Two Wednesdays ago, Modu founder and CEO Dov Moran was still confident in his
ability to float the developer of the light mobile telephone on the Tel Aviv
Stock Exchange and raise the funds needed to keep the company going. Moran, who
at that time was still trying to convince institutional investors to take part
in the offer, expected to issue up to $40 million in debt and equity. For the
purposes of the offering, a mechanism was set up under which the funds raised by
debt would remain in a trustee account and be released for the use of the
company if it met specific milestones over the next few years.
hours later, it was all over.
Through Thursday morning, there were a
total of only $5m.-$6m. in orders, out of the $20m. Moran had hoped to raise
just in the equity offering (without debt) for immediate use. The reason was
that institutional investors, including Migdal Insurance and Financial Holdings
Ltd., Israel Phoenix Assurance Ltd. and Excellence Investments Ltd., had decided
to forgo participating in the offering, people familiar with the matter told
After Moran and the underwriters realized that
institutional investors were staying out, and they were left without an anchor
investor, it was clear that the offering had failed, and they were left with no
choice but to announce its cancellation.
The impact is first of all a
blow to the company and its workers, as apparently 100 out of 130 employees will
be let go.
Underwriters expected Migdal, for example, to invest about
$6m. in the offering, and they even received unofficial indications that it
would. In the end, Migdal, like other large institutional investors, held back
from investing in Modu. (One investor in Modu is actually Migdal’s controlling
shareholder, Generali Group).
Underwriters also expected Phoenix’s and
Excellence’s mutual funds to each invest $3m., but “at the moment of truth, the
investors simply did not show up – the bird remained in the tree,” a person
involved in the offering said. “Everyone sat on the fence, and when Migdal
decided not to invest, an avalanche began.”
Migdal said in response:
“Migdal met Modu’s entrepreneur just like it meets many organizations in the
market, but nothing advanced beyond that. The fact that Generali is involved in
a specific company does not prevent Migdal from investing in the same company,
to the extent that the investment is economically justified.”
decision not to invest in Modu was based on Migdal’s estimate of the company’s
technology, Migdal said.Moran: I failed
Modu’s offering was
controversial from the outset. The figures in the prospectus were tough to
digest, even for a start-up reaching the local stock market. The prospectus
showed that the company was suffering heavy losses, and a “going concern”
warning hung over it. In an updated prospectus published two weeks ago, Modu
said it was interested in raising up to $40m., at a valuation of $90m. before
Moran, it turned out, knew he needed at least $20m. to get through
the coming year, and he aimed the amount of the offering toward that. At the
same time, it was clear that with less than $12m., the company would have to
forgo the offering, which is what actually happened.
“I failed,” Moran
said in a conference call with reporters the day after the offering, just before
he ran to inform employees about the tough news. Nevertheless, he said, “This is
not the end of Modu. We will turn to other sources of capital and try to raise
funds, and the company will continue to sell its products.”
to 30 employees will remain at the company in the near term, and they will
provide sales and marketing support, in a bid to continue operations as much as
Modu set off at the end of 2007 under Moran’s
leadership, after he had sold memory-products company msystems to SanDisk
Corporation for $1.6 billion.
Modu ran into difficulty right from the
start, with the economic crisis and strong competition. What at first appeared
at first glance to be a sexy option led by an experienced entrepreneur, quickly
turned out to be an irrelevant product.
Modu needed large sums of money
from the beginning to enter the competitive telephone market, which was
certainly one of the reasons for the aggressive public-relations campaigns that
the company ran. The company raised $124m., and Moran, in a fairly unusual move
for entrepreneurs, took a significant part in the company’s funding by investing
$13.5m. of his own money.
Other Modu investors include Idan Ofer’s Lynav
Shipping ($25m.), Rhodium (about $15m.), Gemini Israel Funds and Genesis
Partners (about $10m. each), Japanese telecommunications company Softbank Mobile
(about $10m.) and Qualcomm (about $7.5m.).
Moran also raised about $5m.
from memory company Kingston and from Greylock Partners, and insurance company
Generali invested about $11m.