How To Decide To IPO Or Get Acquired?

When An Acquisition Offer is Made: The Complex Decision to Sell a Hot Startup

Key Takeaways:

• Evaluating acquisition offers involves assessing seriousness, strategic fit, and economic value.
• Even lucrative offers, like Google’s $23 billion bid for Wiz, may not always be the best choice.

Imagine receiving a $23 billion offer for your startup. Tempting, right? But for cloud security startup Wiz, the decision to remain independent was more compelling.

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When a big company or an incumbent comes knocking with a lucrative offer, the decision to sell isn’t always straightforward. This was evident when rumors surfaced about Google’s $23 billion bid for cloud security startup Wiz. Despite the staggering amount, Wiz chose to stay private, highlighting the complexities involved in such decisions.

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• Evaluating the Offer’s Seriousness: The first step in considering an acquisition is determining how serious the offer is. For private companies like Wiz, initial offers are often exploratory due to limited public financial information. This contrasts with public companies, where financials are transparent, making the evaluation process more straightforward.

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• Strategic Fit and Employee Impact: Next, startups must assess the strategic fit of the acquisition. Questions about the combined company’s potential, employee retention, and product continuity are crucial. For instance, when Cisco acquired AppDynamics for $3.7 billion just before its IPO, founder Jyoti Bansal had to consider these factors carefully. 

• Economic Value and Shareholder Interests: Finally, the economic value of the deal must be scrutinized. Wiz’s rumored offer was 46 times its current Annual Recurring Revenue (ARR) and 23 times its projected 2025 ARR. Despite this, Wiz believed staying private was more beneficial, underscoring that even high-value offers might not align with long-term goals.

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The decision to sell a startup involves more than just the financial offer. It requires a thorough evaluation of the offer’s seriousness, strategic fit, and economic value. For Wiz, the choice to remain independent, despite a $23 billion offer, highlights the nuanced considerations startups must navigate.