(Bloomberg) — Last summer, investors persuaded the founders of cyber startup Wiz to turn down Google’s $23 billion takeover offer. They feared the US government would block the deal and argued that Wiz was better off as an independent company.
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On Tuesday, Wiz’s founders said they’d changed their minds.
It didn’t hurt that Google parent Alphabet Inc. sweetened the offer to $32 billion in cash — a handsome price for a company that set up shop in Tel Aviv just five years ago. The companies, which expect the deal to close next year, are betting on a friendlier regulatory environment under President Donald Trump — although hurdles remain.
Wiz will be folded into Google Cloud and could help the search giant gain market share in the fiercely contested cloud security industry.
The deal came together quickly, with the first meeting held in New York a week and a half ago, according to a person familiar with the matter. The terms built on the foundation established last summer.
Wiz debated whether to accept the Google proposal or move forward with a planned funding round this year for about $1 billion, at a roughly $25 billion valuation. But the startup opted to proceed owing to the bigger offer, the change in the regulatory landscape under Trump and an opportunity to accelerate efforts to build the world’s largest cybersecurity company, the person said. Microsoft Corp. is currently the biggest.
Founded by four Israeli military veterans, including Chief Executive Officer Assaf Rappaport, Wiz emerged just as the Covid-19 pandemic prompted more companies to move their networks to the cloud. Wiz helped pioneer new ways to find, prioritize and fix threats and bugs — outflanking traditional players that often struggled to adapt to a more complex computing environment.
Wiz’s rapid growth has made its four co-founders the newest members of the small Israeli billionaires club. Each owns 9.3% of the company, according to a person familiar with its structure, who requested anonymity because the information is private. Based on the sale price, that means each founder has a stake worth almost $3 billion.
An additional $1 billion for retention bonuses is available to Wiz employees if they remain at Google, a person familiar with the deal said without specifying the time period.
Rappaport has previously shrugged off questions about financial rewards, noting last fall that he has rented the same Tel Aviv apartment for more than a decade.
Behind his unassuming demeanor and his T-shirt-khakis-and-sneakers wardrobe, Rappaport is a shrewd dealmaker with sometimes sharp elbows, according to people who know him.
“He can be extremely charming and personal and warm,” says Gili Raanan, founder of the Israeli venture capital firm Cyberstarts and one of Wiz’s first investors. “And he can be very decisive, data-driven, analytical, merciless. Those two sides exist.”
The founders — Rappaport, Yinon Costica, Ami Luttwak and Roy Reznik – met at Talpiot, an elite military academy. Besides exposing recruits to different parts of the armed forces, Talpiot trains them in science, math and computers. Rappaport said he drove a tank, parachuted from a plane, received intelligence training and “blew up things.”
The four friends moved from Talpiot to Unit 8200, Israel’s equivalent of America’s National Security Agency. Aside from their reputation for technical prowess, Unit 8200 alumni are known for starting successful cybersecurity companies, including Palo Alto Networks, Check Point Software Technologies and Armis.
In 2012, the quartet started a company called Adallom, an abbreviation of a Hebrew saying that means “up to here” or “last line of defense.” The startup helped companies secure cloud-based applications used by employees — a blind spot at the time, said Neil MacDonald, a vice president and analyst at Gartner, a technology research and consulting firm.
“Organizations had no visibility. None,” he said. “Adallom helped at that time to solve that problem.”
Three years after Adallom’s founding, Microsoft acquired the startup for $320 million, and the founders joined the tech giant to help build its cloud security business. Rappaport said they initially planned to stay two years.
They ended up staying five — creating cybersecurity products at massive scale and enjoying access to funding and talent — before leaving to start a new company.
At first the team, by then working from a two-room office in Tel Aviv, considered creating a network security company called Beyond Networks. Then they interviewed more than 100 potential customers and cybersecurity professionals and learned that there was an unmet need in cloud security. Yes, there were existing tools, but they created too much work and didn’t really solve the challenges.
Focusing on cloud security was risky because many companies were doing similar things, and Rappaport has recalled calling the switch the “suicide plan.”
The newly created Wiz targeted a different, and broader, segment of the cloud security market than Adallom, offering a tool that worked on various platforms and could identify and prioritize risks across increasingly complex computing environments.
“Every service has configurations. Every service has identities and permissions,” MacDonald said. “There’s just this enormous complexity in the configuration of cloud infrastructure that, without a tool, a human can’t understand.”
Wiz’s product was easy to install and could find potential problems and prioritize them in a matter of hours — providing cybersecurity professionals with unprecedented visibility, MacDonald said.
The pandemic-fueled migration to the cloud fueled Wiz’s growth. The young company also benefited from an all-star lineup of financial backers, including Sequoia Capital, Insight Partners, Index Ventures and Cyberstarts, some of which had also invested in Adallom.
In all, Wiz has raised more than $1.9 billion dollars from investors including SoftBank Vision Fund, Andreessen Horowitz, Blackstone Group, LVMH CEO Bernard Arnault and former Starbucks CEO Howard Schultz.
“Wiz felt like the first opportunity to build a security platform in a really long time, basically since CrowdStrike,” Thrive Capital’s Philip Clark said in an interview last fall, referring to cybersecurity giant CrowdStrike Holdings Inc. Like several other investors, Clark also said the complementary talents of Wiz’s four founders was a key to the company’s success.
When Google expressed interest in Wiz last year, Rappaport saw its culture as a good fit and grew increasingly exhilarated in July as they hashed out what the collaboration could look like. Google ramped up its charm offensive too, even drawing up a tongue-in-cheek employment contract for his beloved dog, Mika.
Still, on the day Wiz had set as a deadline, Rappaport pulled the plug at 4 a.m., emailing the news to his anxious employees, many of whom had remained in the Tel Aviv office overnight.
In an interview last fall, he recalled thinking: “I can’t believe I’m going to say no to a $23 billion acquisition.” But at the time, he didn’t want to give up a “once-in-life opportunity to be the largest cyber company in the world.”
In January, Wiz hired a chief financial officer, following years of speculation about when it, and a host of other cyber startups, would go public. Rappaport continued to say he wasn’t in a hurry. Companies such as OpenAI and Databricks have shown there’s a “huge advantage” to staying private longer, he said at the time, adding: “I’m here for the long journey.”
That part of the journey, at least, ended on Tuesday.
–With assistance from Tom Maloney and Katie Roof.
(Updated with deal details, starting in fifth paragraph.)
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