Behind Google’s $23 Billion Bid for Startup Wiz

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[00:00:22] Welcome to Tech News Briefing, it's Tuesday, July 16th. I'm Zoe Thomas for The Wall Street Journal. Today we've got two stories about startups that may not be household names, but are making headlines.

[00:00:36] First, cybersecurity startup Wiz went from zero to a possible 23 billion dollar sale in just four years. We'll tell you why Alphabet, the parent company of Google, is interested in the cloud cybersecurity company.

[00:00:51] And then, the collapse of a little-known startup that served as a middleman between fintech companies and licensed banks is affecting thousands of consumers and the broader fintech sector. We'll explain the ripple effects set off by the bankruptcy of Synapse financial technologies.

[00:01:09] Starting with what could be Google's biggest acquisition ever. Over the weekend, we broke the news that Alphabet, the parent of Google, is in advanced talks to acquire cybersecurity startup Wiz for roughly 23 billion dollars. That's according to people familiar with the matter.

[00:01:29] Here to tell us more about it is our reporter, Berber Jinn. So Berber, tell us more about Wiz. What does it do? Wiz is a cybersecurity startup that sells software to large companies like Morgan Stanley and Slack.

[00:01:44] And basically what they offer is a threat detection tool to make sure that the cloud environments that these big companies store their data on and run their applications on are safe.

[00:01:56] How much of an increase does Alphabet's offer compare to what Wiz was valued at in its latest fundraising round? Wiz was valued at 12 billion dollars just two months ago. And now Google is in talks to buy Wiz for 23 billion dollars.

[00:02:12] So it's basically roughly doubling the price of this startup in a matter of weeks. And it's grown pretty quick. I mean, Wiz is only a four-year-old company. What's behind that growth? They tackled a very fast growing industry.

[00:02:28] So they were founded during the pandemic and during that time in 2020, a lot of businesses were accelerating this trend of moving their data and their applications to the cloud. And given that so much of that sensitive data is now stored on the cloud,

[00:02:45] these businesses were very vulnerable to cybersecurity threats with Carved Eniche in that market and grew really fast. The four founders led by Asaf Rapaport, who's the chief executive. They've known each other for 20 years and they met in the IDF, the Israeli Defense Force,

[00:03:03] where they were part of this elite cybersecurity unit called Unit A200, which is kind of like the secret sauce for building a highly valued cybersecurity startup because a lot of other cybersecurity companies that have succeeded, including Palo Alto Networks, Checkpoint, and Fireblocks all came from that one unit.

[00:03:23] Burber, $23 billion is a huge sum. What is its signal for the broader startup sector? The big tech stocks like Nvidia and Microsoft are on a tear right now because of AI. But most of the startup sector has been struggling.

[00:03:38] So to have a four-year-old startup like Wiz near a deal that would give their investors a $23 billion exit, if it's successful, it would be the largest exit by far since the tech crash of 2022.

[00:03:54] For startups, if it goes through, it'll give a lot of these companies more hope that they can get these really big exits from big tech companies and just be more confident that there can be a little bit more movement

[00:04:07] in the ecosystem with money being returned to investors and other companies pursuing similar exit paths. The big question is whether this deal gets passed any trust review in both the US and Europe. Last year, there was a similar case where Figma, this design collaboration startup,

[00:04:25] they struck a deal to be sold to Adobe for $20 billion, and that was similarly a really big exit. That deal was essentially scrapped last December because the two companies decided they couldn't get past the FTC.

[00:04:39] So there's a lot of reason to be optimistic if you're a founder of a late-stage startup or a venture capitalist, but a lot still hangs in the balance of whether this deal can actually go through. What have Wiz and Google said about the deal?

[00:04:53] Through a spokesperson, Wiz declined to make their founders available for an interview and Google didn't respond to requests for comment. That was our reporter, Burber Jin. Coming up, consumer accounts are frozen and up to $96 million is missing

[00:05:11] after a startup that acted as a middleman between fintech companies and licensed banks when bankrupt. That story after the break. You might not have heard of the venture-backed startup Synapse Financial Technologies,

[00:05:53] but its bankruptcy has left thousands of consumers unable to access money they thought was safely deposited at banks. Its shutdown is also impacting fintech startups that worked with it as well as the broader fintech sector.

