Wiz is the largest venture-backed M&A in history: Shardul Shah, Partner at Index Ventures

0:00Hello and welcome to the Scaling Europe show presented by Deal. This episode is sponsored by SurrealDB, the multimodal database for AI agents. Omni, the AI analytics platform trusted by growing companies like Perplexity and Cibesia and VentureComet, the platform that gives startups and scale-ups real-time equity tracking, daily business insights and automated management information. Thank you for joining me. Please like, comment and subscribe.

0:32Hello and welcome back to the Scaling Europe show presented by Deal. I'm Seb Johnson. Today, I've got an amazing guest, Shardul Shah, partner at Index Ventures, who has been investing in and playing a great role with the team at Wiz, whose deal just closed this week. So thank you for joining me. Thanks a lot for having me. What fun and congrats on all the success you've had, Seb. It's been really important for the ecosystem. No, thank you. It's been an amazing week for Index. I spoke to Jan Hamer yesterday. There's amazing news from wonderful ai alan uh you guys are absolutely crushing it and i always love being to members of the team because uh yeah you're playing a great role yourself so um yeah it's great to have time to chat next time let me go before yawn how fast to follow uh it's going to be fun i'm going to be publishing them almost like back to back which i think is going to be really fun to be able to talk to both of you about both bits of great news um but look i want to get on to this the deal has closed this week it's been an amazing journey very relatively short period of time, I think you guys ended up being either one of the, or if not the biggest external shareholder in the business.

1:30And the reason why, because you doubled, you tripled, and you could triple down. So the first question I really want to ask is what gave you the conviction along the journey to keep going back for more? Yeah. I don't know if it's quick, right, Sebastian? You could count it as six years or 16. But the outcome is really important for the industry. It's the largest venture-backed M &A in history. And to your point, Index was the largest investor in the company. About a decade ago, I served on the board of Adelon, which was Asaf's Roy, Ami, you know, it was their first company. And so I had a front row seat at observing how they thought, how they made decisions, how they argued, built a team, took a view on markets, and learned from mistakes that were made.

2:26Eventually, that company was acquired by Microsoft. And every few months, I would go back to Israel, visiting art museums with Asaf, trading restaurant recommendations with Resnick's mom. and eventually on my birthday a soft called and said let's let's go and so initially there wasn't a business plan that we were backing it was all about the people right and a few months later they pivoted right and then a few months later they pivoted again and so So eventually, we did lead a Series A. That was about two weeks after commercialization. And again, we co-led the Series B about two months later and then continued to build the position.

3:25But the starting point for conviction was people. And the continuation and growth of conviction was also around people. And so as we observed the crew bring on more talent, and as we saw that talent make an impact, our conviction continued to grow. And when you are assessing the opportunities as they progress from the A to the B to the C, how do you assess your own conviction? It's something I've seen you talk about in other interviews is that sort of line between conviction and delusion. You know, how do you go through a mental process yourself to really decide and really kind of agree with yourself that you've got the right conviction versus delusion?

4:08Well, it's not all about me, right? So Index is set up as one team across multiple geographies, and the same team is investing across different funds. It's not the culture for everyone, but it's our culture. And it allows for dissent. So, yes, I'm second guessing myself constantly. And it turns out my partners are challenging me and pushing me to think about different dimensions of the business. And so we thought really hard about the market size. We thought really hard about the product positioning. We thought really hard about were we recruiting the right people in the right sequence at the right time.

4:52We thought really hard about corporate governance. And as a group, we were often not unanimous in our decision, yet we broke the rules because of pure conviction. But we shouldn't confuse confidence in a decision and the outcome, right? the verdict doesn't determine you know the the judgment call but we made you know a number of judgment calls in sequence that were really well reasoned at the time and you mentioned that the prior business that the team had built I think that exited for about 300 million was a hundred times that was there a point in the journey where you suddenly realized okay this is actually going to be, you know, the potential to be a 100 times their initial exit, which is already a great result?

