Mar 18, 2024 · 1h 9m · news
Gili Raanan: One of the Best Seed Investor of All Time: 1 Decacon, 7 Unicorns, 4 Acquisitions| E1128 · 20VC with Harry Stebbings
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In this episode of 20VC, legendary seed investor Gili Raanan shares his human-centric investment philosophy, the rigorous 'Sunrise' customer validation process, and critical mindset lessons learned from Sequoia Capital that have driven Cyberstarts' remarkable track record of building cybersecurity unicorns.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 20.8% of the talking time here. How this is scored →
Harry as informed peer 3.4 Guest teaching 3.9 Guest disagreement 2.7 Harry pushing back 2.8
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 14:36 Gili rejects celebrating wins and beating yourself up
Gili directly rejects Harry's proposition that investors should sit back and appreciate wins, stating forcefully that feeling satisfied with success is the exact moment an investor begins to lose.
Hardest push from Harry ▶ 18:30 Harry challenges view on young founders using his own ageWhen Gili dismisses young founder market analysis as worthless, Harry pushes back by citing his own age (27) and LP standards to challenge Gili's premise.
Biggest teaching moment ▶ 51:48 Gili reframes first-to-market speed myth in cybersecurityGili corrects Harry's core assumption about speed of execution, explaining why coming second or third to market with deeper context produces stronger cybersecurity companies.
Harry holds his own ▶ 42:23 Harry brings up 52 marathons to challenge drive philosophyHarry counters Gili's philosophy of purely organic motivation by citing his personal feat of completing 52 marathons in 52 weeks, arguing that high achievement requires fighting your own mind.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Greeting and Ski Trip Banter | 2 | 1 | 1 | 1 | Harry opens with friendly banter about ski trips before pivoting to Gili's childhood and early computer experiences. Gili playfully describes himself as a smart but lazy child who used technology for efficiency. | |
| Lazy VCs vs. Company Builders | 3 | 4 | 2 | 2 | Harry presents a quote suggesting founders should look for lazy VCs, but Gili reframes this by distinguishing company builders from mere stock pickers. Gili then recounts his early start with Sequoia and his interview with Michael Moritz. | |
| Fame vs. Fortune and Founder Motivations | 3 | 5 | 5 | 4 | When Harry questions whether satisfaction and celebrating wins is healthy, Gili forcefully disagrees ('Respectfully disagree'). Gili asserts that being satisfied with achievements is the moment an investor begins to lose. | |
| Investing in People over Products | 4 | 6 | 5 | 5 | Gili dismisses founder market analysis as 'bullshit', asserting that early market assumptions change rapidly. Harry pushes back by using his own age and LP expectations as a counterexample, but Gili holds firm that market analysis is the wrong metric. | |
| Founder Character Signals and Creating Intimacy in a Shipping Container | 4 | 3 | 2 | 3 | Gili outlines his focus on finding founders who faced personal hardship. Harry pushes Gili on how he breaks through founder walls during tense interviews, prompting Gili to describe his glass shipping container garden set-up. | |
| Personal Tragedy and Authentic Connection | 2 | 3 | 1 | 1 | Gili openly shares the tragedy of losing his daughter five years ago to illustrate his authentic stance. He then explains how non-expert founders like the Wiz team successfully pivoted through early customer dialogue. | |
| Solving Market Timing with the Sunrise Process | 2 | 5 | 2 | 1 | Gili details the Sunrise process used at Cyberstarts to de-risk market timing. He explains how flipping the power dynamic by offering $100M in prospective engineering budget forces CISOs to reveal their true core pain points. | |
| Executing the Sunrise Process: 140 Conversations to Find PMF | 3 | 4 | 3 | 3 | Harry asks if Gili's involvement in discovery means he is essentially co-founding companies. Gili firmly shuts down the premise, clarifying that he does not babysit founders and that Sunrise is an intense, ego-destroying stress test. | |
| Sunrise Hit Rate: 1 Decacorn, 7 Unicorns, 3 Acquisitions | 3 | 4 | 2 | 2 | Harry inquires about the hit rate of the Sunrise process. Gili cites 7 unicorns out of 17 companies, explaining that despite the track record, the process never becomes easier because it confronts harsh customer rejections upfront. | |
| Marathons of the Mind: Grit, Losses, and Doubling Down on Strengths | 4 | 3 | 3 | 4 | Harry offers a counterpoint based on running 52 marathons in a year, arguing that internal fight is required when natural energy fails. Gili responds that if he ever needs to convince himself to stay in the game, he should retire. | |
| What Cyberstarts Does Well vs. What They Do Badly | 4 | 5 | 3 | 3 | Gili candidly shares Cyberstarts' weaknesses, such as founder matchmaking and market thesis formulation. When Harry brings up the multi-stage trend of 'prepared minds', Gili explains that seed investing demands an unpoisoned, unprepared mind. | |
