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

26:07Harry Stebbings:Has your expectation on the growth rate of companies changed before going from three to 10 was good? Now, with a Lovable, with a Legora, a Harvey, you need to go to 50 and 50 to 200 in two years. The growth rates are so different. Have what you expect changed? I think that exceptional companies traditionally went in extremely high pace. And extremely high pace for me is, let's say, in the first five years, the moment you start to sell till the fifth year afterwards, if you go 4x, 4x, 3x and 3x on new ARR, not ARR, new ARR. In the second year, you do four times the new ARR that you have done in the first year.

26:57I'll save you the math, that's 144x after five years. Which means that in the first year, even if you have booked a million dollars of new ARR, in the fifth year, you'll book 144 million dollars of new ARR. That's a nice company. Now, if you've done$2 million in the first year and you follow the same velocity, you'll do$288 million of new ARR. That's even a better company. So I don't think there's a limit on what great is. I just gave you the amazing numbers of Whiz, and I'm confident that five years from now, I'll be able to show you. I'll be able to demonstrate another team showing that actually Whiz was a slug and they can move much faster and they've done whatever it is.

27:47But the bar for real greatness for companies, I think pretty much stay the same. Now you can do higher than the bar. That's great. Good for you. Do that. You know, you can grow from 5 to 50 to 200. Please do that. But even if you do, I don't know, in UAR, 1, 4, 16, 48, those are terrific numbers. You'll do well. You may not be the most iconic company ever, but you'll be a very, very nice company.

28:21Harry Stebbings:They're terrific numbers, and they're even more exciting if the multiples on them that we value those companies at are good. I look at my public market book, and I used to think I was so good. It used to just be green, green. And now I look at it, and it's all red, Google and NVIDIA aside. And I look at it, and I'm like, oh, maybe I wasn't so good. And the multiples are so low. You have Monday trading at like 1.5x. You have Wix trading at 2.5x. They just announced a buyback, which is enormous, at their$4 billion market cap. What do we do in a world where these multiples are so low and public markets don't value what we always sold?

28:58I'm not always sure I understand public markets. I'm confused and baffled exactly as you are. My guess, markets have expectations about growth rates, exactly as we have discussed. And for whatever reason, if they believe that the growth rate of a company would decline, because of whatever reasons, my guess is there is an expectation that autonomous programs would displace and would eat part of the business of those companies. But I'm not sure and I'm not confident about what I'm saying. But that's my assumption. Then you'd see the multiplier declining. But if those companies would continue, regardless of the market, would continue to grow at incredible pace, the multipliers would rebound back to where they are.

29:51The multiplier is just the market anticipation for your growth rate.

29:56Harry Stebbings:Can I ask, with the extension of private markets, because I think so many people are so baffled by the public markets, that they don't want to go that like your stripes or your canvas of the world. Do you think the extension of private markets in the way that we're seeing is fundamentally good? I think it's functional and I think it's sustainable. For me, you know, going public is not a financial event. It's a branding event. It's an occasion where you tell your customers, your partners, your employees, your future employees, I'm here to stay. That's IPO because typically it's not a financial event.

30:30It's not a liquidity event. It's contrary. It's the opposite of liquidity event. You get shackles on your hand. You cannot sell stock. You've got all kinds of limitations. It's hell for liquidity, but it's an important marketing event. I believe that still many founders and many companies would choose to go through that exercise and pay the price, lack of flexibility and lack of liquidity to gain the value, the long-term value of that marketing event. But IPO by itself is not a financial event. It's not liquidity.

31:03Harry Stebbings:It's the contrary of that. With that extension, we have the ability to sell in secondaries, but they sell into much higher priced rounds. How do you think about your responsibility or the importance of selling in secondaries much later on and providing mega returns to LPs in these very highly priced rounds? I think about secondaries, first of all, in the context of retaining talent. That's, I think, the most important consideration I have in mind when I think about secondary, because it doesn't just take a lot of cash to build important companies and specifically important cybersecurity companies in our case.

31:39It takes longer time. With the current market, you typically grant employees stock for four, maybe five years. And yes, you can do some new refill and new allocation, but typically those are fractions of the original allocation because the company is bigger, there are more employees, it's in a different stage, So you get to situations where your best employees, your most important employees, your best engineers, your best product managers, your best salespeople are already fully vested. Structurally, you are unable to allocate them equally large or equally tempting grants. You actually force them out of the company.