5:45I, I, uh, that's a great question. Um, I never thought about it. Um, I, I, I was always coaching them not to be too reflective on Odolome, um, and the size of that outcome, because I thought it would kind of constrain their imagination. In the same way, I think the whiz acquisition is going to inspire entrepreneurs to seek out bigger outcomes, whether that's through M &A or building independent companies as public entities. I think it inspires what a new boundary can look like. And so sometimes you can get anchored, right, if you look at the numbers of the past. And I try to think about them as pretty important.

6:34Yeah, that makes a lot of sense. And yeah, I can't remember who said it, but somebody said, you know, the ambition of a region is defined by the biggest exit they've seen. And it's probably true for an industry as well. So, you know, increasing the size of the total or the largest exit in an industry really does raise the ambition of everybody working in that field. And how are you thinking more broadly about the field? You know, you've built an amazing career building or investing a lot in cyber and cloud security. we're now in this crazy world of AI and there's almost seems to be a resurgence and a reanimation of the industry but it's changed a lot how are you thinking about the industry more broadly given the backdrop of AI in some ways nothing's really changed I have learned to trust my intuition around people more that's the center of every investment thesis if I think about like Parag Agarwal from Parallel.

7:26He was previously the CTO and the CEO of Twitter. When he started his business, our internal memo was about five pages about him. We didn't talk about the business. My partners were quite curious what he was working on, but the entire thesis was about Parag. We co-led the Series A together with Mamoun, who's a terrific investor over at Kleiner Perkins, Vinod, on the board, says Josh Koppelman. It's a terrific team that has high trust that surrounded Parag. And that business is now on an absolute tear, right? And so he was extraordinarily prescient about the needs of the ubiquity of AI agents and the needs of AI agents to access the web.

8:18Truth is, I didn't have an imagination around what the AI agents would require, what the prerequisites would be from a tech perspective, but I did have full belief in Parag. When I think about June at Simile, again, in this AI era, which Wiz was a beneficiary of, by the way, But in this AI era, when I first met June, I felt this human being that was comfortable with contradiction. He has the imagination to simulate every person on the planet. it speaks to my science fiction nerdiness rooted in a british epic hitchhiker's guide to the galaxy and despite your personality most british humor goes way over my head but the idea of simulating the entire planet is like straight out of science fiction and it's so intoxicating.

9:23How could you resist? In the next sentence, June is talking about delivering value to a Fortune 50 and talking through the process of graduation from POC to expansion of contract to weekly active users on the platform, and, and, and. And that contradiction in the first 15 minutes of meeting June made it very clear that June was my priority for the year. Now, subsequently, my partners helped me figure out the importance of the business model, the diversity of use cases, and how that might translate into a business plan. But I fell in love. And so I think you're absolutely right. The AI era is introducing so much rapid change.

10:12And so for a number of individuals that might be thinking market first as an investment thesis or product first as an investment thesis, it's probably pretty scary. For me, it's all about the people. And so it's more exciting than ever. And I think that's come across from anything and everything that I've seen about you. You seem to be a really founder first investor. It's always been one of your core principles when it comes to investing. And you've really, really hammered the point that it's all about the founder and the founding team. When you talk about some of those founders that you've worked with, either just then or, you know, Datedog, with some of these amazing companies that you've got to work with and these amazing founders, are there traits that sort of unify them, that are a common thread between them all, that always stand out to you as, well, this person has the potential to build something exceptional?

11:05I really, I'm sorry, Sup, I really dislike that framework. Totally. Yeah, when I hear this founder is special, this founder is exceptional, like my hair stands on end, right? It's such a throwaway statement. When I hear founder phenotypes, I worry that we're trying to pattern match human beings. when I take Olivier and Asaf and June and Parag, I do have like true belief. You know, at one point I told the Wiz founders, I think I believe in them more than I more than they believe in themselves. Like it's a it's and that's really powerful and empowering and allows me to challenge the founders I work with.

11:55To reduce them to traits that are similar, I think really risks not seeing them for the whole of who they are, including their flaws. That's really interesting. And what is it then, I guess, because I'm trying to understand how you make your decision on a founder to back. What is it that pulls you in that makes you want to get on board with this person? Yeah, it's so hard to describe. The core of it is intuition. It's a sensation. My partners know me well enough that they can see me physically vibrating when I feel it. It's really obvious to everyone at Index that I'm bouncing off the walls with conviction.

