June 8, 1998: Birth of the Startup Nation

Featuring four scruffy and evidently brilliant but otherwise nondescript young men and their mentor, tech guru Yossi Vardi, the $400 million exit made the front pages. As they beamed at the cameras, Israelis applauded; and geeks nationwide perked up.

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In 1998, an Israeli startup made history, transforming the way people communicate worldwide – and in Israel, spawning a trend of high-flying exits that changed an industry. America On-Line bought Tel Aviv-based Mirabilis (offices pictured above,) inventor of the instant Internet chat, for a staggering $400 million.

It was the biggest exit in the annals of Israeli technology until then. A nation glowed with pride. AOL’s acquisition took the ICQ (“I seek you”) technology global. As its use exploded, Big Tech rushed to come out with competing versions. Today’s surfers take real-time chatting, such as Google Chat and Yahoo Messenger, for granted.

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Featuring four scruffy and evidently brilliant but otherwise nondescript young men and their mentor, tech guru Yossi Vardi, the huge deal made the front pages. As Arik Vardi (yes, the son of), Yair Goldfinger, Sefi Vigiser and Amnon Amir beamed at the cameras, Israelis applauded – and geeks nationwide perked up. Whatever their dreams had been before, they were amplified by the stunning sum paid for the startup, which had been founded just two years before and was backed chiefly by Yossi Vardi and other businessmen.

Bow your head in homage, Big Bang Theory: in Israel, genius, eyeglasses and computer sciences became cool a decade and a half ago.

A more nuanced point is that the Mirabilis deal moved the bar. It was the starting point of an oft-lamented ambition to found a hot startup not necessarily for the love of it, or for the triumph of scientific or engineering accomplishment, but for quick riches. (Detractors grouse that the founders should be trying to build up and strengthen the Israeli business scene by creating serious, big companies, not by trying to flip over a gorgeous concept for personal fortune.) That certainly can’t be said of the Mirabilis whiz-kids, who went on to build new companies (and sell them too, though none for the kind of splash that Mirabilis created).

In any case, the Mirabilis deal may well be the moment when the famed Israeli Startup Nation was conceived.

Today Israel’s vibrant technology scene is at the cutting edge in many areas, not least in blades technology, which led to a far grander exit – Warren Buffett’s acquisition of Iscar for $6 billion all told. Starting in the late 1980s, incubators and venture capital have played a large role in providing a platform on which the industry could grow. Companies raise hundreds of millions of dollars a year from dozens of venture capital funds, both Israeli and foreign, such as Sequoia, Polaris, Greylock and Accel, many of which have set up local offices.

Venture capital has been chiefly the fiefdom of private business but the government has done its bit, first in 1983 with the establishment of the Yozma fund, which co-invested in technology companies together with private sector funds. Meanwhile the Israeli government also dangled tax incentives before foreign funds that invested in Israeli technology. The state also funded technology incubators for what Israelis call “ideas in a briefcase” – proto-startups beyond a concept.

Hardly a week passes without some news of a startup raising money, selling a technology or itself.

By the way, come April 2010, AOL decided to sell Mirabilis, at a loss yet, though not too horrifying in dimensions. The Russian investment company Digital Sky Technologies bought it for $187.5 million. While other messaging software has largely supplanted ICQ in the West, reportedly it remains big in Russia and Eastern Europe. The Mirabilis legacy lives on.

Israeli high-tech workers. Rare is the Ethiopian-Israeli among them.Credit: Alon Ron