First Step Fund to join supporters of growing Israeli transplant Unitask

Posted on January 1, 2011

Detroit-based First Step Fund, a $5 million fund created by the New Economy Initiative to help fund emerging companies in Southeast Michigan, is expected to announce this week that it has joined an investment round in Unitask Software Inc., a transplant company from Israel that set up headquarters in Bloomfield Hills in June.

The First Step portion of that $2.5 million round is $50,000. It is the 20th portfolio company for First Step, which has made $1 million in investments since its inception in March.

Troy-based Automation Alley previously announced it was investing $250,000 in the round, which includes investments from two venture capital companies that had earlier been part of a $1 million investment round in 2006 — Pittsburgh-based Draper Triangle Ventures LP and Cleveland-based Early Stage Partners LP.

Executives at Draper and ESP recruited Dale Royal, a Clarkston resident and veteran of numerous software startups, to be CEO and president of Unitask, which makes software for customers of computer giant Oracle Corp.

From 1993 to 2001, Royal was vice president in charge of central U.S. sales for Veritas Software Corp., a Silicon Valley company that eventually grew to $2 billion in sales before being bought by Symantec Corp. in 2005. Royal grew his end of the business from zero to $250 million during his tenure.

Royal was later executive vice president of sales and operations for Minneapolis-based Sistina Software before founding Couem Software in Clarkston in 2006. Couem was sold in a private placement to a large software firm in 2008 that he is prohibited from naming because of a nondisclosure agreement.

“After I heard Dale’s presentation, it was just obvious I had to bring him into our portfolio,” said Mahendra Ramsinghani, managing director of the First Step Fund.

“It’s a company coming here from another country. It’s got an accomplished CEO, and it has very good technology. Put those things together, and investment capital will follow.”

“Dale is an extremely bright guy who will find ways to enter markets,” said Paul Sallaberry, a member of the board of directors at one of Unitask’s competitors, California-based Quest Software Inc. (Nasdaq: QSFT), a relative giant compared to Royal’s fledgling company, with 2009 revenue of $695 million.

“He’s great with customers and figuring out how to solve their problems,” said Sallaberry, who hired Royal at Veritas. “Being creative when you have no name and no brand is tough, but Dale is good at it.”

Unitask was founded in Haifa, Israel, in 2004, a spinoff from an existing software consulting business. Its founders wanted to expand from solely providing services to making and selling software.

The company had $97,000 in revenue the first year and grew that to more than $624,000 in 2006, the year Draper and ESP agreed to finance further product development and ramp up sales.

In May 2008, Royal was hired by the VC firms as Unitask’s president and CEO, and the next year it was decided to move the company from Israel to the U.S. to be closer to U.S. customers and in a market far larger than Israel’s.

Royal decided the meltdown under way in the auto industry could be an advantage and decided to locate the company here instead of in California.

“With the auto companies crashing, we looked at it and said, “We can pick up a lot of talent here without having to pay California rates,’ ” he said.

Unitask has developed eight software products and currently is licensing two of them:

• Output Director, which allows users of Oracle’s E-Business Suite to more easily and cheaply set up printer networks for spread sheets.

• Migration Director, which simplifies changes in large databases and allows changes in one database to migrate to other versions.

Royal said the current funding round will allow the company to bring its next product — Security Director, which will help prevent a company’s employees from stealing data — to market in the second quarter next year.

“We’re not a competitor to Oracle. We’re a bolt-on to what they do. We’ll fill in the blanks they haven’t addressed,” said Royal.

Royal said the business plan is to do another VC round in a year, of between $2.5 million and $5 million. That should allow the company to grow to the point where it can provide an exit for investors.

“Then we’d be a sufficient size to be an M&A target and the darling of somebody,” he said.

The company already has doubled from six to 12 and has migrated three jobs from Israel. Royal said he will hire one or two employees a month for the next year, with the first priority on marketing and sales and the second on product development.

The company has software installed at about 100 clients, including Ada-based Amway Corp., Baltimore-based Johns Hopkins University and the U.S. Navy. It has plans for aggressive growth revenue.

The company’s overview for investors calls for revenue to grow from $1 million last year to $1.9 million this year, $2.9 million in 2011 and $4.1 million in 2012.

“The level of service with Unitask is beyond anything we’ve ever experienced,” said Paul Berman, Amway’s principal systems administrator. The company became a customer of Output Director a year ago and has been rolling it out around the world since. It is installed in New Zealand, Australia and South Africa now and will go live in Europe and Asia next year.

“So far, everyone is impressed with the product. My only regret is we didn’t start using it earlier,” he said. “I told Dale they need to market this more. I could see it being important all the way through the Oracle customer base.”