Pod Insights The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch 20VC: 19 Company Portfolio: 1 Decacorn, 7 Unicorns, 4 Acquisitions; One of the Best Seed Investors of All Time on How to Pick Generational Defining Founders, Why Nothing but the Founder Matters & Why the Best Investors are Never Happy w/ Gili Raanan About this episode Gili Raanan is the Founder of Cyberstarts and one of the most successful seed investors ever. In his 19 company portfolio, Gili has invested in a decacorn (Wiz), seven unicorns and had three others acquired. Prior to Cyberstarts, Gili spent over 15 years as a General Partner @ Sequoia Capital investing in some of the world's best cyber security companies. In Today's Episode with Gili Raanan We Discuss: 1. From Founder to World's Best Seed Investor: How did Gili make the move into the world of venture with Sequoia? How did Mike Moritz and Doug Leone recruit him? What was that process like? What are 1-2 of Gili's biggest takeaways from working with Doug and Mike? 2. How to Find and Pick the Best Founders: What did Mike Moritz teach Gili about getting to know founders? Why does Gili look for the pain in the eyes of the founder? What questions does he ask? What are the most common signals of truly exceptional founders, having backed 7 unicorns? Why does Gili believe that both market and product is BS? Why are the founders all that matters? Why does Gili believe that the founder does not have to be a domain expert in a market to create a massive company in that market? 3. What it Takes to be the Best Seed Investor: Why does Gili believe that the best seed investors do not have theses? How important does Gili feel the brand of the VC firm is? What were his biggest lessons on brand from spending 15 years as a General Partner @ Sequoia? Why does Gili believe that the best investors are never happy? When you are happy, you lose. 4. 2021 is Back: Pricing, Uprounds and more Why does Gili believe that the best companies are always expensive and will always be expensive at every round? Why does Gili believe that 2021 pricing and funding is back? Is this a good thing? How does Gili advise founders on how much to raise and what valuation to set with investors? What does Gili believe are the single biggest sins from the zero interest rate environment?
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Speaker 00 One thing I learned at Sequoia is that we are always as good as our next investment. The moment you're happy with where you are, that's the moment you start to lose. Liquidity is part of my business. Eventually, all my companies are for sale at the right price. I'm not a collector, I'm an investor.
0:17 Harry Stebbings? This is 20 VC with me, Harry Stebbings, and I couldn't be more excited for the show today. Today, we have one of the best seed investors ever from 19 companies. He has a deck of corn, whiz, seven unicorns, and three that have been acquired. Truly an insane hit rate. He's also one of the kindest and most special people in this business. And so with that, I'm so thrilled to welcome Gilly Raanan, founder of Cyberstars. Prior to Cyberstars, Gilly spent over 15 years as a general partner at Sequoia Capital, investing in some of the world's best cybersecurity businesses. I think this is one of the best shows we've ever done. It's packed with wisdom, lessons, and I want to say huge thanks to Doug Leone for providing some amazing questions in preparation for this episode. But before we begin, I need to tell you about Hive.
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3:23 Speaker 02 You have now arrived at your destination.
3:25 Harry Stebbings? Gilly, I am so excited for this. Listen, we met on the ski slopes in Moshev a couple of weeks ago, or a month or so ago. I've wanted to do this ever since hearing you speak there, so thank you so much for joining me today.
3:36 Speaker 00 It's a pleasure to be here. I'm very excited to have a conversation and I'll be even more excited if we can get back to some skiing together.
3:44 Harry Stebbings? If you'd noticed, I don't ski. I'm like Bridget Jones on the ski slope, Gilly, but I really appreciate that. I would love to start, though, with some of your early years and move away from my skiing elegantly. And that's a weird one, but I think childhoods actually inform a lot of who we are. How would your parents or teachers describe the young Gilly?
4:03 Speaker 00 That's a wonderful question. I ask it many of the entrepreneurs I meet for the first time, and we talk about it later. But I grew up in a small town in Israel, probably 15 miles away from Tel Aviv. But in that period of time, Tel Aviv would be on the moon. Was so far away for me. My parents would probably tell you that I was a bright student that never prepared homework. And the teachers always complained that whenever they asked me to read my homework assignment, I would stand up very casually, read out of my notebook the complete answer that I was supposed to make last night. And then when they approached my desk, they'll figure out the notebook is empty and I was just making it up.
4:49 Speaker 00 I I think that that characteristic of a smart and somehow lazy child was one of the driving forces behind my career. Because unlike young people today, I was introduced to my first computer. It was a Commodore sixty four computer, if people still recall, magnificent machine. And I had to choose it. I was not born with computers. When I faced that machine that I could tell it what to do and it would do it repeatedly without getting tired, without complaining, as a gifted and somehow lazy person. I really liked the idea and that I think what attracted me to the whole tech scene early on.
5:33 Harry Stebbings? Can I be really rude? Do you think you're still lazy?
5:37 Speaker 00 In a way, absolutely. I think that laziness in the right combination is a wonderful trait. It makes you think about efficiency, it makes you think about not repeating tasks you don't like and focus on the things you really like and you're really good at. And to find combination, you know, even forming a wonderful venture team is all about filling the gaps and making sure that the different elements are significantly better than any of them alone.
6:11 Harry Stebbings? I spoke to one of the greats the other day and they said the most important thing a founder can look for in their VC is a lazy VC. Because truth be told, VCs don't add value and the best founders build the companies themselves. So if you pick anything, pick a lazy VC. Do you agree?
