Assaf, Ami, Yinon, and Roy Rappaport were not just sharing stories on a bus nearly a decade back, when they rode to the Israeli army base.
The venture capitalists were preparing for what was to become the largest exit in history.
A conversation between four Unit 8200 Cyber operatives has now become a $22 billion purchase.
This is the largest cybersecurity deal ever recorded and it’s the first time an Israeli company has been involved.
Google’s acquisition of Wiz is much more than a simple transaction. It represents the future direction of Google, including the cloud of the future, artificial intelligence, and multicloud security.
What are the most recent multi-billionaire entrepreneurs?
It wasn’t created in the garages of Silicon Valley. Wiz was born in Israel’s Unit 8200 intelligence division, which is known for its entrepreneurs that went on to create companies such as Palo Alto Networks or CyberArk.
Rappaport is Wiz’s chief executive officer and has had many big exits. He sold Adallom to Microsoft in 2015 for $320m. Later, he led Azure’s Cloud Security Group.
In 2020, the Wiz story began. This was at the same time that Covid-19, a pandemic of viruses and bacteria infecting millions of people worldwide changed how businesses viewed cloud computing.
Wiz’s Multicloud Security Platform, designed to monitor hybrid cloud infrastructures and to protect them, found its niche quickly.
The company has a client list that includes BMW, Salesforce Slack and DocuSign.
Wiz’s value was $12 billion by early 2024 after a funding round of $1 billion.
In a deal which later fell through, Google had valued Wiz last year at $23 billion.
Investors reportedly convinced the founders to turn down Google’s initial offer, fearing that the US Government might block it anyway.
Recent reports indicate that they never truly let go of their idea to be acquired by Google.
Sundar Pichai is the CEO of Google.
Goldman Sachs was hired to help them prepare for an eventual sale. They also hired a CFO who had experience in M&A.
It looks like their moment is here.
The 4 founders of Wiz who own just below 10% each would make $3billion each with the $32 deal.
Why did Google buy a record-breaking price?
This deal looks like a strategic move that Google can afford, but in reality, Google is facing pressure.
Google Cloud is only 12%, while AWS holds a market share of 30% and Microsoft Azure 21%.
It has been difficult for the company to convince large and mid-sized businesses to only bet through its platform.
Google has responded to this gap with this deal.
Wiz is a security platform with a fast growth that can be integrated seamlessly into AWS Azure Oracle Cloud and other cloud services.
According to the memo, unlike most Big Tech purchases, Wiz continues to be an independent division within Google Cloud and offers its services on competing cloud platforms.
The deal is not cheap. Wiz reported around $500 million of revenue in the last fiscal year. Its $32 billion purchase comes at roughly 45-60 times its ARR.
CrowdStrike and CyberArk, public peers, trade for around 16, 22, and 12 times the ARR respectively.
The premium is a sign of Google’s desire to be able to compete in the AI and cloud infrastructure race.
This also demonstrates how Google’s inability to acquire an alternative target is reflected by Wiz’s position and velocity.
Put it in perspective: This deal, once confirmed, will be the world’s largest cybersecurity purchase, and the largest of a VC backed startup. It is also the largest of an Israeli founded company. In fact, its $1.15 billion Waze acquisition by Google from 2013 was dwarfed nearly 30 times.
Venture Capital from a Venture Capitalist perspective
It is also a defining moment in the world of venture capital. Wiz received funding from some of the most elite venture capital funds in the world, such as Sequoia Capital and Insight Partners. This deal is expected to generate outsized profits for these investors in a market where valuations have been compressed over the last 18 months. This is another shining example of “Power Law”.
This deal is also an affirmation of Israel’s venture eco-system. This deal will set the precedent for mega-exits to come out of Israel. The reputation of Unit 8200 as a top producer of cyber talent has continued to benefit both foreign investors with an interest in Israeli startups and local investors.
Then there is the tax aspect. Israel will collect around $4 billion, which is equivalent to 0.6% of its GDP. This transaction represents a huge windfall for a nation that faces increasing defence costs due to regional conflicts.
Google Cloud and AI: The big picture
It’s not all that you see. Google does not only compete with AWS and Microsoft on cloud infrastructure, but is also racing them in AI.
OpenAI runs its entire business on Microsoft Azure. Amazon, meanwhile, is making progress with an open-source mix (Claude) of proprietary and OpenAI models. Google is losing ground in platform adoption despite having pioneered many AI advancements and creating TensorFlow.
Wiz is a cybersecurity company that gives Google an edge in AI architecture.
Customers will require security platforms which are flexible, scalable and cloud agnostic as AI workloads continue to diversify in multiple cloud environments. Wiz is the perfect solution.
It is for this reason that Google accepts Wiz’s continued collaboration with AWS, Microsoft and other competitors.
Wiz’s appeal would be limited and its growth stifled if it was locked into Google Cloud.
Google instead is betting that multicloud toleration will be a strategic edge, and act as a Trojan Horse in order to further integrate Google Cloud into Fortune 500 companies.
This is a desperate move, or an intelligent one?
Markets responded with immediate skepticism. Alphabet’s shares dropped by 5% the day after the announcement.
Alphabet stock, despite recovering some of its losses in the following months, is still below other Big Tech indexes.
Analysts consider this a high price, particularly in light of Wiz’s current unprofitable state and the uncertain growth rate beyond its ARR.
Some argue that Wiz’s position as a leader in cloud-native environments and AI makes it a long-term necessity.
Google’s $3.2 billion break-fee is a sign that it anticipates regulatory obstacles, even under the more business friendly US environment of President Trump.
It is important to note the timing.
Lina Khan, who was the former head of the Federal Trade Commission and a fierce opponent to mergers between Big Tech companies during her tenure there, left the agency.
Many believe Khan’s departure may have opened the door for Alphabet and the two companies to resume talks.
As yet, there is regulatory uncertainty. Alphabet is hoping that the FTC’s stance will soften, but new FTC chairman Andrew Ferguson already said Big Tech would remain under review.
Google must prove that the deal it has signed isn’t simply about plugging a gap in its cloud service, but also about securing the future of AI powered, multicloud security.
The story behind Google’s acquisition of Wiz, the record-breaking deal that broke all records in the world. This article may change as new developments unfold.
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