Cybersecurity deal turns into $4 billion for Google
By entering into a cybersecurity deal, Google is able to translate a very small investment into a huge return of $4 billion. When Shardul Shah turned 37 years old in January of 2020, he was finally able to get the phone call that he had been waiting for with great anticipation. It was an Israeli entrepreneur in the field of cybersecurity who was looking for financial assistance. He had been encouraging this individual to start a company for years. A voice on the other end of the line said, “The time has come,” indicating that the moment had arrived. Index Ventures received a contribution of $3.5 million from Shah on their behalf.
After five years, the initial investment has resulted in a stunning return of 250 times this week, resulting in a stake worth $875 million. This comes after Alphabet’s Google reached an agreement to purchase Wiz for a price of $32 billion. Following the completion of the initial capital round, Index Ventures continued to make investments. With each subsequent funding round, the investment expanded its financial commitment to Wiz, so establishing itself as the most significant external stakeholder in the startup, holding a 13% equity position. The amazing return of $4.3 billion that Index Ventures achieved can be attributed to the company’s successful transformation of its $245 million investment.
There was a proliferation of success stories during the peak years of Silicon Valley. This was due to the fact that significant company exits frequently attracted the attention of the media. As a result, the function of venture capitalist became one of the most sought-after positions in the financial sector. The market for initial public offerings is now in a position that is not very impressive. Due to the fact that notable businesses such as Stripe and SpaceX have chosen to remain private for more than 10 years, their investors are in a constant state of anticipation as they look for an opportunity to realize their gains.
The methods that regulatory agencies use to grant approval for mergers and acquisitions have become increasingly cautious in recent years. Although the Trump administration has signaled a desire to retain tough merger oversight processes, the acquisition of Wiz by Google is still subject upon getting regulatory permission from the government. There is a possibility that the review process will take a number of years to complete before a result is reached. In the event that the Wiz transaction is successful, key parties hope that it will make it easier for similar startup divestitures to take place in the future.
Aside from their desire to focus on the rapidly developing cybersecurity sector, Shah and his three co-founders had not yet established a name or a solid plan for the firm when they received a call from Assaf Rappaport. The only thing they desired was to profit on the quickly expanding cybersecurity industry. The particulars of the “how and what,” as Shah said, have not yet been clarified. In his imagination, Shah referred to the new business venture as “AssafCo,” which reflected his firm faith in Rappaport. In reference to the call that was made in 2020, Shah made the observation that “it was both anticipated and surprising simultaneously, as I had been anticipating it.”
The origin of Shah’s intuition with regard to Rappaport, who is a fan of canines and a former member of the prestigious cybersecurity branch of the Israeli army, can be traced back to 2014, when Shah provided backing for Rappaport’s first company, which was called Adallom. Despite the fact that the ultimate sale to Microsoft for a measly $320 million was regarded as unimpressive, Shah acknowledged the extraordinary entrepreneurial aptitude that was inherent in the individual. After receiving the call, Shah joined Sequoia partner Doug Leone and Gili Raanan, the founder of the Israeli venture firm Cyberstarts, on the board of directors of the new companies. The next year, Index Ventures made an additional investment of forty million dollars in Wiz.
The group of individuals who initially established Wiz initially referred to their business as Beyond Networks, with a primary focus on expanding network security. After that, however, they turned their focus to developing software that was designed to scan cloud systems such as Microsoft Azure and Amazon Web Services in order to uncover security flaws inside those platforms. After undergoing a rebranding process, the organization has decided to go by the moniker Wiz. Wiz was able to obtain large clients, such as the international banking institution Barclays and the food industry behemoth Mars, by leveraging on the growing trend of businesses moving their data and applications from on-premises servers and data centers to cloud-based solutions. They successfully secured these clients. Due to the fact that Wiz had reached a critical revenue milestone in 2022, Assaf made the announcement in a blog post that the company had acquired the status of being the software company that was expanding at the quickest rate worldwide. The competition was joined by additional investors, including Lightspeed and Andreessen Horowitz, among others.
After making early investments in Wiz, Index Ventures was able to arrive at a valuation of $3.1 billion for its ownership in the company. The approximately $200 million that was spent in later fundraising rounds resulted in returns that were less than half of that sum. This exemplifies the well-established idea in venture capital that big returns are often achieved by providing support to organizations while they are just starting out. Due to the fact that venture capital firms are devoting more resources to larger acquisitions, early-stage investing has become increasingly uncommon in Silicon Valley. At the same time, a wide variety of investors, such as sovereign-wealth funds and major pension funds, have entered the fray. Currently, venture capital companies and various investors are investing huge sums, frequently reaching into the billions, to startups that boast valuations that would have been unfathomable to prior cohorts of investors in the startup ecosystem. These valuations are a result of the fact that these entrepreneurs are focusing on developing their businesses.
The large return that Index Ventures has achieved is not even close to being comparable to some of the most amazing venture investments in the history of the industry. These investments include Benchmark’s $9 million ownership in Uber and Andreessen Horowitz’s original funding of Coinbase. In spite of this, it is amazing for how quickly it has progressed: it took only five years from the momentous phone conversation to the time when it was included in the largest venture-backed sale ever recorded.
