IBM to Buy Israeli Start-up Company for $225 Million

Deal marks big exit for venture capital funds; investors expected to make over 10 times their investments.

IBM is making a huge purchase of an Israeli start-up. At the beginning of next week the U.S. computer giant will officially announce it is buying Israeli high-tech company Guardium for $225 million. Guardium specializes in security solutions for databases.

The deal will mark one of the best exits in recent years for venture capital funds, as only $21 million has been invested in Guardium since it was founded in 2002, under the name Defendo. Investors are expected to make over 10 times their investments. The major investors - and those reaping most of the profits - in Guardium include venture capital funds Ascent, Cedar Fund, StageOne Ventures and Veritas Venture Partners. Networking giant Cisco has also invested in Guardium.

The entrepreneurs behind the firm, founder Amnon Keinan and Lior Tal, who has since left the company, will also be getting a share of the proceeds. Two others who will benefit from the sale are Gil Migdan and Joseph Segev of Log-On Software.

Guardium develops solutions that allow secure access to enterprise data, including databases from IBM, Oracle, Microsoft and others. It also monitors the software for possible breakins and unauthorized access.

The company is privately held and profitable with revenues of tens of millions of dollars a year. Keinan, formerly a vice president at Amdocs, founded the firm as a spin-off of Log-On. The present CEO is Ram Metser. The company's headquarters is outside Boston, and most of the research and development is carried out there, though some is outsourced here in Israel at Log-On's Ramat Gan offices.

Guardium's flagship product is SQL-Guard, which provides database security assessment, access policy control and enforcement, auditing and regulatory compliance.

One of Guardium's competitors is Shlomo Kramer's Imperva. Kramer is one of the founders of Check Point. However, much more money has been invested in Imperva than the $21 million put into Guardium. Another Israeli start-up in the same sector is Sentrigo. Benchmark Capital is an investor in Sentrigo.

There was a bigger sale already this year of an Israeli high-tech firm: Medtronic bought Ventor for $325 million, but that is in the medical equipment sector and not information technology - and the returns to investors were much smaller. It has been a long time since an Israeli start-up was bought out for so much money. The closest recent deal was the sale of CopperGate to Sigma Designs for $184 million.

The deal is good news for the Israeli venture capital industry, as it revives hopes that the funds' investment model still works, as there have been no such large exits since 2006.

For IBM, Guardium is its ninth Israeli purchase. IBM has been buying up Israeli companies over the past few years, alongside its large investment in its Israeli research and development facilities.