6:29 Speaker 00 Well, I think that lazy is probably in a different context. As a founder, I wouldn't say you pick the lazy VC. I think that you pick early on at the seed stages. If I'm an entrepreneur and I like to build a large business, I would go after the style of company builders. And there are many terrific investors who are not company builders. They are simply terrific pickers. In every successful company, there was at least one board member that's, he or she are the first call for the CEO. And they're in the room whenever the big decisions, important decisions are being made. That's the type of investor you like to join you for the journey of building an important company.
7:13 Harry Stebbings? Speaking of kind of types of investors, I do want to just follow some form of chronology before I just get lost and peppy with questions. Your first venture role was with Sequoia. How did that come to be? And what was that entry like? Can you just take me to it?
7:26 Speaker 00 Yeah, absolutely. I, you know, I was not an unknown entity for Sequoia. I joined Sequoia in 2009, but Sequoia invested 12 years beforehand in my first venture. It was 1997, 27 years old. That was my startup and they invested in that business. It was a terrific team. Pierre Lamont from Sequoia was on the board and we were the first team to build a WAF, a web application firewall in the late 90s. That was a big thing. Eventually the business was acquired by IBM. I went to start another company and then relocated back to Israel. Was lucky enough for Sequoia to look for a new partner in Israel.
8:08 Speaker 00 I met a local team in Israel and then I got to meet Michael Moritz. He interviewed me and that was it. I was becoming part of the team.
8:16 Harry Stebbings? Can I ask you, what was, what was that interview with Mike like?
8:19 Speaker 00 Mike is a terrific, deep, thoughtful human being. And I still consider him a friend and try to speak with him as frequently as I can. The interview with him, I came in charging forward, eager to tell him about all my amazing accomplishments as entrepreneur and techie. He was simply interested, not in what did I do, but why did I pick to do that? I had to slow down. I realized this is a different type of interview. I had to focus and talk about what drove me and what's my motivation. It was a very different interview and it taught me a lot about what's important when you like to get to know someone.
9:02 Speaker 00 You get to know someone not by looking at what the inventory of their doings, of their accomplishments. You get to know someone when you understand why they pick to do that. That would tell you much more about that person.
9:17 Harry Stebbings? Is there any wrong answers to the why? And sorry, I know we're jumping around, but I'm just intrigued. Often we demonize, I really want to make a lot of money or I really want to be very powerful in a sector and we demonize that. Is there a wrong?
9:31 Speaker 00 No, I don't think there's a wrong answer. It just depends what the goal of the interview, but typically I think that might like to get to know me better. And when I talk to entrepreneurs today, I like to understand them and, you know, that understanding would help me predict their behavior going forward. You get the example of, I like to make a lot of money. One of the questions I try to understand is, are you after fame or fortune? And you can get to real greatness by chasing fame and you can get to real greatness by chasing fortune. But understanding what's driving you would help me better understand you, would help me better. Help you and become a better partner to you.
10:16 Speaker 00 You can have both and some people have both. But what's driving you? Typically, you know the answer.
10:22 Harry Stebbings? In terms of like that being a lesson from Mike, in terms of lessons from Sequoia before we dive in, it's a very transformative place in terms of how one thinks, especially as an investor. Are there one or two takeaways that really impacted your mindset that you took with you to cyberstars?
10:37 Speaker 00 I spent more than a decade with Sequoia and it's a terrific team. It's a terrific venture. I learned so much. For me, you know, I told you about my early days at that small town in Israel, where playing football was the one thing that kept us alive. So becoming part of Sequoia for me was like playing for Manchester United. It's the same game, the same rules, the same 11 players chasing a ball, but it's a whole new level. The combination of quality, tradition and performance. If you look just for one element of that, if you look for quality, if you look for tradition, if you look for performance, there are many clubs that you can follow.
11:20 Speaker 00 But if you look for that unique combination, probably Manchester United is the team you like to play for. And I really felt I'm playing for them. I learned the power of brand.
11:32 Harry Stebbings? Can you just unpack that? If we just do one by one, learnt the power of brand. In what way?
11:37 Speaker 00 The venture business is a service business. You provide services. And it's very hard to tell if service provider A is significantly better than service provider B because what you sell is cash. But once you manage to create brand for yourself and Sequoia is probably the biggest brand in the venture business, you create an amazing cycle where the best entrepreneurs like to work for you or partner with you. The best executives like to work for your portfolio companies. All other investors like to invest in your portfolio companies. And the game becomes easier and faster and allows you to do great things just because of brand.
12:19 Speaker 00 Before me, I spent 10 years working for the Israeli And then in two small startup companies I've founded, I never worked for a terrific brand. And working for Sequoia, you fail the brand, you fail the power of tradition and quality.
12:38 Harry Stebbings? I completely hear the same from friends inside Sequoia. I want to touch on the performance element too. You said about the level of performance. Can I ask specifically, what is it about the performance? Is it how they structure meetings, how they structure discussions, the intent? What makes Sequoia's performance premier above others?
12:58 Speaker 00 I think it's something I take with me to cyberstarts today. It's endless hunger. You're never, you're never satisfied. You could pick Google, you could run the biggest IPO. The day you run a meeting and ask yourself, how can I do better? You're never happy. So maybe it's not a lazy investor, maybe it's the investor that's never happy.
13:19 Harry Stebbings? Is that you? Does that sound like a nice way to live? And like, can you win and not be that? Respectfully, I think you should appreciate your wins. If you want to be in this business for 40 years, just beating yourself for 40 years is hard. There are moments when whiz bull IPO and you can sit with Asaf and say, yeah, that was great. Well done to both of us. I don't know. I do struggle with this one personally, Gilli, because I don't know what the right answer is there.
