20VC: 19 Company Portfolio: 1 Decacorn, 7 Unicorns, 4 Acquisitions; One of the Best Seed Investors of All Time on How to Pick Generational Defining Founders, Why Nothing but the Founder Matters & Why the Best Investors are Never Happy w/ Gili Raanan

0:00One thing I learned at Sequoia is that we are always as good as our next investment. The moment you're happy with where you are, that's the moment you start to lose. Liquidity is part of my business. Eventually all my companies are for sale at the right price. I'm not a collector, I'm an investor. This is 20VC with me Harry Stabbing's and I couldn't be more excited for the show today. Today we have one of the best seed investors ever. From 19 companies, he has a deck of corn, whiz, seven unicorns, and three that have been acquired. Truly an insane hit rate. He's also one of the kindest and most special people in this business.

0:36And so with that, I'm so thrilled to welcome Gilly Renan, founder of Cyberstars. Prior to Cyberstars, Gilly spent over 15 years as a general partner at Sequoia Capital, investing in some of the world's best cybersecurity businesses. I think this is one of the best shows we've ever done. It's packed with wisdom, lessons and I want to say huge thanks to Doug Leone for providing some amazing questions in preparation for this episode. But before we begin, I need to tell you about Hive. 2024 is shaping up to be a big year for the markets with a number of iconic unicorns rumoured to be going public.

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3:07There's a reason companies like GitLab and DoorDash trust remote to handle their employees worldwide, go to remote .com now to get started and use the promo code 20VC to get 20 % off during your first year. Remote opportunity is wherever you are. You have now arrived at your destination. Gilly, I am so excited for this. Listen, we met on the ski slopes in Mejave a couple of weeks ago or a month or so ago. I've wanted to do this ever since hearing you speak there, so thank you so much for joining me today. It's a pleasure to be here. I'm very excited to have conversation and I'll be even more excited if we can get back to some skiing together.

3:44If you'd notice I don't ski I'm like Bridget Jones on the ski slope gilly but I really appreciate that. I would love to start there with some of your early years and move away from my skiing elegantly. I know it's a weird one but I think childhood's actually in form a lot of who we are. How would your parents or teachers describe the young gilly? That's a wonderful question. I ask many of that ended up in Urz, I met for the first time and we talk about it later, but I grew up in a small town in Israel. Probably 15 miles away from Tel Aviv, but in that period of time, Tel Aviv would be on the moon, it was so far away from me.

4:21My parents would probably tell you that I was a bright student that never prepared homework, and the teachers always complained that whenever they asked me to read my homework assignment, I would stand up very casually read out of my notebook the complete answer that I was supposed to make last night. And then when they approach my desk, they'll figure out the notebook is empty and I was just making it up. I think that that characteristic of a smart and somehow lazy child was one of the driving forces behind my career. because unlike the young people today I was introduced to my first computer it was a Commodore 64 computer if people still recall magnificent machine and I had to choose it I was not born with computers when I faced that machine that I could tell you what to do and it would do it repeatedly without getting tired without complaining as a gifted and somehow lazy person I really like the idea and that I think what attracted me to the whole tech scene early on.

5:33Can I be really rude? Do you think you're still lazy? In a way, absolutely. I think that laziness in the right combination is a wonderful trait. It makes you think about efficiency. It makes you think about not repeating tasks you don't like and focus on the things you really like and you're really good at. And to find combination, you know, even forming a wonderful venture team is all about feeling the gaps and making sure that the different elements are significantly better than any of them alone. I spoke to one of the greats the other day and they said the most important thing a founder can look for in their VC is a lazy VC because truth be told, VC's don't add value and the best founders build company for themselves.

6:24So if you pick anything, pick a lazy VC. Do you agree? Well, I think that lazy isn't probably in a different context. It's a founder. I wouldn't say you pick the lazy VC. I think that you pick early on at the seed stages. If I'm an entrepreneur and I like to build a large business, I would go after the style of company builders. And there Many terrific investors are not company builders. They are simply terrific pickers. In every successful company, there was at least one board member. That's he or she are the first corn for the CEO. And they're in the room whenever the big decisions, important decisions are being made.

