Cybersecurity Startups. PHOTO: Cybercrime Magazine.

Cyberstarts Taps Israel’s Overflowing Startup Pipeline

Links entrepreneurs with financial, mentorship support from industry giants

David Braue

Melbourne, Australia – Jul. 2, 2021

Too many early-stage cybersecurity ventures are being established “upside-down,” the founder of a young cybersecurity VC firm laments, with entrepreneurs focusing on the wrong things and nobody to tell them otherwise.

It’s a recipe for disaster, Gili Raanan says — which is part of the reason he stepped away from a decades-long career in entrepreneurship and VC, most recently with major VC Sequoia Capital, to establish Cyberstarts – the world’s first cybersecurity VC firm that is actually funded almost completely by cybersecurity executives.

Tapping his 12 years of experience at Sequoia Israel, Raanan told Cybercrime Magazine, allowed him to set Cyberstarts’ terms of engagement differently than at other firms — and to build a new and more understanding culture for cybersecurity innovators.

“Early stage is like love or motherhood,” he explained. “It means different things to different people. But our version is to find the best talent out there — the brightest of the brightest individuals — and then really help them figure out where they fall, and what is the most important pain point they’re likely to solve.”

Not every cybersecurity entrepreneur gets such guidance, however: over the course of decades of industry experience, including as a board member and seed investor with several cyber startups, Raanan said many entrepreneurs start the process completely in the wrong way.

“What I’ve seen over and over again is that many companies do not get that type of guidance,” he explained. “Many of them focus on the wrong problem set, and many focus on solutions first. They fall in love with technology, and then look for a problem for that solution — so many of the ventures out there are upside-down.”

Cybercrime Radio: Gili Raanan & Lior Simon

The Israeli cybersecurity ecosystem

The VC process requires more of a focus on “the right things,” he added — figuring out pain points and developing a relevant vision from there — but also requires more of something that has been severely lacking: empathy.

“It’s about understanding what entrepreneurs go through, and being there for them,” he said.

A different approach

Raanan knows better than many just what entrepreneurs go through: having spent a decade in the Israeli Defense Forces intelligence unit, he ultimately co-developed the CAPTCHA security method in 1997, then founded application firewall startup Sanctum — sold to IBM — and database analytics firm nLayers, which was bought by EMC in 2006.

Cyberstarts was initially established in 2018 with a fund of $54 million, investing in companies like Fireblocks and Axis Cybersecurity on the back of what Raanan called an “unorthodox fundraising strategy” that included 50 key individual investors.

“We are the cybersecurity mafia,” he joked, noting that the involvement of those investors — who comprise a who’s-who of the cybersecurity industry — helped bring together “the domain experts for cybersecurity in the world.”

Cyberstarts has since grown into a portfolio of seven startups whose success helped the firm close a $100 million second fund last year.

That close brought on a new partner for Raanan in the form of Lior Simon, a former Sequoia colleague whose decade in Israeli VC made it inevitable that she would be exposed to the cybersecurity ecosystem “by default.”

Cyberstarts’ niche focus — which includes ongoing consultancy advice from a network of CTOs and CISOs at cybersecurity industry bellwethers such as Imperva, Palo Alto Networks, and Demisto — helped differentiate the firm’s value proposition for Simon.

“I joined out of deep continuous interest throughout these years,” she said, “and with the belief that a vertical focused fund for the early stage is the best way to bring the most value to entrepreneurs.”

“It really came down to that, and to just working with the best people in the ecosystem — dealing with our investors, an incredible network of advisors, CISOs across the largest organizations across the world, and the entrepreneurs that we have the pleasure of working with extremely closely.”

Finding the right talent

Choosing those entrepreneurs correctly is a critical process, Raanan said. “We have been looking for bright people who really like to get mentorship, really like to listen, really like to adapt, and really like to leverage our collective experience.”

“Once we find a group of such individuals, we work with them really, really closely,” he said — especially around the 18- to 24-month mark, which he said “is essential to identify as a major pain point” because entrepreneurs sometimes realize the goalposts have moved in that time, and they are building a solution for the industry’s third or fourth most-important problem.

That’s why “we really invest as early as possible,” Simon said. “At the end of the day, I just look for the most incredible talents to invest in that I will enjoy working with. And at such an early stage, where it’s mostly around the unknown, you really invest much more around the question marks than the exclamation marks.”

This means focusing on questions like how entrepreneurs think about challenges; how they think about the market; how they learn their ecosystem.

“Through the question marks, the concerns, the thoughts, the open discussions, we learn a lot about the individuals,” she said, “and that’s really what I invest in at the end of the day.”

As a cybersecurity-focused VC in the middle of a hotbed of Israeli cybersecurity innovation — Tel Aviv alone has around 90 percent of Israel’s 600 cybersecurity startups, Raanan said, compared with around 1000 VC-backed cybersecurity startups in the U.S. — Cyberstarts has access to a world-leading “density of talent” that keeps fresh ideas flowing and discussions with new founders happening every day.

Ultimately, that access segues with the support of Cyberstarts’ mentorship network to provide what Raanan believes is an unparalleled opportunity to grow successful cybersecurity startups from the early days.

“There is no better group of people around the world to help you develop a cybersecurity solution,” Raanan explained, “than this group of people who started the most amazing businesses in cybersecurity.”

“Many of us have competed with each other along the years,” he explained, “and this is our way to give back to the entrepreneurial community — and to give back to the younger, newer generation of entrepreneurs by helping them to avoid some of the pitfalls we have stumbled upon.”

David Braue is an award-winning technology writer based in Melbourne, Australia.

Go here to read all of David’s Cybercrime Magazine articles.