Alphabet, Google’s parent company, is in advanced talks to acquire cybersecurity startup Wiz for $23 billion, according to the Wall Street Journal. reported on Sunday. TechCrunch sources heard similar comments and added that agreement discussions could last until next week.
If this deal goes through, it would be Alphabet’s largest acquisition ever. It would also be a massive exit for a startup at a time when exits, particularly M&A, are not bouncing back as much as many predicted by 2024. If the deal goes through, it could affect businesses and startups in several ways, some more obvious but others much less so.
Angela Lee, a professor at Columbia Business School and founder of the angel investing community 37 Angels, told TechCrunch that if Alphabet acquires Wiz, she thinks it could be enough of a catalyst to give the merger market some momentum and acquisitions of startups.
“The size of the acquisition, which is huge, the market is very ready for an exit of that size,” Lee said. “There is this fear that no one wants to be the first to take the risk. I hope this will revitalize the M&A market.
The market needs this push. In the first half of 2024, there were 356 startup acquisitions in the United States, according to PitchBook data. That means 2024 is not on track to do many more deals than 2023, when there were 771. But there’s a catch: Lee said if this comes to fruition and starts triggering mergers and startup acquisitions, future deals will likely be won. This doesn’t have much impact on the current liquidity crisis facing large, late-stage startups.
“I don’t know how many companies can do acquisitions of this size,” Lee said in reference to Alphabet’s balance sheet. “This will not fundamentally transform IPOs into mergers and acquisitions. This deal is one that only Google can make.
I’ve reached out to Wiz and Google for comment and will update this story as soon as I hear back.
Find fundraising momentum
The pending deal could also have a positive impact on venture fundraising. Fundraising from U.S. venture capital firms is currently on track to end the year below the 2023 total of $81.5 billion, already down 57.4% from 2022, or $191.3 billion, according to PitchBook data.
Brian Borton, venture capital and growth equity partner at StepStone, reminded me a month ago that venture capital funds hold stakes in companies longer than any other asset class – and this , regardless of current market conditions. LPs don’t always like this dynamic, and given the current lack of exits, they are more hesitant to deploy capital in the current environment. But they still want to be exposed to risk. Borton attributes this dynamic in part to why StepStone has been so successful in recovering from its recent secondary fundbecause their strategy allows LPs to enter the sector without such a long holding period.
Lee said this pending deal could ease some LP hesitations, not only because of the size, but also because Wiz is only four years old. In the United States, early-stage startups are on average more than 12 years old, according to PitchBook data. Lee said this deal would not only directly affect the numbers, but could also give venture capital firms needed leverage on the fundraising path. She added that if she tried to raise money now, she would use it.
“This will reduce release times, not in number, but in volume,” Lee said. “This could potentially incentivize LPs to return to the market. While people are talking about recovery and how things are looking much better in 2024 than in 2022 and 2023, what hasn’t returned is venture capital fundraising. It might take a little help to make it happen again.
Driving offers
If Wiz is acquired, Lee thinks it could also prompt venture capital firms to start writing checks again. DocSend found that pitch deck activity from investors and founders increased by two-digit percentages in the second quarter of 2024 compared to the same period last year – despite little movement yet in closing actual deals. Justin Izzo, senior data and trends researcher at DocSend, told me he didn’t think opening the exit market would have as big an impact on these early-stage deals — a drop in interest rates would make more of a difference – since they’re so far off the release schedule to begin with.
Izzo and I haven’t talked specifically about Wiz, but Lee and I agree that with Wiz being such a young company, it could have a different effect than if this potential acquisition involved an older actor. An acquired 11-year-old startup might not shake things up for early-stage companies, but Lee said a four-year-old company that blew up that quickly and got such a massive exit certainly could. .
“We all have FOMO,” Lee said. “Wouldn’t we all have loved to be part of this deal?” It’s exciting to see a lot of buzz about something that isn’t AI.
The future of the deal is unclear. He could face antitrust retaliation. It may not even happen at all. But if so, it may also be what the venture capital market needs to start seeing some movement.