Mar 28, 2026 · 58m · news
Why Margins Don't Matter for Early-Stage Startups | Gili Raanan · 20VC with Harry Stebbings
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In this in-depth interview, legendary cybersecurity investor Gili Raanan joins host Harry Stebbings to dissect the structural flaws of the traditional venture capital model, sharing his contrarian philosophies on seed-stage valuations, growth velocity, and secondary liquidity.
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 18.7% of the talking time here. How this is scored →
Harry as informed peer 4.9 Guest teaching 5.6 Guest disagreement 2.9 Harry pushing back 4.1
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 25:36 Rejecting Founder Babysitting Premise
Gili forcefully rejects Harry's premise that overfunding distracts young founders, dismissing the argument as unnecessary babysitting and refusing to accept the host's concern.
Hardest push from Harry ▶ 8:29 The Boomer Valuation ChallengeHarry directly interrupts Gili to challenge whether he is taking a boomer perspective on valuations, presenting expanded outcome sizes at CrowdStrike and Palo Alto Networks as counterevidence.
Biggest teaching moment ▶ 6:22 Cyber Unicorn Stat QuizGili puts Harry on the spot regarding the actual count of Israeli cybersecurity unicorns in recent years, correcting Harry's overestimate of five down to just one.
Harry holds his own ▶ 32:08 Public Market Multiples DataHarry demonstrates clear domain expertise by citing exact, compressed revenue multiples for Monday.com and Wix to challenge private market valuation assumptions.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Is the Venture Capital Model Broken? | 3 | 5 | 2 | 3 | Harry introduces a macro premise questioning if high entry valuations break the venture capital business model. Gili reframes the question by asserting that venture as a whole rarely works and is inherently non-linear across players. | |
| The State of the Cybersecurity Market | 4 | 8 | 3 | 3 | Gili quizzes Harry on the actual number of cybersecurity unicorns created in Israel in recent years. Harry guesses five or six, but Gili corrects him down to one, demonstrating the harsh statistical realities of early-stage outcomes. | |
| The Impact of Mega Funds on Early-Stage Valuation | 7 | 5 | 4 | 8 | Harry interrupts Gili and directly asks if he is being a boomer regarding entry valuations, citing massive expanded outcome sizes at CrowdStrike and Palo Alto Networks. Gili acknowledges the outcome size thesis but holds firm that entry price probabilities cannot be ignored. | |
| Why Early-Stage Investors Must Be Greedy | 5 | 7 | 3 | 5 | Harry questions whether top-tier startup growth is always linear or whether companies naturally zig and zag. Gili counters by detailing exact quarterly ARR metrics from portfolio companies like Wiz and Sierra to prove fast growth becomes embedded DNA. | |
| Market Size vs. Exceptional Product-Market Fit | 5 | 7 | 3 | 5 | Harry emphasizes the critical importance of market depth and notes how many startups hit growth plateaus. Gili uses case studies of No Name and Island to illustrate how venture capital operates as a science of exceptions. | |
| The "Foie Gras" Problem: Capital Concentration & Founder Focus | 6 | 6 | 7 | 7 | Harry presses Gili on the risk of over-capitalizing young founders, arguing that excess money leads to unfocused expansion and poor execution. Gili strongly rejects this framing, stating that worrying about founder focus is equivalent to babysitting. | |
| Why Margins Don't Matter for Early-Stage Startups | 5 | 5 | 3 | 4 | Harry explores how AI inference costs are dragging down gross margins compared to traditional software standards. Gili explains that while gross margins matter long term, he instructs early-stage founders to completely ignore them until later stages. | |
| Exceptional Growth Velocities and the Bar for Greatness | 5 | 6 | 2 | 3 | Harry asks whether fast-growing AI startups have elevated the baseline for acceptable startup growth rates. Gili walks through the compounding math of a 4x-4x-3x-3x new-ARR velocity to show what true greatness looks like. | |
| Deciphering the Public Markets and Multiples Decline | 6 | 3 | 1 | 3 | Harry demonstrates strong market awareness by citing compressed public multiples for companies like Monday.com and Wix. Gili agrees that public markets are baffling and suggests displacement fears may be driving compressed valuations. | |
