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Wiz has decided to forgo a $23 billion acquisition by Google, a deal that would have marked Google’s largest acquisition to date. Instead, the cloud security startup will pursue an initial public offering (IPO) as originally planned, according to an internal memo from co-founder Assaf Rappaport.
“Turning down offers like this is a challenge,” Rappaport noted in his message to employees, obtained by CNBC. He emphasized the company’s focus on reaching its next milestones: an IPO and reaching $1 billion in annual recurring revenue, milestones that had been in sight well before the acquisition talks began.
The acquisition would nearly double Wiz’s valuation from its last funding round, which was $12 billion. Founded in 2020, Wiz has grown rapidly under Rappaport, with an IPO target recently set for May. A source familiar with the company’s strategy cited antitrust concerns and investor apprehension as reasons for exiting the deal.
Wiz’s suite of cloud security products, which includes prevention, active detection, and response capabilities, has attracted large enterprises and could have strengthened Google’s competitive position against Microsoft in the security software market.
Google’s cloud division, Alphabet, has been striving for growth amid stiff competition from market leaders Microsoft and Amazon. The potential acquisition of Wiz was seen as a strategic move to enhance Google’s cloud offerings. The cloud unit achieved profitability in 2023 after significant investments.
Despite the steady growth, Google Cloud and its CEO Thomas Kurian remain under pressure to continue expanding, especially as demand for AI solutions continues to grow. Google did not immediately respond to requests for comment.
Tech exits have been sparse this year, with startups waiting for more favorable market conditions to go public and cash-rich companies wary of regulatory hurdles to mergers and acquisitions.
The failed deal is likely a disappointment for venture capital firms such as Index Ventures, Insight Partners, Lightspeed Venture Partners and Sequoia Capital, which have substantial investments in Wiz. These firms have raised multibillion-dollar funding aimed at supporting the success of their startups.
According to PitchBook analyst Brendan Burke, funds that exceed $10 billion in outflows are rare. Notable exits like Intuit’s $12 billion acquisition of Mailchimp in November 2021 are exceptions.
Wiz has reached $100 million in annual recurring revenue in 18 months and is expected to reach $350 million by the end of 2023. The company is backed by major investors, including Israeli venture capitalist Cyberstarts, Index Ventures, Insight Partners, and Sequoia Capital.
Wiz’s founders previously founded the security startup Adallom, which was funded by Sequoia and Index and sold to Microsoft for $320 million in 2015. Doug Leone, a former leader of Sequoia, described investing in Wiz during its early stages as an “obvious choice.”
Launched in January 2020, Wiz quickly raised $100 million in a funding round announced just 11 months later, benefiting from the rapid shift to cloud-based software and infrastructure driven by the Covid-19 pandemic.
Sid Trivedi, an investor at Foundation Capital, said in an interview with CNBC, “The early days of Wiz were unique in the amount of capital it raised right from the start.”
Google has a history of successful acquisitions, including its $5.4 billion purchase of cybersecurity firm Mandiant in 2022. Its largest acquisition remains its $12.5 billion purchase of Motorola in 2012, which it then sold to Lenovo for $2.9 billion in 2014. Google recently ended talks to acquire sales software maker HubSpot.
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