| Price Sensitivity and Why Great Companies Are Always Expensive | 5 | 3 | 2 | 2 | Harry cites Peter Fenton's stance that price is a mental trap. Gili agrees that great companies are always expensive, adding that Cyberstarts positions its capital as the most expensive equity option for founders. | |
| How Much to Raise at Seed and the Myth of First-to-Market Speed | 4 | 5 | 4 | 3 | Harry questions seed check sizing and speed of execution. Gili explicitly rejects the notion that being first to market is an advantage in cybersecurity, educating Harry on why being second or third with a superior product-market fit wins. | |
| Cash as a Weapon and Managing Founder Dilution | 4 | 3 | 3 | 3 | Harry asks whether cash functions as a weapon and if 2021 market conditions have returned. Gili confirms that private market valuations have spiked dramatically over the previous month across portfolio companies. | |
| Systematic Spending in an Over-Funded Market | 3 | 4 | 3 | 3 | Harry presses Gili on whether inflated valuations create dangerous spending habits. Gili maintains an optimistic outlook, noting that while excess capital can induce bad habits, disciplined execution remains an investor responsibility. | |
| Why Cyberstarts Raised a $500M Opportunity Fund | 4 | 4 | 2 | 3 | Harry asks about fund scaling and opportunity fund mechanics. Gili clarifies that Cyberstarts remains strictly a seed firm that does not price follow-on rounds, leading Harry to banter about other VCs fearing Gili. | |
| Do Rich Investors Make Better Investors? | 3 | 4 | 3 | 4 | Harry asks whether wealth improves investor performance and tries to get Gili to name his net worth target. Gili deftly dodges the financial figure while acknowledging that wealth removes personal anxiety. |
Statements from this episode (39)
Raanan: Investors are only as good as their next investment
“One thing I learned at Sequoia is that we are always as good as our next investment.”
Raanan: All Cyberstarts portfolio companies are eventually for sale at the right price
“Eventually, all my companies are for sale at the right price. I'm not a collector. I'm an investor.”
Raanan: Laziness combined with the right traits drives focus and efficiency
“I think that laziness in, in, in the right combination is a wonderful trait. You know, 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.”
Raanan: Seed founders should choose company-builder VCs over mere pickers
“I think that you pick early on, I mean, at the seed stages. I would go, 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 si…”
Raanan: Every successful company has one board member the CEO calls first
“In a successful company, there was at least one board member, and typically 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.”
Raanan: Evaluate people by their motivations rather than their accomplishments
“You get to know someone not by looking at what, you know, the list, the inventory of their, ah, 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.”
Gili Raanan: Entrepreneurs can reach greatness chasing either fame or fortune
“And you can get to real greatness By chasing fame, and you can get to real greatness by chasing fortune.”
Gili Raanan: Strong Venture Brands Create Virtuous Investment Cycles
“The venture business is, is, is, is a service business. You provide services and once you, I mean, it's very hard to tell, you know, if that, Service provider, if service provider A is significantly better than service provider B, because, you know, what you s…”
Raanan: TAM and tech differentiators are useless for seed investing
“In the early days I was looking at markets and total addressable market time and technology and differentiators. And I simply realized that all of that is bullshit. You know, it's not important at all.”
Raanan: Cyberstarts interviews founders about childhood background rather than product or market
“When I started CiderStarts 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, you know, speaking about their childhood and their mother…”
Raanan targets founders who overcame severe childhood hardships like divorce and isolation
“So I'm looking for the individual who, 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 di…”
Cyberstarts operates without physical offices, holding pitch meetings in Raanan's backyard container
“That's one of the reasons cyber starts. We don't have offices. And I take meetings in my backyard, which is conveniently located. 15 minutes ride from Tel Aviv in a suburb.”
Raanan: Wiz co-founder Assaf Rappaport knew nothing about cloud security in 2012
“Now, did Asaf know anything about cloud and cloud security in 2012? I guarantee you not.”
Gili Raanan: Asking customers about pain points yields useless answers
“You don't ask the, what's your biggest pain point or what's your biggest need? Because again, you get so many BS answers. It's not even funny.”
Raanan: Average Cyberstarts portfolio company spends $100M on engineering
“That's the average for a cyber starts company. Hundred million dollars in the next three years on engineering.”