| IPOs as Marketing Events and the Secondary Market | 5 | 7 | 4 | 4 | Harry asks about extended private cycles and liquidity mechanisms like secondaries. Gili reframes the traditional view of public listings, arguing that an IPO is purely a marketing event rather than a liquidity event. | |
| Regret, Alignment, and GP-LP Relationships | 6 | 6 | 2 | 5 | Harry identifies potential structural misalignments between GPs seeking early DPI and LPs wanting maximum upside. Gili openly admits his regret over selling Wiz shares early to generate return metrics for LPs. | |
| Personal Growth as an Investor and the Toughest Days | 2 | 4 | 1 | 1 | Gili reflects on his career evolution, describing venture capital as a difficult profession where performance feedback takes years to materialise. Harry facilitates an introspective dialogue on personal investor growth. | |
| Advice for the Next Generation of Investors | 6 | 5 | 4 | 5 | Harry references Sequoia's culture of viewing every missed deal as a failure, asking Gili if he hates losing deals. Gili rejects the premise of needing to win every battle, advocating instead for focusing on portfolio delivery. | |
| Building Great Venture Partnerships | 4 | 5 | 1 | 1 | Harry asks for advice on structuring venture partnerships. Gili explains why forcing partners into strict operational guardrails is a mistake, and Harry acknowledges having made that exact error in the past. |
Statements from this episode (29)
Raanan: Venture market imbalance will lead to catastrophe and wasted capital
“I think it's going to end up with some serious catastrophe for many of the players. The market is not balanced. It means that a lot of that cash that's flowing into the market would be wasted.”
Gili Raanan: Selfishness and greed are good traits for seed investors
“We need to be selfish, and we need to be greedy. Those are good trades for an early stage investor.”
Gili Raanan says he is not in the business of babysitting founders
“I'm not in the business of babysitting founders.”
Raanan: The venture capital asset class does not work as a whole
“The venture business as a whole doesn't work. It doesn't work. It shouldn't work. And returns distribution are not divided equally between players.”
Raanan: LPs who distribute venture allocations evenly should be worried
“If I'm a limited partner and I have distributed my venture allocation evenly, I wouldn't sleep well at night.”
Raanan: 350 to 400 cybersecurity startups funded annually for 20 years
“The flow of new players into cyber security is quite steady for the past, I would say, 20 years. You know, you're looking at around, ah, 354 hundred new, ah, teams that get funded every year.”
Raanan invested in Adalom at $15M post-money valuation in 2012
“When I wrote the first check to Asaf Rappaport that we, at Adalom, at this, at the first company they started in 2012, it was done at, if I'm not wrong, Fifteen million dollars post.”
Raanan: Only seven cybersecurity startups became unicorns during 2021 peak
“The only year which was an outlier, which was an exception, was 20, 21. 20, 21, there were like seven companies that turned unicorn, but that changed the mindset of investors.”
Gili Raanan: Early-stage product and market analysis is mostly analyzing smoke
“We know very little when we get into investments. We, you know, we analyze, if we analyze product ideas and markets, mostly we analyze smoke cause, you know, the founders would change their mind In, in just a few weeks, and it would be a different product, dif…”
Gili Raanan: AI will not reduce capital needed for big startups soon
“AI, which at least in the next few years would not change that materially. And it takes a lot of money to build large companies.”
Gili Raanan: High startup valuations will eventually suppress tech innovation
“My concern is around entry prices and what, and whether that would Limit innovation at some point in time because disappointment would show up.”
Raanan: Hyper-growth startups do not naturally regress to average growth rates
“Whenever a business is getting to a point it's growing super fast, year over year, It becomes part of their DNA. So it would not slow down just because, you know, averages and things like that. The need to be a significant external event to slow them down. So …”
Raanan: Wiz grew quarterly revenue from $1M to $24M in year one
“At Weez when you look at the first year of selling software, you know, the first quarter was a million dollar, and then second quarter of selling software was two million dollars, and then eight, and then 24.”
