Wizard’s sale to Google results in significant venture capital payday and brings hope for future exits in the industry.

The recent news of Google’s acquisition of cybersecurity startup Wiz for $32 billion has sent ripples of excitement through the venture capital world. This deal, considered to be the biggest acquisition ever of a venture-funded company, is not only a massive win for Wiz but also spells a significant payday for its early VC backers such as Index Ventures’ Shardul Shah, Sequoia’s Doug Leone, Cyberstarts’ Gili Raanan, and Greenoaks’ Neil Mehta.

According to reports, Index Ventures stands to earn a staggering $4.3 billion on its holdings, while Sequoia is expected to clear about $3 billion from this deal. The hefty payout is a much-needed positive development that could help ease concerns among limited partners (LPs) about the lack of substantial exits in recent times.

This high-profile acquisition also signals a potential revival in the tech mergers and acquisitions (M&A) landscape, following a lull during the Biden Administration. Other recent deals, such as SoftBank’s acquisition of chip startup Ampere Computing for $6.5 billion and ServiceNow’s purchase of Moveworks for $2.9 billion, reflect a growing momentum in M&A activity.

Despite ongoing antitrust concerns and legal battles, tech companies seem eager to pursue strategic acquisitions in a more deregulated environment. Google’s agreement to pay a massive $3.2 billion termination fee if the Wiz deal falls through indicates their confidence in completing the acquisition. This deal is scheduled to close early next year, pending regulatory approvals.

While initial public offerings (IPOs) have traditionally been the go-to exit strategy for VCs, the Wiz-Google deal illustrates how lucrative M&A deals can also be for major VC funds. Notable firms like Index Ventures, Sequoia, Insight Partners, and Greenoaks hold significant stakes in Wiz, with Lightspeed also set to reap returns from their earlier investments.

The current market conditions suggest a potential uptick in IPO activity, with companies like CoreWeave and Klarna gearing up for their public debuts. Klarna is expected to be valued at around $15 billion, showing a marked increase from its 2022 valuation of $6 billion. Conversely, CoreWeave aims for a $32 billion valuation at the time of its offering.

Amidst uncertainties surrounding global markets and political landscapes, VCs and LPs may explore alternative liquidity options, such as a robust secondary market for private shares. Data from Jefferies indicates that 2024 witnessed record-breaking secondary sales worth estimated $140 billion, highlighting the growing interest in this avenue for investors.

In conclusion, the Wiz-Google deal not only represents a monumental event in the tech industry but also offers a glimmer of hope for VCs and LPs seeking substantial returns on their investments. This acquisition, coupled with a potential resurgence in M&A activities and IPO markets, could pave the way for a fruitful period of exits and financial rewards in the venture capital space.