To an onlooker, Modu, the current baby of Dov Moran, could look like an
established company in its field, with a long history and a proven record. But
the company’s prospectus, published two weeks ago in advance of an IPO on the
local market, reveals a company that is a start-up in every respect.
RELATED:ZIM sells stake in Nigerian portGeologist sues Ratio Oil Exploration
a start-up in which $100 million has been invested (an investment that has yet
to prove itself worthwhile), with a grand vision that clashes with a cruel
reality: It has yet to justify the media hype it has generated ever since it
emerged from Moran’s imagination.
“Modu came into the world with a lot of
noise, because that was our strategy,” Moran said in an interview with Globes.
“We wanted to start big, not small, because we believed we had a revolutionary
idea. A year after we founded the company, the market changed. The
financial crisis had consequences we could not have foreseen.”
no different than other entrepreneurs and CEOs who cite the financial crisis as
an excuse for a failure. But in his case, perhaps because of the forthcoming
IPO, it’s easier to extract an admission that he made apparently wrong
Modu, which develops modular cellphones, started out as a
developer of cellphones that could connect to other devices, such as a PC or a
television. But it had to switch focus and invested most of its efforts in
developing its first product, Modu 1, after the software house that was supposed
to produce the operating system for the device went bankrupt.
upon ourselves the role of software subcontractor, and that was a mistake,”
Moran said. “That decision caused us to invest a great deal, both financially
and psychologically, in the wrong place. As a result, the first product was
launched more than a year later than originally planned.”You said that
you chose to start big, but from the peak you can only go down. Perhaps you
should have stayed on a back burner, thereby avoiding creating
“I agree with you that the media noise created antagonism
toward the company and toward me, but that’s the strategy we chose. We
gambled. We decided to make a noise, to raise a lot of money, and to sprint
ahead. And we did indeed raise a lot of money, and we created international
awareness. But it didn’t work as planned.
“I didn’t set up Modu to become
rich. I’m rich enough.”So you admit you made mistakes.
mistaken decision was not to stop when the software house went. As far as the
media noise is concerned, we made a decision, and the fact that the decision did
not turn out well for us doesn’t mean that we were wrong when we made
it.”Still, perhaps you shouldn’t have come out with bombastic
declarations and should have been a little more realistic about the company’s
“It’s not a matter of being realistic or not. Had the
market not changed in the way it did, the first Modu might have been launched on
schedule, and with the right product environment, things might have looked
In three and a half years Modu has managed to change its
business model, and for Moran, even if he won’t admit it, it’s hard to stay calm
when he is forced, as he puts it, “to read incorrect things about the
Modu, as the prospectus explains, has developed two mobile
telephones. The first is the Modu T, while the second is the Modu W, a
WiFi-based device. Both devices, like other smart phones, have a variety of
uses. But Modu strives to distinguish its devices from the others through their
light weight and compact dimensions – and, no less important, through their
Moran describes the Modu T as a solution that lies between
feature phones (mobile telephones with a limited range of applications) and
smart phones (such as the iPhone). He points to a forecast of research company
Gartner that even in the distant future most people will be unable or unwilling
to finance the purchase and upgrade of expensive smart phones; therefore, they
will mostly use feature phones and devices such as the Modu.
this projection and others, Modu has so far raised $124 million ($104m. in
equity investment and $20m. in the form of a convertible loan). In the current
offering, Modu will attempt to raise (in shares, bonds and warrants) tens of
millions more (the final amount has not yet been decided) at a minimum valuation
The company’s performance is still a long way from justifying
such heavy investment, and there is a question whether it ever will, but such
doubts don’t dent Moran’s optimism.
“We live in a changing world, and as
part of the change, our personal computer goes with us everywhere, as evidenced
by the success of tablet computers such as Apple’s iPad,” he said. “This is a
life-changing product. When I bought one, I stopped using the smart phone I
had.”But if the iPad is wiping out the smart phone, why should Modu have
“Because the smart phones will eventually go back to their roots and
will mainly be used for making telephone calls. But we will still need to be
connected everywhere we go. And to those places where we won’t take a tablet
computer, such as to a restaurant or a party, we will take a smart
phone.”Nevertheless, Modu is in a very competitive market and is
contending against giants like Apple and Google. This is not a virgin market,
and Modu is not inventing the wheel.
“I have never gone into a virgin
market, and I have never said I was inventing the wheel. Modu is bringing
a good product to a huge market that is not saturated with
players. Therefore, even taking a small market share will represent a
great achievement. A billion dollars in sales sounds like a huge number, but
it’s less than one percent of the entire market. It’s hard, but
doable.”Modu’s choice of the local capital market for its IPO is
perceived as a default choice. The company’s existing investors did not want to
continue investing in it, and it had no choice but to turn to the local stock
market and pay the price of exposing its numbers at an early stage of its
“I did have a choice: namely, to raise more money from non-Israeli
But most venture-capital funds do not invest in
companies with valuation above $10 million.
On the other hand,
private-equity funds do invest in such companies. But in Israel there aren’t
funds like that, and foreign private-equity funds don’t invest in nonlocal
There are no entities in Israel suitable for follow- on
investment in companies like Modu.”
Moran admits that it won’t be easy to
persuade investors that he is on the right course.
“It’s difficult, but I
hope we will blaze a trail or similar companies,” he said.
Wintegra, which was sold two weeks ago to US giant PMC Sierra for
and gave up on a Nasdaq IPO.
“A company like that should
have been floated in Israel,” he said.
“It’s hard to grow companies in
Israel,” he added. “There’s no hi-tech industry here, only a start-up industry,
and that’s very sad.
“In order to change the situation, we have to
educate Israel’s investment institutions, such as pension companies that manage
our money, to invest more in high-risk companies.
But I’m not sure
they’re ready for that.
“It would be enough if the pension funds were to
invest just a small proportion of their money, a few percent, in technology
companies for such investments to give them value and for Israel’s hi-tech
industry to flourish. You can’t blame them; the main blame lies in
Educating the institutions in Israel in a new way
of thinking is no simple task, Moran said.
“But,” he added, “I’m not
deterred by difficult tasks.”