32:23Because for those employees, assuming they were not born super wealthy, that equity, they are lucky enough, they are happy enough to be part of a company that is doing extremely well. They are fully vested. Now, most of the wealth of their family is actually attached to that one company. So it's actually very, very logical for them to consider diversification exactly as we diversify our portfolio by going and joining another team and hoping to build a diversified portfolio. Now, the antidote for that market built-in weakness is the secondary. So that's the reason, by the way, that at CyberStats, we created a vehicle.

33:11We call it employee liquidity fund, which is focused not on one-off type of secondary deals, but creating a program, a recurring program with a portfolio company where we provide liquidity to their employees every year. And what we do is that we underwrite a tender offer every year so the employee of that company know that they are getting liquidity. The very same type of liquidity they would get in a public market, they would get it in a private company. And that would help our portfolio companies retain talent.

33:51Harry Stebbings:How does the rest of the cap table feel about that? You have ROFs, obviously, right of first refusals. I'm happy to let others participate with me. I do not object that. We just announced that we've done our first type of secondary program with Sierra. I think that we are buying, probably not mentioned the exact number, but it's many, many millions of dollars of a few hundred employees of Sierra. How do you do the valuation setting on those? Is it like a premium to last round and you just have a kind of blanket valuation mechanism? Is it? It's an ongoing process with management. You have to price the round.

34:31So liquidity is, you know, back to the topic, I gave you the example just to show how we practice this, you know, theoretical argument about it takes more time for companies to mature and to get to the public market. If they get to the public market, it becomes a strain on their talent pool and how secondaries are actually the solution for that. So the story I just told you is, or the example I just gave you is as a way to solve it. I'm sure there are other ways to do it. But secondaries can be also a way for early stage firms like Cyberstarts to return capital to limited partners. You know, it makes these systems, it makes the markets more sophisticated.

35:17And with that extra sophistication, you can create better solutions, first of all, for employees, for founders, and for limited partners. And overall, I think that's a highly positive element in the business.

35:30Harry Stebbings:So you will lean into liquidating some parts of positions and providing cash back in earlier situations. Look, it's not a secret that at Cyberstarts, we have sold secondary shares at companies like Wiz early on. By the way, I regret I sold every single share at Wiz, I regret it because, you know, if I sold it right now, I would show better performance for my limited partners. But at the time, it looks like the right thing and the responsible thing for us to do. And we did it. What did you get wrong? And obviously you made millions and millions of incredible. When you sort of do a postmortem on that, what did you not see that you would like to have seen?

36:10It were the early days for Cyber Starts. And, you know, We talk about startups, CyberStart or 20VC. Those are startups. Those are businesses with business plan, with teams, with clients. Early on, I thought that it's a good thing for us to show our limited partners that we had an incredible, super high pay per value of portfolio. And I wanted to demonstrate to them that we can actually drive some liquidity to them.

36:40Harry Stebbings:Do you think there are core misalignments between GP and LP? And so we can take that as an example where I say an early GP will want to distribute, show great DPI because they want to go and raise, and I'm not saying you here at all, but in most cases, because they want to go and raise a bigger fund sooner. And actually, if I'm in a holding LP, I want you to retain that position. I don't want you to do that. There's a misalignment there. Do you think there are other misalignments that we don't talk about? Potentially, but even for that quote-unquote misalignment, You know, it's always easier to look at it over time.

37:14But back in the early days, when I made a mistake and sold with stock that if I knew where it's going, I would hold on to that. The reaction from my limited partners, and I have still a very sophisticated, smart set of investors, was overwhelmingly positive. They were cheering for that because for them it's a new GP. And that was a positive event. I had only one or two super smart LPs. I remember one of them called me and said, hey, I'm not investing here to hedge my risks. I actually like to take more risks. And I appreciated that. And by the way, I still believe it was for cyber starts back then, it was the right decision.

