Inside the Billion-Dollar App Story Waze

It’s always fascinating to hear the inside story of Billion-Dollar acquisitions. Usually we find ourselves waiting a bit of time before we get the juicy details, and sure enough it’s been more than a couple years since Google snapped up the Waze App for $1.15 billion in 2013. At the time there were lots of rumours about the deal, including a bidding war between Google, Facebook, and Apple.

I’ve synthesised a great article from BI about the deal. The Waze acquisition was a big deal because it was the first Israeli consumer-app company to be bought for over $1 billion. Uri Levine is the cofounder and former CEO of the app, and only one of Waze’s cofounder executives who didn’t go work at Google after the deal closed. Right now he does a bunch of angel investing and is even chairman of one of his investments, FeeX.

Some of interesting outputs of the interview:

There was no orchestrated PR push to leak info around the acquisition
Waze never hired a banker and was not looking to sell
The offers rolled in when Waze was in the middle of a financing round
The cofounders had told themselves in the early days that if someone ever offered them $1 billion, they would sell.
Most of the money went to the investors, yet Levine is still using VC funding for his current startups because it’s “part of the game.”

Here’s some of the most interesting excerpts of the interview:

BI: Was there a bidding war going on?

UL: I don’t know what made Google trigger to make us an offer. But they made us an offer. The terms were right, so we accepted.

BI: Were there bankers involved?

UL: We didn’t have a banker. Not before and not during and we were not looking to get acquired. But usually this is the case, right? You are making significant progress and you get the attention of everyone.

During the time that Google made an offer, we were in a round of financing dialogues. Usually when you are in a financing round and there is an offer, then it could make sense.

What made Google pretty attractive for us that No. 1, the company stayed in Israel. No. 2, we remained with our mission, to help drivers avoid traffic jams.

BI: What does it feel like to get a $1 billion offer for your company?

UL: Two thoughts, at the same time. One of them is, “Oh wow! I never saw a billion dollars. I don’t even know how to write it.” So that was impressive.

And at the same time, we were telling ourselves that we are doing the right thing and moving in the right direction, and if we keep doing that, then maybe we would be worth much more than that.

But the $1 billion mark was important milestone for us. Way before, we said that if someone offered us a billion, we will sell the company. It was a target, a mark, and important amount for us.

Business Insider/Julie BortA table made out of a longboard at Google’s Tel Aviv, Israel, offices where the Waze team works.

This was the first time there was a billion-dollar consumer app out of Israel. We thought we were setting a new beacon for the industry.

BI: And you did. You can see how you changed Israel in just couple of years.

UL: Yes. Today when I speak with young entrepreneurs, their whole motive and their beacon model is different than it was a few years ago.

BI: So your current startup FeeX raised $9.5 million from VCs like Blumberg Capital and Chinese billionaire Li Ka-shing’s fund Horizon Ventures. Why raise money instead of self-funding? Do you like the VC system?

UL: The VC industry is very problematic.

From the entrepreneur’s perspective at the end of the day, when Waze was acquired, the employees and the founders had too little of it. Most of the money went to the VCs and to their investors. The reality is that this is what happens.

If you are raising an A round, and this would be an average Israeli [deal], of $3 million funding at a $6 million pre-money valuation, and you are putting aside a pool of options at 10%, you already gave up 33% of the company.

If the next round is going to be similar ratios, you’re going to be diluted by another third — you’ll already be left with about 40%. Take that one or two more rounds, you’ll be left with 15%, and that’s it.

[As for FeeX], Blumberg was the first investor, and Horizons came a little bit later. I think we are still in a pretty good position as founders in terms of equity. But eventually we will be diluted further. And that’s part of the game.