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CEOCFO Monthly Analyst |
From
paper processes to electronic medium Technology ValiCert, Inc. Joseph (Yosi) Amram, Interviewed conducted by: Bio of CEO ValiCert is the third company I have been involved building. The first one was Rational Software, where I was in charge of product marketing from no product or revenues to about $25 million and profitability in 1987. Since then Rational has grown to be over a billion-dollar business that dominates the software tool base. I was also the founder, chairman and CEO of Individual Inc., which pioneered the delivery of personalized information services and I grew that company through its successful IPO. Following that I was looking for the next big thing and I saw that providing trusted transaction infrastructure on the Internet to enable business to migrate from paper to the electronic medium. I hooked up with the technical founders of the company, Chini Krishnan and Ambarish Malpani, in 1996. They had some software patents and ideas on bringing trust to the electronic medium from a technology standpoint using public key encryption. The company lacked the management expertise, the business plan, the financial resources and funding to really build it into business. I got excited and joined them in 1997 and the rest is history as they say. CEOCFOinterviews: Your background is rather extensive with using
computers, the internet, but right now, the company, ValiCert, what exactly do they do? Mr. Amram: ValiCert
provides an Internet infrastructure solution to enable trusted transactions. Transactions that are valid, secure and provable. This infrastructure enables businesses to migrate
from using paper processes to using the electronic medium but yet achieve a legal grade
paperless transaction environment. We secure
all stages of the transaction cycle before the transaction, during the transaction and
after the transaction. When you think about
transactions in the physical world, we are used to using some sort of credential or some
form of an ID to authenticate the other party. It
could be a drivers license, it could be a credit card or a passport, but once we have
identified them, we need to secure the transaction and that would mean a few things. Validating the credential to see if it is still
current, make sure the credit card is not lost, or stolen or if the driver's license has
not been revoked. Ensuring the person we are
dealing with is authorized to deal in this transaction.
We then securely and confidentially distribute transaction information
between the parties involved and then provide a post transaction proof mechanism in the
form of a receipt or contract that is copied and archived to achieve a legal
enforceability to the transaction. So, while
all of those elements will be the analogs that happen in the physical world, ValiCert
provides those elements of transaction security in the electronic world. From the first step of validating the credentials
involved, to ensuring the authority of the parties involved, securely delivering the
information of the transaction confidentially and in a guaranteed reliable fashion,
ensuring the data integrity and then enabling the post transaction proof in the form of a
digital receipt or in the form online contract negotiation and execution to achieve a
legally binding contract that is stored electronically. CEOCFOinterviews: How do you handle the day to day security ? Mr. Amram: We
indeed have to ensure the highest level of security and integrity and we do that through
the use of public key encryption. We have
some of the world's renowned experts in the cryptography field and then in addition to the
use of the latest technology, we utilize the highest security data center and procedural
environment. We host the transactions in our secure data center which uses three levels of
biometrics and redundant power supplies and the latest in firewalls, etc. to ensure access is limited to those who are
authorized. That entire infrastructure has
been audited and reviewed by an outside audit firm and an insurance company underwrites
the liability associated with any break-in or false use of the information. So, we have gone through extensive measures both
from a technical and a procedural standpoint to ensure that the transactions we host or
provide to our customers can be trusted. CEOCFOinterviews: I know you provide new products and software. How often do you provide your new products? Mr. Amram: We have come up with a couple of new products in
the last few months. These new offerings are the ValiCert Document AuthorityÔ, which enables the end-to-end
negotiation, signature execution, and archive of contracts and ValiCert Transaction
AuthorityÔ, which enables the integration of
those transactions processes into the back-end legacy systems of our customers. At this point we are not looking at bringing in
new products into the market, but are focused on bringing new solutions with some of our
partners in defined vertical application areas. In
the last several months we have rolled out a partnership with TIBCO Software, which is one
of the leaders in the enterprise space who wants to provide transaction nonrepudiation
into their platform using our ValiCert Digital Receipt SolutionsÔ.
In B-to-B supply chain environments where the typical platform is used, we
are now integrated into the TIBCO solution. Similarly,
we have rolled out our mobile commerce solution, ValiCert m-Commerce ExpressÔ, which takes our validation technology
and digital receipt technology and then brings it to enable trusted and legally binding
transaction in this wireless environment. We
have that solution integrated with CMG Wireless Data Solutions, which is one of the top
WAP gateway vendors, as well as with Certicom, Diversinet, Gemplus and others. We, on an ongoing basis, continue to partner to
roll out solutions with new applications in new vertical areas. At this point, we believe we have the end-to-end
solution for transaction security. The
infrastructure that we provide addresses all stages of the transaction life cycle, before,
during and after it happens. CEOCFOinterviews: what type of services do you offer? Mr. Amram: The services are very extensive. We enable our customers to host the solutions,
both through software products in their own data center, they can outsource the hosting of
that into our secure data center that I described. It's
a very extensive service that brings them up and running so they get to market quickly and
leverage the fixed investment that we have made in full redundancy and uninterruptable
power supply and power generators and the full security solution that I've talked about.
