Alphabet, Google’s parent company, is in advanced talks to buy cybersecurity startup Wizz for $23 billion, the Wall Street Journal reported Sunday. TechCrunch’s sources also said they had heard similar news, 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 huge sale to a startup at a time when M&A is not recovering as much as many expected as we head into 2024. If the deal goes through, it could have implications for ventures and startups in a number of ways, some more obvious and others much less obvious.
Angela Lee, a Columbia Business School professor and founder of angel investor community 37 Angels, told TechCrunch that she thinks an Alphabet acquisition of Wiz could be a catalyst to revitalize the startup M&A market.
“The size of the deal is so huge that the market is very ready for a sale of this scale,” Lee said. “There is a fear that no one wants to stick their neck out first. My hope is that this will energize the M&A market.”
The market needs that kind of momentum. According to PitchBook data, there have been 356 startup acquisitions in the U.S. through the first half of 2024. That means there are unlikely to be many more deals in 2024 than there were in 2023, when there were 771. But there’s one catch. Lee says that if this does happen and startup M&A begins, future deals will have little to no impact on the current liquidity crunch that large, late-stage startups are facing.
“I don’t know how many companies can do an acquisition of this scale,” Lee said, referring to Alphabet’s balance sheet. “This is not going to be an IPO-to-M&A deal. This is a deal that only Google can do.”
I've reached out to Wiz and Google for comment and will update this article when I hear back.
Finding Fundraising Momentum
The ongoing deal could also have a positive impact on venture fundraising. According to PitchBook data, U.S. venture fundraising is expected to end the year lower than the current $81.5 billion total for 2023, which is already down 57.4% from the $191.3 billion in 2022.
Brian Borton, VC and growth equity partner at StepStone, reminded us a month ago that VC funds tend to hold company stakes longer than other asset classes. This is regardless of the current market conditions. LPs don’t always like this dynamic, and with the current lack of exits, LPs are more hesitant to deploy capital in the current environment. But they still want venture exposure. Borton says this dynamic is part of why StepStone has been successful in raising a second fund recently, because their strategy allows LPs to invest in ventures without having to hold them for a long time.
Lee said the deal could ease some of the LP hesitation, not just because of its size, but also because Wiz is only four years old. The average late-stage startup in the U.S. is more than 12 years old, according to PitchBook data. Lee said the deal would not only have a direct impact on the numbers, but also provide leverage that VCs need in the fundraising process. She added that she would use it if she were trying to raise money now.
“This will reduce the exit schedule by volume rather than numbers,” Lee said. “That will likely bring LPs back into the market. People are talking about recovery and saying 2024 looks a lot better than 2022 and 2023, but what’s not back is VC fundraising. It may take a bit of momentum to get that going again.”
Promoting the deal
If Wiz gets acquired, Lee thinks VCs could start writing checks again. DocSend found that pitch deck activity from both investors and founders increased by double-digit percentage points in Q2 2024 compared to the same period last year, even though there hasn’t been much movement toward actual deals yet. Justin Izzo, DocSend’s chief data and trends researcher, said the opening of the exit market won’t have that big of an impact on these early-stage deals. A rate cut would make a bigger difference, because they’re so far out from the exit schedule to begin with.
Lee and I haven’t talked about Wiz specifically, but Lee and I agree that because Wiz is a very young company, this potential acquisition could have a different impact than if it involved an older player. An 11-year-old startup being acquired might not have an impact on a seed-stage company, but Lee said a 4-year-old company that has grown so quickly and has had such a huge selloff could definitely have an impact.
“We all have FOMO,” Lee said. “We all want to be part of this deal. It’s exciting to see so much buzz around something that’s not AI.”
The future of this deal is unclear. It could face antitrust backlash. It could never happen. But if it does, it could be just what the venture market needs to start moving.
