Building Global Companies the Zisapel Way

"One can take a lot of credit for the success of one's companies," says Roy Zisapel, CEO of Radware. "You can tell the whole world that you know the winning formula. But ultimately, a large measure of luck is involved."

Roy's father, businessman and high-tech entrepreneur Yehuda Zisapel, smiles and nods in agreement.

As it appears, the dynamics between Yehuda and Roy, the two controlling shareholders in Radware, of the Rad-Bynet Group, are one of the things that contribute to the company's relative success. Yehuda provides the experience and the levelheadedness, while Roy brings the enthusiasm and frenetics.

Each time a question is addressed to Yehuda, Roy, who initially asked not to be quoted, answers with a rush of details. At any moment, you expect him to begin trying to sell you some Radware equipment if you happen to be missing any at home. Yehuda is apparently not only proud of his son's responses, he is also happy to lower his profile.

For years, Yehuda rarely agreed to be interviewed, despite his major involvement in the growth of the local high-tech industry. As the founder of the Rad-Bynet Group in 1981, and as its president, Yehuda knows that it is one of the few organizations in Israel whose greatness can be illustrated with numbers and not just with words.

The Rad-Bynet Group, owned by brothers Yehuda and Zohar Zisapel, today numbers 24 companies, seven of which are traded on the Nasdaq exchange. Over the years, Rad-Bynet has had public offerings of 10 companies on Nasdaq; it has sold four companies and closed three others, two of which were joint enterprises with other investment groups. The group has a current payroll of 2,500 employees.

Nevertheless, Yehuda is aware of the erosion of the group's status and its financial worth since the bursting of the high-tech bubble on Wall Street. About three years ago, the combined value of Rad-Bynet's seven publicly-traded companies was some $3.5 billion. Today, they are worth just $333 million. Only two of the publicly-traded companies are worth over $100 million (Radware and Radvision), while three are worth less than $10 million (Silicom, RiT Technologies and Radview). To be precise, even the valuations of Radware and Radvision are currently derived mainly from the amount of cash in their coffers.

Still, its seems that Yehuda is not troubled by the current value of the companies. "High-tech is a field with a lot of changes," he says. "Companies have to be evaluated over time and not at a specific moment. I feel that companies like RiT, Radcom and Silicom will make comebacks in the near future. They may not succeed equally, although that is what we are hoping for. Ceragon is also rebuilding itself; and I hope that within three years, it will show better results. In general, these are companies that were established over 10 years ago. How many companies in the telecommunications field hang on for so long? How many 20-year-old firms can we name in this field?"

As a venture capitalist, Yehuda view things differently than his colleagues in the industry. Unlike most senior executives in the industry, he believes, for example, that the high-tech crisis will not end in the coming decade. "For the past three years, industry executives have been asking when the crisis will end, and they always answer, `In the next quarter,' or `Next year,'" he says. "These answers show that no one really has any idea. So we are making plans for 10 years. If it ends sooner, we'll be quite happy."

Most of the companies in the Rad-Bynet group are involved in telecommunications: Radcom provides quality management solutions for communications networks; RiT develops systems for the efficient management of communication network infrastructure; and Ceragon develops tools for high-speed data transmission on cellular networks. The Zisapel brothers tend to set up companies in niche fields, figuring that this makes it easier for the companies to develop. In the meantime, however, only Radware and Radvision are registering substantial profits.

Radvision, which specializes in Internet conference-call management, reported net profits of $2.7 million in 2002, compared to losses of $1.6 million in 2001. Radware, which operates in the Internet load-management field, recently announced that it expected to report fourth-quarter profits of half a million dollars and that revenues for 2002 would reach a record high of $44 million.

"Our dream is to establish big companies, companies that will be worth a lot of money," Yehuda says. "On the other hand, it is no great tragedy if they are not worth $2 billion."

"The easiest thing to do is to close a company," says Roy. "Giving up is easy. It is much harder to work with the companies, to take care of them, to rehabilitate them. But that is what we are doing. That is our job."

"If a company is healthy," adds Yehuda, "provides employment for dozens and sometimes hundreds of employees and generates cash and not losses, there is no need to close it, even if it is not traded on the bourse at a tremendous value."

Yehuda responds carefully when asked to comment on the VC funds, some of which are his partners in several of the companies he heads. Still, he finds it difficult to hide his criticism. "Unlike VC funds, we do not build companies to make an exit, but rather to build an industry. When fund managers understand that they won't be able to strike it rich quickly with one of our companies, they lose interest. When the troubles began and companies ran into difficulties, the fund managers stopped coming to board meetings. They disappear and we forge ahead on our own."

Yehuda also disagrees with the requests submitted by the funds for assistance from the Finance and Industry and Trade ministries and the Prime Minister's Office. Among other things, these requests recently included a suggestion that the government set up a venture capital assistance fund (the Yozma 2 plan) or put some of the government guarantee funds toward supporting the VC industry.

"Nothing good comes out of government involvement in private industry," Yehuda says. "Even in the United States, where the situation is at its worst, the government is not involved in the VC industry. The fact that the chief scientist assists is important mainly in the initial stages. The best thing, however, is for the funds to invest in companies based on the attractiveness of the investment, not on the basis of external aid from one source or another."

Yehuda and Zohar, who are apparently the biggest VC investors in Israel, see themselves first and foremost as industrialists, not as investors. "An industrialist is connected with what he does. He connects with his workers and with the company," says Yehuda. "To an industrialist, money is a means and not the name of the game. I do not go to a board meeting once every three months, look at a few Excel tables and decide that if the money has run out, the company closes. We don't work that way."

Yehuda's guiding principle centers on the establishment of companies in Israel and their management from here. Roy did indeed go to the United States for a short period to manage Radware's U.S. operations, but he returned to Israel as soon as a replacement was found for him.

"The name of the game is to be a global company," says Yehuda. "Our market is in the United States and we need to be there, but I have found no advantage to registering a company in the United States or to transferring the management from Tel Aviv to New York or Silicon Valley. The only ones who profit from such moves are the lawyers."