Google is in advanced talks to buy Wiz for $23B, which would be its largest-ever acquisition AND the largest M&A deal ever for a startup less than 5 years old.
While this deal has been dominating the Topline Slack (join us), many founders and execs elsewhere have been flippant about it. They feel this is an outlier – Wiz is the fastest-ever startup to break the $100M ARR threshold – and there’s not much to learn from it for the rest of us.
I’m sorry: How can there be “nothing” to learn from Google’s record-setting acquisition amid antitrust scrutiny, while Wiz is going through an intense IP legal battle with Orca, in one of the few mission-critical categories in tech during a year when the anticipated M&A bonanza never manifested?
I obviously disagree, and thought to use this as an opportunity to debut our “deal breakdown” feature, in which we extract important lessons from such transactions.
But first: Let’s look at what Wiz does.
What is Wiz?
Wiz delivers “agentless” cloud security monitoring solutions to 40% of the Fortune 100.
This was traditionally done by humans and firewalls. Then we got software agents that had to be installed on each endpoint - a huge improvement, but still resource intensive and prone to human error. Wiz simplified this with an agentless approach, connecting to cloud environments via API. This enabled full coverage with minimal human oversight, which was both efficient and highly effective.
Takeaways:
1. Extreme PMF:
Within 4 years after launch, Wiz whizzed to $350M in ARR. To achieve such Extreme Product Market Fit, you need heavy tailwinds and the right solution to an important problem. Cyberattacks have skyrocketed – phishing emails, for example, are up 1,265% since Q4 2022 and credential phishing is up nearly 1,000% during the same period. AI will likely exacerbate this problem. Wiz built a solution at the intersection of this situation that works really well, and was rewarded accordingly.
To achieve Extreme Product Market Fit, you need to build a game-changing solution to an existential problem that only promises to get worse – unless customers buy your solution.
2. Good to Great:
This isn’t the first dance for Wiz’s founders. They sold their prior startup to Microsoft for $350M in 2015 – a solid outcome. They left Microsoft in 2020 to start Wiz, and used all their learnings and battle scars to spectacular effect this time around.
If you are on your first startup and it feels really hard, remember that life is long, and learnings compound in ways that will later seem magical – so keep going!
3. Tip of the cap (table):
Wiz’s investor group reads like the who's who of venture, but one of the firms mattered a lot more than the rest: Cyberstarts. Founded just six years ago by Gili Raanan, the VC firm has a portfolio of less than 2 dozen cybersecurity startups that are collectively valued at a staggering $35B. Through deeply entrenched - and somewhat controversial - relationships with Chief Information Security Officers (CISOs), Cyberstarts can provide portcos an accelerated path to $2M+ ARR. This gives them a headstart on competitors and sets them up for a robust Series A. From a $350M ARR perch, $2M may not seem like much, but picking this investor was a key inflection point in Wiz’s journey.
Early investors have binary impact: they can help supercharge you or get you stuck. So pick them carefully.
4. Dodge the vibes:
Antitrust action has held large enterprises back from M&A, but Google didn’t let the vibe hold them back here. It took a first-principles approach to the deal, and realized that as a clear #3 in the cloud, they needed better security solutions to compete with Microsoft and Amazon. This acquisition – at least in theory at least – increases competition in the market, which makes FTC chair Lina Khan’s job much harder if she moves to block it.
Forget the vibe, and focus on first principles to gain an edge when it seems least likely.
Broader Impact
Since the rate hikes began, IPOs have ground to a halt. 2024 was supposed to be the year of M&A but has ended up looking much like 2023, according to Carta. This lack of liquidity in the market makes raising venture harder for everyone – AI startups excepted.
Wiz’s investors include Index Ventures, Sequoia Capital, Insight Partners, Greenoaks Capital, Cyberstarts, Lightspeed Venture Partners, Thrive Capital, and Greylock Partners to name a few.
If this deal goes through, these investors will realize some much-needed liquidity, potentially salvaging funds that were underwater after the exuberance of 2020-2022. This will also increase their willingness to do capital calls, boost their fundraising abilities and give them some more investing confidence.
Also: Wiz has approx 1500 employees, many of whom have been there since inception. Expect a lot of newly minted millionaires after this transaction, and as we have seen in the past, many will go on to become founders and active angel investors.
More liquidity, angel investors and new founders are positives for all of us.
