It's been 10 years since Google acquired Waze, and I thought it would be the right time to tell the story and some of what I learned. In June 2013, Waze was acquired by Google for $1.15B. In those days, billions were large numbers; Aileen Lee would coin the term “unicorn” a few months later. It's important to stress that a unicorn was initially defined as a company with an exit value of over a billion dollars — raising money at a $1B valuation does not really make a company a unicorn, as most SPAC’ed companies have learned…
But the story starts earlier than that. In late 2012, after Apple Maps launched, Tim Cook apologized and mentioned Waze. We became a mainstream app with 10M MAUs and we had to decide on our next steps. We had to raise another round and were getting hints of acquisition interest. We sat down together–Ehud, Amir, and I–and mapped out our valuation framework, since not all of us wanted to sell. We agreed that if we waited another 18 months, we could probably double whatever acquisition offer came in, but some of us were tired, stressed, and ready to sell.
We agreed that if we got an offer of less than $750M, we would continue on the route of raising another round. If we got an offer above $1B, we would sell (it's a round number, and “a billion-dollar company” was then the mythical exit). If the offer came in between $750M and $1B, it would depend on who the acquirer was, since we would likely need to go work there for at least four years. At the time, we said that Microsoft (under Ballmer) would need to offer $1B+, while Facebook could come in at $750M. How the world has changed -- this was before we understood how evil Meta is for society, democracies, and individuals or the phenomenal turnaround of Microsoft under Satya Nadella.
Establish a valuation framework. Having a frank discussion among the founders and building an actual valuation framework was crucial – it allowed us to walk away from a $450M offer without negotiating, or accept a $1B offer without discussion. The acquisition process is stressful, fast and is the first time a startup’s investors and the founders have different incentives – investors want maximum payout and don't care from whom; founders need to continue to work at the acquiring company, so the “who” is critical. The more clarity you have on your goals, the better the odds are of achieving them.
Before any discussion of acquisition, we believed Waze needed a strategic partner to help accelerate user acquisition — we felt we had maxed out our organic ability to grow. We entered strategic partnership discussions with Microsoft (who was an investor in the company), Amazon and Facebook (who were building phones), and others.
Facebook was the natural fit from the product perspective — they feared dependency on the mobile platforms and wanted to own their location stack, both for their upcoming phone and their apps. We spent a lot of time together mapping out potential integration, but Facebook kept running up against the problem of “What if we help you, you become a huge platform, and then Google comes along and acquires you? We would not be able to compete with them financially.” This was on the heels of the Spotify US launch where Facebook believed they had “built Spotify's business” but did not extract any value from it.
Meet the Product team well in advance: Meeting and exploring potential business with the potential acquirer’s product teams is a critical prerequisite for a successful acquisition. Once you get a term sheet for acquisition, you have very little time to contact other players, and for potential acquirers to be able to move quickly, they need to know you – not on the corp dev level, but on the product level. By the time we began the acquisition process, we had already met the CEOs of Google, Facebook, and Microsoft, and members of the senior teams at Amazon, Apple, and others. This allowed us to get feedback quickly when we needed it.
Our strategic partnership negotiations with Facebook were at an impasse -- they wanted a Right Of First Refusal (ROFR) allowing them to match any offer someone else made, which we could not give. A ROFR would hurt our ability to negotiate a future transaction since any potential buyers would know their competitor had the right to take the deal from under their feet. We finally agreed to a compromise in which Facebook would get a ROFR only for Google. That smoothed the way forward.
Before moving too far down this path, I reached out to Google and told them, “We are about to sign an agreement with a competitor of yours that would preclude us from doing anything strategic with you. Before we sign it, I want to make sure we don't miss each other in the night. If you are interested, we should talk now.” I did this out of my fiduciary duty — never in my wildest dreams did I guess that Google would be interested. To my surprise, they wanted to meet.
So we did meet with the Google Maps team and had a fascinating talk. Since all of us were experts in the maps space, we could both appreciate what the other had done and how they did it. After the meeting, to my surprise, the Corp Dev lead called me up and said they would be interested in exploring an acquisition. We discussed price, and I made it clear that we are looking for $1B (after Instagram had recently been acquired for $1B, it seemed appropriate). I got the wrong impression that it was doable.
We went through a quick round of basic due diligence, including flying the leadership team to Mountain View and meeting Larry and Sergei. Finally, I got the call and my Corp Dev contact started by saying, “Before I send you the offer, I want to explain it, since you’ll just look at the price.” He then explained the terms and sent the offer: $450M. I was shocked — I was 100% sure we were at the $1B mark. I immediately said “No” — our valuation framework had anchored our expectations much higher. $450M would have been a great exit, and without a predetermined framework, I could have negotiated a bit and settled somewhere, but the framework gave me the confidence to just say ‘no.’ The shocked counterpart asked, “Is there no number between $450M and $1B that we could agree on?”
