The Unusual Story Behind Onaro’s SuccessONARO was a leader in storage service management (SSM). The Company's solutions enabled enterprises to increase service quality, return on storage investment, and compliance by managing storage as a service.
The Company was founded in 2002 by four Israeli entrepreneurs, Shai Scharf, Roy Alon, Assaf Levi and Dr. Raphael Yahalom, with funding from Cedar Fund. By the time it was acquired, Onaro has achieved impressive market presence and a lucrative customer base with a very attractive financial track record. Onaro was acquired by Network Appliance, (NASDAQ:NTAP) in January of 2008, resulting in a great “exit” for the investors in the company, primarily Cedar Fund, which was the first investor in Onaro as well as the major equity holder in the Company.
When reviewing Onaro’s success story, Gal Israely, Partner with Cedar Fund estimated that Cedar would receive a tenfold return on its investment. “We are especially proud of the fact that this is a company that raised relatively very little capital and succeeded in quite inexpensively building a large company in the Boston area.”
Network Appliance stated in its announcement of the acquisition that “The combination of NetApp and Onaro will help enterprise organizations increase data center and storage network efficiencies by proactively managing and optimizing storage service levels for availability and performance in dynamic data center environments. The predictive nature of Onaro’s products also makes them ideally suited for modeling and forecasting data center and service-level changes—capabilities that customers sorely need as they upgrade, rethink, and deploy their next-generation data centers.”
Onaro’s path to success draws upon several key decisions in the company’s history, beginning with its formation as a Cedar Fund Pre-Seed venture, continuing with a preemptive go-to-market move by locating its R&D in the U.S. from the get-go, and by building a successful business with careful budget monitoring.
Onaro’s “Exit” is the culmination of a process that began in 2000. Fonder Dr. Raphael Yahalom arrived in Boston for a sabbatical at MIT. A chance encounter connected him with Shai Scharf, a former basketball teammate. Scharf was by then a serial entrepreneur and had built several businesses. When Scharf and Yahalom approached Cedar Fund with an idea for a startup, Cedar was instrumental in identifying the opportunity by teaming them up with the other half of Onaro’s founding team, Roy Alon and Assaf Levy. Both held senior roles with unit 8200, the IDF’s prestigious technology group. Cedar Fund decided to team up the four individuals and provided initial financing, directing the team to study the enterprise storage market, discover key business problems and define a “killer app”.
As the founders attest, Onaro’s success owes a lot to the excellent relationships and positive dynamics that the team developed among themselves and with the investors. This helped them define a unique and robust solution. “Cedar Fund invested initially without requiring that we start developing right away and without rushing us to raise more capital and recruit more people. Working closely with Cedar, we had the luxury of thoroughly evaluating technologies as well as prospective customers and partners. In fact, this process, known as Pre-Seed, took Onaro a year until the Company decided on its unique product direction,” says Yahalom.
Onaro chose to develop a product that assists IT managers in large corporations better manage their complex IT systems and provide more predictability and preemptive management of storage systems. Onaro’s product is called SANScreen. It alerted problems and potential issues in real time and in such a way that even managers who are not IT experts could identify, analyze and resolve problems. Just before its acquisition, Onaro had over 100 customers, over 30% of which were Fortune 50 companies.
Most Israeli startups tend to follow a similar path: they start with a technology idea. Then the founders form a company; raise capital and hire an initial development team. During the first couple of years startups typically base their operations in their Israeli R&D center. Later on they open a U.S.-based sales and marketing office. (Industry sources cite that during 2006-2007, 15 Israeli startups opened offices in the Cleveland area, 25 companies opened office in Silicon Valley and 50 companies moved to Atlanta.)
In contrast, Onaro decided to establish its center of R&D and operations in Boston from the get-go, and only much later reestablished Israeli presence in the form of a local R&D team. Which way is preferable? Dr. Raphael Yahalom believes that Onaro’s unusual decision proved itself in the Company’s ability to deliver a product that was extremely well tuned to customers’ needs. “I think that this model is worthwhile considering. We proved that this approach works and that it has distinct advantages.”
While Onaro recruited its core engineering team in Israel, these developers were hired knowing that they would need to relocate to the U.S. Raphael Yahalom says “We wanted to ensure that the development team will be close to the market, so that they could better understand customers’ needs. Since Onaro’s main market is in the U.S. and Europe, it was very important to keep R&D close to the customers.”
Onaro built not just exceptional technology, but also a solid and attractive business. Its revenues at acquisition time exceed $20 annually, and the company has been profitable since the first quarter of 2006. The valuable team members who will stay on with NetApp plan to use this as a growth opportunity that will allow them to compete successfully against storage giants such as HP and EMC. |