Alphabet, the parent company of Google, is reportedly in advanced talks to acquire cybersecurity startup Wiz for $23 billion. If this deal goes through, it would be Alphabet’s largest acquisition to date and a significant exit for Wiz. This comes at a time when startup exits, particularly mergers and acquisitions (M&A), are not rebounding as much as expected in 2024.
The potential acquisition of Wiz by Alphabet could have various implications for the venture and startup ecosystem. According to Angela Lee, a professor at Columbia Business School, this acquisition could serve as a catalyst for the startup M&A market, which has been lacking momentum. The size of the deal is substantial, and there is a readiness in the market for an exit of this magnitude. Lee hopes that this acquisition will revitalize the M&A market and encourage more deals to take place.
However, it is important to note that this deal may not fundamentally address the liquidity crunch faced by large late-stage startups. Alphabet’s balance sheet is unique, allowing them to make acquisitions of this size. Lee emphasizes that this deal is something only Google can do and may not necessarily lead to a shift from initial public offerings (IPOs) to M&A.
The potential acquisition of Wiz could also have a positive impact on venture fundraising. Currently, U.S. venture firm fundraising is projected to be lower than in 2023. The lack of exits and longer holding periods for company stakes by VC funds have made limited partners (LPs) more hesitant to invest capital. However, LPs still want exposure to venture investments. The acquisition of Wiz, which is only 4 years old, could alleviate some of their hesitations. It would not only affect fundraising numbers directly but also give VCs leverage on the fundraising trail. This deal could potentially excite LPs and encourage them to return to the market.
Furthermore, if Wiz gets acquired, it could prompt VCs to start making investments again. Pitch deck activity from investors and founders has increased, indicating interest in early-stage deals. While the opening of the exit market may not directly impact these early-stage deals, a potential interest rate cut could make a difference. However, the acquisition of a young and rapidly growing company like Wiz could have a unique effect. It could generate excitement and FOMO (fear of missing out) among investors who would have loved to be a part of such a deal. This buzz around a non-AI company could potentially stimulate movement in the venture market.
It is worth noting that the future of the deal is uncertain, as it could face antitrust pushback or may not happen at all. However, if it does go through, it has the potential to breathe new life into the startup M&A market and venture fundraising landscape.