Gili Raanan: Cyberstarts sold No Name Security to Akamai for ~$500M
“Eventually we sold the business to Akamai for half a billion dollars or so”
Gili Raanan: Enterprise browser startup Island is valued at $5 billion
“You know, it's a five billion dollar company today in valuation, selling, growing, growing very, very fast in a market that it actually, they define the market.”
Gili Raanan: Venture capital is the science of exceptions, not linear rules
“The conclusion, again, in my mind, is that we are exercising the science of exceptions. And it's good that we share that, those lessons, but if you just take those lessons and apply them linearly I think that it would be very hard for you.”
Gili Raanan: Over-Capitalizing Founders Is Not a Risk for VCs
“I'm not in a business of babysitting founders. And for me, this is like babysitting the founder. If we trust them to build, in my case, an important cybersecurity company that's critical to all the major banks in the US, and you put in their hands the safety o…”
Raanan: Venture industry lacks benchmarks for healthy AI businesses
“Cause I don't think that we have seen enough of healthy, profitable AI businesses to really, you know, drive back the important vital signs for a healthy AI company.”
Raanan: I never discuss gross margins with early-stage startups
“How much I discuss, how often I discuss gross margins with our, with my early stage companies? Never.”
Raanan: Elite startup growth benchmark is 4x, 4x, 3x, 3x in new ARR
“Extremely high pace for me is let's say in the first five years from the moment you start to sell till the fifth year afterwards. If you go four X, three X and three X on you in a new ARR, not ARR, new ARR.”
Raanan: Within five years, a startup will make Wiz's growth look slow
“I'm, Confident that five years from now, I, I'll be able to show you, I'll be able to demonstrate another team that, you know, showing that actually wheeze was a slog and they can move much faster and they've done whatever it is.”
Raanan: An IPO is a marketing event, not a liquidity event
“Going public is not a financial event. It's a branding event. It's a, it's an occasion where you tell your customers, your partners, your employees, your future employees, I'm here to stay. That's IPO. Cause typically it's not a financial event. It's not a liq…”
Raanan: Cyberstarts created a recurring employee liquidity fund to retain talent
“At CyberStats, we created a vehicle we call it employee liquidity fund, which is focused not just on a, not on one-off type of secondary deals, but creating a program, a recurring program with a portfolio company where we provide liquidity to their employees e…”
Cyberstarts executed multi-million dollar secondary program for Cyera employees
“We've done our first type of secondary program with Sierra, where I think that we are buying probably not mentioned the exact number, but it's a many, many millions of dollars of few hundred employees of Sierra.”
Raanan: I regret selling every single secondary share in Wiz early
“Look, it's not a secret that, you know, we at Cyberstarts we have sold secondary shares at companies like Weez early on. By the way, I regret, I sold every single share at Weez. I regret it because, you know, if I sold it right now, I would make I would, Show …”
Gili Raanan: Venture Capital Is Difficult Because Feedback Takes Five Years
“And I think that, that's what makes this profession, you know, in many ways, it's a terrible profession. You know, it's a profession where you don't know if you are good in what you're doing for five or six years. You know, show me another profession where you…”
Raanan: Cyberstarts missed seeing only one or two Israeli cyber seed rounds in eight years
“Maybe once or twice over the past eight years, but there are deals that I'm telling myself, okay, I should have done it.”
Gili Raanan: Let venture partners focus on strengths, not fixing weaknesses
“My view on that is that I would let each team member play on the relative strengths. And would not require them to focus on improving their weaknesses, but actually play more, more often and stronger on the relative advantages. Cause on the weaknesses at the b…”
Raanan: My hardest day in investing was shutting down my first investment
“When the first company I invested in Shut down. I had to shut it down. That was super hard. That was, because it's a very public failure. It's a failure that you cannot cover. It's a failure that you know, you have to deal with.”