Bubble boys go nano
Rafi Gidron and Orni Petruschka have raised $8 million for a new entity that will invest in nanotechnology start-ups.
Ofer Levi 3 Nov 05 15:47
Rafi Gidron and Orni Petruschka have outdone all other Israel entrepreneurs. When they sold start-up Chromatis Networks to communications equipment manufacturer Lucent Technologies (NYSE: LU) in May 2000 for the inconceivable sum of $4.75 billion in shares, they left the others far behind. This includes Davidi Gilo, who sold DSPC to Intel for $1.6 billion in cash, the founders of New Dimension Software, who sold the company to BMC Software (NYSE: BMC) for $650 million, and a long list of Israeli entrepreneurs.
Even Marvell Technology Group’s (Nasdaq: MRVL) acquisition of Galileo Technologies for $2.7 billion in shares in a deal that followed the Chromatis acquisition by several months, put Galileo founder and CEO Avigdor Willenz far lower in the rating of Israeli exits.
The acquisition of Chromatis naturally put Gidron and Petruschka in the limelight. The press hoopla surrounding the pair was prodigious, but they refused to cooperate. Gidron was always careful to stay away from center stage, and gave no interviews. Petruschka was not quite as inflexible on this point as his friend, but, exceed for a few isolated cases, he also managed to avoid exposure.
Today, five and a half years later, the dynamic duo are breaking their silence in a "Globes" interview. They haven’t suddenly fallen in love with fame; they’re just trying to promote their new baby Prologue Technology Entrepreneurship. Their new project, a cross between a holding company and a venture capital fund, was created to invest in nanotechnology ventures, with the aim of connecting the world of science to the world of business.
Prologue was officially launched at the beginning of this week. The company started with $8 million raised from Pitango Venture Capital, and from Gidron and Petruschka themselves, and is expected to invest in 5-10 ventures over the next two years. “We’re something between fund and a holding company like a boutique for ventures and investments, mostly in nanotechnology. We’ll also be willing to invest in other technology sectors, though,” Petruschka said.
Gidron and Petruschka have known Pitango co-founder and managing general partner Nechemia (Chemi) J. Peres and managing general partner Aaron Mankovski for a long time. Mankovski invested in Chromatis when he was at the Eucalyptus fund, and Peres invested in Scorpio Communications, which Gidron and Petruschka sold to US Robotics in August 1996 for $72 million in cash.
On the subject of Chromatis and the mega-deal with Lucent Gidron and Petruschka absolutely refuse to say a single word. They say that, after the acquisition, they decided to separate their professional lives from their private lives as much as possible, and not to discuss the deal in the media. When asked if they’re trying to duplicate their success with Chromatis at Prologue, Gidron answers diplomatically, “We hope to build companies that will create big products for big markets.”
After Lucent decided to shut down Chromatis in the summer of 2001, Gidron and Petruschka decided to take a few years off. Two years ago, Gidron started examining the nanotechnology sector, while Petruschka dealt with public matters, and promoted Hamifkad Haleumi (the National Census) initiated by former General Security Services commander Ami Ayalon. “We never lost touch altogether; we always looked at possibilities. It seems that the time off we took was enough for us,” they say now. Incidentally, Petruschka is an investor and director in Cellaris, a start-up that develops ceramics for thermal and acoustic insulation, while Gidron is an investor in Mirage Innovations, a start-up in optics.
Not science fiction>/b>
The idea behind Prologue is to connect the world of technology to the world of business. “The entrepreneurial spirit that you find in an engineering faculty has not translated into the nanotechnology sector,” Petruschka explains. “We found that this niche is worthwhile, and it enables us to introduce a new business model.”
The idea is simple. Prologue will either provide the necessary financing that entrepreneurs need in exchange for equity, or will find scientists in institutions of higher learning whose ideas can be applied to nanotechnology in order to take companies one step further on the financing ladder. Prologue has also recruited Albert Olier, a development specialist, who was Gidron and Petruschka’s partner in Scorpio and Chromatis, and Nimrod Goor, who will manage Prologue’s affairs in the US.
