Israeli venture capital firm Cyberstarts, founded by Gili Raanan, has been known for its successful playbook in launching multi-billion-dollar security startups like Wiz. However, questions have arisen around a profit-sharing program with industry executives involved in Cyberstarts’ adviser network, called Sunrise.
The Sunrise program allowed executives, mostly chief information security officers, to share in a pool of 4% of Cyberstarts’ profits, called carried interest, in exchange for providing feedback and assistance to the firm’s portfolio companies. This compensation was suspended in June due to “cynical allegations” about ethical issues with the program.
Critics have suggested that the Sunrise program had a conflict of interest, as the participating executives had the power to award large contracts to startups affiliated with Cyberstarts, potentially clouding their judgment or conflicting with their employer’s best interests. Allegations of conflicts have dogged Cyberstarts for years.
While some participants in the Sunrise program praised its efficacy in connecting them with innovative startups, others raised ethical concerns and resigned from the program. Several investors, CEOs, and CISOs expressed discomfort with the profit-sharing aspect of the program, calling it naive or misguided.
Raanan defended the program, stating that many advisers did not take the compensation, and that only a small percentage had left the program. However, following increased scrutiny and media coverage, Cyberstarts decided to suspend the profit-sharing component of Sunrise.
Despite the controversy surrounding the Sunrise program, Cyberstarts has seen success with its portfolio companies, including Wiz, Fireblocks, and Cyera, achieving significant valuations and revenue milestones. The firm recently announced its fourth seed fund, bringing its total assets under management to $720 million.
While some industry insiders have defended Cyberstarts and its founder, others have criticized the firm for potentially creating an unfair advantage for its startups and raising questions about ethical practices in the venture capital industry. The future of Cyberstarts’ industry influence and the ongoing debate over ethical red lines in startup sales remain uncertain.
