Gili Raanan - Cybersecurity Investment Playbook - [Invest Like the Best, EP416]

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1:29 My guest today is Gilly Renat. Gilly is the founder of Cyberstarts, a VC firm focused on cybersecurity and the world's first VC that is majorly backed by cyber entrepreneurs. Cyberstart's fifty million dollar first fund exploded to close to two billion dollars in just three years. Gilly described cybersecurity today as the perfect storm where global conflicts and AI advancements are creating unprecedented threats. He talks about Cyberstart's sunrise methodology, which uniquely identifies customer pain points before building solutions.

1:58 We discuss a focus on finding resilient talent, overcoming personal adversity. The evolution of the cybersecurity landscape and Google's recent acquisition of Wiz. where Cyberstarts was one of the earliest investors. Please enjoy my conversation with Gilly Renan. I've been so excited to do this with you, in part because in the 500 or so episodes of this, I don't think I've ever talked about

2:20 The thing you invest in, primarily cybersecurity. And because your personal investing story and life story is so damn interesting. We're gonna go all over the place. Maybe you can just give us the very high level state of the union in cybersecurity today. Cybersecurity for

2:34 Over thirty five years. Not happy to admit it, but that's reality. So I believe I do have a perspective on it. We live in days where it's actually the perfect storm in cybersecurity for various reasons. And when I look back at the days

2:48 They founded Cyberstarts. short of seven years in twenty eighteen. It wasn't the case. In twenty eighteen, cybersecurity was considered a bowling portion of IT. I think that what we see today is that It's a global powerhouse conflict.

3:02 that drives major forces into cybersecurity. It's the Ukrainian conflict. The Gaza conflict. It's all over the world. offensive cybersecurity became A little weapon.

3:13 Or even strategic weapon. Or state and powerhouses involved in that in those conflicts. So that's one element that's making The cybersecurity thread vector so real, so dangerous, so available. And there's a constant drift on state level cybersecurity weapons.

3:29 to criminal organization and then just Crypt Kidd, so we live in a very dangerous world, way more dangerous than it was just a few years ago. So that's one the second element is technology. I think that we've seen the iPhone. Moment for AI.

3:44 in twenty twenty three or maybe even twenty twenty four, AI is not going to improve cybersecurity. It's going to redefine it. the same technology, the same L L Ms, the same AI agents that you'd use to Predict attacks and prevent them. would be used against you to deliver attacks at scale and level of sophistication we haven't seen before.

4:05 And the methods that we developed maybe for the past eight years. starting in War two would be useless. Cause the speed scale and sophistication of those attacks would be something that we haven't seen before. The world is a way more dangerous place today.

4:22 There's lots of Fleiska ahead of us. I'm curious if you could analogise Cybersecurity offense and defense. to simple military concepts or something like this. Like if I think about the evolution of Kinetic warfare.

4:33 from muskets up through nucleons or something. Is there some similar escalation of The tools being used by attackers. And defenders in cyber had the targets changed over time, the goal of the attackers changed over time. If I were to think about the evolution of the battle.

4:47 What are the key steps in that evolution? Think about Modern warfare and the use of technology. It started with better analysis, better decision making process. Then it moves to

4:59 human augmentation. think about introduction of the best Thanks in the first world war or the introduction of the Kalakshnikov. It made humans more lethal. But with AI, there are additional steps.

5:12 It's the workflow automation. And then the final step where AI takes control. And if you think about a modern warfare, you think about L Lms that quickly put together attack plans that you didn't practice for, we didn't plan for, you don't have a B plan and a C plan for. They're already using AI agents to take control and launch those attacks. On the different side, that means that human augmentation would be an improvement. for time being it might be enough, but it won't be a great solution for the long term. For the long term you would have to use LMs to predict attack vectors in the very same way.

5:46 And give AI agents the control. So they you have a chance to respond to those attacks. In a timely manner. That's the future we are going to, there's no question about it. If you've been a fan of the Arnold Schwarzenegger Terminator movies, that's been a science fiction future.

6:01 I think this is reality today. What does that mean in terms of Attack targets. What are the offensive system, let's say a bad actor, what are they trying to disable? What are they trying to shut down? What is the primary, most damaging Strategy of the attacker today.

6:15 the best offensive tactics are always how are I driven? How do I Apply the highest damage to your In the smallest Effort, lowest cost. Fastest way.

6:25 And what damage is always contextual uh question. Depends who you are. But we've seen examples of so many different ways to inflict pain on you. On the target. And some of those attacks had very, very simple measures that he used, but the outcome was unbelievable. Could you give an example?

6:42 If you like to take off a countering. And put it on its knees. That takes using conventional methods. huge amount of resources, times and coordinated Efforts by a lot of people.

6:54 If you do that for cybersecurity. You can use very simple ways like taking down name servers for the power stations and you leave that country with that power for a few days. It's not a highly sophisticated attack. You don't have to have a army of people doing that. And it can happen to any country any day. Now think about

7:16 An AI agent that's able to produce thousands of scenarios like that. And execute all of them. Simultaneously. That's the technology today. This is not the future thing, that's today. What does that mean in literal terms?

7:28 So when you describe it that way, what comes to mind is an agent that can brute force create ways in. And just try them all. One lands and is successful in its attack. Is that the right way to think about it? Or is it if that's a shotgun approach, is it more of a rifle approach enabled by the agent in a way that wasn't possible five years ago? The deduction model would always be as good as the data provided.

