Google sends big bags of fresh cash to Waze’s early backers

So Google (s GOOG) has finally made it official — it is buying Waze for a shade over a billion dollars. Earlier reports said that the deal was worth $1.3 billion. My sources say that company’s decision to stay in Israel was the primary reason why the price went down by $300 million.

This is the second billion dollar exit where Facebook (s fb) lost out. In case of Tumblr, Facebook’s Mark Zuckerberg offered around $500 million to David Karp, but Marissa Mayer charmed Karp and, of course, more than doubled the money she was willing to pay for Tumblr. It was rumored that Facebook were in the running to buy Waze, but couldn’t pull the trigger.

Actually, selling to Google (or anyone else) was actually the only outcome for this company — even though it had tens of millions of people using the software in dozens of countries worldwide, it would have been pretty hard for them to turn social commuting into a real business. Google, on the other hand, can simply layer this on its maps and try and use the data to drive more real world transactions.

As I pointed out in a post about the new Google Maps, Google will ultimately create more natural advertising formats for maps-driven interfaces and Waze helps them towards that objective. That said, it is a great exhale for Waze’s investors, who were facing the prospect of building a real business — a much harder proposition than most in Silicon Valley understand or are willing to admit.

The big winners in this deal are investors that include Magma Ventures, Blue Run Ventures and Vertex Ventures, who were earliest backers of the company. Sources say they each made well north of $100 million from the deal. The surprise (and ironic) winner might be Microsoft, which is rumored to have invested in the company as a strategic investor.

The company had raised $12 million in its Series A funding in early 2008 and was valued at around $20 million at that time. It snagged another $25 million Series B funding in November 2010 and was valued at just under $100 million after that round of funding. The company received cash from Qualcomm Ventures and Microsoft in addition to other internal investors.

Horizon Ventures and Kleiner Perkins Caufield & Byers were the last money into the company, but they too have made a nice chunk of change on this deal. In October 2011, the company received another $30 million in funding from Horizon Ventures and Kleiner Perkins Caufield Byers at a pretty hefty valuation – around $250 million, according to sources.