13:46 Speaker 00 I respectfully disagree, you know, I was spending time with Asaf till 1am this morning. And I was giving him crap about something. The moment you're happy with where you are, that's the moment you start to lose. The moment you start to believe that you are, you know a lot and you're experienced and you're simply amazing in what you do, that's the moment you start to make mistakes. Questioning yourselves and beating up yourselves for anything that you could do better and chasing real greatness, I think that's the only way is to stay on top of the game. And the moment I'll be happy with, whiz goes public in a year, in two years, in three years.
14:27 Speaker 00 And it's a $50 billion business, the fastest growing company ever created. If I'm happy about it, I should retire.
14:37 Harry Stebbings? We mentioned, where's that? You mentioned being on the phone to ASAP until 1am. When we spoke before, you said you invest in people, not in products. I wanted to double down on that one and just unpack that. Why people, not products? And how does that lead your thinking when investing?
14:53 Speaker 00 Yeah, that that type of thinking changed me considerably since the early days for me as a venture capitalist. Because in the early days, I was looking at markets and total addressable market term and technology and differentiators. And I simply realized that all of that is bullshit. It's not important at all. You know, when I meet a team of entrepreneurs, whatever they tell me, even if they tell me the truth, often they don't. But even if they tell me the truth about the market they want to go after and the technology they've built. In eight weeks, that would change considerably. And in another eight weeks, that would change again.
15:34 Speaker 00 So why would I spend calories on something that's so temporal in the life of the venture? While I could spend time on the most stable element in a venture, which is the team. You know, the team would change, but it would not change as dramatically as the market and technology. When you meet a young team, young for me now is embarrassingly old age. But when you meet folks that are 25, 27, 28 years old, they've done two, three jobs in the market. They haven't been senior executives in any business.
16:15 Speaker 00 To really expect them to come up with brilliant market analysis and justify why they are getting into a $5 billion market. I think that's setting the bar way too high.
16:29 Harry Stebbings? Do you? Like, I mean this nicely, I'm 27. You should slam me as an LP if I'm not incredibly honed on on where I sit, market analysis, where the future venture market is going, just in terms of thoughts. By no means comparing myself to any of these names, but the Collisons, your Alex at scale, the best do, no?
16:49 Speaker 00 That's not my experience. My experience that many times those young individuals, they make horrible assumptions on the market or on go-to-market. And that's not the right measurement to pick the best teams. As time went by, I became more and more purist in my approach, to the point where I started Cyberstarts in 2018. I decided that I would not even ask them about market or technology or product. You know, so I meet with a team, a new team, which I don't know. And we spend an hour speaking about their childhood and their mother,
17:32 Speaker 00 and not about products or technology. That's enough to pick amazing teams. My assumption is that if they have a terrific idea, that would be a nice bonus. If they have an okay idea, mediocre idea, I'll help them improve it. If they don't have an idea at all what to do, that's even better. I'll work with them. We leverage the entire Cyberstarts platform to really help them pick a significant pain point they can go after and build an important company. And we've done it multiple times successfully.
18:07 Harry Stebbings? A mutual friend of ours, Doug Leone, says a very similar thing in terms of how he really evaluates people, especially when hiring them. And he says he looks for the kind of misadjusted children, the ones with the chips on their shoulders, who were bullied at school and got beaten by their older brother or sister. That's his signals of someone that excites from a potential perspective. In that conversation on childhood, mother, family, father, what are your signals that excite?
18:34 Speaker 00 I listen to their life story and I try to understand the why. Why they did what they do? Why they move from station A to station B in their life? I'm looking for early signs of them being unique or simply excellent in something. And it doesn't have to be tech. The other thing I'm looking at is whether they've...
19:01 Speaker 00 Gone through real life difficulty. Have they gone through something that's really difficult? And managed to be successful, although they they face that difficulty. In many cases, I meet brilliant people, amazing top notch individuals. And they tell me how brilliant, you know, students they were and amazing officers in the intelligence forces. And the best Java developer in the company. And I listen to that patiently. And then I ask them one simple question. Hey, I listened to your story. It's amazing. You've done so well. It sounds like everything was easy for you.
19:44 Speaker 00 You have been that brilliant kid, brilliant student, brilliant officer, straight A student. What has been difficult for you? You know, they think for a while and typically their first answer is at college, at the first year, I got B minus in physics. And I said, that's not really hardship. So I'm looking for the individual whose parents went through ugly divorces. I'm looking for the individual who lived in a closet for a while. I'm looking for the individual who was a socially isolated child. I'm looking for people who went through real difficulty in life and became successful.
20:26 Harry Stebbings? Can I ask you, so am I. The challenge is those are painful memories to regurgitate. My parents getting divorced, my mother getting multiple sclerosis, seeing the pain, hearing her cry in her sleep. Every night when I went to bed, it killed me as a son. I don't particularly feel like sharing that with everyone. And I do more now because I'm not in a job interview. But if you're in a job interview or if you're in a fundraiser meeting, how do you make people share some of those very hard memories?
20:56 Speaker 00 That's always a challenge, how to create that level of intimacy and comfort. That's one of the reasons cyberstarts, we don't have offices. And I take meetings in my backyard, which is conveniently located fifty minutes ride from Tel Aviv in a suburb. It's very quiet. It's very different than any VC office in the world. I sit in a converted shipping container where I took off all the walls and put glasses. So you're sitting in the middle of my garden. It's Very peaceful, it's quiet. I typically don't dress up in flashy clothes for meetings.
21:38 Speaker 00 Everything is tuned down. I tell them about my own journey and my own difficulties and my own failures as entrepreneur and individual. And typically, I get to connect with them. And it's not about investing. I meet people when their company doesn't exist, when there is no company. It's all about partnership. It's almost like picking another co-founder for their team. If we are not open and transparent with each other, then we won't be able to be terrific partners.