7:46 Take the analogy in the drugs development industry. If you provide enough information about a certain disease. you build a LM that can take that patient data, that can take a lot of research and offer recipes for drugs that can, for instance, heal diseases that are considered unhealable. Let's say Alzheimer's. You can use the same LM and ask for recipes for drugs that can kill people. It's the same system, it's the same method. It's the same software. Now think about LLM that's fed on data around the software infrastructure of a bank and an AI agent that you use to ask questions like What are the potential breaches in my infrastructure and how should I protect myself? It's a very useful agent.

8:29 The same agent. You can ask directly or click to answer the question, how would an attacker breach the defenses of that bank and take that bank offline? So the same technologies that we use for the defense. Oh the technology that would be used on the offense. You've seen that even if you put a lot of guard rails into the model, there are many ways to bypass those guard rates. And that's when AI is in a wall guard. Now you have open source models and Deep Seek is just one example of it. Well, AI is not one God anymore.

8:59 It's in the wild. Then anyone can download the model and modify the model. If I think about the average lifespan of a cybersecurity company in this State of the world today and let's say the next twenty years.

9:11 There's that famous chart of like the average lifespan of a company in the S P five hundred that's getting shorter and shorter and shorter. Does that line look even crazier steep? For cybersecurity companies, if the attack and defense factors are evolving so quickly, how can a company build enduring Value. The answer is fairly straightforward.

9:26 AI would redefine cybersecurity. It would replace the old ways cybersecurity solutions were architected. the old systems of building rule based systems and behavior based systems. So The good guys can fix Misconfigurations or pitch.

9:42 buggy software systems, those days are gone. And founders would have to create Cybersecurity companies that are AI fairs. and AI native just to have a chance to build lasting important cybersecurity companies. And that's the reason you see existing players, major players, Like our own portfolio companies, you see the level of effort that a major cybersecurity platform like

10:04 Wheeze or Sierra or Island, the level of effort they put in AI, understanding learning AI, and applying AI. into the platform. That's not an additive capability to the That's re architecting the product to make sure they are useful and effective when the attacker is not human. And it's not just human augmented, it's a machine that attacks you. Can you tell the story of the first fund, which I think will probably go down as one of the most spectacular

10:29 early stage investment funds ever. I would love you to share the numbers and the companies and just what happened. It's a sort of thing of legend now. And then I want to build on that for how you built the business afterwards. You started in twenty eighteen, the first fund was small. Tell the story about First Fund. A lot of what happened in that front relates to

10:44 A lot of learnings and mistakes I've made earlier in life. Can you give those touch on like some of the major learning some mistakes and lessons. Like the key ingredients that were in place in twenty eighteen from your experience that Went into that first investment fund? In twenty eighteen I just exited one of the best VCs in the world, Sequoia Capital, amazing team.

11:04 spent a decade the general partner and beforehand. I've been uh founder and see of two software companies. And my conclusion back in twenty eighteen was that the venture model is completely broken. It's broken in so many ways. It's broken for investors. And it's broken for the entrepreneurs.

11:21 Investors have spent endless amount of time asking about markets and products and technologies, which founders at a very early stage, at the seed stage, clearly they don't have the right answer, they don't have an idea. And whatever they tell the investor Anyway, it would change within a few weeks and then change again and change again and change again. And everyone are simply Playing a game and dancing the dance. But they're just paying tax to the system. It has no value.

11:45 Especially it has no value for the recipient. Of the solution. 'Cause they are not even involved in that dialogue. So when I paralleled Cyberstyles I made one very important Commitment.

11:56 To completely avoid questioning the market, the technology, the product. The competitive advantage. And focus on one thing only, which is the person ahead of me. Pokus on the talent.

12:07 The other I'm looking for People who are not straight lines. who didn't have a perfect style for their life. And manage

12:17 to overcome it and become successful, although they didn't have a perfect starting point for their life. I had a very stumble beginning. So I started started with a fifty million dollar fund. Super small. And the first fund I was investing alone out of my office was uh still is today. A shipping container I converted into an office situated in my back yard.

12:36 And I invested in nine teams. And I was the lead investor in all those teams, made re bets. In people without ideas. And many people thought that's pretty crazy. Grown up. Writing large checks to people without idea, that seems to be

12:50 Odd. And then three years later, in twenty twenty one, I realized that the portfolio of those nine teams is valued over twenty five billion dollars. converted the fifty million dollars into close to two billion dollars then More importantly. had a terrific set of companies.

13:06 Companies like We've The leader in cloud security. Amazing thing. We can talk about them a lot. Companies like Island Security that invented the enterprise browser space and today is a company that

13:20 Value that around. Multibillium dollars. Companies like Fireblocks. which is the largest blockchain custody service for enterprises. Which value it.

13:30 At eight billion dollars. And as you know, in our business, if you invest early on in terrific companies, if you invest early on in Doordas or Airbnb, you'll do disgustingly well. But A heat rate of four or five Unicorn, including one Decacone and few other companies that each of them got acquired. for hundreds of millions of dollars each. That he tweet.

13:51 What's a pullpoint to that? There's something like about the modem. About the Jesus. If you think about that outcome. And you decompose it into a couple of things. A bet on cybersecurity, a bet on these nine people.

14:02 a bet on the business models or the way that they approach the market. And then some other catch all bucket. What do you think were the most important contributing factors. to that first fund's success and the success that has continued to happen since

14:13 The hit rate's crazy, the number of huge outcomes is crazy. Uh maybe the fourth bucket is luck. How would you break out the reasons for the success? Luck is definitely important. But on top of luck, think one buffet. One said.

