Wiz has announced it has pulled out of a $23 billion deal to be acquired by Google, in what would have been the search giant's largest deal ever, telling employees it will pursue an initial public offering as originally planned.
“It’s hard to turn down such modest offers,” Asaf Rapaport, a co-founder of Waze, said in a memo to the company’s global employee base obtained by CNBC. A person familiar with the company’s thinking cited antitrust and investor concerns as part of the motivation behind the decision to pull out.
The company will focus on its next milestones: an IPO and $1 billion in annual recurring revenue, goals the company had been eyeing long before the talks were announced, Rapaport wrote.
The deal would have nearly doubled the startup’s $12 billion valuation from its most recent funding round. Wiz was founded in 2020 and has grown rapidly under Rapaport, who was eyeing an initial public offering in May.
Wiz's cloud security products include prevention, active detection and response — a combination that attracted major companies and would have helped Google compete with Microsoft, which also sells security software.
Alphabet’s cloud computing business has been under pressure to grow amid competition from leaders Microsoft and Amazon, something the Wiz deal could have helped. The cloud computing unit is on track to reach profitability in 2023 after years of heavy investment.
While Google Cloud has seen steady growth in recent years, the company and its CEO Thomas Kurian are under pressure to continue growing as part of efforts to attract business during the AI boom.
Google did not immediately respond to requests for comment.
Exits in the tech sector have been rare this year, with startups waiting for more receptive markets before going public and cash-rich companies fearing they won’t get regulatory approval for transactions.
The collapse of the deal will be seen as a disappointment for Index Ventures, Insight Partners, Lightspeed Venture Partners, Sequoia and other venture capital firms that have stakes in Wiz and have raised billions of dollars in money in recent years, aiming to give their startups enough money to ensure success.
Funds that reach the billions require exits of more than $10 billion to pay off, and those events have been rare, said Brendan Burke, a senior analyst at PitchBook. Intuit bought Mailchimp for $12 billion in November 2021.
Wiz hit $100 million in annual recurring revenue after 18 months, and is on track to hit $350 million in annual recurring revenue in 2023. It is backed by a roster of leading firms, including Israeli venture capital firm Cyberstarts, Index Ventures, Insight Partners, and Sequoia Capital.
Wiz's founders previously built security startup Adallom, raised money from Sequoia and Index, and sold the startup to Microsoft for $320 million in 2015. Doug Lyons, former president of Sequoia, called investing in Wiz in its early days a “no-brainer.”
Shortly after its founding, COVID-19 hit, and companies rushed to embrace cloud-based software and infrastructure to help employees work remotely. One of the beneficiaries of this shift was Wiz, which can flag security issues for applications and data on the public clouds of Amazon, Google, Microsoft, and Oracle.
The startup was born in January 2020, and 11 months later, it announced a $100 million funding round.
“I think what was unique with Wiz in the early days was the amount of money that was raised right from the start,” Sid Trivedi, an investor at Institutional Capital, told CNBC in an interview.
Google successfully acquired cybersecurity firm Mandiant for $5.4 billion in 2022. Google’s biggest deal remains its $12.5 billion acquisition of hardware maker Motorola in 2012, which it eventually sold to Lenovo for $2.9 billion in 2014. Last week, Google reportedly ended talks to acquire sales software maker HubSpot.
In an interview with CNBC's Sarah Eisen and Carl Quintanilla at the New York Stock Exchange last year, Eisen asked Rappaport if he wanted to take the startup public.
“Yes, of course,” he said, laughing. “That’s why we’re here.”
This is breaking news. Please check back for updates.