Raanan: Cyberstarts Startups Conduct 120-140 Customer Calls in First Months
“We typically run about sixties or seventies conversations like that. In the first three months since inception. And then we come back and have a second set of 60 to 70 conversations with our solution thesis.”
Raanan: Early-Stage Startups Should Front-Load Three Years of Customer Objections
“You take all the hypothetical objections you might face as a company in the next three or four years and bring it to present.”
Raanan: 11 of 17 Cyberstarts Sunrise graduates reached unicorn status or exit
“If you look at the current Cyberstarts portfolio, we are at you know, overall, I believe at 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 th…”
Gili Raanan raised Cyberstarts' seed fund in 90 seconds via WhatsApp
“The last seed fund, you know, I think it took me like 90 seconds to raise the fund, you know, nine WhatsApp messages and it was done.”
Gili Raanan: Cyberstarts is weak at idea generation and market theses
“What we are not doing well. Coming up with ideas. Running thesis on markets.”
Gili Raanan: Cyberstarts struggles with co-founder matchmaking
“We are not good at matchmaking between founders.”
Gili Raanan: Co-founder relationships work better when formed organically
“It's, ah, it has to be an organic process. It's very, very hard to create real connection that would last for, you know, a decade plus if you're thinking about, ah, ah, a long-term, ah, business. And, It simply works better when it's organic.”
Stebbings: Thesis-driven investing confines imagination and dehumanizes VC decisions
“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.”
Gili Raanan: Generation-defining startups are consistently expensive across all funding rounds
“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, you know, it's like almost part of their DNA to be expensive companies.”
Gili Raanan: Investors' biggest mistakes come from passing due to high price
“Most investors mistakes were not to invest in the right company Because they thought it's too expensive.”
Gili Raanan: Cyberstarts uses uniform seed terms and avoids squeezing founders
“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 just to For the sake of making a little bit more.”
Gili Raanan: Enterprise software seeds require at least $5M to $6M
“Enterprise software companies, cyber security included. I found out that you need at least five or six million dollars just to get Team, product built, and a small go to market team to win few deals. That's what it typically take to build an enterprise softwar…”
Gili Raanan: Being first to market in cybersecurity is not an advantage
“I think that cyber security is, 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, you know, deliver a better produ…”
Raanan: High startup valuations are necessary to protect founders from extreme dilution
“Our companies need to raise a lot of money. It means that valuations should be high because no founder would like to get 50% dilution just to get the cash they need.”
Gili Raanan: 2021-level valuations have returned to private markets
“20, 20, 21 is back for the past four or five weeks. We are definitely in in at least in private markets when we are in a new Bull run, you know, valuations are high, skyrocketing.”
Cyberstarts portfolio companies are raising over $1.5B in coming weeks
“Our own portfolio at CyberStarts, our companies are in the process of raising probably more than one and a half billions dollars in, in, in the next few weeks.”
Harry Stebbings: Well-Funded Founders Always Accelerate Product and Hiring Plans
“Every great founder pulls forward a new product, hires the new data team, hires the new sales team because they can.”
Cyberstarts operates $60M seed funds without doing seed follow-ons
“Our seed funds are sixty million dollars in size and we write first and last check. To new teams. No follow-on investments out of the seed funds.”
Cyberstarts created a $500M opportunity fund for portfolio follow-ons
“We have half a billion dollars, five hundred million dollars opportunity fund that where we invest in follow-on rounds in, in our own portfolio companies.”
Cyberstarts has participated in every Series A and B for its portfolio
“So far we invested in all series A and series BFR companies.”
Raanan: Startups should make demand generation their first marketing hire
“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 generation. And that can accelerate, that can make a huge impact on the business early on.”
Raanan: Selling early is not an inherent trait of Israeli tech
“Selling early. 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.”
Raanan: Founders claiming universal customer love are misreading feedback
“Whenever entrepreneurs tell me that customers love what we do. Every customer we spoke with like to get our product, you know, like to get their hands on a product. You probably misunderstood the customer. You probably didn't listen well in a conversation. Tha…”
Shorts cut from this episode
▶ Benefits of being lazy 😴✅ · 20VC with Harry Stebbings (@3:25)
▶ How to become a VC God 🙌 · 20VC with Harry Stebbings (@43:48)
▶ Building a $10bn company without industry expertise 💰 · 20V (@28:16)
▶ Who make the best entrepreneurs? 💡 · 20VC with Harry Stebbi (@21:13)
▶ Advice from one of the best seed investors in the world! 🌎 (@0:00)