14:25 as he walks harder and harder, he becomes luckier and luckier. So definitely luck is important. But I think the major factors here are A clear thesis. Cyberstart is one simple thesis. One sector and uh commitment to deliver real value to the founders we partner with.

14:42 The clarity of that thesis and the fact we focus just on a single sector and we own it. The founder selection criteria. And I would love to share some example later on and the fact that we made our decision making process super simple by completely eliminating considerations like market, technology product, competition. business plan, pricing, whatever it is.

15:03 So we do not waste time on those things initially. We spend our time Making sure that we bet on the right atlets. So luck. Jesus founder selection criteria, and then I would add two other factors.

15:14 One is the commitment we have to get a product market fit as fast and as efficient as you could. And that's the whole story of our Sunrise uh programme. The Sunrise program means that you do not develop technology or solutions in a Vakin. That you build software, pretty big software solutions that people really need and can use on a daily basis. And I would say the last element is that I'm surrounded by Four amazing partners.

15:38 each of them is adding tons of experience and value and knowledge and coming from different backgrounds. I think all those five elements, like Cyberstarts. What it is today. And just to continue the story of Ciddle Start today. with all the humble beginning we had.

15:55 We manage more than seven hundred million dollars under management across five funds, four seed funds and one continuation fund. The portfolio. value today cumulatively. is around forty five billion dollars, which is fifty percent. of the worldwide market cap of private cybersecurity companies.

16:13 Fifty percent. That means that we seeded fifty percent of the worldwide market cap for private companies in cybersecurity. And that's Under seven years. Pretty good. Yes. We believe in cybersecurity. Give us another seven years and let's see where we can go from here. Each of the four active funds delivered over a hundred percent ILR. to investors. So this is not just a case of one successful first fund and then living on the success of that fund. I think that we deliver value to founders and to limited partners.

16:44 I call the file systematically. Let's step through that process starting with founder traits. So you're betting on people many of them don't have an actual idea yet. And so you're really just incredibly focused on the quality of the person. What have you learned about What matters. What are you looking for?

16:58 My personal experience as founder and builder. Told me that start up is a insanely painful journal. It's super hard. And like it or not, you're going to face A lot of challenges.

17:08 And that Made me believe. I shouldn't simply look for the Smartest person in the book.

17:15 High IQ P. It's not a bad thing. But it's not the most important thing. The most important thing in my view is the adversity and the ability to overcome it.

17:24 For me, this is the greatest signal, the best signal for a terrific founder. Take, for instance, fire blocks. Founder and CEO of Michael Show. Let's start with the company, so You understand the context, but Firebloc is the leading crypto asset custody service for enterprise. It's valued at around eight billion dollars.

17:42 Thousands of customers. including being white melon and being bad and A B and I'm ball. Five blocks was my first investment in cyberstyles in twenty eighteen, June twenty eighteen. We invested three million dollars. And that was the seed for five blocks.

17:57 It's an eight billion dollar. company today. And Michael's personal story is that he immigrated to Israel from the former Soviet Union as a child. He grew up without a father. Lase by a single model. And he learned early on in his life to navigate to uncertainty, moving to a new country, learning a new language, learning how to deal with things and push

18:19 Well challenges. I loved it. I thought that's the most important thing. Michael is a friend, he's a brilliant guy. But I'm sure that there are people out there with higher IQ. But that's not what

18:29 Important. When he started the company just a few months after the first investment We got into the first crypto winter. Six out of the ten first Design partners of Michael.

18:39 Wind Bank. So How do you deal with that? That's a major blow to your plan. Design partners are so important.

18:45 to build a solution. And he had to simply rethink about the entire plan, about the focus and who the customers are. I think that he's Childhood experience. The Roughness in him. the life experience that you'd face challenges.

19:00 And you'll manage to overcome them that what captain moving forward and overcoming those challenges and building an amazing business. How much of your evaluation of these people is Effectively just saying, Tell me your life story. And that if they literally just answer that question in detail, it would be all you need. And if it's not all you need, what else do you need?

19:16 It's part of what I need. It always goes though, but I learned that what's important in a story is not a what. It's the one. It's not about

19:24 What you did. It's about why you did, why you choose to do that. Why you peek? Job A and not job B. Why you be that partner in life, not another partner?

19:34 It's always about the why. So it's not just about a unique, heartbreaking life story. It's spending time with an individual. And understanding the way they make decisions, the way they analyze. the situation, what drives them. What

19:48 really makes them tick. And It's not so much about what they did and what accomplishments they managed to achieve, et cetera. It's always nice to know that, but that's not what's important. If you think about the Next step. You select someone, they've got this. personality type that you love.

20:02 You then go on a hunt for The right problem. And maybe this is just the excuse to talk about the sunrise methodology that you've established. Walk us through that process. I wanna highlight how

20:11 strange this is relative to if you think about the outcome so far. I'm not aware of another early stage investor that's this systematic with this high a hit rate. in such a narrow field. And so I think spending extra time on the methodology from here. Let's just assume you can find great people, which I know is hard, but you've got a batch of great people. What was the origin story behind Sunrise? What is it? How did it come to be?

20:30 I think that in order to tell the full story of the sunrise I have to go back to nineteen ninety seven. And my first startup experience. Байдай, асфінш а декадів сервіс. at the Israeli NSA in eighty two hundred. Tell you more about it in a few minutes.