International customers and other customers in isolated communities can leverage what we
call our affiliates. We have established
relationships with significant managed service providers companies like
PriceWaterhouseCoopers, Unisys, Thompson in France or NTT in Japan, these are very well
established players in those markets and in those geographies that are also providing our
solutions on a service basis to those companies and entities in the local market. So, to achieve legally trusted, legal-grade
transactions in Japan it's much more logical for NTT communication to host an end-user in
the Japanese market. So we have global
coverage and we can provide services that we host, as well as offer through our affiliates
and through service providers globally. CEOCFOinterviews: Where else do you see yourself expanding? What other types of customers would you like to
attract? Mr. Amram: Well, those sectors in Financial services where we
have some leading names like Chase Manhattan Bank, Citi Bank, Visa, Wells Fargo, Swift,
Federal Reserve Bank, and we have hundreds of other banks and financial institutions that
we've just began to penetrate so there is a lot of room to go deeper in that area. In the healthcare arena we have some of the
leading names in insurance claims processing. Some
names are Aetna, Blue Cross/Blue Shield, and again that's a bright area for us. In the B-to-B arena we've got customers like,
Dell, Sears, Nike, the Gap and again there is tremendous need for deeper penetration as
well. And, the Government Sector were we have the National Security Agency, the Navy, the
Canadian Government, the US Postal Service, so there is a lot of room to grow in each of
those verticals that we are targeting. Clearly,
our wireless solutions are applicable across all of the verticals that I have mentioned
and we have just begun in this market. So, we
are not short of opportunities, we've got the references, and we are deepening our
penetration now. CEOCFOinterviews: I know that there is a lot of consolidation going
on, especially in the Health Care Sector, how does this affect your relationship with
them? Mr. Amram: It actually plays to our strength in that our
technology is open and standards based so that we facilitate interoperability to achieve
transaction security across any authentication method. If they have digital certificates
as the primary credentials they use in the environment through the use of technologies
from companies like Verisign, Entrust, Baltimore or RSA. We facilitate the
interoperability between those islands of trust. The
fact that companies consolidate and merge, through our open solution that is
interoperable, works very well. Also, as they
do that, they are looking to streamline cost and eliminate some redundancies and paper
process. Our technology enables them to do that, and migrate processes that historically
were done, via paper, to electronic while achieving the necessary trust. This can be a
tremendous cost saver for those companies that go through consolidation and
reorganization. So, from that standpoint, we also do very well. CEOCFOinterviews: It's a new world, It's a new ValiCert. Is this a new phase or is this just a phrase you use for your company? Mr. Amram: Well last year we went through an acquisition and
merger with a company called Receipt.Com that really brought our solution base through the
entire stages of the transaction cycle. The
fact that we have broadened our solution to address various elements of the transaction
cycle that I have described, and the fact that we have rolled out these solutions across
these verticals areas such as banking, treasury and cash management, trade finance and
letters of credit and insurance and health claims processing solutions. These are some of the new things that we have done
to provide an end-to-end solution through all stages of the transaction cycle in our
targeted verticals. ValiCert started out in
the validation environment where different certificates were being used. Since then, we have come to not require the use of
certificates and we provide the other parts of the transaction security in terms of the
secured delivery, secure transport, the digital receipts, document collaboration and
signature and archive of those elements have rolled out in the last six months to a year. We combined that with the solutions and targeted
verticals, which is really a whole new facet to our market and growth potential. CEOCFOinterviews: Now do you see additional acquisitions going
forward, or do you see yourself growing internally? Mr. Amram: We are looking at opportunities. There are a number of smaller companies that we
are considering, but from a technical standpoint, we feel we have the primary solutions
that customers require. We are looking for
things that will enhance our applications or the integration of our solutions in targeted
verticals that will be accretive to the company instead of a delay in our profitability;
so, those are types of things we are reviewing. Luckily,
in the current climate, there are still good opportunities to explore. CEOCFOinterviews: How do you find good employees and how do you hold
on to them once you get them? Mr. Amram: That is a very good question. In Silicon Valley, there is currently a large
concentration of talent and a lot of competing companies that are looking for that kind of
talent. At ValiCert, we approach it on different levels.