38:03Harry Stebbings:When you look back at the investors that you were and that you are today, Have you changed much? I think I changed a lot. I probably went zero to one, meaning no business, seed investment, no idea, to a real business probably close to 50 times. That's a lot. And I hope that if you do that type of journey 50 times, you learn something. And I think I'm learning every day. I think that, you know, what's the only constant in our business is the diversity and the change of the people I meet and partner with. And I think that that's what makes this profession in many ways. It's a terrible profession.

38:49You know, it's a profession where you you don't know if you are good in what you are doing for five or six years. Show me another profession where you show up to work every day for five years. you have no idea if you are doing any good. So in that sense, it's a terrible profession. But I really think it's one of the most exciting professions in the world, just because it gives you the opportunity to share your life with so many amazing individuals. And you can gain just a little bit from every team you partner with. But cumulatively, I think that we are gaining a lot. And we have to listen better.

39:30We have to become better listeners over time. And that by itself makes us better people, better parents, better partners. So you're going through a change. And it's not like one-time change. It's a gradual change. And the more you do that, the more teams you go with to the journey, the more ups and downs you experience in the business. you change and I think you become a better version of yourself.

39:59Harry Stebbings:What would you say to me and to many people in the industry who are looking at frameworks that we used to use and they're kind of out the window, whether it's your rule of 40s or your triple-triple-double-doubles or your focus on margins in the early days or whatever these are, and the world seems to be less secure or obvious than it was in a prior generation. What would you say to that younger generation of investor feeling insecure about their skills in this new world? Learn as much as you can from old farts like myself, but at the end of the day, use your guts to make decisions. Nobody knows better than you do.

40:34Harry Stebbings:Do you have a monopoly on the Israeli cyber market? I don't know. I don't know, and I don't think about it. Do you ever have a company, though, and I don't mean this arrogantly at all, and you don't sound arrogant because I'm asking you, do you ever have a cyber company in Israel where their seed round is announced and you're like, hmm, I didn't see that? maybe once or twice over the past eight years. But there are deals that I'm telling myself, okay, I should have done it. That was a mistake. Which one most resonates? It really doesn't matter. And I probably don't regret the right one and I regret the wrong ones.

41:08You know, one thing I learned about the business is that I focus on the deals I've done and the teams I've partnered with. That's where I put my focus and energy. You know, you can't cover everything and you can't get everything. You are not going to win every battle. And if you are stressed about winning every battle, I need to be in every important AI company. I can predict that you are not going to be in every important AI company. I need to be in every important cybersecurity company. I'm not going to be in every cybersecurity company. So I focus on my portfolio companies and I try to do the best with the teams that put their faith in cyber starts and work with us.

41:51Harry Stebbings:So funny. I remember speaking to Pat Grady about the great companies that Sequoia invest in. And I was saying about, oh, God, you're such great pickers. And I was kind of being very kind, as is deserved. And he said, you don't understand, dude. Every single public company that doesn't have Sequoia as an investor is a miss. This is not OK. You understand that. and I really hit home on like market share for them as being a core driver and it is for Andreessen. Have you lost a deal in the last five years? Yes. You have? Yes. Who did you lose to? Some amazing, other amazing investors. Is there anything else you could have done?

42:28Harry Stebbings:Like I always think like I never want to leave anything on the field. That's what I say to the team. We could have done more. I could have done another customer call, send them another intro, hired someone else for them, paid more. is there anything else you could have done to win it? Absolutely. There are always things you can, you know, if I look at the cyber starts business, we are improving it all the time. I'm telling my partners all the time, we are always as good as our next investment. But why it really doesn't matter because if all our investments would be amazing and we've lost one or two companies, that doesn't matter.

43:05Again, everything leads me to the conclusion that let's focus on our own thing. We typically get what we want to get. We can always improve. And I'm very, very happy with the progress.

43:21Harry Stebbings:Before we do a quick fire, as we think about building teams, you have an amazing partnership. You have great people in your team. What would you advise me on how to build a great venture partnership with incredible dynamics, relationships between partners? What should I know that you've learned? Lots of lessons. One example, which might be non-trivial, I learned that people are very different and they bring different talents with them. As a manager, as an executive, as a managing partner, very easy mistake you can make is to try and create some sort of guardrails and textbook and bring everyone into the same mode of operation.

