Rumors first surfaced last month that Google was pursuing cloud security startup Wiz with a $23 billion offer, the largest ever made for a startup. Although the deal eventually fell through, it raises questions about the mechanics of such high-stakes negotiations and how a startup decides whether to sell.
Insights from Jyoti Bansal
We spoke to Jyoti Bansal, founder and CEO of Harness, a developer tools startup that has raised approximately $575 million and made several small acquisitions. While Bansal doesn’t have direct knowledge of the Google-Wiz negotiations, he has experience being courted by a large company. Cisco acquired his previous startup, AppDynamics, just days before it was set to go public in 2017 for $3.7 billion.
Factors Influencing Acquisition Decisions
Bansal identifies three key factors in acquisition decisions:
- Seriousness of the Offer: The first step is assessing whether the offer is concrete or exploratory. For private companies like Wiz, offers are often exploratory due to limited public financial information.
- Compatibility and Strategic Fit: It’s important to evaluate whether the merger makes sense strategically. This includes considering the impact on employees and products.
- Economic Evaluation: The final factor is scrutinizing the deal’s economics. For instance, the rumored offer for Wiz was 46 times its current ARR and 23 times its projected 2025 ARR. Despite this, Wiz chose to remain independent.
The AppDynamics Experience
Bansal’s experience with Cisco involved multiple offers before a final agreement. The initial offer aligned with IPO value was rejected, as was the second, despite being better. The third offer, however, made sense from a risk-versus-reward perspective for shareholders. AppDynamics ultimately sold for 2.5 to 3 times the IPO valuation.
The Decision-Making Process
Deciding to sell is complex, even with billions at stake. Bansal explains that selling involves consulting with investors, executives, and board members, each with different interests. For AppDynamics, the decision was influenced by the pressure of the IPO deadline and the offer’s attractiveness.
Regrets and Reflections
Despite making more than 300 employees millionaires and gaining personal wealth, Bansal has some regrets about not proceeding with the IPO. Reflecting on the timing, he acknowledges that the few years following the sale were some of the best for the tech industry, particularly for B2B SaaS. However, he is content with his decision to start Harness and is focused on building his second company.
Conclusion
The decision to accept or reject a significant acquisition offer involves multiple considerations, from the seriousness of the offer to strategic fit and economic factors. While Wiz chose to stay independent, Bansal’s experience with AppDynamics illustrates the complexity and emotional weight of such decisions in the tech industry.
