20VC: The Venture Model is Broken | You Need to be Greedy and Selfish to Win Early Stage Investing | Why Margins Do Not Matter for Early-Stage Startups | The Growth Rate that is Required in a World of AI with Gili Raanan, Founder @ Cyberstarts

Key Takeaways

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  Venture capital as a whole is fundamentally broken

  “The venture business as a whole doesn't work. It doesn't work, it shouldn't work. Returns, distribution are not divided equally between players. Otherwise, it would be too easy and there won't be winners and losers. It would be boring. None of us would be playing that. We would do something else. So the expectation that the venture business would work out is set yourself for disappointment from the get-go.”

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  Seed stage entry prices are reaching unsustainable levels

  “When I wrote the first check to Asafo Rapoport at Adalome, at the first company they started in 2012, it was done at $15 million post, $5 million check. At Wiz in 2019, I wrote a $6 million seed check at $66 million post money. Today, you can see, watching deals done at $100, $150 million post, many of those deals done at high prices, that's in the incoming stream.”

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  Cybersecurity unicorn probabilities remain exceptionally low

  “The fact is that out of around 150 new companies in cybersecurity in Israel, the likelihood you'll hit a successful company is still one to one percent. It's one out of 150, maybe two out of 150. And the prices, the entry prices where you buy stock at the seed stage is going significantly higher means that the market is not balanced. A lot of that cash that's flowing into the market would be wasted.”

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  Early stage investors must be selfish and greedy

  “Venture is a game. You know, we know very little. When we get into investments, we need to be selfish, and we need to be greedy. Those are good trades for an early stage investor. As an investor, you look at yourself and say, okay, I really fucked up. I'm not in a business of babysitting founders.”

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  Mega funds face severe return distribution challenges

  “If I'm a limited partner and I have distributed my venture allocation evenly, I wouldn't sleep well at night. If you look at all the amount of money that's flowing into the markets right now and for the past few years, no, I don't think it's going to work. I think it's going to end up with some serious catastrophe for many of the players.”

Episode Description

Gili Raanan is the Founder of Cyberstarts, one of the best performing venture funds of the last decade. He is famed for being the seed investor in Wiz, Islands and Cyera, leading to multiple 10x+ funds. He has the only remaining monopoly in venture; cyber security in Israel. If it is good, Gili sees it, it is that simple.  AGENDA: 00:00 — Does the Venture Business Even Work Anymore? 05:58 — The Insane Rise of $150M Seed Rounds! 08:58 — Will Mega Funds Ever Actually Return Venture Economics? 11:13 — How Do You Value Companies Growing at Impossible Speeds? 14:50 — The Truth About Growth: Why Most Companies Eventually Plateau 18:50 — Do Margins Still Matter in the Age of AI? 24:32 — How To Make Mega Money in the World of Secondaries 28:11 — What Are Core Misalignments Between GPs and LPs That No One Discusses? 37:57 — Quick Fire: Best Investment, Most Memorable Founder, Investing Icon