Alphabet's $32 billion Wiz deal promises windfall for VC backers

(Reuters) -The venture capital firms that invested in cybersecurity firm Wiz, which agreed to a $32 billion buyout by Google's parent Alphabet, stand to reap returns as high as 200 times for seed investors, among them Sequoia Capital, Cyberstarts and Index Ventures. 

The $32 billion all-cash Wiz deal on Tuesday marked a major win for about 25 firms on Wiz's cap table, according to PitchBook, a rarity in the past few years as high interest rates and tight antitrust scrutiny reduced exit events.

Among the investors, the biggest beneficiaries are those that put money into Wiz early and continued to invest over the years. Their success demonstrated the power law in venture capital when a small number of investments generate the majority of returns. 

Israel-based early-stage firm Cyberstarts co-led a $21 million seed round in Wiz in February 2020 that valued the company at around $67 million post-money.

While it also invested in follow-on rounds, Cyberstarts' biggest win is $6.4 million invested in its first seed fund, worth about $1.3 billion when the deal goes through. That represents a return of more than 200 times within five years, according to a source familiar with the performance, a home run in an industry built on them. 

Insight Partners co-led the company's second funding round.

Silicon Valley heavyweight Sequoia enjoyed similar success by investing early, with an initial $10 million in the seed round. After committing more in later rounds, it now owns about a 10% stake in Wiz and could reap $3 billion from the sale, sources said.

Index Ventures, now the largest shareholder in Wiz, has about a 12% stake, which could translate to over $3.8 billion in cash when the transaction is completed, sources added.

The firm's partners Gili Raanan, Doug Leone and Shardul Shah sit on Wiz's board. They got to know Wiz CEO Assaf Rappaport, a former captain in the Israel Defense Forces, and his founding team in his first company, which was acquired by Microsoft. 

When the team founded Wiz in 2020, Cyberstarts, Index Ventures and Sequoia were quick to invest.

For some investors, the success is both personal and professional. "We have known each other for years, talk weekly and attend each other's birthday parties," Cyberstarts founder Raanan said in an interview.

Cyberstarts Opportunity Fund, which invested in Wiz in 2024, is turning its $40 million investment into $128 million. Thrive Capital, a firm known for its concentrated late-stage bets, is securing a quick win with a $1 billion stake after leading Wiz's most recent two funding rounds, one at a $12 billion valuation and one at $16 billion in an employee tender offer late last year, the source added. 

(Reporting by Krystal Hu in New York; Editing by Cynthia Osterman)