NEW YORK: Last summer, investors persuaded the founders of cyber startup Wiz to turn down Google’s US$23bil takeover offer. They feared the US government would block the deal and argued that Wiz was better off as an independent company.
On Tuesday, Wiz’s founders said they’d changed their minds. It didn’t hurt that Google parent Alphabet Inc sweetened the offer to US$32bil 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 US$1bil, at a roughly US$25bil 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, prioritise 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 US$3bil.
An additional US$1bil 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,” said Gili Raanan, founder of the Israeli venture capital firm Cyberstarts and one of Wiz’s first investor. “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.
“Organisations 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 US$320mil, 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. — Bloomberg