20:47 And by the way, the eighty two hundred formation Years for myself, um Go to work with We had set. of people and in many ways those were the years where the

20:56 The cybersecurity market in Israel was created. I work with folks like Shlomo Kremer, who's the founder of Checkpoint and Kato Networks today and Gil Schware, the checkpoint CEO and founder, was just two years older than I am, and we I heard many stories about him. The officer that was sitting next to my office was Neer Chuk from Palato Networks.

21:17 So those are the formation days and I left the service and started a company. And We raise money from secoya capital. So that was the first time I encountered Into Sequoia Capital. Pierre Lamont was on my board.

21:30 We didn't have a clear idea what we want to be with. One of the first technologies we thought to develop the company around was a challenge response system that would distinguish between a human and a bot and a machine. Years after.

21:44 I realise that the name for that technology is Capture. So We had the luck to invent Cup Chao and build the first walking prototype of Cup Cha. Are you are your two sixteen years old kids. At that point we will not

21:56 well funded enough. I had a two six year old kid later than you know, or hard pressman who was the City of Cheig and Ayal Naval, who later became the CTO of Hip Point. Two very successful companies and two very smart individuals. But their first real project in the commercial world was to build the first capture. So we did the first capture.

22:15 And we tried as hard as we can and we couldn't find business model for the technology. And that taught me a lesson. And we had to pivot. into something else. And luckily we pivoted into the web application firewall space. We were the first team to build a web application firewall. That was the path that company, Perfecto Technology, that later renamed into Sanctum. managed to build itself. That company later merged with uh Watchfire and uh got acquired by IBM.

22:39 But that lesson of capture that you can invent and build a very uh impactful technology. Almost every person On the planet. uses and still you're unable to find a business model for the technology. That lesson convinced me that I was completely wrong about the way I approached.

22:56 My start up. Starting with the technology. And then search who has a problem that that technology solves. The process should be reversed. Completely the first. We should first look at what are the important pain points in the market, find the customers, find who's willing to spend money. On solving that problem.

23:13 And then go and build a solution. that MMOTAs can use. And that shifting Hold up. As simple as it sounds, I think that what made Cyberstarts as successful as it is, and that's what helped

23:25 All those amazing founders. really feel the full potential of their talents. We continue to evolve the Sunrise uh methodology'cause it's not just around product market feel. It's actually a program that takes an entrepreneur from day one from inception. through the first three or four years of running the business.

23:42 But the early days of the Sunrise is all around focusing on finding the most important pain point in the market. And you do that by going out and speaking with large organizations. Making sure you understand the priorities. What gives them the most And only that.

23:58 Can you describe that piece specifically in some detail? The tactical method for who you're talking to, how many people you talk to, how often you do like the real details here. I think it's such an interesting process. So keep in mind that our companies B2B SAS. So all of them sell to large organizations. So obviously large organizations are the customers and they are Who you like to ask the questions? And the best person to ask is the chief information security officer that oversees the security operation for that business.

24:23 Yeah. Idea behind Sunrise process is that you're going to chase pain and identify pain. That requires a lot of Smartness.

24:32 'Cause if you're going to ask, go out and ask the chief information security officer. This week, what's your biggest pain? You'll get one answer. You ask the same person the same question in a week.

24:42 Answer. And then another week you'll get another answer. And they're not Playing games. They are just being human. There are other ways to identify pain. For instance

24:52 One of my most favorite questions is who's the vendor you hate the most? Because if you don't like a vendor. That's a big motivation for you to displace that venture. Another important observation is water cheap. So don't look at what the customer says, look at what the customer does.

25:09 Which means if you are running security for a large bank. you probably uh manage budgets of hundreds of millions of dollars. And if you claim that there's one thing that inflicting a lot of pain for you. You worry about that. You think that your bank is at risk and you haven't done anything about it, probably not as Important as you claim.

25:27 So you probably has done something. You downloaded an open source package to start out you to consultants to develop a temporary solution. You had real conversation with Palo Alto Networks or Wheeze to see if they can solve that. Issue for you. You've done something. So we are asking them not about their opinions, but what they actually did. to try and deal with that. Eventually we reverse the power balance in the conversation.'Cause we are not asking for favors. We are telling those organizations, Hey, this is a new Cybersstarts team. That new team would spend about a hundred million dollars.

26:01 In the next three years. On engineering alone to build One solution. That's the average for a cyberstar company, a hundred million dollars. R and D budget for three years. What is the one thing?

26:11 that you care about that you'd like us to solve with our hundred million dollars. You don't need to spend anything with that. We are giving you essentially a hundred million dollars of balance sheet to solve one Pain point. for your organization. And I found out that when you give people a hundred million dollars. Virtually. They listen and they think.

26:27 And then you take those answers and you're not having one conversation or two conversations. I think that to have a meaningful A statistically meaningful outcome you need to talk to dozens of organizations. You speak with dozens of organizations and you make a choice. This is the one pain point I'm going to go after. And then you do another round of conversations, assuming you go after that pain point and ask them questions, how a solution would look like. 'Cause you really like the solution to be loved by the users.

26:52 And only then and sometimes it takes six months. Only then You start to build software. And if you think about the typical startup when they get money from VCs They start to get pressure to build software and push forward and hire people. And

27:05 My apologies almost the opposite. See tight. Don't get too excited. This is your last chance. to pick the right problem to go after. So let's make sure we pick right.