22:10 Harry Stebbings? Can I ask a hard one, Gilli? When you think about your painful memories that you think shaped you, what would you say was the most prescient or noteworthy one that really shaped how you are and who you are today?
22:22 Speaker 00 Personally, I went through a real tragedy and my real pain. My daughter died five years ago. That was a real tragedy that changed my life. Now, people know that and I talk about it. Sometimes it's brought up in conversations. That memory, that experience and others, I think that people understand I'm not coming to the meeting with, I'm the strong, flashy VC who's going to abuse you. I really like to get to know you.
22:52 Harry Stebbings? Can I ask, in terms of like the ideas, if they do have one? You mentioned the kind of different frameworks, if they do, if they don't, if it's bad. If they do, do you like them to be an insider to the problem? Where they've worked in the space for years and they've seen the pains? Or do you prefer them to come at it fresh, naive but optimistic?
23:12 Speaker 00 I don't really care. I don't really care. I care about their enthusiasm. I care about their energy level when they think about it. And I've done both. When I met the Wiz team in the previous company in Adalon, it was 2012. They came to me with an idea of securing Microsoft Business Applications. I thought it's a terrible idea, but I invested in the team. And then we went to do our product market fit process, which is called Sunrise. And we asked potential customers, is that a real pain point? You know, after a few conversations, it was clear that the pain point is in the cloud. And securing cloud applications is...
23:59 Speaker 00 So much more important or perceived to be important by by those customers than protecting the on-prem Microsoft product. Adalon became a cloud security company. Now, did Asaf know anything about cloud and cloud security in 2012? I guarantee you not. You know, he took them two iterations. Adalon was the first iteration, sold that business to Microsoft eventually, and then started Wiz. And now Wiz is is a 10 billion dollar business. You don't have to be an expert to the field to really innovate in that field. Different example is another company called Avalor. It's a small C R S A stage company.
24:41 Speaker 00 And the two founders, Rana and Kfir, they came to me and they never dealt with cybersecurity. They've built data products and they were part of a company that was sold to Salesforce for 800 million dollars. And we decided that they are the data experts and Cyberstarts knows cybersecurity. So let's build a data platform for cybersecurity. And Avalor seems like a terrific company in the making. You don't have to be an expert to really build amazing companies.
25:13 Harry Stebbings? I think market timing is so crucial to building amazing companies. How do you reflect on the importance of market timing when partnering with founders?
25:22 Speaker 00 First of all, when I make that investment decision at the seed stage, I I don't think about markets and I don't think about market timing. And I don't think about all of that. I make a very simple decision. Do we like to partner with those individuals? Do we like to be their partners? The way at Cyberstarts, we deal with market timing question, which is super important, is by running our sunrise process. And the sunrise is almost like a counterintuitive process for most entrepreneurs. Cause instead of. Going and chasing your ideas and dealing with prospects objections and really getting
26:05 Speaker 00 to engagements and closing deals, you do just the opposite. You go and talk to a significant number of representative customers, large Fortune 500 companies, chief information security officers. Those are the customers of most of the companies cyberstarts invest in. And you tell them, hey, here is a new team. You don't ask them, what's your biggest pain point or what's your biggest need? Because again, you'll get so many BS answers, it's not even funny. We ask them, hey, this is a new cyberstarts team that is going to spend about a hundred million dollars in the next three years on engineering alone to solve one pain point.
26:49 Speaker 00 That's the average for a cyberstarts company. And we like to give you those hundred million dollars to solve one pain point for your organization. What would that be? What's the one pain point you'd like us to solve for you? And that makes customers focus and listen to you because you change the equation of power. You're not asking them for any favor. You are making them a favor. You're giving them a hundred million dollars. So whenever I give you a hundred million dollars, you listen. And they share with us that thing. That guarantees we are not going to face a market timing issue. That's something they're going to spend money and budget now.
27:29 Speaker 00 And that for cyberstarts companies solves the whole market timing issue.
27:35 Harry Stebbings? I love that in terms of the phrasing, the shifting of like favor for them, not favor for you. How many of those conversations do you have before you find a discernible pattern which you're willing to bet against versus an anomalous company that has a strange requirement or request?
27:50 Speaker 00 We typically run about sixty to seventy conversations like that in the first three months since inception. And then we come back and have a second set of sixty to seventy conversations with our solution thesis. So the first batch of conversations is all about the pain point. That helps us figure out what's the one big pain point we like to go after and build an important company. We come up with a solution thesis and then we come back to those potential customers and tell them, hey, we listen to you. This is the concept for solving that one big pain point you told us about. What do you think about it? And if they like it, we'll go build it and then come back to them
28:35 Speaker 00 in three or four months and ask them to try it out. And then they become our first customers.
28:41 Harry Stebbings? When you go through this process, how are you and the founders interacting? Are you on these calls with the founders? Are you doing them for the founders? I'm just trying to understand, because it feels like you're founding the company.
28:51 Speaker 00 I don't babysit founders. I'm not in the meetings, but we do follow up on each conversation. We have a system where we rate those meetings together with the founders. And we would meet weekly to discuss what we've learned and how we should go forward with our process. The Sunrise process is an amazing process. It's a super hard experience to go through because unlike the traditional first year experience, you take all the hypothetical objections you might face as a company in the next three or four years and bring it to present. So you ask all the tough questions yourself.
29:36 Speaker 00 If a potential customer says, I like your solution, you'd respond with, why wouldn't you buy it from Palo Alto Networks? Why wouldn't you buy it from Wiz? Why do you need us? And then we would ask them, how would you price it? And why it's so high? Why it's so low? What's the right channel? And how would you technically evaluate that type of solution? Even before we have written the first line of code, we don't have a product, but we ask you, how would you evaluate? That product, how would you run a POV for that product? Essentially, we ask all the tough questions in the first few months for the venture. And then that then allows our companies to accelerate.