First, we are fortunate enough to be in a space that is growing very rapidly
and also very exciting. People like bringing
trust into the medium and that is a fundamental change that ValiCert is a premiere
provider and that gets employees and perspective employees excited to be a part of. We have also taken that concept of trust and are
building a culture and a value-based system in the organization based on trust. So,
culturally we have a very open environment and we work well as a team and trust our
employees and empower them to take on responsibilities and initiative and do things that
make a difference. It's the market vision,
the solution, and the technology that is the leading edge that is making the fundamental
difference in the way our society works. This new way of doing business electronically in
a trusted fashion and combining that exciting product and market vision with dynamic and
work environment which enables us to attract and keep the best talents. CEOCFOinterviews: How do you attract new customers? Mr. Amram: We approach customers at the business and
information technology level based on the success stories that we have had. Currently, we are targeting the global 2000 types
of companies, we participate in trade shows and seminars and events in the industry. We have a direct sales force as well as through
partner companies such as TIBCO Software, CMG Wireless Data Solutions, Oracle, and through
our partnerships with Microsoft and Netscape and other players in the field we have a good
access in the market. We look at where we
have been successful in case studies and where we have been successful with other players
in the field. When we approach new banks we
can point to certain types of applications and solutions we had with other banks. When you have that strong of a reference base
where you have the partnerships and the presence we have in the marketplace through our
seminars and trade show programs and lead show activities we have the strong growing
pipeline. CEOCFOinterviews: These partnerships are obviously important to your
company. Mr. Amram: Absolutely! It is an important differentiator and we are
leveraging the brand name, distribution power and clout of other players in the field. Getting our technology embedded into the Windows
operating system, Internet Explorer and Netscape browsers took a lot of work. Once we are in there, it is a lot easier for our
customers to deploy us in their environments. It
creates significant switching costs for entry for other players that would want to get
embedded into that environment. CEOCFOinterviews: Does this company have the cash and capital to go
forward? Mr. Amram: If you look at our balance at the end of our
recently announced first quarter of 2001, we had approximately $29 million in cash on the
balance sheet. We have a very strong balance
sheet following our IPO and what we have committed to the investors and the financial
community when we went public which we have reiterated over the past several quarterly
calls. We expect to turn the corner and reach profitability based on the strong cash
position on the balance sheet. Over the last
four publicly reported quarters, we have actually exceeded the estimates and expectations
of the analysts both on the top line revenue growth and a smaller loss than expected. So, we are well capitalized, we have the right
momentum and we have got the right customers, the right partners and the right solutions
that we believe put us in a very strong position. CEOCFOinterviews: What kind of competition do you have and what
gives you the competitive edge? Mr. Amram: We
don't really have a head-to-head competitor. We
have some point competitors in some of our product areas, even though we maintain the
lead. For example, in the validation area,
there are a couple of players that have point products for validation. There's a couple of
small players that provide time stamping, notary, but none that provide an XML-based
digital receipt solution that is scalable like ours.
We do have point-to-point competitors in some categories but we have the leadership
from a technical standpoint from a partnership standpoint and from a market penetration
standpoint. For example, in the banking
arena we have an 80-90% market share for our validation solutions. We have established and maintained a dominant
position in each of the categories and we are a company that spans the entire transaction
scheme end-to-end through all of the phases of the transaction cycle, so that's also a
very important differentiator. The
partnerships that we have are very extensive. The
affiliate network that we have established as well. So
it is both a technology and a market presence and a partnership standpoint that really
puts us in the lead position. CEOCFOinterviews: What would you say to a potential investor? Mr. Amram: I think that there a couple of things that makes
this a very exciting investment opportunity. First,
we are looking at an explosive growth curve as companies migrate processes from paper to
electronic. They need the infrastructure that
ValiCert provides to secure those transactions and make them legally binding and compliant
with the e-Sign law and other similar legislation. ValiCert
is uniquely positioned in the space and we have the most comprehensive solutions. We have the leadership in terms of the types of
customer references, partnerships, and the affiliates that we have established. Then, from a financial standpoint, our revenues
have been growing very quickly. We have a
very attractive business model that involves billing on an annual subscription basis that
is renewable. So, that means that we collect
the cash on the front end, which improves the cash flow but defers the revenue, which
creates visibility. Because these
subscriptions are renewable based on transaction volumes, as there is growth in
transaction volumes, we participate in that upside on a recurring basis. This gives us a lot of financial leverage. So, if you look at some of our financial metrics
over the last few quarters, our revenues on the top line has been growing very quickly. Our gross margin is improving and from all of
those factors it makes this very attractive company to potential investors. CEOCFOinterviews: Is there anything you like to add? Mr. Amram: We certainly think that this is a huge opportunity
as business processes and transactions migrate through to the electronic medium across the
broad range of verticals and many transaction types.
Every one of those has the opportunity to be touched by the ValiCert
infrastructure. So we are looking at a huge
opportunity to build a large and profitable company.
CEOCFOinterviews: I have a question for you personally. I was looking through your website and your
favorite saying. "The only thing that
exists is the present. It has no beginning
and no end and the future is now". Why
does this excite you? What does this mean to
you? Mr. Amram: If we look at the present, there are a lot of
changes going on and the possibilities are limitless. The future is now means we are
creating our future and inventing it at every moment.
So, that's what we are doing as a company, as a business and as individuals. We have to be engaged in what we are doing and do
it whole heartedly and see the potential to make the most out every moment. Through that,
we create our future. CEOCFOinterviews: What motivates you to keep you going personally? Mr. Amram: What motivates me is making an impact and making a difference as well as making a contribution. I think I am doing that at ValiCert, knowing that I am part of a team, and making a contribution. I think that at ValiCert, knowing that I'm part of an organization and a team that is making a positive impact on the world, which enhances trust, and authenticity, that is an important mission to me and that gets me excited on the global level. On a more micro level, the fact that I am working with great people, we are building a culture based on trust and teamwork and even when we have disagreements, challenges, frustrations, we are all really doing it in a positive fashion regardless of the outcome. This keeps me motivated and honored to be a part of this effort and honored to be a leader of this team. |
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