Gili Raanan, the founder of Cyberstarts, a boutique Israeli venture capital firm, has built a reputation for launching successful security startups like Wiz. However, questions have arisen about a profit-sharing program with industry executives, leading to concerns about conflicts of interest and ethical issues. The program, called Sunrise, allowed executives to share in a pool of profits from Cyberstarts’ funds in exchange for providing feedback and assistance to the firm’s startup investments.
The Sunrise program had attracted executives from major corporations like Kraft Heinz and Fidelity, giving them access to new technologies emerging from Israel’s elite hacking units. However, some participants raised ethical concerns about potential conflicts of interest, as they were in a position to influence their companies’ purchasing decisions in favor of startups affiliated with Cyberstarts. Allegations of conflicts have followed Cyberstarts for years, leading to a suspension of the profit-sharing component of the program.
Despite defending the Sunrise program as a common industry practice, Raanan decided to halt the compensation part due to pressure from industry calls and investigations. While some advisers supported the program for its benefits, others resigned over ethical concerns or rejected offers from Cyberstarts. Raanan maintained that the decision to suspend compensation was made to address perceptions of a conflict of interest, emphasizing that many advisers did not opt into the payment system.
Cyberstarts’ success in identifying and supporting early-stage cybersecurity startups has been attributed to the Sunrise program and its connections with industry executives. Portfolio companies like Wiz, Fireblocks, and Cyera have achieved significant growth and milestones with the help of Sunrise advisers. However, questions remain about the fairness and transparency of the program, leading to concerns about the broader ecosystem and potential conflicts of interest in startup sales.
Raanan, a former entrepreneur with experience in the Israeli cyber division, founded Cyberstarts to focus on investing in security startups with strong market traction. The firm’s strategy of investing early, even before a clear business model is established, has resulted in several successful exits worth billions of dollars. While defenders like Doug Leone laud Cyberstarts for its ability to scale startups quickly, critics question the program’s impact on procurement decisions and corporate contracts with portfolio companies.
As Cyberstarts continues to expand its influence in the cybersecurity industry, the debate over ethical red lines in startup sales and potential conflicts of interest is likely to persist. Despite claims of widespread practices in the venture industry, Cyberstarts’ profit-sharing program with industry executives has drawn scrutiny and raised questions about transparency and fairness. As the firm navigates these challenges, its reputation as a kingmaker in the security startup ecosystem hangs in the balance.
