Lisbon , Portugal – 2 November 2021; Assaf Rappaport, Wiz, on Centre Stage during day one of Web … [+]
Times are tough for startups that did not have the luck or foresight to raise capital before the market for IPOs dried up in 2022. Many of those startups are now struggling to raise capital and are shutting down — CB Insights offers these 443 startup failure post-mortems — or being acquired below their previous valuations.
But now is a great time to raise capital for the very best startups that are charging to the lead of fast-growing recession-resistant technology markets.
That’s what cloud security services provider, Wiz, did on February 27 when it raised another $300 million. According to the company, this brings Wiz’s total capital raised to $900 million as its valuation popped another 66% to $10 billion since the last time it raised capital — $250 million at a $6 billion valuation — in October 2021.
In a February 27 interview, Assaf Rappaport told me why he thinks Wiz was able to raise capital at a higher valuation and why brand name companies are choosing its products over Palo Alto Networks
I requested comment from Palo Alto Networks and will update this post if I receive it.
Despite the uncertain state of Israel’s democracy, Wiz is likely to keep growing rapidly. It is headquartered in New York City and the newly raised capital is in the U.S. — not Israel.
Wiz’s valuation is growing because it has quickly established itself as the leader in cloud security — a rapidly growing cybersecurity market that shows no signs of slowing down.
As Rappaport told me, “The market opportunity Wiz targets is a top priority for companies. They are increasing their cloud security budgets fast despite the economic downturn.”
Why has Wiz separated itself from the pack as one of the few startups that raised capital in these tough times? “Venture capitalists are more reluctant to invest these days. However, they still want to put their capital in the best of the best startups that are thriving despite recession fears,” he said.
Why did Wiz enjoy such a boost in its valuation? Rappaport credits Wiz’s rapid growth in annual recurring revenues — last October he told me that Wiz’s ARR hit $100 million and was growing at triple digit rates — and the quality of its customers. “35% of the Fortune 100 leaders in cloud security are using Wiz. We are the undisputable market leader. Also, we are not buying 90 cents of revenue for a dollar — we have good unit economics.”
One Wiz investor, Greenoaks Capital Partner Patrick Backhouse, said, “Wiz is rapidly becoming the center of the cloud security ecosystem. Just two years ago, securing the cloud environment meant relying on a scattered collection of point solutions and add-ons. But today, Wiz has built a comprehensive cloud-native platform that gives customers actionable insights within minutes, showing them their areas of vulnerability, the risks they face, and how to resolve them.”
While Backhouse is impressed with how well Wiz’s product works, he also admires its ability to win brand-name customers. “We rarely see a business gain traction or garner customer love so quickly, and we are thrilled to partner with Assaf and his team as they pursue the next chapter in their journey,” he said.
Rappaport has great respect for the industry incumbent, Palo Alto Networks. However, he says that Wiz gives customers more for their money. “Palo Alto Networks acquired the best startups in security. From the customer’s perspective it offers a Frankenstein mashup. It is hard to deploy, hard to use, and more noisy than Wiz’s products.”
Companies prefer Wiz because it is well-integrated, easy to deploy and use, and gives companies accurate and actionable insights. Blackstone Chief Security Officer Adam Fletcher said: “I see Wiz as the cloud security platform for people who understand how to protect the cloud. Wiz has all of the capabilities that we’ve identified as core to our cloud security strategy.”
Blackstone adds that Wiz is likely to keep innovating. As Fletcher said, “I look forward to seeing them continue to grow. As the cloud providers engineer new solutions that require new security technologies, I’m confident that Wiz will develop them.”
Palo Alto Networks is doing well. On February 21, it reported better than expected profitability and solid growth. According to CNBC, its fiscal second-quarter earnings of $1.05 per share, adjusted were 27 cents more than analysts expected. Palo Alto’s revenue grew 26% — about $10 million more than the $1.65 billion that analysts had forecast.
Palo Alto raised guidance for the third quarter. CFO Dipak Golechha said, “We are raising our cash flow margin and operating profitability targets as we remain focused on driving efficiency in our business,” noted CNBC.
Specifically, Palo Alto expects to generate third quarter revenue of about $1.71 billion (some $10 million below analyst expectations) while the company forecasts EPS of 92 cents a share (14 cents above the consensus forecast). Management also raised its earnings guidance for the 2023 fiscal year while maintaining its revenue guidance.
Palo Alto’s stock has held up relatively well compared to other tech companies. It peaked at $212 per share in January 2022 and then fell throughout much of the year. But it recovered significantly and on February 27 traded at about $189 — a mere 11% below its peak.
Analysts see more upside in its stock. The 37 analysts offering 12-month price forecasts for Palo Alto Networks have a median target of $220 [representing] a 16.32% increase” from its current price, according to CNNBusiness.
Wiz will use the new funds to expand geographically and to fuel product innovation. “This round of funding will accelerate the growth of our global operations, enable diversification of our customers across a range of industries, and support our commitment to continued innovation,” Rappaport said.
Political changes in Israel where 150 of its 650 employees work motivated Rappaport to keep its newly raised funds outside StartupNation. As he told the Times of Israel, “Unfortunately, in light of the planned judicial changes, the money we raised will not enter Israel. Given the uncertainty about the independence of institutions in Israel and following an acute risk assessment of the situation we will keep funds in US banks while continuing our operations in Israel.”