Modu to raise money in Tel Aviv

Despite its youth, cellphone technology startup Modu is preparing a prospectus to float stock on the Tel Aviv Stock Exchange. The company, founded and run by Dov Moran of Msystems fame, will either float in November based on its financial statement for the second quarter of 2010, or in early 2011, based on its report for the third quarter.

The company has already chosen Clal Underwriting to handle its initial public offering. During the weeks to come, representatives of Modu and the underwriter will be discussing the price for the stock offer. Industry observers suggest the company will be valued at about $100 million for the flotation, and that Modu will sell 20% to 25% of its shares.

	Dov Moran
	Photo by: Eyal Toueg

Moran told TheMarker last week that the company has money: It held a financing round among its shareholders at the beginning of the year. "Modu's condition is good," he said.

He did not deny that the company is heading for a public offering, but declined to expand, possibly because of the sensitivity of disclosures ahead of flotations.

A source told TheMarker that the venture capital funds that own shares in Modu are not likely to sell. He added that before any flotation, first the shareholders have to grant their approval: "I believe that all will agree and approve it," he said.

At this stage Modu is not expected to dual-list its shares on Wall Street, which means it will be raising funds mainly from local investors.

Modu's flotation would be unusual given the company's age: It is of tender years, having been founded only in 2007. The company boasts of pioneering modular cellular devices. The client buys the basic device and "jackets" with extra sets of functionalities (each with a different look, too ), including MP3 player, games, surfing capacities and so on.

It began selling its devices this year, but apparently is a long way from breaking even, which means that it is burning up cash. Nor has all gone smoothly: in November 2009 the startup held its third round of layoffs, sending home 110 people.

The economic circumstances have not been kind to companies that need extra cash, and the company has had difficulty raising funds in the last year. A public offering is another way to address the problem.

This is the second time that Moran and his chief financial officer, Ronit Maor, are taking a company public. The first was flash memory pioneer Msystems, which went public in the U.S. and was sold in 2006 to SanDisk for $1.55 billion. That year, 2006, Msystems had to restate its results for 1999 to 2005 due to accounting errors involving stock options, which it corrected to the satisfaction of the U.S. Securities and Exchange Commission.

Modu is approaching a crossroads. In October, it will be launching its latest cellular device, the Modu T. It will still be using the software operating system Brew, developed by Qualcomm, but will sport a touch-screen.

Modu says its device will remain the smallest cellular phone in the world. It will have music-playing capacity and have expandable memory starting at 2 gigabytes. It will also have more applications than the startup's first-generation devices, such as links to Facebook, Twitter and YouTube.

Two weeks ago the Federal Communications Commission revealed that Modu will also be launching a device in the U.S., to be called the Modu W, which supports Wi-Fi wireless capacity.

Modu is preoccupied with the launch of its Modu-T model. But in the future, its third generation of Modu phones will have Google's Android operating system.

For the time being, the company is selling its first generation of phones in eastern Europe, Africa, Asia and South America. Over here, Cellcom was supposed to launch a Modu device, but decided not to. The only place the Modu 1 is locally available is the electronic retail chain Bug, where it costs NIS 500.

During its lifetime Modu has raised $100 million. Although the company was launched with much fanfare, the timing of its pared-down model proved unfortunate as far as the western markets were concerned - users there went crazy for smart phones, not naked ones. For the time being the company is keeping a low profile as it works on its technology.