For years, security executives at some of America’s largest corporations — Freddie Mac, Kraft Heinz, Colgate-Palmolive and Fidelity, to name a few — were happy to hear from Gili Raanan, the founder of a boutique Israeli venture capital firm called Cyberstarts.
As participants in Cyberstarts’ adviser network, called Sunrise, they were used to taking introductions from the firm to meet with its three or four new startup investments each year. The startups could receive product feedback and gain insight into what potential large-sized buyers needed. For the executives, mostly chief information security officers, or CISOs, the startup founders gave them the inside track on new technologies emerging from Israel’s elite hacking units.
But for some executives, there was more to it: compensation, potentially quite lucrative, in the form of profits from Cyberstarts’ blue chip early-stage funds. The execs who participated in Sunrise had the option to share in a pool of 4% of Cyberstarts’ own earmarked profits, known as carried interest, provided they took those calls and provided meaningful help, as determined by Cyberstarts.
Cyberstarts had written early checks to standout security companies including Wiz, the cloud security startup that recently turned down a $23 billion acquisition offer by Google; $8 billion-valued crypto security startup Fireblocks; $3 billion-valued enterprise browser business Island; and $1.4 billion-valued data security startup Cyera. Over the lifetime of one of the firm’s funds, participants could expect to see payouts of as much as $250,000, an internal presentation viewed by Forbes claimed.
When Raanan wrote Sunrise’s 75 or so active advisers on June 27, however, it was to let them know Cyberstarts was suspending the compensation part of the program, effective immediately. “Cynical allegations” about ethical problems with Sunrise’s profit-sharing system had forced the firm’s hand. “To be perfectly clear, the Sunrise program is not going anywhere,” Raanan wrote. “It’s one of our proudest achievements to connect practitioners at leading companies with up-and-coming startups. This is an easy change.”
Logistically easy, perhaps. But the move was a major reversal for Raanan and his firm, which for years have maintained that Cyberstarts’ adviser program was neither unusual nor ethically fraught. Inside the swanky The Soho Hotel in central London in June, just weeks before suddenly shutting down the payments system, Raanan had struck a defiant tone. “We are very, very proud of our practice and our business model,” he told Forbes. The Sunrise program was not substantively different, Raanan argued, than other programs offered by rival firms.
But many fellow investors, entrepreneurs and security executives suggested to Forbes that Sunrise had a baked-in conflict of interest that made it unique, even in a close-knit security community.
“The grasp that Gili has had on the market is ridiculous.”
The executives who participated typically oversaw massive software and security budgets. Their organizations had the power to award exactly the type of large-sized contracts that could boost a fledgling startup’s financials and position it for success.
In other words, Sunrise advisors were in position to steer their company’s business to startups whose success would benefit their own. At worst, their own financial interests might cloud their judgment, or conflict with the best interests of their employer. Even if they recused themselves, employees might feel incentives to select a vendor affiliated with their boss. Intentional or not, the potential for conflict of interest was inherent in the relationship.
Allegations of conflicts have dogged Cyberstarts for years. A 2022 profile of Raanan by The Information alluded to competitors’ accusations that his firm blurred ethical lines. More recently, the unusual overlap between big companies affiliated with Sunrise and the Cyberstarts portfolio — fast casual Mexican food giant Chipotle, for example, has signed contracts with at least eight of them — has become a popular topic of industry gossip at conferences like RSA and Black Hat.
“The grasp that Gili has had on the market is ridiculous,” said a security-focused investor who claimed that some startups with Cyberstarts-backed competitors no longer even attempted to sell to corporations whose executives had Sunrise affiliations. “But you come at the king, you best not miss.” They, like several dozen other founders, investors and executives, asked to speak anonymously for fear of retaliation by Raanan and Cyberstarts.
Multiple Sunrise advisers who have previously not spoken to the press told Forbes that they shared the same........