30:19 Speaker 00 If you look at companies like Wiz, Island, Fireblocks, Snowname, Sayera, Avalo, all those companies, they managed to get to significant revenues, significant ARR in the first 12 months, in the first 24 months, thanks to that process. Because you simply get a better functioning and streamlined businesses by asking all those hard questions.
30:46 Harry Stebbings? Does an efficient outcome always come from Sunrise? And what I mean by that is, does it ever happen where we say, hey, that didn't actually produce anything meaningful for us to go after? And yes, we disqualified a lot of ideas, but we don't have something concrete to actually do.
31:04 Speaker 00 Harry, first of all, one thing I learned at Sequoia is that we are always as good as our next investment. So who knows? But if you look at the current Cyberstarts portfolio, we are like 21 companies. Four are still running Sunrise, so who knows? But out of the 17 who went through Sunrise and raised Series A, seven are unicorns. One is a decacorn and three got acquired. So I think the hit rate for Sunrise is pretty good.
31:37 Harry Stebbings? Does it get easier then? With that hit rate, every single multi-stage fund will just go, we have to invest in Cyberstarts companies, we'll pay double, but we have to be in them. Like the Sequoia brand makes it easier to raise more money, to get deals, does it get easier now you go, look how good we are, bluntly?
31:55 Speaker 00 Well, it gets easier to raise money and recruit talent. And fundraising for Cyberstarts is a pleasure, you know? And I think the last CDE fund, it took me like 90 seconds to raise the fund, nine WhatsApp messages and it was done. But the Sunrise process itself and the company's journey themselves, that doesn't get easier. That's as hard as it was in a first Sunrise. It's an ego destroying process. You die like dozens of times during the process. It's so difficult. You get all the reasons people are not going to buy your product. They're all the reasons people are not going to like you.
32:38 Speaker 00 All the reasons people are going to pass on you. And that's hard, really hard. I've done it by now between Cyber Start and Sequoia thirty five times. And probably more than most people on earth. Each time I'm getting into a new sunrise process with a new team. I have to prepare myself mentally. It's super hard.
33:03 Harry Stebbings? Everyone gets hit down. I was talking with a billion dollar founder today in the park. And he said, Harry, you will get punched hard. It's just about getting back up every time. How do you get back up when you're punched? What do you tell yourself?
33:15 Speaker 00 I don't tell myself anything. I just feel the energy that I think something we spoke about. You know, the moment I don't have the energy, the moment I don't have the drive, the moment I have to talk to myself and convince myself that I need to recover. That's the point I should retire. But when I simply stand up and walk just because I'm stupid, that's a good sign that I should stay in the game.
33:41 Harry Stebbings? Billy, I've run a marathon every weekend for a year. So like fifty two marathons in fifty two weeks. And I can tell you one thing, I have to fucking convince myself. If I just didn't feel it. Like, everything is a fight against my own mind in that way. It's really interesting to hear. You mentioned some of the incredible successes there when you analyze the portfolio with the Deco and the Seven Unicorns. Respectfully, I think we learn a lot also from losses or from not having success. When you review maybe your biggest loss, how did that impact your mindset? And how you think about investing in founders?
34:18 Speaker 00 It always goes back to the team. If it wasn't clear so far, I'm a big believer in the, you know, human element here. So you think about the team and you think, you know, where have I been wrong about the team? What I missed about the team? And I try to analyse that and learn from that. And at least not repeat my mistakes. It's fine that I'll make new mistakes, but it's stupid to make the same mistake again and again. So I try to learn and move, move, move forward. And it's also a business where you have to focus on the things that do work. Cause so many things are fucked up. So many things do not work well.
35:00 Speaker 00 And so you simply have to focus on the things that work well and then do more of them. If you're successfully able to focus and repeat the things that you are doing well and do a little bit less of the things you don't do well. On the long run, over 10, 20, 30 years, you'll be like a god. You'll be super successful.
35:22 Harry Stebbings? If we focus on doing the things that we do well and a little bit less on the things that we don't do well. If you were to apply that to yourself today, what do you think you do well? And what do you think you should do a little bit less of that you don't do so well?
35:34 Speaker 00 Pick the right teams and go after important companies. Those are the things we do very well at Cyberstars. What we are not doing well? Coming up with ideas, running thesis on markets. You ask me what I think about AI security. I spent only 30 years plus in cyber security. And what do I know about it? But we are not good at matchmaking between founders. That's something that I, I, I see other investors do. And that's a miracle to me. How do you do that?
36:09 Harry Stebbings? Why do you think you're not good at the matchmaking between founders?
36:12 Speaker 00 First of all, if, if I knew why, I would fix it and I'll become great at it. Even if I know why, it's probably the wrong answer. The wrong answer I have in my mind, it has to be an organic process. It's very hard to create real connection that would last for a decade plus. If you're thinking about a long-term business, it simply works better when it's organic.
36:35 Harry Stebbings? You said there about the thesis, we have a lot of large multi-stage funds, Gillian, they like to have these prepared minds. I favor an unprepared mind, being open to whatever the entrepreneur is willing to build, to be courageous enough to pursue. I think prepared minds confines your imagination and allows you to be a BCG, you know, associate in a large fund and lose your humanity. How do you feel about the prepared minds movement and the importance of it?
37:00 Speaker 00 I have lots of appreciation for that. I appreciate people and organizations that learn, that adapt, that prepare themselves, that's all fine. My business is different. I'm a seed investor. I have to come in for a process with new team, completely unprepared. Have my mind not be poisoned by any thought about what they can build and what they can go after. It's slightly different profession and slightly, and a different mindset.