7:07That's the type of investor you like to join you for the journey of building an important company. Speaking of types of investors, I do want to just follow So some form of chronology before I just get lost and papy with questions, your first venture role was with Sequoia. How did that come to be? And what was that entry like? Can you just take me to it? Yeah, absolutely. I was not an unknown entity for Sequoia. I joined Sequoia in 2009, but Sequoia invested 12 years before and in my first venture it was 1997, 27 years old, that's where my startup and they invested in that business. It was a terrific team.

7:47Pierre Lamont from Sequoia was on the board, then we were the first team to build a wall for web application firewall. In the late 90s, that was a big thing. Eventually the business was acquired by IBM. I went to start another company and then relocated back to Israel. It was lucky enough for Sequoia to look for a new partner in Israel. I met a local team in Israel and then I got to meet Michael Moritz. He interviewed me and that was it. I was probably coming part of the team. Kamaz, what was that interview with Mike? Mike is a terrific, deep, thoughtful, young being, and I still consider him a friend and try to speak with him.

8:27As frequently as I can, the interview with him, I came in, charging forward, eager to tell him about all my amazing accomplishments as Centra Penel and In techie he was simply interested not in what did they do but why did they pick to do that. I had to slow down, I realized this is a different type of interview. I had to focus and talk about what drove me and what's my motivation. It was a very different interview and he taught me a lot about what's important when you like to get to know someone. You get to know someone not by looking at what the inventory of their doings of their accomplishments.

9:09You get to know someone when you understand why they pick to do that. That would tell you much more about that person. Is there any wrong answers to the why? And so I know we're jumping around, but I'm just intrigued. Often we demonize, I really want to make a lot of money, or I really want to be very powerful in an essay to, and we demonize that. Is there a wrong? No, I don't think there's a wrong answer. It just depends That's what the goal of the interview, but typically I think that might like to get to know me better. And when I talk to entrepreneurs today, I like to understand them and you know, that understanding would help me predict their their behavior on going forward.

9:49You give the example of I like to make a lot of money. One of the questions I try to understand is are you after fame or fortune? And you can get to real greatness by chasing fame and you can get to real greatness by chasing fortune. But understanding what driving you would help me better understand you, would help me better help you and become a better partner to you. You can have both and some people have both. But what's driving you? Typically you know the answer. In terms of like that being a lesson from Mike, in terms of lessons from Sakura before we dive in, it's a very transformative place in terms of how one thinks, especially as an investor.

10:32And there are one or two takeaways that really impacted your mindset that you took with you to Cybersetals. I spent more than a decade with Sequoia and it's a terrific team, it's a terrific venture. I learned so much. For me, you know, I told you about my early days at that small town in Israel where playing football was the one thing that kept us alive. So becoming part of Sequoia for me was like playing for Manchester United. It's the same game, the same rules, the same 11 players chasing a ball, but it's a whole new level. The combination of quality, tradition and performance. If you look just for one element of that, if you look for quality, if you look for tradition, if you look for performance, there are many clubs that you can follow, but if you look for that unique combination, probably Manchester United is the team you like to play and I really felt I'm playing for them.

11:30I learned the power of brand. Can you just unpack that if we just do one by one, learn the power of brand in what way? The Venture Business is a service business. You provide services. And it's very hard to tell if service provider is significantly better than service provider B because what you sell is cash. But once you manage to create brand for yourself and Sequoia is probably the biggest brand in the venture business. You create an amazing cycle where the best entrepreneurs like to work for you or partner with you, the best executives like to work for your portfolio companies. All other investors like to invest in your portfolio companies and the game becomes easier and faster and allows you to do great things just because of brand.

