Gili Ra’anan’s venture capital fund, Cyberstarts, is known for its remarkable success in the cybersecurity sector. Founded in 2018, Cyberstarts has consistently delivered exceptional returns, driven by its innovative model that heavily involves Chief Information Security Officers (CISOs) from leading organisations.
But behind this success might be a controversial business practice: Historically, the CISOs are offered shares in Cyberstarts in exchange for their advice and support, creating a fast track for startups to secure early sales and investment. This model, however, raises ethical concerns about potential conflicts of interest and the integrity of purchasing decisions made by CISOs.
The core of the controversy lies in how the fund has refined this approach, making Cyberstarts’ portfolio companies highly competitive.
This aggressive strategy has led to rapid valuations and successful funding rounds, with companies like Wiz and Cyera achieving unicorn status in record time.
According to several sources, the fund promises founding teams "initial revenues of $2 million per year". This is usually the startup's first year of sales, which is intended to dramatically boost its valuation. This first revenue comes from the loyal CISOs who work with the fund. With a seemingly small purchase of $100,000-$200,000, a CISO increases a startup's value more than 2x.
However, this model can compromise the neutrality of CISOs. Some have compared the practice to problematic compensation models in other sectors, such as pharmaceuticals, where incentives can skew doctors’ decision-making. A senior business executive of a large US institution said:
"I recruited a new CISO for a financial organisation that I managed out of a desire to refresh the cyber defence system. I gave him a free hand because I trusted him, and I see this position as a position of trust. Six months later, I noticed that, surprisingly, almost all of the new logos that the CISO introduced were portfolio companies of Cyberstarts. It's not that these were necessarily bad solutions, but that some of them were a very low priority for us or solved problems that were not particularly urgent. After I confronted the CISO on the subject, he admitted that he is on the list of advisers of Cyberstarts and receives a percentage of the funds from them. Shortly after this, he left the company and immediately upon the appointment of a new CISO, I asked him to inform me if he was contacted by Cyberstarts. Within a few weeks, he had already received an email from them with a description of their kind of 'loyalty program' that details exactly what he will receive the more he works with the fund."
Despite Cyberstarts’ success, the ethical questions surrounding its methods have led some entrepreneurs to seek funding elsewhere to avoid being associated with the “Ra’anan model.”