37:31 Harry Stebbings? I agree. It's a different business, actually, in many respects. And I think that also very much applies to price and price sensitivity. I remember having Peter Fenton on the show, and he said that price is a mental trap, Harry. How do you think about price sensitivity when doing deals today and when to pay up versus when not to?
37:51 Speaker 00 I think there's a lot of, a lot of truth in that. And the best companies, if you look at it, were insanely expensive at seed, insanely expensive at Series A, insanely expensive at Series B and so on. It's like almost part of their DNA to be expensive companies. Luckily, we invest at seed, even expensive seed is not that expensive if you're building a multi-billion dollar business in valuation. But I agree, the most investors' mistakes were not to invest in the right company because they thought it's too expensive. By the way, it goes both ways. When I speak with entrepreneurs, I always tell them, the
38:36 Speaker 00 seed or start's money is the most expensive money you can buy for your equity, because it's a deal. They buy cash and they pay with equity. And we are the most expensive cash they can buy. So the price trap is not just for the investor, it's also for the entrepreneur. Would they pick? The best investor for them, paying a higher price in their equity.
38:58 Harry Stebbings? Do you think you have pricing power now, Gilly? Which is founders want you so much, they will choose you at a lower price.
39:06 Speaker 00 Potentially, but I really don't know because most of our deals at the seed stage look the same. We don't try to twist their arm and get one or two points more for the sake of making a little bit more. Maybe the answer is yes, we haven't tested it.
39:23 Harry Stebbings? How do you advise founders on how much to raise for? For me, as an outsider to Israel in particular, I see large seeds, like six to 10 million dollars, and they'll dilute 30%, which is quite different to a European company which will raise less and dilute less. How do you think about and advise founders on the right amount to raise and how much to raise for?
39:44 Speaker 00 It really depends on the domain. In most enterprise software companies, cybersecurity included, I found out that you need at least five or six million dollars just to get team, product built, a small go-to-market team to win few deals. That's what it typically takes to build an enterprise software company or cybersecurity software company in the early days. And that's typically what we do, you know? If you look at the cyberstarts, pre-SERIA SA company, if you like, a sunrise graduate company, you'd see a terrific team that solves a huge pain point as validated by dozens of US companies
40:27 Speaker 00 with technology that works in production, where few of those customers already paid few hundred thousand dollars for the solution. And that's the point we go in and raise SERIA SA. To get to that point, it takes about five million dollars. So it's not bad that you have seven million dollars a seed. It's not terrible.
40:50 Harry Stebbings? Is speed of execution the single most important trait in scaling in that first zero to seven million dollar range?
40:58 Speaker 00 Not necessarily. You know, I think that cybersecurity is a market where being first to market is not necessarily an advantage. Sometimes it's better to be number two, number three to market and come in with more knowledge, more context and simply deliver a better product. And better product would not just make customers happier, it would attract better channels and would translate to faster sales velocity in go to market. Speed by itself, you know, is not bad, but that's not the most important thing. The most important thing is really figure out product market fit. Understand the pain point, who has that pain point?
41:41 Speaker 00 How do you explain that pain point to that individual? What's the right demo to convince them to take your product technical evaluation? How do you run the most efficient technical evaluation for that individual to get conviction? That they like to procure your software? And what's the right pricing for your solution for the pain point it solves? If you figure this out, you have a repeatable process that you can simply execute again and again successfully. You can raise a lot of money, put as many account executives and channels around that, and you've got a beautiful company.
42:23 Speaker 00 In my view, that's way more important than just sheer speed.
42:28 Harry Stebbings? Gilly, can cash ever be used as a weapon? And what I mean by that is your competitors raise a lot of money. You need to raise a lot of money too to compete, whether it's on paid marketing, whether it's on sales team expansion, whether it's on R and D. Is cash a weapon that can be used and leveraged? Or actually, is it a short term play and the long term is different?
42:46 Speaker 00 Cash is very important. Building a large substantial company is a very expensive exercise. I didn't find, unfortunately, a cheap.
42:57 Speaker 00 Inexpensive way to do it. It takes a lot of cash. It means that our companies need to raise a lot of money. It means that valuations should be high because no founder would like to get fifty percent dilution just to get the cash they need. We support that and we provide the platform to run fast, get faster to product market fit, which means that you create a repeatable sales machine earlier. You get to higher valuation earlier and you are able to raise more money than the competition.
43:32 Harry Stebbings? Speaking of cash as that weapon and raising more than the competition, prices seem high again and we've chatted before and I wanted to ask, are 2021 valuations back, Gilly?
43:43 Speaker 00 2021 is back, period. For the past four or five weeks, at least in private market, we are in a new bull run, valuations are high, skyrocketing.
43:54 Harry Stebbings? Do you think it's a tale of those that have and those that have not? Which is like for the half a percent, it is a bull run and for the ninety nine point five percent, it's hell.
44:05 Speaker 00 No, I think that once you start a bull run, definitely the one percent would have terrific life, but that would have impact on the rest of the pack. And if I look at my own, our own portfolio at CyberStarts, our companies are in the process of raising probably more than one and a half billions dollars in the next few weeks. The impact is not just for the one percent company. You see the impact across the whole pack.
44:35 Harry Stebbings? Does this make you happy? I know that sounds like a strange question. Obviously, your company's getting well funded is a good thing, but 2021 valuations created a ton of problems downstream. It created a lot of very difficult situations for companies to have to live into those valuations. Option pools being set so high, the list goes on and on. These were not good. Are you worried?
