(Bloomberg) — Israeli venture capital investor Cyberstarts has generated top returns by betting on cybersecurity entrepreneurs at the early stages of their companies, reflecting the exploding demand for digital protection.
Founded in 2018 by Gili Raanan, Cyberstarts has posted a 300% internal rate of return in its first $54 million fund since inception, according to a company statement. That would place Cyberstarts among the top 5% of venture funds for the past 26 years, Cyberstarts said, citing data from investment firm Cambridge Associates.
The 13 companies across Cyberstarts’s portfolio — also partly financed by a separate $100 million fund — garnered $2 billion of investment last year. Several were valued above $1 billion, such as cloud cybersecurity startup Wiz and crypto asset management platform Fireblocks.
Cyberstarts’s returns — so far mostly unrealized and difficult to compare with most venture firms that do not make their performance publicly available — jumped after a torrid of inflows into cybersecurity companies of the growing frequency and sophistication of devastating hacks. Targets for investments have proven bountiful given Israel’s rise to an industry powerhouse. Of the record $17.7 billion raised by firms worldwide last year, 36% went to startups founded in the country of 9.4 million, according to a Pitchbook report in October.
Cyberstarts, backed by investors such as Sequoia Capital, has started the process of raising another fund, according to a person familiar with the matter, who asked for anonymity because the discussions are private. Raanan declined to comment on those talks.
While thus far lucrative, bankrolling early-stage companies also carries higher risk. Industry veterans like Gil Shwed, the billionaire chief executive officer of Check Point Software Technologies Ltd., have said the investment frenzy has reached the point of a bubble.
Read more: Billionaire Cyber CEO Rejects Race for Growth, Calls a Bubble
Island, which builds secure web browsers for businesses and got funding from Cyberstarts, was recently valued at roughly $500 million before it had any sales, Bloomberg News reported. Building up clientele in distant markets has long been the “Achilles heel” of Israeli startups, a problem Cyberstarts addresses by connecting its companies to global security executives, said Doug Leone, managing partner at Sequoia.
“We are really open to any idea,” Raanan said in an interview. “We’ve invested in teams that didn’t have an idea at the time. Our role as investors is to become the platform for amazing entrepreneurs to fulfill their destiny.”
Lately, investors have begun to anticipate that the latest plunge in technology stocks will translate into a slowdown in private markets. Cyberstarts partner Lior Simon said that the firm’s portfolio companies have enough cushion to ride out a potential downturn.
“They have enough capital in the bank for years to come,” she said. “So for whatever scenario that awaits us months from now, our companies are well equipped to deal with that.”
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