27:15 The outcome is that they build software that solves a major pain point. It's verified with dozens of real customers. And they've built a solution that people would love. 'Cause they talk to those people before they started to build code. No, it doesn't work. Every team. But as I think I've demonstrated the success rate is quite high. If I back up now and think about the process so far.

27:35 It's the identification of these people that have this Super resilient history in Gene. It's the application of the Sunrise program to start. identifying and then ultimately pick a problem that's super valuable using these unique set of questions.

27:46 What's the next phase? Are these things built in a distinctive way relative to the normal startup that you've observed before? Or is it at that point a standard software? Building exercise. It's a standard software building exercise, but perfectly done. 'Cause you start from the end. And walk backwards.

28:02 It starts with the end in terms of value, what value the customer would like to produce with that Piece of software. The silence process doesn't end at six months. It's a full simulation of everything you're going to face. in the next three or four years as a founder, as a company?

28:16 And how do you deal with it and how do you architect your company in the best way to run as fast as possible in the first three or four years? So if you demo the product. And then they didn't take you for product evaluation. Why is that? If I tell you, the man from the future tells you.

28:32 that they evaluated the product and didn't buy it. Why is that? We use a lot of simulations that assume failure and forces the founders. To really analyze this situation, assuming a failure. And build a company to deal with it. So it's not just about product, it's about

28:47 Go to marketing. It's about pricing, it's about channel strategy. It's about Maybe location of headquarters. Those are many, many elements that are being evaluated, examined during the time of the sunrise. One of the things that

29:00 is incredibly interesting to me is how you must drive low cost of capital for these companies. Because of your involvement. I would imagine you've got all sorts of other investors with deep pockets that desperately would love to sort of blindly fund companies that are Partnered with you at Seed? At the series A or the Series B or beyond.

29:14 How do you help the companies manage their future financing? And how do you think about how aggressive to be on valuation and How much capital you raise in dilution. This is a really interesting part of what you've built with such a high hit rate. We think a title starts. of coinvestors as partners.

29:29 I don't take them lightly and we are well fortunate to have amazing coinvestors that have backed repeatedly our portfolio companies and with tons of respect to their contribution and their support of the companies'cause Cyberstars can be as great as we like, but there are other smart, capable, knowledgeable people in the world, and we happy to get their help. So we are definitely in the early days, we are highly involved in fundraising and helping our companies to finance their growth. My approach is that it is expensive to build important companies. Important companies are typically not cheap. When I hear founders getting advice like

30:05 keep down valuations, make sure you don't raise too much money. My approach is your first priority as a CEO. is to have enough money that you can build the right product, hire the right sales teams. That's expensive. So in order to raise enough money, the valuation should be highest way because no founder would sell fifty percent of the company in series A, not in series B.

30:25 So I'm all for raising a lot of money. Assuming you've built the right product and you have the right team. So you can scale and take on the opportunity. How do you think about pricing at seed? For yourself. What's the right way to think about this? How much variance is there between The valuation at which you've tended to enter companies, has that changed a lot since twenty eighteen?

30:43 It almost didn't change in seven years. We Typically see two type of deals. So If you like a pricing menu of two items.

30:51 We see one market for First time in up and all who That company is the first experience as Founders and executives. And then there's a different price.

31:02 A different market. or repeat and dropping loss. What are those prices roughly? For first time Plapenors, we've seen C deal stuff.

31:09 Anywhere between the fifteen to twenty million dollar spots. Fost money. And for the kitchen took anals. I see uh Broader range.

31:18 starting from the forty, fifty million dollars range and sometimes it's going up quite crazy. We don't mind paying it because Of the extra information you have about the founder. On a repeat basis. You don't mind uh.

31:30 I've passed on deals where the price went. Crazy enough. And that's what I'm telling uh that Their job is to make sure that they are the most important company. in each of their investors portfolio.

31:41 'Cause at the end of the day they fight for attention and bandwidth and access and when the investor ownership goes down significantly, it's hard. to become the most important company in the portfolio when an investor owns five percent of the cap table. High prices, in my view, are the double edge swords for top announcements at the early stage. How many other Places do you think that's a good thing. In addition to cyber

32:04 this method could be applied. Or is there something still in twenty twenty five really distinctive about cyber versus other spaces? that make it by far the most fertile ground for applying something like sunrise. I believe that in any field where there's relatively uniformity of bios That's applicable. I would assume it's applicable for fintech, it's applicable for gaming.

32:24 Maybe even applicable for medical devices. But you need a fairly active ecosystem. Not just from end users perspective, but also from an M and A perspective. That's important as well,'cause not all your companies would go public. In the past twelve months, we've sold five portfolio companies at cumulative value of two and a half billion dollars. That's important as well.

32:42 How would you rate today's environment? For prospective returns. Your returns have been crazy high. Do you think the next five years have the chance for similar returns or have prices made earning those kinds of returns in the market itself.

32:54 Much harder. Achieving amazing retailers has always been super hard. It would continue to be held. But I believe that with everything said earlier about the perfect storm in cybersecurity, the introduction of AI and the way it's going to redefine cybersecurity. I believe that the opportunity is there. Obviously the quality of the talent we see is always getting better. And that's what keeps me so optimistic, just to see the endless stream of smart, eager, hard working young individuals who are determined to build the next solutions.