12:19Before my end, they spent 10 years walking for the Israeli NSA and then in two small startup companies I've founded, I never walked in for a terrific plant and walking for Sequoia, you failed the plant, you failed the power of tradition and quality. I completely hear the same from friends inside Sequoia. I want to touch on the performance element too. You said about the level of performance. Can I specifically what is it about the performance? Is it how these structure meetings, how they structure discussions, the intent, what makes the cause performance premier above others? I think it's something I take with me to cyber starts today.

13:02It's endless hunger. You're never you're never satisfied. You could pick Google, you could run the biggest IPO, the day you're on a meeting and ask yourself how can I do better? You're never happy. So maybe It's not a lazy investor, maybe it's the investor that's never happy. It's at you. Does that sound like a nice way to live? And like, can you win and not be that? Respectfully, I think you should appreciate your wins. If you want to be in this business for 40 years, just beating yourself for 40 years is hard. There are moments when Whiz Bull IPO and you can sit with us and say, yeah, that was great.

13:39Well, under both of us. I don't know. I do struggle with this one personally, because I don't know what the right answer is that. I respectfully disagree, you know, I was spending time with myself till 1 a .m. this morning and I was giving him crap about something. The moment you're happy with where you are, that's the moment you start to lose. The moment you start to believe that you are, you know a lot and you're experienced and you're simply amazing in what you do, that's the moment you start to make mistakes. Questioning yourselves and beating up yourselves for anything that you could do better and chasing real greatness, I think that's the only way is to stay on top of the game and the moment I'll be happy with, with goes public in a year, in two years, in three years and it's a 50 billion dollars business, the fastest growing company ever created.

14:34If I'm happy about it, I should We mentioned Wizz there, you mentioned being on the phone to ask Af until 1am. When we spoke before you said you invest in people not in products. I wanted to double down on that one and just unpack that. Why people not products? And how does that lead your thinking when investing? Yeah, that type of thinking changed me considerably since the early days for me as a venture capitalist. Because in the early days I was looking at markets and total addressable market, time and technology and differentiators and I simply realized that all of that is bullshit. It's not important at all.

15:15You know, when I meet a team of entrepreneurs, whatever they tell me, even if they tell me the truth, often they don't. But even if they tell me the truth about the market they want to go after and the technology they've built, in eight weeks that would change considerably and in another eight weeks that would change again. So why would they spend calories on something that's so temporal in the life of the venture? Why I could spend time on the most stable element in the venture, which is the team. You know, the team would change, but it would not change as dramatically as the market and technology.

15:55When you meet a young team, young for me now is embarrassingly old age, but when you meet folks that are 25, 27, 28 years old, they've done two, three jobs in the market. They haven't been senior executives in any business. To really expect them to come up with brilliant market analysis and justify why they are getting into a $5 billion market. I think that's setting the bow way too high. Do you? Like, I mean, there's an IEC. I'm 27. You should slam me as an LP if I'm not incredibly honed on where I sit, market analysis, where the future venture market is going, just in terms of thoughts. By no means comparing myself to any of the e -names, but the Colossans, your Alex at scale, the best do you know?

16:49That's not my experience. My experience that many times those young individuals they make horrible assumptions on the market or on go -to market and that's not a right measurement to pick the best teams. As time went by I became more and more purest in my approach to the point where I started SIDERSTARTS in 2018, I decided that I would not even ask them about market or technology or product. You know, so I meet with a team, a new team, which I don't know, and we spend an hour speaking about their childhood and their model, and not about products or technology. That's enough to pick amazing teams.

17:37My assumption is that if they have a terrific idea that would be a nice bonus or if they have an okay idea mediocre idea I'll help them improve it. If they don't have an idea at all what to do, that's even better and work with them. We leverage the entire Cyber Starts platform to really help them pick a significant pain point they can go after and build an important company and we've done it multiple times successfully. A mutual friend was Doug Leone, he says, a very similar thing in terms of how he really evaluates people, especially when hiring them. And he says he looks for the kind of misadjusted children, the ones with the chips on their shoulders, who were bullied at school and got beaten by their older brother or sister.

