Startup Baobab Technologies today announced a $2.5 million seed financing round, led by New York-based Yazam. Meanwhile, Yazam is facing closure or a radical change to its business plan, chairman Shlomo Kalish told TheMarker on Sunday. But until a decision is taken on Yazam's future it's apparently business as usual.
Baobab, established in 2000, is developing a software-based system designed to understand and conduct dialogue with users or operators using real language. Its Frontware technology is capable of receiving textual or voice input received for instance via browsers, cellular SMS messaging, WAP-based cellular Internet files.
The system's purpose is to create a "natural interface" between companies and their clients. The companies should accept intuitive verbal orders given by customers, as in human interaction, without relying on complex menus and interfaces based on the capabilities of a mechanical system.
Baobab CEO and cofounder Jacob Vind says that the company adjusts itself to the customer's needs and behavior patterns, and does not force the customers to adjust the needs of technology. Graphic user interface was the interface of the 1990s: Baobab believes that natural user interfaces - NUI - will dominate the present decade. He belieces the naturalized interaction will improve customer service, experience, and satisfaction, and will enable companies to cut costs on customer service.
The company's other two founders are Asher Polani and Efraim Shaket. The company is establishing headquarters in New York. Its R&D center is in Israel.
Baobab will be using the proceeds of its seed round for research and development and for starting the beta tests of its first products.
Yazam's acting CEO, Bernie Siegel, noted the trends marking significant potential for Baobab's technology, such as the hike in expenses in respect of customer relationship management, and the accelerated use of cellular phones and wireless Web-access products.
First announcement since reorganization revealed
Baobab is the first investment that Yazam has announced since it revealed its reorganization, starting with the departure of CEO Yaacov Ben Yaacov and President Phil Garfinkle left.
If Yazam is indeed terminated, the $40 million left in its coffers will be returned to investors, chairman Shlomo Kalish said. But he added that the company was weighing a merger with another VC company, or a drastic change in business model that would entail significant cuts in staffing.
Yazam issued four kinds of shares and has different kinds of investors who joined the company at different stages. The board of Yazam, which was incorporated in Delaware, will have to take the right decision in order to look after the interests of all the kinds of shareholders, Kalish said.
On Friday the Wall Street Journal wrote that American investors are exerting pressure on the Yazam executive to liquidate the company and return as much of their investment as possible.
TheMarker.com has learned that this pressure is coming mainly from relatively new investors who invested in Yazam in April 2000, headed by Texas Pacific Group. TPG alone put up almost $35 million out of the $60 million Yazam has raised to date.
Other investors are the Carlyle Group, J.P. Morgan, Merrill Lynch, China Development Bank, the venture capital funds of Apax, Bank Hapoalim, and Microdent, a company affiliated with the family of Israeli tycoon Stef Wertheimer.
Private investors included chief executives at Net2Phone (Nasdaq:NTOP), Michael Schwab from Big Sky Venture Capital, Charles Schwab, and Israeli venture capitalist Beny Steinmetz.
But the news came as little surprise to Yazam itself. Sources at the company indicated that the mood has been grim. It seems that more and more portfolio companies have been slammed by the slump in the market.
Yazam was split off from split off from the investment bank Jerusalem Global in mid-1999, and incorporated as Yazam.com. The suffix .com was dropped after Internet stocks fell out of favor, but the company sustained its focus on Internet ventures. That is precisely why its investors are worried. Even after dot.coms crashed, Yazam went on investing in companies with business models lacking clarity on revenue and earnings.
Moreover, Yazam was manpower-heavy, with 120 workers worldwide. The company had offices in Washington, New York, San Francisco, London, Tokyo, and Jerusalem. Yazam acquired an American public relations company in order to advance its portfolio companies. It also purchased a Japanese business development company to wedge itself into the Japanese market.
Its strategy was highly wasteful. Consequently, Yazam CEO Yaacov Ben Yaacov was dismissed several months ago. His departure was followed by President Phil Garfinkle and other key executives. Yazam took their departure as an opportunity to lay off 15 workers from the Israeli branch and staff at several other branches too.
Another Yazam investment that apparently significantly eroded its resources is the British company First Tuesday, which initiates meetings and cocktail parties for investors in venture capital funds and startup ventures. The company has branches in some 100 cities worldwide. If Yazam is liquidated, the future of First Tuesday could become uncertain.
Sources involved in the company's business say that selling the American public relations company and the Japanese company (both of which were acquired via a stock swap), could generate Yazam significant amounts of money.