[00:06:08] Here to tell us more about this is WSJ Pro Venture Capital Reporter Yulia Chanova. Yulia, what exactly does Synapse do? What Synapse does is connect various fintech startups, fintech apps with regulated banks. Consumers would sign up for savings apps, investment apps and put money into these apps.

[00:06:31] The money won't actually sit with the fintech startups. It would go through Synapse and then be deposited at regulated banks. So Synapse acted as a kind of middleman between the startups and the banks,

[00:06:44] making it easier for fintechs to deal with banks and making it easier for banks to find customers and depositors. What the consumers saw was that their money was sitting with banks.

[00:07:01] And these banks are FDIC insured and so most consumers saw that their money is safe with FDIC insured accounts. So Synapse filed for Chapter 11 bankruptcy in April. How did that impact customers?

[00:07:17] So the bankruptcy happened in April and in May the banks that worked with Synapse basically froze all of the accounts connected to it, which meant that more than 100,000 accounts have been frozen since May.

[00:07:37] And the banks froze these accounts saying that they don't know exactly to whom all of that money belongs. They see money on their platform and they are saying that there are discrepancies in the records kept by Synapse

[00:07:56] so that they are having trouble allocating the money to individual accounts. So banks have this big pool of money. They're not sure which individuals get how much of it. Is that my understanding that right? That's right. And it also appears that some money is missing.

[00:08:13] In fact, the trustee that's assigned to manage the Synapse estate in the bankruptcy court said that as much as $96 million is missing, which is the difference between how much money is sitting at banks related to Synapse

[00:08:29] and how much the Synapse records and the FinTech startup records show is supposed to be there. And it's still unclear what that means. Is it really missing? Is it just unallocated? No one can really tell a straight story on this and there's reconciliation that's ongoing.

[00:08:47] Perhaps one of the banks involved called Wolf Bank & Trust said that they believe within weeks the reconciliation may be complete. Okay, so if Wolf says a plan to repay creditors should be completed within weeks, what has Synapse and its founder said about the whole situation?

[00:09:07] The founder says that they've provided all the information necessary and he blames the banks. So there's a lot of disagreement as to who is to blame. And at the same time, you know, all these folks who believe that their money is safe can't access it

[00:09:22] and they really don't appreciate all the finger pointing that's happening right now. Okay, so we've talked about Synapse, we've talked about the banks, we've talked about the customers. What about the FinTech partners that worked with Synapse? How are they affected?

[00:09:37] They are not doing well. I spoke, for example, with one CEO and he said that his businesses has ground to a halt because his customers can't transact and of course that's affecting the business.

[00:09:53] They all say that it's also not their fault that they are at the mercy of these other parties and there are some people questioning how much of a responsibility these companies have. What are regulators saying about the situation?

[00:10:07] Regulators including the Fed and FDIC have said we're urging all the parties to figure this out. We're urging them to get money to consumers as fast as possible but they're also saying that their hands are tied to some degree.

[00:10:28] At this point, there's no indication that they would tap any kind of insurance to make consumers whole. They are saying that since consumers didn't have accounts open directly at the regulated banks, this is a case that has to sort itself out through bankruptcy court however long that takes.

[00:10:51] Of course, FDIC insurance, it kicks in when a bank fails but I guess in Synapse's case, none of the banks have actually failed. This is the third party that's failed. What does that mean for the broader FinTech ecosystem and especially for those who have VC backing?

[00:11:09] People are very concerned. There are some companies and entrepreneurs saying, okay, this is clearly a case where something went very wrong. The records weren't kept well and they are worried that this will also reflect on them even if they are doing things the right way.

[00:11:31] That was our reporter, Yulia Chanova and that's it for Tech News Briefing. This is produced by Julie Chang with supervising producer Catherine Milsopp. I'm Zoe Thomas for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.