From IPO dreams to a Google acquisition: Wiz's $23 billion journey
From IPO dreams to a Google acquisition: Wiz's $23 billion journey
Wiz, once focused on an IPO, ultimately embraced a massive buyout from Google, altering its growth trajectory. The acquisition is a testament to the fluctuating dynamics of the tech sector and investor influence.
It’s hard to be disappointed by the hypothetical sum of $23 billion that Google parent Alphabet is reportedly willing to pay for the four-year-old Israeli company Wiz. However, some have expressed surprising discontent. The sentiment is "very good, but not great." This conversation revolves around the missed opportunity for an IPO and the loss of an Israeli giant that will no longer grow locally. In addition, if the successful cyber company had been registered in Israel, the transaction would have generated higher revenues for the state treasury.
Despite these concerns, Israel could not have dreamed of a more joyful and foundational event for its high-tech economy than the exit of Wiz. Even if Wiz's intellectual property is registered in the U.S., and even if it will no longer issue shares and is branded outside of Israel as an American company, Wiz remains a phenomenal Israeli success story.
The price that Google is willing to pay for Wiz sets a new standard for revenue multipliers. This can be seen when comparing the levels of multipliers at which Israeli cyber industry giants like Check Point and Palo Alto trade. Such a sale also puts Israel back on the map, signaling that there are not only unicorns on paper but also real giant companies. It will deepen Google's presence and commitment to Israel and, in the future, will also produce a new generation of entrepreneurs who will leave Wiz to establish the next wave of startups. Additionally, there is the immediate financial benefit. Even if it could have been larger, the deal is expected to result in at least $2 billion from the payment of taxes by the Israeli founders and employees of Wiz for the sale of their shares to Google.
According to estimates, the four founders each own about 10% of Wiz shares, and the hundreds of Israeli employees together hold a few more percent. This also sends a message to the State of Israel, which has recently begun to lose its startups to U.S. registration: if the state wants to benefit from more exits, it should make an effort to keep high-tech companies here.
Ironically, the founders of Wiz represent everything that the current government abhors: young liberals from the center of the country who fiercely opposed the judicial overhaul and were not afraid to express their opposition. They served significant roles in the IDF, albeit not in combat, and are essentially left-wingers. CEO Assaf Rappaport, CTO Ami Luttwak, VP Product Yinon Costica, and VP R&D Roy Reznik are four 40-year-old "nerds" who met over 20 years ago during their military service in the IDF's technological units. They founded Adallom, which was sold to Microsoft for $320 million and formed the basis for Microsoft's cyber division. Armed with experience and the trust of the world's largest and most respected investors, they went on to establish Wiz, embodying the "Startup Nation" on steroids – everything fast and big.
Now, the exit comes very quickly and at an amount usually not associated with companies at the beginning of their journey with revenues in the hundreds of millions of dollars. At Wiz, the team didn't dream of this type of exit, as they often talked about an IPO. Rappaport and his partners view entrepreneurs like Gil Shwed, CEO and co-founder of Check Point, and Nir Zuk, founder of Palo Alto Networks, as role models.
Digging deeper, it's evident who envisioned the current deal and is likely pushing for its closure, partly through the leak to the "Wall Street Journal" that revealed the contacts between Google and Wiz on Sunday evening. These are the funds invested in Wiz. Figures familiar with Silicon Valley and Wall Street point to the surprising entry of Andreessen Horowitz in the last round of investments at a valuation of $12 billion only two months ago. Andreessen Horowitz, one of the largest and most successful venture capital funds in the world, led the round in which the Israeli company raised close to $1 billion, intended to provide breathing space and means to implement its expansion strategy.
This was an unusual investment for Andreessen Horowitz on two levels – its first in Israel and one of the few made at this stage in the company's life. The fund typically likes to invest in companies at much earlier stages. When entering with a $12 billion investment, a quick and significant return is expected. Two months ago, an IPO was hard to imagine, and the question now is what did the fund know or what plan of action did they have in mind when deciding to invest in Wiz. It's possible the leak to the "Wall Street Journal" was intended to pressure the founders of Wiz to agree to the sale to Google now rather than insist on a future offering. Here Rappaport and his partners were first exposed to the flip side – with big and famous investors, they set the tone. In Wiz's case, these include some of the largest and most powerful funds in the world: Sequoia Capital, Index Ventures, Lightspeed, Insight Partners, and Blackstone.
Why do the funds not want to wait for the IPO? They understand from their rich experience what the founders of Wiz, despite their genius, understand less – how things work on Wall Street. Silicon Valley can take companies far, but Wall Street is where the first encounter with real money takes place. This involves money from the American public investing directly, unlike the "other people's money" (OPM) customary on the West Coast. Even if institutional investors are involved, their investment supervision is much tighter. Recall WeWork's failed IPO attempt to understand the gap between these types of money.
Wiz, of course, is not WeWork. It has a great product, a strong brand, and no debt, but it is still far from ready for an IPO. To reach the valuation it is currently receiving from Google, it would need to wait a few more years. Wiz understood this, hence the series of publications about attempts to acquire relatively large companies such as SentinelOne or Lacework. The idea was to enhance the technological solution and create legs in additional fields. In the end, Wiz settled for smaller purchases, starting with the Israeli Gem Security for $350 million a few months ago.
According to the data it publishes, Wiz is growing very fast and this year will reach an annual revenue rate (ARR) of about $500 million, though this is not revenue by accounting standards and the actual figures are much lower. In the cyber market, it is known that Wiz loses about 50 cents for every $1 of sales, which is reasonable for a young company capturing market shares with penetration prices. Competitors note that Wiz offers floor prices with discounts up to 97%, while its rivals settle for around 80%-85%. For an IPO on Wall Street, especially in the current era where money is no longer free, this gap between income and lack of profitability is too great. Wiz understands this and wants to improve profitability, but this is a complex task. Interestingly, the company does not yet have a CFO function.
Despite Wiz's high valuation in the apparent deal with Google, it has only been selling its products for about two years. It is now reaching the stage of renewing contracts for the first time and wants to raise prices. For this task, Dali Rajic was brought in earlier this year as President and COO, previously serving in the same roles at Zscaler, a successful American cyber company. Zscaler, a role model for Wiz, is a cloud company that went public in 2018 and peaked at a valuation of $50 billion in 2021. However, it has since fallen and is now traded at a value of $30 billion, not far from the value Wiz is receiving in the deal with Google.
Another weight hanging over Wiz's head is the lawsuit by the Israeli rival Orca, founded by Check Point veterans. Orca claimed in a lawsuit filed about a year ago that Wiz copied its technology. Wiz tried to dismiss the lawsuit, but the U.S. court refused and announced a month ago that the issue would go to a jury trial starting on December 7, 2025. Such lawsuits are undesirable in IPO prospectuses but manageable by a giant like Google.
