Google’s cybersecurity deal spins tiny investment into $4 billion windfall

A promising Israeli cybersecurity founder that he had been asking for years to launch a company was in need of funding. “It’s time," the voice on the other end of the line said. Shah kicked in $3.5 million on behalf of Index Ventures.

Flash forward five years and that original seed money earned a 250-fold return this week, turning into an $875 million stake, when Alphabet’s Google agreed to buy Wiz for $32 billion.

And Index Ventures didn’t stop at its first check. It put more money in Wiz during every subsequent funding round, making it the startup’s largest outside shareholder with a 13% stake. In total, Index Ventures has turned its $245 million investment into $4.3 billion.

Success stories such as these were once a dime a dozen during the go-go years of Silicon Valley, when massive startup exits dominated the headlines and made being a venture capitalist one of the hottest jobs in finance.

These days, the initial public offering market is dreary. Prized startups such as Stripe and SpaceX have chosen to stay private for over a decade, putting their investors in a perpetual holding pattern as they await a chance to cash out.

Regulators, meanwhile, have become more cautious about blessing acquisitions. Google’s Wiz deal still needs regulatory approval from the Trump administration, which has signaled that it intends to maintain tough merger-oversight guidelines. The review process itself could take years to conclude.

If the Wiz deal proceeds, investors hope it will pave the way for similar startup exits in the future.

Getting the call

When Shah received Assaf Rappaport’s call, the entrepreneur and his three co-founders hadn’t yet settled on a name or a specific plan for the startup, beyond wanting to go big in the fast-growing world of cybersecurity. The “how and what," Shah said, was still waiting to be discovered. In his head, Shah called the startup “AssafCo," a testament to his conviction in Rappaport.

“It was completely expected and unexpected at the same time, because I had been waiting," Shah said of the 2020 call.

Shah’s hunch about Rappaport, a dog lover and veteran of the Israeli army’s elite cybersecurity unit, dated to 2014, when Shah backed Rappaport’s first startup, called Adallom. It was later sold to Microsoft for a disappointing $320 million, but Shah felt he had spotted an entrepreneur of rare talent.

After the call, Shah joined the startup’s board alongside Sequoia partner Doug Leone and Gili Raanan, the founder of the Israeli venture firm Cyberstarts. Then, Index Ventures put a further $40 million into Wiz.

Wiz’s founding team first called its company Beyond Networks and focused on network security, before pivoting to developing software that works to scan and identify security risks from cloud platforms such as Microsoft Azure and Amazon Web Services. The team renamed the company Wiz.

Wiz brought in large customers such as the global bank Barclays and food conglomerate Mars, riding a wave of demand from businesses migrating their data and applications from local servers and data centers onto the cloud. In 2022, Assaf declared in a blog post that Wiz had become the world’s fastest-growing software company after hitting a revenue milestone. Other investors, including Lightspeed and Andreessen Horowitz, piled on.

Cashing in

Index Ventures’ first two checks into Wiz gave it a stake valued at $3.1 billion. The $200 million or so that it invested in subsequent rounds returned less than half that amount—illustrating the tried-and-true principle in venture capital that the biggest returns come from backing companies when they first get off the ground.

Such early-stage investing has become something of a lost art in Silicon Valley, where venture firms now put more resources into backing bigger deals and investors from sovereign-wealth funds to large pensions have crowded in. Today, venture firms and other investors are writing billion-dollar checks into startups at valuations unfathomable to an earlier generation of startup investors.

Index Ventures’ sizable return is still a ways off from some of the greatest venture bets of all time, such as Benchmark’s $9 million bet on Uber or Andreessen Horowitz’s early investment into Coinbase. Still, it is notable for its speed: five years from fateful phone call to being part of the biggest venture-backed sale of all time.

Write to Berber Jin at berber.jin@wsj.com