This VC Built A Cybersecurity Unicorn Machine. Then Came A Conflict Of Interest Mess.

For years, security executives at some of America’s largest corporations — 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.

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