33:25 Speaking of those individuals, we talked a little bit earlier, I'm just so fascinated by the questions that you ask as you're identifying these people, and I'm thinking to your time with Mike and Douglas Sequoia. Again, famous for asking people about their early lives and whole life stories. Are there any other favorite questions that you have to ask people to understand them? As deeply as possible. That we haven't talked about.

33:42 I always speak with founders about the superpowers. Why do they perceive as their superpower? What makes them confident that they can win the game. You speak with a founder. Speak with an individual for a good hour, you've got a fairly good perspective.

33:55 of what you think is the superpower. And it's fascinating. To listen to the way they perceive themselves. And I found out that some of the best founders are completely unaware to the superpowers. They're so natural in that. They don't mean to use them. They're just so great at that. And a superpower can be anything. A superpower can be you're simply the type of person that people are dying to be their friend. You don't notice that. You think that that's a gift everyone has.

34:21 You don't realize that this is your gift and that what paved you the way. To be successful. In many cases the superpower they claim they have is not necessarily the real superpower they have. But it shows you the way they view their weaknesses. Because the superpower they are aware of, they pay attention to, they have to develop it. And they had to develop it in compensation for something else. So that tells a lot about the person ahead of you.

34:42 What if you had to answer that question? For yourself. First of all, congratulations. You're a fast learner. That's great. Few things but I would say

34:51 Let's take self confidence. It's one answer I would give. I'm sure this is something I've developed over time. I wasn't natural in that. It took time. And it was as compensation to a very um insecure child that grew up In a small town. In his mind. That didn't feel

35:07 really appreciated for his talents and didn't feel that he's part of something bigger. Then I think it only when I was thirteen for my Bal Mitsba I got a Commodore sixty four computer. That opened up a whole new world for me. I started to get to know people with the same mindset. Spring about the eighties, I

35:25 Hop on a bus. And Went to computer gigs gatherings in Tel Aviv. When I was fourteen or fifteen And I think that only when I join the Israeli NSA when I was eighteen, I really found out that I'm part of something bigger.

35:39 I felt that I belong to that group of people. So it took time to develop that self confidence. beforehand there was always a gap between the way I felt about myself and the type of feedback I got from the people around me. What do you think the hidden superpower is? That's your true number one, but

35:55 You're not as consciously aware of. My endless hunger. I'm never happy. I'm never satisfied with whatever I achieve. I always look at the next uh I finish climbing on one peak of the mountain, I immediately look beyond that mountain and look for the next peak to climb. It's very daunting'cause I tell myself it would be nicer if I could just

36:13 Take a rest and enjoy the view from the peak of the mountain I just climbed and I find very little satisfaction in that. Where do you find satisfaction? Making impact. On people that I really care about. The founders I partnered with are people that I really care about. My partners, it's I was starting.

36:28 Leo, Emily, Ila, Adam. Are people that I care about? Try to leverage the past thirty five years. of being in the different sides of cybersecurity, going through so many different experiences to really make impact on their life.

36:41 We have the opportunity, given the timing here, to talk about An incredible Investment with. That of course is the item of the news of the last I don't know, year.

36:50 Yeah in the venture world, an incredible outcome. And the acquisition from Google. We won't talk so much about the outcome as the process. and your experience and story of working with the company. We've talked a lot in our interview about why you do what you do, the process by which you found founders, what you look for in them, the process to find product market fit, the sunrise methodology, et cetera. And here we have the ultimate case study and why these ideas are powerful in combination.

37:10 So I would love to just hear the story from your perspective. You're right. We've in many ways is the Front window. Type of Use case. For the side of stout.

37:20 recipe for building an important company. And For me. The we story really calls many of the key ingredients. for building an important cybersecurity company.

37:30 I'll talk about a few elements. I hope I can do that in the right order. But Most importantly.

37:36 I think it's Speaking. A really important Pain point. And

37:41 getting to perfect product market fit. If you look at Wheeze The four founders a saf. I mean, or you know. I think that the Wheels journey started eight years.

37:51 before founding Wheeze in twenty twelve, there was just a bunch of young guys, twenty seven, twenty-eight years old. Straight out of the army. Massaf had spent maybe a year with McKinsey. But Really inexperienced team and

38:05 They started otherone. a cloud security company and that journey was Quite sure. In three years they saw the business too. Michael Soft, join Microsoft.

38:14 in twenty fifteen and Spend five years. at Microsoft building the Microsoft cloud security business. More it to a decent size of a billion dollars in revenue. And then they left Microsoft in twenty twenty.

38:26 And at that point in time They were the most Experience team, in my view. worldwide in running A cloud.

38:34 Security business. And they started a company which wasn't called Wheels, it was called Beyond Networks. And they had a very, very different idea. They thought to go and secure satellite offices with secure one access, et cetera, you know, some sort of A business that never took off and And beyond that, once we looked at the customer feedback and

38:52 It was an important problem for customers. But it didn't have a very important ingredient which is It was important, it wasn't urgent. And At the early stage

39:03 As much as you like to go after large market size and important pain point, the most important thing in my mind is to go after an urgent pain point that generates Sense of urgency. And the sense of urgency is almost everything you need.

39:17 It's a small venture. 'Cause that means that things would happen fast for you. You get to No customer engagement, you learn faster, you improve faster, you'll be able to build your revenue faster. And

39:30 We didn't have that. with the secure one access idea and the wisdom Was smart enough to really pivot. into a space than you fell away, which is cloud. security and being in the company Wee.