44:56 Speaker 00 I'm always optimistic, Harry. I'm not worried. I'm optimistic. You know, the market is the market. If you can raise significant cash and build a business, you should do that. That's the right thing to do. Now, it's our responsibility as Investors and board members and entrepreneurs to really look at the way we spend money and have the systematic approach of building companies. That shouldn't change just because you have more cash in a bank.
45:25 Harry Stebbings? It always does. Everyone's like, oh, I put it aside for a rainy day. Every great founder pulls forward a new product, hires the new data team, hires the new sales team because they can.
45:36 Speaker 00 There's definitely bad behaviour attached to it, but there's bad behaviour attached to using TikTok or Facebook. And still, as far as I checked an hour ago, they're still up and running.
45:50 Harry Stebbings? If 2021 is back, it means we should be thinking as early-stage investors about liquidity in some respects, because in a lot of ways, the price-to-value ratio is brilliant if you're a seller. Are you actively looking at liquidity options and given 2021 pricing is back?
46:07 Speaker 00 You know, liquidity is part of my business. I like to say that eventually all my companies are for sale at the right price. I'm not a collector, I'm an investor.
46:17 Harry Stebbings? What have been some big lessons for you in when the right time is to sell and not to hold?
46:23 Speaker 00 As an early-stage investor, I think it's smart to look for liquidity opportunities and consider the context, the company, your fund, many other elements in your business.
46:35 Harry Stebbings? I am intrigued. You know, you scaled up Cyberstars as fund size quite a lot over time. Can you just take me to that decision-making? Given you said earlier, my business is seed and it's that really early why on people. Now you have funds that are significant, I mean, really significant. Can you tell me about that decision-making process and why you decided to scale in that way?
46:55 Speaker 00 Sure, I'll explain it and you'll figure out immediately why I said that we are simply in the seed business and that hasn't changed. So at Cyberstars, we have two types of funds. We are now investing out of Cyberstars Seed 3. Our seed funds are $60 million in size and we write first and last cheque. To new teams, no follow-on investments out of the seed funds. And then we have five hundred million dollars opportunity fund where we invest in follow-on rounds in our own portfolio companies. We didn't transform the business, we didn't shift it to late-stage or multi-stage investments.
47:38 Speaker 00 We are seed investors with a big wallet to invest in follow-on rounds in our own companies where we do not set the price. So we do not set the price out of the opportunity fund.
47:53 Harry Stebbings? A couple of questions. One, how do you avoid signalling to prevent others from going, huh, cyberstarts aren't doubling down from their five hundred million fund? Can't be a good one.
48:04 Speaker 00 So far, we invested in all Series A and Series B for companies.
48:09 Harry Stebbings? Do you get cheque sizes that you want? Because when you don't set the terms and you don't set the round, your cheque size is really at the whim of someone else. How do you ensure you get the cheque size you want when you don't own the round?
48:22 Speaker 00 Typically, it's very easy for us to take Porata and we have lots of friends in the industry and they respect our partnership.
48:29 Harry Stebbings? In other words, they're fucking terrified to not give you what you want.
48:34 Speaker 00 We have terrific partners.
48:36 Harry Stebbings? That is amazing. Listen, I want to ask one more before we do a quick fire, but and I'm sorry, it's a weird one, but you're optimistic, you have a wonderful way of looking at the world. Respectfully, and I hope it's okay, but like, personal finances do shape a lot of one's mindset. It makes one upside inherent, not fearing downside protection. Do you think rich investors make better investors?
48:58 Speaker 00 The answer is rooted somewhere else. It's not around net worth. It's around terrific instincts, knowing your game, pattern matching, terrific network and other elements. It definitely made my life more comfortable.
49:16 Harry Stebbings? What was the single biggest thing that changed?
49:18 Speaker 00 I stopped worrying about that. One less thing to be worried about.
49:23 Harry Stebbings? Is there a number at which point that happens?
49:25 Speaker 00 Probably each one of us has a different number. I'm sure that there is a number that would make you not worry about it anymore. And probably my number and your number are different.
49:34 Harry Stebbings? Go on, I'll tell you mine.
49:39 Harry Stebbings? Listen, it was worth a try. I would I would be remiss if I didn't try, Gilly.
49:45 Speaker 00 I respect that. I I I didn't expect you not to try.
49:49 Harry Stebbings? Listen, I would love to move into a quickfire round, Gilly. So I say a short statement, you give me your immediate thoughts. Does that sound okay?
49:55 Speaker 00 Perfect.
49:56 Harry Stebbings? So let's start with what have you changed your mind on most in the last 12 months?
50:02 Speaker 00 Product marketing. I was a big believer in product marketing in the early stage and I lost faith.
50:10 Harry Stebbings? Why? This is a this is like a grenade in the the quickfire round. That's a very bold statement. Why did you lose faith?
50:17 Speaker 00 When I look at early-stage companies, the common thread among all of them is, once they start to sell software, is that they don't have enough opportunities and they don't have enough pipeline. Previously, I spent a lot of efforts within marketing around product marketing and not around demand generation. You asked me a year ago, who would be the first hire at a marketing organization? That would be product marketing. My mind changed. My answer today is demand gen. That can make a huge impact on a business early on.
50:47 Harry Stebbings? Saving some wisdom bombs, eh, Gilly? That's a that's a quickfire answer and a half. What's the biggest misconception of the Israeli tech ecosystem?
50:55 Speaker 00 Selling early.
50:56 Harry Stebbings? You don't think you do sell that?
50:58 Speaker 00 That's the misconception. I think that anyone who sells early has a reason for that. It's not an ecosystem trait. It's not an Israeli trait. If you have a terrific product selling amazing to a huge market and everything in the founder's relationship is amazing, why would you sell? I see more and more teams, repeat entrepreneurs, but also first-time entrepreneurs that are doing amazing job and eager to build sustainable companies.