44:06You do that typically because you think, okay, this is what worked for me. Now, here's a new partner. Let's map the gaps between the way he or she performs and that recipe, and let's bridge the gap. My view on that is that I would let each team member play on their relative strengths and would not require them to focus on improving their weaknesses, but actually play more often and stronger on the relative advantages. Because on their weaknesses, at the best case, they can be as good as the market. But on the things that are exceptional, they are creating real advantage, real better, real greatness.

44:56and that leaves cyber starts with with a team of people that really enjoy working with each other but each of us is operating in a different way and we respect that you learn that through mistakes

45:10Harry Stebbings:i think i put guardrails on people before where i like constrained them to my way of thinking and then actually i realized that that's a net negative for them where it was a positive for me exactly okay quick fire around my friend what have you changed your mind on most in the last 12 months Founders chemistry, how important that is. You know, I always thought that, you know, chemistry with the founder is important, but founders are brought to life in all shapes and forms. You know, focus on the teams that you have the most chemistry with. Are the best founding teams not often broken up eventually?

45:44Harry Stebbings:We always say like, ah, the CEO is amazing, but the CTO, and I was like, don't worry, just focus on the spikiest element being the CEO. The CTO will probably fall away. They might leave, they might be ahead of ENG, whatever that is. Just focus on the spikiest person. Does the founding relationship matter? Extremely, extremely matter. Yes. How do you test it? Simple tests. Do they know each other? Were they, I don't know, roommates for a long period of time? Did they work together and went through some challenges? And sometimes you don't know. That's the truth. Who do you learn the most from as an investor?

46:22Harry Stebbings:If I'm fortunate to have people like you or Neil Major or Pat Grady as my mentors, who are yours? I think the decade I spent with Sequoia Capital was formation, you know, for me. And it wasn't easy, period. You know, I couldn't do what I'm doing today without learning from Doug Leone and Michael Moritz and Jim Getz and Pat Grady. But it wasn't easy. As I told you, it took me a long time to mature as investor. And it's crazy hard. You show up to the office every day. You're surrounded by super achievers who are building amazing companies. And you look yourself in a mirror and say, okay, I'm the shittiest investor in this room.

47:11I don't have 10 guys around me. I'm the worst. And the next day, I'm still the shittiest investor. And you go like that every day. It's really hard. It's really hard. You have really bad days sometimes. It takes a lot of greed and determination to keep going and believe that you're going to figure it out.

47:31Harry Stebbings:What was your hardest day as an investor? When the first company I invested in shut down, I had to shut it down. That was super hard. That was because it's a very public failure. It's a failure that you cannot cover. It's a failure that you have to deal with. What motivates you more, the thrill of winning or the fear of losing? Thrill of winning. What's the most memorable founder meeting, first founder meeting, that you think of when I say that? It's not the best founder, but just like the most memorable first founder meeting. I had a really fun first meeting with a founder where during the meeting, the founder started to shout, I'm the best.

48:14I'm the best motherfucker. I'm the best. And it's like, okay. And he's like, it goes on and on, like 10 minutes with this, like praising himself. And it was his way, I don't know, his crazy way to demonstrate self-confidence. Did you invest? No.

48:36Harry Stebbings:Did it turn out to be an interesting company? Public company. Wow. That's amazing. Okay, final one. What are you most excited about when you look forward to the next 10 years? Working with my team, growing, you know, amazing investors that can keep on making impact on cybersecurity. Gedi, I so appreciate you. I so appreciate the friendship. I so appreciate the honesty. You've been fantastic. Really enjoyed it. And Harry, thank you so much. You should invite me more often. But before we leave you today, you know what's wild? It's 2026 and so many product teams are still flying blind, buried in spreadsheets, chasing feedback across 10 different tools, trying to figure out what actually will move the needle.

49:23Harry Stebbings:I've spoken with hundreds of product leaders and the best teams all do one thing differently. They build a system to capture ideas, validate them with real data and focus their roadmap on the right things. That's why product teams at Canva, Deliveroo, Toast, Decathlon use Jira Product Discovery. It pulls ideas and feedback into one place with built-in tools to prioritize what will actually have the biggest impact. That's when a roadmap stops being an endless list of ideas and becomes a plan people actually believe in. Join more than 20 ,000 teams already using Jira Product Discovery. Head to Atlassian.com forward slash Harry.

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