Alphabet, the parent company of Google, is reportedly in advanced talks to acquire the cybersecurity startup Wiz for $23 billion, as reported by the Wall Street Journal. Sources from TechCrunch have confirmed similar information, adding that discussions could continue into the following week. If this acquisition goes through, it would be Alphabet’s largest acquisition to date, marking a significant exit for a startup at a time when mergers and acquisitions (M&A) are not rebounding as much as anticipated heading into 2024. The potential deal could have far-reaching effects on the venture capital and startup ecosystem, some of which are apparent, while others are less so.
Angela Lee, a professor at Columbia Business School and founder of the angel investor community 37 Angels, told TechCrunch that Alphabet’s acquisition of Wiz could act as a catalyst for the startup M&A market. She pointed out that the size of the acquisition is substantial and that the market is ready for an exit of this magnitude. Lee suggested that fear of being the first to make a move is prevalent, but a deal of this size could revitalize the M&A market.
The need for such a push in the market is evident. According to PitchBook data, there were 356 startup acquisitions in the U.S. during the first half of 2024, suggesting that the year is not on track to surpass the 771 acquisitions in 2023. However, Lee noted that while the deal might spark more startup M&A activity, it is unlikely to address the current liquidity crunch faced by large late-stage startups. She highlighted that few companies have the financial capacity to make acquisitions of this size, emphasizing that this is a deal only a company like Google can execute.
The potential acquisition could also positively impact venture fundraising. U.S. venture firm fundraising is projected to fall below the $81.5 billion raised in 2023, which was already a 57.4% drop from the $191.3 billion raised in 2022, as per PitchBook data. Brian Borton, a VC and growth equity partner at StepStone, mentioned that venture capital funds typically hold company stakes longer than any other asset class, regardless of market conditions. This dynamic, combined with the current lack of exits, has made limited partners (LPs) hesitant to deploy capital. However, they still desire venture exposure, which is one reason StepStone’s recent secondaries fund was successful—it offers LPs a way to invest in venture without long holding periods.
Lee suggested that the Wiz deal, if it materializes, could alleviate some of the hesitations among LPs. The deal’s size and the fact that Wiz is only four years old could provide VCs with needed leverage in fundraising efforts. Late-stage startups in the U.S. average more than 12 years old, according to PitchBook data. Lee believes that an acquisition of this magnitude, involving a relatively young company, could directly affect venture capital numbers and potentially shorten exit timelines, thus exciting LPs and encouraging them to return to the market. This, she argued, could help revive VC fundraising, which has not bounced back as strongly as other market segments in 2024.
If Alphabet acquires Wiz, it could prompt venture capitalists to start investing more actively again. According to DocSend, pitch deck activity from both investors and founders rose by double-digit percentages in Q2 2024 compared to the same period the previous year, despite the lack of significant movement in closing deals. Justin Izzo, a lead data and trends researcher at DocSend, mentioned that the exit market opening might not significantly impact early-stage deals as they are far removed from the exit timeline. However, Lee and Izzo agree that the rapid growth and substantial exit of a four-year-old company like Wiz could have a different effect than the acquisition of an older startup.
Lee highlighted that the rapid success and potential massive exit of a young company like Wiz create a fear of missing out (FOMO) among investors. She noted that such a buzzworthy deal, especially one not centered on artificial intelligence, could generate excitement and interest within the venture capital community.
The future of the Alphabet-Wiz deal remains uncertain, as it could face antitrust scrutiny and other regulatory challenges. Nonetheless, if the acquisition proceeds, it might provide the necessary impetus for the venture capital market to regain momentum and see more activity.
As the deal’s prospects develop, industry stakeholders will be closely watching to see if it will truly be the game-changer many hope it will be. The outcome of this potential acquisition is unclear, but it could have significant ramifications. If completed, it would not only mark a historic acquisition for Alphabet but also potentially rejuvenate the M&A market and stimulate venture capital fundraising and investments.
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