51:31 Harry Stebbings? I hate memos, but everyone is like to me, where's your memo? And I'm like, well, I think it gets in the way of a lot of decision-making. Gilly, do you write memos and what's the thinking there?
51:42 Speaker 00 Don't write memos at cyberstarts, rarely go to industry events, don't spend time mostly out of portfolio companies. I probably spend two or three hours a week on non-portfolio matters. So nearly all my time is spent on portfolio. I don't spend time on fundraising, I don't spend time with LPs, I don't do LP gatherings. We are hundred percents, close to hundred percents focused on portfolio and very little documentation, as little as possible.
52:13 Harry Stebbings? What's the best investment advice you've been given?
52:16 Speaker 00 Focus on a team.
52:18 Harry Stebbings? I see a common thread here. What's the biggest piece of BS advice that you often hear or see being given out that you don't agree with?
52:27 Speaker 00 Whenever entrepreneurs tell me that customers love what we do. Every customer we spoke with liked to get our product, liked to get their hands on our product. You probably misunderstood the customer. You probably didn't listen well in a conversation. That's impossible. That's a BS.
52:46 Harry Stebbings? What's the most memorable first founder meeting you've had?
52:50 Speaker 00 That's easy. It was a meeting with Asaf Rappaport at Adalo where he didn't show up. We set a meeting and his two co-founders showed up and said that Asaf didn't think meeting with investors is important, or something along those lines.
53:07 Harry Stebbings? Do you think founders should always be raising?
53:09 Speaker 00 No, FOMO is your biggest friend as founder.
53:16 Harry Stebbings? I'm like, yeah, you know, it's important to build the relationship, the trust. Nah, FOMO, it's great. Tell me, you know, the many reasons why I love Doug Leoni. You have a much longer history with Doug than I do. What was your biggest lessons from Doug?
53:30 Speaker 00 Many lessons from Doug. I learned a lot from him. I think that Doug is not just fast thinker and someone who knows the business amazingly well. He simply cares about
53:44 Speaker 00 The founders and the companies he partners with. And many people are even intimidated by that. And I know founders that are scared by that. That cares about the founders and investment. And that, I think that the combination of the knowing your business so well and caring about what you do makes it makes it very special.
54:06 Harry Stebbings? Penultimate one. What do you think was the biggest sin of the zero interest rate environment? The biggest investing mistake that you saw of the zero interest rate environment?
54:14 Speaker 00 Attaching unicorn valuations to million dollar in revenue companies.
54:20 Harry Stebbings? Which we as investors benefited from.
54:24 Speaker 00 Partially, yes.
54:25 Harry Stebbings? 10 years' time, where's Gilly then? Where's cyberstars then? What do you want the next 10 years to be for you?
54:31 Speaker 00 Cyberstars, that's easy. Best investor in cybersecurity worldwide. The one go to place for entrepreneurs when they think about starting their next cybersecurity company. For Gilly, I never make long term plans, as I told you. I wake up every day and I make sure that I have the drive and energy to go forward.
54:52 Harry Stebbings? Gilly, listen, I've loved doing this. I can't thank you enough to you for putting up with my prying ways. But this has been fantastic, so thank you.
55:00 Speaker 00 Thank you so much, really enjoyed it.
55:03 Harry Stebbings? I mean, my word, that was such a special show for me to do. So you can watch that episode actually live in the studio on YouTube by searching for 20VC. I always love to hear your thoughts and feedback there. But before we leave you today, as your company stays private for longer, it's crucial to enable a robust secondary market for your stock. Whether you're looking to sell your hard earned equity or set up a liquidity program for your valued shareholders, you have to speak to the team at Hive. Hive enables companies to offer their employees flexible liquidity in a compliant environment with minimal effort. In 2023 alone, over 150 of the top pre-IPO companies in the world worked with Hive to unlock liquidity for more than 700 early investors and employees. So what are you waiting for?
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56:30 Harry Stebbings? ISO 2701, HIPAA, GDPR and more. Backed by top-tier investors and corporations such as Google, Kleiner Perkins, the company is among the Forbes list of top 100 startup employers for 2023 and Business Insider's list of the 34 most promising AI startups of 2023. Learn more today at SecureFrame.com. It really is a must. And finally, a company is nothing without its people, and that's why you need Remote.com. Remote is the best choice for companies expanding their global footprint where they don't already have legal entities. So you can effortlessly hire, manage and pay employees from around the world, all from one easy-to-use self-serve platform.
57:10 Harry Stebbings? Plus, you can streamline global employee management and cut HR costs with Remote's free HRIS. And hey, even if you are not looking for full-time employees, Remote has you covered with contractor management, ensuring compliant contracts and on-time payments for global contractors. There's a reason companies like GitLab and DoorDash trust Remote to handle their employees worldwide. Go to Remote.com now to get started and use the promo code 20VC to get 20% off during your first year. Remote: opportunity is wherever you are. As always, I so appreciate the support and stay tuned for an absolute banger of an episode this coming Wednesday.
Previous 20VC: Bending Spoons: The Most Untold Success Story in Startups: Lessons Scaling to 500M Downloads, $360M in Reported 2023 Sales and a $2.55BN Valuation... Bootstrapped with Luca Ferrari, Co-Founder and CEO @ Bending Spoons Next 20Product: Why Process is Killing Your Product Team and How to Remove it | Three Product Decisions Every Team Needs to Make | Why the Best Companies Build Movements and Lessons from Shopify and Atlassian on How to Do It Right with Jean-Michel Lemieux Page updated October 26, 2026 · transcript and summary are machine-generated