That question took me back to a negotiation course I took at Harvard Law School. After five days of theory, lectures, and simulating negotiations, what got burned in my memory was when, in our last hour of the course, the professor said, “But don't forget that despite everything we taught you, negotiations usually end by splitting the difference in the middle…” I knew we were worth $1B–it was not a negotiation tactic, and I had explained that. If I would have started negotiating at $450M, there was no way we would get near $1B, so I walked away.
As you can imagine, my board was furious that we did not pursue the negotiation. But as this is our future and not our board members, we held firm and did not contact Google again.
I did go back to Facebook and told them that we got an acquisition offer from “a major tech company you would consider a major competitor.” Facebook already knew us intimately from the business negotiations, and their head of Corp Dev called me up and plainly said, “What is a number you would not shop around?” I said “$1B” and an hour later I had a term sheet for $1B in my inbox, valid for a few hours. I did not need those hours and immediately signed the term sheet and sent it back, did not shop it around. With two emails and a phone call, Facebook had basically acquired us. To this day I have respect for the speed and directness of their offer. Having our framework allowed me to sign the offer without consulting anyone, as I knew the founders were on board and, of course, the board would be ecstatic, so I moved from villain to hero (a route I seem to take back and forth often).
We began due diligence and it quickly became clear that we had some gaps. We assumed the deal was done and the due diligence was to validate everything we had discussed. Facebook, on the other hand, looked at it as the beginning of a process to determine what they should do with Waze. This gap created more and more tension between the teams –- it was not clear which team was acquiring us or who was calling the shots, and time kept slipping by. We had days where we did not know what the next step was and sat around waiting…
On top of that, we did not have good chemistry with the people we interacted with. Mark and I did not hit it off well, and the engineers doing the due diligence were very young and were confidently belittling what we had built. Our average engineer was 40 years old, top of the Israeli 8200 unit, and very experienced. They did not think what we had built was easy at all (nor had the Google engineers who were our age and experience); neither were they impressed with these young engineers sent to evaluate our system, using lots of buzzwords to say little. This age and mentality gap seeped in, and since there was no clear owner to the process, things began grinding down. We began feeling we had made a mistake and that Facebook was not going to go through with the acquisition.
Acquisitions are personal. This is something I never realized strongly enough. Acquisitions are not about strategy or business -- they are about people. The human dynamic is more important than any KPI or feature. Not having a clear owner on the Facebook side, not within the Corp Dev team, nor within a business unit or at the executive level, created more and more tension and misunderstandings.
Facebook had demanded 28 days for closing, a long time that they felt they needed to figure out what to do with us. I made a mistake by agreeing to it. This was (and still is) one of the biggest acquisition deals in Israel, especially for a consumer brand. With accountants, lawyers, board members, and investors involved, the news was bound to leak, and it did. Though I did not leak the information, and to this day I still do not know who did, I think Facebook and Google still believe I leaked the news. As more information kept leaking, we reduced the number of people in the know and stopped updating our board with the details.
Once news of the deal leaked, I got a call from the CorpDev person at Google, and he asked me if the news articles were correct. I replied that I could not discuss the articles or anything with him (as I was under the standstill limitation of the term sheet I signed), and he said he understood and hung up. An hour later I got an unsolicited term sheet in my inbox, from Google, for $1.15B. This put me in a bind –- I had signed a term sheet with Facebook, BUT I had a fiduciary duty to my investors to maximize the sale value: I could not ignore this offer. I disclosed it to Facebook, who blew up and accused me of leaking the news. The poor personal dynamics caused them to disengage, running down the clock on the term sheet. If we had a clear owner on the Facebook side and had developed a good rapport, we could have, together, overcome this but the lack of trust between the teams made it impossible.
As the clock ran out, Facebook did not make a counteroffer. I quickly pinged Microsoft, Amazon, and Apple, but no one could move fast enough. We signed a term sheet with Google as soon as the Facebook term expired and closed the transaction in eight intensive days.
Do I think going to Google was the right thing for Waze? At the time, the Facebook deal was a stock deal and their share price was ~$25/share. Had we closed with them, the deal could have had a 10X multiplier. Despite that, I feel that Google was the right place for us. We clicked with the engineering team, they let us stay independent and grow (from 10M MAU to 150M MAU), and knowing the damage that Facebook has done to democracies globally, I would never have lasted my four years there.
So what are the lessons I learned?
- Acquisitions start years before the actual sale. Get to know your potential acquirers and spend time with their product teams so that if you need to contact them, you know who to call and they know who you are.
- Have a clear framework among your decision-makers for what you want with real numbers –- this is a superpower for fast decision-making.
- Partnership discussions are the best catalyst for an acquisition. They allow the teams to spend time together, get to know each other, and imagine what a joint product could look like. Especially if the conclusion is, “But we would need to own you to do this.”
- Everything around acquisitions is personal –- from the reason why companies acquire, to the price and the process. Make sure to clarify who the decision-makers are and spend the time building personal relationships.
- Acquisitions are the first moment when founders and investors have diverging interests. This is the one time when you should be wary of feedback from your investors.
- And, of course, like any negotiation, whoever is willing to walk away will get the better deal -- always have a red line and hold firm to it.
I hope this helps other founders when they are thinking about an acquisition.
Noam