39:41 And we ran our our sunrise program. which is all focused on getting feedback, making sure that we understand the pain point, building the right solution. That mere motels can use. And Three months later they had a product which we generate Uh sense of urgency.

39:55 They spoke with customers and those potential customers prospects wanted to bring them in and Then I learned a very important lesson. About the four Customer profiles. Well, you sell a product.

40:07 You're going to The person that has The pain point that has the problem.

40:13 The person Oh has the budget to pay for solution to solve that. The person That has the authority. To decide.

40:21 on the product or solution. And the fourth person. Is the person that would actually use The product. Now as a startup

40:28 If those four personas map into a single person in real life, that's a mega hit. And that was the case of the Wheeze. If those four personas are mapped into four real people, there's

40:39 One real person that has the problem, one real person that has the budget, one real person That has the authority in a fourth person that actually use the product. Don't do that. Go and pivot. Um

40:51 If you're mapping to two people, that would be a very nice company. If you're mapped to three people, that's a borderline. You may or may not like to pursue that. So For Wiz it was a single person. It was the CISO. The CISO has the problem. The CISO, the chief information security officer, had the authority to decide on a cloud security solution. They obviously Pay the budget.

41:10 And most importantly, they had the AWS credentials that enable them to really deploy the product. So Wheels was able to do something very unique just because all those four personas mapped into one real life person. and we've built a really cool technology, they managed to build a product that during the first Call with a prospect. They could ask for the AWS credentials. And within the call show them real value.

41:33 For the on organization, not in a demo environment. And that really accelerated things for we've. And in three months We face

41:42 One major dilemma. We could go for a low entry point price. product to get a lot of logos and build we've got. From the ground up.

41:52 Bottom up. or what people in Silicon Valley call PLG. protoclate the growth or go after very large deals, enterprise deals to begin with. and grow the ARR top line. Unlike the common wisdom within Silicon Valley, we decided to go for

42:08 the large deals, scrap PLG and go for real enterprise deals to begin with. We thought that by growing uh top line ARR, we would be better off. We would have real commitment by highly sophisticated customers, we would attract attention from outside investors. we would attract attention from top go to market talent. And that would enable us to build a significant business. And while we spent the first twelve months building a product, the next four quarters were quite unusual. The company closed A million dollar in ARR in the first quarter of selling the software.

42:42 Two million dollars, I think eight million dollars, and then twenty five million dollars in the fourth quarter. Wow. It was an incredible company. From the moment We actually launched a goal to market for Those three reasons.

42:55 Focus on the urgent, not the important. build a product that has a terrific product market feed. For one person, one real person. that owns the budget, the authority. And the ability to use the product.

43:07 And we went And sold that to large organizations. High price point. Can you say a little bit about how you won such early involvement with a team

43:17 That was obviously so strong. the ongoing lesson from the stories that have come out since the acquisition news. Is some of the very high multiples, nominal revenue multiples that were paid by subsequent round investors. Who nonetheless earned. An incredible return, even though they paid high multiples.

43:30 And I'm curious what you learned from watching that dynamic unfold, having been the earliest investor in the business. That actually was an old lesson. I learned that Sequoia many years ago that The expensive deals, the pricey companies.

43:41 A price here from day one. They're always expensive. They're expensive at the seed Round or expensive at least. A round or expensive or the B round. The worst reason.

43:49 for a venture capitalist to pass on an opportunity is for price. 'Cause it's part of those companies' DNA. Pick a company. All of those companies Were expensive. Rbn B was expensive. Instagram was expensive. So if you're going to pass on an opportunity just because of price, you're going to pass on all the good companies.

44:05 Yes, we're super expensive to begin with and attracted a lot of attention. And became The fastest Unicorn, the fastest company to go to a hundred million dollars. the fastest company to get to five hundred million dollars and this year when we get to

44:19 A billion dollar your rarity. It's probably gonna be the fastest SAS company to get to a billion dollar yeah. But that's part of the DNA. It's a fast component. Watching that just convinced me. That as an investor.

44:29 A high priced company is actually a good thing, not a bad thing, if justified. Is there any other novel lesson? I love the three points that drove the success that you outlined. And I love the idea that the high price thing is an old lesson. Are there any other new lessons that Wiz taught you? that are unique to your experience with that specific company? The productivity at Wee, if you look was second to none.

44:48 And when I looked at the number of engineers relative to the number of products and the number of capabilities we deliver annually. It was amazing. And

44:58 When I look at the way we so Engineers. There's always a debate. How do you pick the best engineers and who are the best engineers? for your business. And I discussed that with Roy Lesnik, the VP of Arendio is one of the co-founders, one of the four co-founders. And he had a super special way to source engineers. He would not just source smart engineers who has been in good companies.

45:20 Terrific education, et cetera. You would source people. That their hobby. is lighting code. He would tell people that on a weekend assuming they're married and have kids, if they have a couple of hours of quiet time, they would not go reading or watching a Netflix series or listening to music.

45:38 They would go and write code. Those are the people you like to hire. When you have a hundred of these guys, it's like having three or four hundred. Terrific engineers. Cause you know the rule that.

45:49 A great software developer is probably Ten times better than uh Good software developer. But having great software developers that they're hobby. Their sole hobby.

45:58 He's writing code. That's a false multiplier. And I think we've Realize that and capitalized on that. Is the outcome.

46:06 Satisfying? I think I told you out of the interview that I'm never satisfied. So Just testing it. The answer is no. And and I know that you're going to laugh and say, Okay I really feel that but Again, it's hard to live life twice.

