Google parent Alphabet is in advanced talks to buy cybersecurity startup Wizz for $23 billion, The Wall Street Journal reported Sunday, with TechCrunch sources saying they had heard the same story, adding that deal talks could continue into next week.
If the deal goes through, it would be Alphabet's largest acquisition to date. It would also be a massive exit for the startup at a time when exits, especially M&A, haven't picked up as many had expected heading into 2024. If the deal goes through, it could impact venture firms and startups in a variety of ways, some more obvious, some less so.
Angela Lee, a professor at Columbia Business School and founder of angel investor community 37 Angels, told TechCrunch that if Alphabet were to acquire Wiz, it would be enough of a catalyst to jumpstart the startup M&A market.
“The size of the deal is huge and the market is well prepared for an exit of this size,” Lee said. “There's a concern that no one wants to be the first to take the risk. I hope this will stimulate the M&A market.”
The market needs that impetus: There have been 356 startup acquisitions in the U.S. through the first half of 2024, according to PitchBook data. That means 2024 is unlikely to see more deals than 2023's 771. But there's a catch: Even if this happens and startup M&A starts to catch fire, Lee said future deals likely won't have much of an impact on the current liquidity crunch facing large, late-stage startups.
“I don't know how many companies can make an acquisition of this size,” Lee said of Alphabet's balance sheet. “This doesn't fundamentally switch an IPO to M&A. This is a deal that only Google could do.”
I've reached out to both Wiz and Google for comment and will update this post if I hear back.
Finding Funding Momentum
If the deal goes through, it could also have a positive impact on venture funding: U.S. venture funding is already down 57.4% from $191.3 billion in 2022 and is now expected to fall short of the 2023 total of $81.5 billion, according to PitchBook data.
Brian Boughton, venture capital and growth equity partner at StepStone, pointed out to me a month ago that venture capital funds hold company shares longer than any other asset class, and that's unrelated to current market conditions. LPs don't necessarily like this dynamic, and combined with the current lack of exits, LPs are hesitant to put capital to work in the current environment. But they still want to invest in venture. Boughton believes that this dynamic is part of why StepStone has been successful in raising its recent secondary fund, because the firm's strategy allows LPs to get into venture without committing to a long holding period.
Lee said if the deal goes through, it could ease some of the hesitation from LPs not only because of its size, but also because Wiz is only four years old. The average age of a late-stage startup in the U.S. is more than 12 years old, according to Pitchbook data. Lee said the deal could not only directly impact the numbers, but also give VCs the leverage they need in the fundraising process. She added that if she were looking to raise money now, she would take advantage of the deal.
“This will shorten exit timelines by volume, not numbers,” Lee said. “This will increase the likelihood of LPs returning to the market. With people talking about recovery and how 2024 is going to be much better than 2022 or 2023, one thing that hasn't come back is VC funding. It may take a bit of a push for this to happen again.”
Facilitate trade
Lee believes that if Wizz is acquired, it might be the catalyst for venture capitalists to start writing checks again. Docsend found that pitch deck activity by both investors and founders increased by double-digit percentages in the second quarter of 2024 compared to the same period last year, even though there hasn't been much actual deal-closing activity yet. Justin Izzo, principal data and trends researcher at Docsend, said he doesn't think the opening up of the exit market will have much of an impact on these early-stage deals, since they're pretty far away from the exit timeline to begin with, so a rate cut would make a bigger difference.
While Izzo and I didn't talk specifically about Wiz, Lee and I agreed that because Wiz is a very young company, this potential acquisition may have a different impact than if it involved an older player. While an 11-year-old startup being acquired might not make a huge difference for a seed-stage company, Lee said that a four-year-old company growing that quickly and getting a big exit would definitely make a big difference.
“We're all feeling FOMO,” Lee said. “We all wanted to be in on this deal. It's exciting to see something that isn't AI getting all the buzz.”
The deal's future is unclear — it may face antitrust opposition or may never go ahead — but if it does go ahead, it could be just what the venture market needs to get going.