholder’s equity. If he’s not hungry, why should they be hungry to invest in him? As a shareholder in Terayon, it’s very important to me that the company’s value keeps growing.

“My office overlooks the parking lot, which is full of sparkling brand-new cars. Many of our staff, including my sister, have bought houses and cars (Susan Fishel works in Terayon as a systems engineer. She joined late and doesn’t have holdings like her brothers; only options like the rest of the staff). It’s fantastic to know that I’ve touched the lives of so many people, and will continue to do so. Right after we bought Imedia, I told the staff: We bought Imedia for $100 million, and we’ll turn it into a billion-dollar company.”

Published by Israel’s Business Arena July 26, 1999

Acquisition Adds Video Expertise to Terayon’s Broadband Access Portfolio

Santa Clara, California. (July 13, 1999) – Terayon Communication Systems, Inc. (Nasdaq: TERN) today announced a definitive agreement to acquire Imedia Corporationhttp://www.imedia.com. Terayon, a leading supplier of broadband cable modem systems, plans to acquire Imedia, a privately held company that produces routing and re-multiplexing systems for digital video. Imedia’s innovative, patented products enable cable operators to select and customize their program lineup for viewer preferences, while maximizing video capacity and quality over standards-based set-top boxes. The acquisition will expedite Terayon’s ability to offer a complete broadband system portfolio to support high-speed delivery of data, voice and video over cable.

The Imedia acquisition will be accounted for as a purchase. Terayon’s acquisition of Imedia, which is valued at $100 million in stock plus transaction costs, is expected to be effective late third quarter.

Efi Arazi   earazi@imedia.com
Chairman of the Board
A recognized industry leader who has brought multimillion dollar ventures to new markets, Efi Arazi founded and pioneered Scitex and Electronics for Imaging (EFI), today worth a combined $3.5 Billion in market capitalization. Mr. Arazi was invited by the founders of Imedia Corporation to join as partner and chief executive officer in 1995. He was named Chairman of the Board in 1998.

Terayon and Imedia have strong, complementary customer bases that include the world’s leading cable operators. Imedia has a customer base that includes major cable operators, such as Adelphia, Cox Communications, and Time Warner, as well as partners, such as General Instrument. Terayon’s cable modem systems are deployed by leading North American cable operators, Cablevision Systems, Rogers Cablesystems, Shaw Communications and TCA Cable TV, as well as by major international cable operators including United Pan-Europe Communications (UPC) in Europe, Jupiter Telecommunications in Japan, and operators in Latin America.

Terayon Communication Systems provides cable operators with reliable, high-capacity cable modem systems that support a full range of broadband services. The Company, based in Santa Clara, California, USA, has sales and support offices worldwide, and is traded on the Nasdaq National Market under the symbol TERN. Terayon can be found on the web at www.terayon.com.

Privately held Imedia Corporation, based in San Francisco, develops and markets the industry’s most powerful tools for cable, satellite, and terrestrial television operators to manage compressed digital video. Their patented products are currently used to deliver standards-based video (MPEG) to operators on three continents.

For more see http://www.imedia.com/news/index.html