18:23That's his signals of someone that excites from a potential perspective. In that conversation on childhood, mother, family, father, what are your signals to the excite? I listen to the lifestyle and I try to understand the why, why they did, why they do, why they move from station A to station B in their life. I'm looking for early signs of them being unique or simply excellent in something and it doesn't have to be tech. The other thing I'm looking at is whether they've gone through real life difficulty. Have they gone through something that's really difficult and managed to be successful although they face that difficulty?

19:14In many cases I meet brilliant people, amazing top -notch individuals and they tell me how brilliant And you know, students they were an amazing officers in the intelligence forces and the best Java developer in their company. And I listened to that patiently and then I asked them one simple question, hey I listen to your story, it's amazing you've done so well. It sounds like everything was easy for you. You've been that brilliant kid, brilliant student, brilliant officer, straight A student, what has been difficult for you? You know, they think for a while and typically their first answer is, at college, at the first year, I got B - in physics.

20:03And they said, that's not really hard. So I'm looking for the individual whose parents went through ugly divorces. I'm looking for the individual who lived in the closet for a while. I'm looking for the individual who was a socially isolated child. I'm looking for people who went through a real difficulty in life and became successful. Can I ask you so am I. The challenge is, those are painful memories to regurgitate. My parents get into worse, my mother getting multiple cirrhosis, seeing the pain, hearing her cry and her sleep every night when I went to bed. It killed me as a son. I don't particularly feel like sharing that with everyone.

20:45And I do more now because I'm not in a job interview, But if you're in a job interview or you're in a fundraise meeting, how do you make people share some of those very hard memories? That's always a challenge. How to create that level of intimacy and comfort. That's one of the reasons cyber starts we don't have offices. And I take meetings in my backyard which is conveniently located 50 minutes ride from Tel Aviv and a sabburb. It's very quiet, it's very different than any VC office in the world. I sit in a converted shipping container where I took off all the walls and put glasses so you're sitting in the middle of my garden.

21:30It's very peaceful, it's quiet. I typically don't dress up in flashy clothes for meetings. Everything is tuned down. I tell them about my own journey and my own difficulties and my own failures as Centra Penur and individual and typically I get to connect with them and it's not about investing I meet people when their company doesn't exist when there is no company. It's all about partnership It's almost like picking another co -founder for their team If we are not open and transparent with each other then we want to be able to be terrific partners Can I ask a hard one, Gilly? When you think about your painful memories that you think shaped you, what would you say was the most prescient or noteworthy one that really shaped how you are and who you are today?

22:22Personally, I went through a real tragedy in my real pain, my daughter died five years ago. That was a real tragedy that changed my life. Now, people know that and I talk about it. sometimes it's brought up in conversations, that memory, that experience, and others. I think that people understand I'm not coming to the meeting with I'm the strong, fleshy VC who's going to abuse you. I really like to get to know you. Can I ask in terms of the ideas if they do have one? You mentioned the different frameworks, if they do, if they don't, if it's bad. If they do, do you like them to be an and inside it to the problem where they've worked in the space for years and they've seen the pains, what do you prefer them to come at it fresh, naive but optimistic?

23:12I don't really care. I don't really care. I care about their enthusiasm, I care about their energy level when they think about it. And I've done both. When I met the Wistim in the previous company in Adelon, it was 2012. They came to me with an idea of security Microsoft business applications. I thought it was a terrible idea but I invested in a team and then we went to do our product market fee process which is called Sandra and we asked potential customers is that a really pain point? You know after a few conversations it was clear that the The pain point is in the cloud and securing cloud applications is so much more important or perceived to be important by those customers than protecting the on -prem Microsoft products.