Nanotechnology, a fairly new field in high tech, is based on the ability to use atoms, molecules, or any other very small unit of matter (one nanometer is one one-millionth of a millimeter) to create materials with superior qualities. Prologue explains it in colorful language: “In contrast to current production methods, which are based on top-down processes, nanotechnology uses a bottom-up approach to facilitate the use of the smallest building blocks, such as atoms and molecules, and to identify them precisely. This helps create structures with new desirable characteristics.”
If we let our imagination run wild, in the distant future, companies using nanotechnology will be able to produce things like clothing that cleans itself automatically, light-weight army uniforms that protect soldiers against bullets, paper-thin batteries, and thin computers. “All sorts of science fiction tales abound in nanotechnology,” Olier says. “Our goal is to separate the science fiction from the products. Sub-sectors of interest to us include radio frequency identification (RFID) technology based on nanotechnology, alternative energy, displays for mobile screens (currently a focus of interest in nanotechnology), and various sources of light.”
"Globes": How is Prologue different from a technology incubator?
Petruschka: ”In several important ways. First of all, nanotechnology is just beginning, while incubators deal in more mature sectors. Secondly, we provide various services that incubators don’t provide, such as entrepreneurship, business development, and marketing. Thirdly, we give money past the seed stage. The companies we’ll invest in have a promise of follow-on financing, whether from us through follow-on financing rounds, Pitango, or other funds.”
Gidron and Petruschka explain that they decided to break silence and give an interview because they wanted scientists to know about Prologue. Petruschka says, “Cooperation and their knowing that Prologue exists are important to us. There isn’t a lot of activity in nanotechnology. In my opinion, venture capital funds still aren’t aware of its potential. We think there’s a large gap between commercial and scientific activity, which can be moved forward.”
Gidron explains that a large part of the success of projects depends on cooperation with universities, and their commercial arms, such as RAMOT - University Authority for Applied Research & Industrial Development Ltd. (Tel Aviv University), Yissum Research Development Company (Hebrew University), and Yeda Research and Development Company Ltd. (Weizmann Institute of Science). Together with Petruschka, Gidron explains that nanotechnology is composed of many disciplines, and differs from the pharma model. “There’s a lot of work here starting here in technology, and continuing through a connection between a number of parties. A company needs to bring a lot of technologies together, and a recompense model must be found that will support academic work,” he says.
”We’ll go to the beach”
How many ventures are you considering?
“We’ve made one investment up until now. Meanwhile, there’s no abundant flow of ideas, and we believe it’s possible to increase the flow significantly. Not all scientists are aware that their ideas can have an industrial impact, and even if they are, they don’t know how to go about it. It seems like too big a barrier for them. We regard our activity as a service to scientists and universities, because the transition from an academic idea to business activity is not scientists’ core business.”
What about state aid, such as from the Chief Scientist?
”We’re not an incubator that takes money from the state. That doesn’t mean that we won’t use financing from the Chief Scientist in the future, or from government sources in the EU or the US.”
Funds leave the entrepreneurs with nothing. Why have you embarked on this venture together with a venture capital fund, rather than independently?
”When companies need substantial financing for an extended period, they also need funds, even that means that the funds leave them with nothing. We think it’s good for funds to be involved in a company from the first day. We’re not trying to maximize our share; we want the pie to be whole.”
After the exit with Chromatis, what motivates you to undertake a new venture?
”Technologies will have an impact on society and industry. It’s a challenge to take a technological field that’s just beginning, and realize its commercial potential to turn a rough diamond into a polished stone.”
How much is the money motive a part of this initiative?
”Money isn’t the driver. Money is a motive, but it’s not the main thing. We want companies to succeed in a professional way. At the same time, this isn’t an intellectual academic adventure. It has to be economically justified.”
What if you don’t succeed?
” We’ll go to the beach.”
Published by Globes [online] - www.globes.co.il - on November 3, 2005
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