46:19 I wish I could. I would A B test that decision again. But I think it's setting the bar super high to get from zero to thirty two billion dollar valuation within Five years. I didn't check history books, but I guess that's pretty good. But I can think about few other companies that have the potential at least to break that record. Are you dare to predict again, assuming these transactions go through and get approved, etc. That's the real

46:44 Final outcome. My guess that within ten years Somebody would break that record. Do you think it can be broken in cybersecurity specifically? Yes.

46:52 Why? Why do you think that's possible? Just'cause it's changing and so big? Cause You have all the ingredients. You've got the market size, you've got The evolving pain point.

47:02 Fast moving landscape. And a lot of talent. A lot of experience talent, not just on the engineering side, but also on the business side. And I think that you have some experienced investors as well. So I think that you've got the ingredients. Now

47:15 Black should be in the mix as well. And therefore I think that within the next decade we would see that record getting Achieve and broken by a new player. I think it's very, very feasible. If it happens, I wouldn't be surprised if you're involved from the very earliest stages and if the sunrise methodology and your approach works again.

47:32 Appreciate that. If you think about The stories of resilience that you look for in your founders. It's a nice thing to say. Can you tell me the story of the hardest episode of resilience that you've had to personally go through?

47:43 Yeah. Before starting Cyborg, I lost my daughter, my nineteen years old daughter in a terrible tragedy. And the wall just for And it was very easy to stop everything and focus on The endless pain I felt.

47:57 I managed to find the power. And the strength. build cyberstar and focus on Building that

48:04 organization and legacy. And That really helped me to continue Live with the pain, but continue to live. How is that possible?

48:13 Everyone was saying myself included with children. No, that's the single worst thing one could imagine. How is it possible to get Beyond something like that.

48:22 Think it's very, very difficult to give advice to hopefully nobody has to deal with that tragedy. It's really the most Painful thing that you can go through. For myself, I did that instinctively, you know, I didn't Spend time to think about it.

48:35 I didn't Make a decision. I just did it. In a way. I managed to leave. With terrible emotions that

48:42 I wouldn't imagine I can Contain them and live with them and Over time I taught myself to live with the pain. Not fight the pain. Just wait for the pain to

48:52 Yeah. Um I think that walking with younger people On innovation, on solving real world problems, on building solutions. That What kept me younger and healthier. I love the message of

49:05 Focusing on young people and building things for others. It seems like your orientation and your satisfaction in your strategy in your search and your work is very other oriented. Anything you would say. to other investors out there that hear that part of your story and that's the piece that appeals to them most. Helping other people.

49:20 And what they build and how they do their work. I really think that it is Many ways to become a Terrific Investor. I don't think there's one canonical way to get there.

49:29 By the way, it's not enough just to be first. You also need to be right. That's the difference between an investor and a terrific investor. Being God. But again, there are many ways to hell, but there's also more than one way to heaven. My recommendation is to really find your passion and do something that's not just buffy generation or

49:48 Walk. Do something that's a life project for you. When I look at Cybersecurity. Cybersecurity is not an investment area. It's not an area of interest for me. It's a life project. It's really important for me. And I think that's the best thing you can feel about anything you do. that it's super, super important for you. You really care about it.

50:05 If you think about the future of cyber, what Challenges, evolutions, things that might happen excite you most. Or worries you most. I guess both. It's not the way I think about cybersecurity future. I don't keep a category of domains, etc.

50:18 It's a common misconception to think about cybersecurity as a market. Stand alone, there's no cybersecurity market. Cybersecurity is always a derivative of something else, of A new technology or a new business, so If cloud is new, you need cloud security and if autonomous vehicles are new, you need autonomous vehicle security. Take for instance our conversation about AI, AI for sure would

50:39 redefined cybersecurity. It already does it. But you couldn't predict it. So an investor that focuses on cybersecurity in early stage investment, I'm not concerned about figuring out the best, the most important things opportunities of domain in cybersecurity. I'm confident They will introduce themselves. The same as Cloud introduced itself, IoT security introduced itself, mobile security introduced itself.

51:03 AI security introduced itself. I'm focused on Picking the right talent, picking the right athletes, partnering with them, and making sure that you use the right system. See our conversation around sunrise to really build solutions that real customers, real users would love. If we do that, everything else would Fix itself. It's totally remarkable what you built in a short period of time. I'm sure the Cyberstart story is in its infancy in that We'll be able to do this in five years and a whole new set of challenges will have arisen, like you said.

51:30 Probably unpredictable. Thank you for doing this with me. When I do these, I always ask the same traditional closing question. What is the kindest thing that anyone's ever done for you? The kindest thing that someone has done for me is couple of years ago, my son told me that he Spend a lot of time thinking about it.

51:45 And he realized that. I'm his best friend. For me that was probably the best thing anyone could tell you. It's not just about being a dad, it's the ability to

51:54 create this level of trust and emotional connection that makes someone feel. That you're his best friend. And when it comes from your son, that's The kindest thing you can hear from anyone. Close to five hundred times. I've never heard that answer. These answers tend to

52:08 Cluster in a couple of key themes, variants of key themes, three or four. I've never heard that one. With a son of my own. It hits you right in the face. All that must have gone into that. Thing he told you. Really a beautiful, amazing place to close. Gilly, thanks so much for your time. Thank you, Patrick. Really enjoyed it.

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