24:09Adalong became a cloud security company. Now, did a staff know anything about cloud and cloud security in 2012? I guarantee you not. You know, it took them to iterations. Adelaun was a first iteration, sold that business to Microsoft eventually and then started with. And now with is a ten billion dollar business. You don't have to be an expert to the field to really innovate in that field. Different example is another company called Avalor. It's a small, series A stage company and the two founders, Rana and Kfir, they came to me and they never dealt with cybersecurity. They've built data products and they own part of a company that was sold to Salesforce for $800 million And we decided that they are the data experts and cyber starts knows cyber security So let's build a data platform from cyber security and Avalon seems like a terrific company in the making you don't have to be an expert to really build amazing companies I think market timing is so crucial to building amazing companies is how do you reflect on the importance of market timing when partnering with founders?

25:22First of all, when I make that investment decision at the seed stage, I don't think about markets and I don't think about market timing and I don't think about all of that. I make a very simple decision. Do we like to partner with those individuals? Do we like to be their partners? The way a cyber starts with deal with market timing question, which is super important is by running Al -San Raist process. And Al -San Raist is almost like a counter intuitive process for most entrepreneurs, because instead of going and chasing your ideas and dealing with prospects, objections and really getting to engagements and closing deals, You do just the opposite.

26:10You go and talk to a significant number of representative customers, large fortune, 500 companies, chief information security officers. Those are the customers of most of the companies cyber starts investing. And you tell them, hey, hey, he doesn't your team. You don't ask them, what's your biggest pain point or what's your biggest need because again you'll get so many BS answers it's not even funny we ask them hey this is a new SIDERSTARTS team that is going to spend about a hundred million dollars in the next three years on engineering alone to solve one paint point that's the average for a SIDERSTARTS company and we like to give you those hundred million dollars to solve one paint point for your organization what would that be what's the one paint point you like us to solve for you and that makes customers focus and listen to you because you change the equation of power.

27:08You are not asking them for any favor. You are making them a favor. You're giving them a hundred million dollars. So whenever I give you a hundred million dollars, you listen and they share with us that thing that guarantees we are not going to face a market timing issue. That's something they're going to spend money and budget now. And that for cybersetarts companies solves the whole market timing issue. I love that in terms of phrasing the shifting of like favor for them not favor for you. How many of those conversations do you have before you find a discernible pattern which you're willing to bet against versus an anomalous company that has a strange requirement or request?

27:50We typically run about 60 to 70 conversations like that in the first three months since inception. And then we come back and have a second set of 60 to 70 conversations with our solution thesis. So the first batch of conversations is all about the pain point. That helps us figure out what's the one big pain point we like to go after and build an in public and company, we come up with a solution thesis, and then we come back to those potential customers and tell them, hey, we listen to you. This is the concept for solving that one big paint point you told us about. What do you think about it? And if they like it, we'll go build it and then come back to them in three or four months and ask them to try it out.

28:38And then they become our first customers. When you go through this process, how are you and the founders interacting? Are you on these calls with the founders? Are you doing them for the founders? I'm just showing you understand because it feels like you were founding the company. I don't babysit founders. I'm not in the meetings but we do follow up on each conversation. We have a system where we rate those meetings together with the founders and we would meet weekly to discuss what we've learned and how we should go forward with our with a process. The soundless process is an amazing process.

29:15It's a super hard experience to go through because unlike the traditional first year experience, you take all the hypothetical objections. You might face as a company in the next three or four years and bring it to present. So you ask all the tough questions yourself. If a potential customer says I like your solution, you'd respond with why wouldn't you buy it from Palo Alto Networks? Why wouldn't you buy it from Wies? Why do you need us? And then we would ask them how would we price it? And why it's so high? Why it's so low? What's the right channel? And how would you technically evaluate that type of solution?

29:58Even before we have written the first line of code. We don't have a product, but we ask you how would you evaluate that product? How would you run a POV for that product? Essentially, we ask all the tough questions in a first few month for the venture. And then that allows our companies to accelerate. If you look at companies like Weez, Ireland, Fireblocks, Non -Name, Sayerra, Avalor or your olders companies, they manage to get to significant revenue, significant ARR in the first 12 months, in the first 24 months, thanks to that process, because you simply get a better functioning and streamlined businesses by asking all those hard questions.