12:39I do use an analytical framework, and I've talked about it a few times, in order to help pressure test my conviction. And I think the core, it's a craft, and I'm constantly evolving it. But at the core, it is the search for contradiction, right? Like this idea of holding imagination and pragmatism and hold it with confidence. I look for high-quality decisions. What are proxies of high-quality decisions at the earliest stages, who do you choose to surround yourself with? Right? And, you know, one of the interesting things when I talked about that with Prague as an example was we talked just as much about how to recruit, how to enable, how to develop talent as we did in terms of performance management, right?

13:33And doing the right thing for the business, the right thing for the person when they're not the right person in the right role at the right time. And so I look for proxies for judgment calls. Sometimes when I'm more familiar with a domain, I can talk about that domain in order to get a deeper and richer feeling for someone's imagination. Right. But I'm convinced any entrepreneur anywhere in the world working on any category is accessible to me just so long as we don't meet over zoom i have to meet yeah yeah i hear that a lot actually but um and what type of relationship do you like to have with the founders that you're back from early doors you know you do you like to leave them and get on with it and just be there to support you like to play an emotional role as a confidant what's the type of role that you like to kind of inhibit when you are when you're working with a founder uh it it varies by person It depends on what they need.

14:34It depends on what they want. I'm pretty unemotional. So I'm usually not the partner to go to for your emotional. I play therapist quite a bit, but I don't think I'm the best therapist. Look, I look for high trust. That's the core of it. Trust can be sometimes really hard to earn and easy to break. I am a romantic. I'm an idealist. And so I can fall in love really quickly. And occasionally, with the kind of serendipity of the world, sometimes people fall in love with me very quickly too. So the first time I met Esau, three days later, we had a signed term sheet. right um and that's not to like brag about being a cowboy it's just like we felt it really fast um there's an entrepreneur still in stealth who um last year i met over zoom on thursday and i said look i don't make investments over zoom right i can't feel people people can't feel me i'm very idiosyncratic uh my humor doesn't always carry and so i was like we have to meet in person I can't travel because the health stuff next flight you know skipping through Italy they came to New York we started at 6 a.m.

16:02with the walk in Central Park we ended at 2 a.m. at my favorite magic show in New York City and we shook hands that we worked together before we even talked about numbers on on Monday I told my partners and like two weeks later the company got incorporated it right and so sometimes it it just clicks um there are other entrepreneurs um where it takes more time right because of who they are and who i am um and to to really appreciate each other but i look for that trust and connection which gives optionality in terms of delivering what the entrepreneur wants or needs it's it's not about me i'm in service of entrepreneurs yeah it's interesting that the strength of the vibe and those early meetings can be so powerful that that you're ready to go to go all in so quickly.

16:51I always wanted to ask specifically, you know, they had this offer from an acquisition of the$23 billion valuation. What kind of role do you play as an investor on the board of directors, helping the founding team, if they need it, think through their options and assess an offer like that? Yeah, I mean, I can't go into specific deal dynamics related to I was in Google, but let me abstract it for you. And it's relevant because I've been on both sides, right? With Datadog, even with Wiz, with Coalition, with a number of my companies, we have been buyers of other startups. And with a dozen plus companies, I've helped coach entrepreneurs in thinking through, should they sell their business?

17:33So there's a diversity of perspective that I can kind of provide on M &A. first part when to be direct with your question resnick taught me this roy resnick who's one of the co-founders of wiz he had a mentor named zohar zisipel who's kind of a who's now passed but was a legend in the israeli ecosystem and when adolom had an acquisition offer from microsoft the first question Zisipel asked the Aldo Lung founders was, what do you want to do? It's a profound and important question. And it is the first question I would ask any entrepreneur that I work with. I would subsequently tell them my opinion.

18:33and and you know um uh best hat over a glass or two of wine over but you think it's important to hear theirs first and then you give yours absolutely yeah yeah absolutely amazing look i want to ask one final question asaf gets on the phone to you how quickly are you picking up and you know if he says i want to do third time again what are you saying here here are my bank account details um let's go amazing well look thank you so much for joining me it's an amazing result for that for the team a great result for yourself and the firm so i really appreciate you taking the time you got us up thanks a lot this was fun see you again

19:23Thank you.