With rumors in the Israeli press about IBM (NYSE: IBM) making a potential acquisition, what's most interesting is the company that it is reported to be buying. As reported earlier in the week by Melly Alazraki, International Business Machines Corp. is in advanced talks to buy Israeli start-up XIV Information Systems for $300 million to $350 million, according to Israel's financial daily Globes.
What makes the start-up XIV interesting is the financing, or lack thereof, that the company received. The usual model for Israeli high-tech companies is to raise millions and millions of dollars from venture capital firms. The company was founded by former EMC (NYSE: EMC) executive Moshe Yanai. Yanai basically self-funded the company with $3 million in 2002. Now he is going to cash in for $350 million. How many of us can say that we have had that kind of investment return over the last five years?
The question is whether this will be a new model of funding Israeli startups. Will entrepreneurs try to either put in a lot of their own money or turn to angels to help fund them, or will they continue to travel the traditional venture capital route instead? Only time will tell.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position long or short in any stock mentioned as of 1/1/08.
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