| Join The Information and NYSE on October 9 during San Francisco Tech Week for a cocktail reception and discussion with the New York Stock Exchange's head of market development, Erik Peña, Carta CFO Charly Kevers and The Information's Katie Roof.
Venture capitalist Gili Raanan is best known for his first investments in cloud security startups Wiz and Cyera. But as startups stay private for longer, his Israel-based venture firm Cyberstarts is now also investing in later rounds. It now has another $380 million for those more mature investments, thanks to a new fund raised this week to invest exclusively in the firm's existing portfolio. The fund is about a fifth smaller than Cyberstarts' first later-stage fund. Raanan says he had enough interest from limited partners to raise a larger fund, but decided to keep it small to prevent Cyberstarts partners from getting carried away. "It was more of controlling [our] appetite, and in a way, controlling our ego," Raanan said. The size also should help the fund with returns. Cyberstarts generally returns cash to its investors when the startups it backs are bought by a larger company. Since most cybersecurity acquisitions are between $300 million to $500 million, investing out of a slightly smaller pool of capital means that even a "typical M&A deal can return the fund multiple times over." The new fund hasn't previously been reported. Since Raanan founded Cyberstarts in 2018, eight of the firm's startups have sold to other companies. In just the past two years, Akamai bought Noname, an API security startup, Hewlett Packard Enterprise bought cloud software maker Axis Security, and Zscaler bought Avalor, an enterprise security business. The first follow-on fund, which generally backs startups in Series A and B, invested in all of the eight startups that have sold, Raanan says. "What we learned through those experiences is that Series A is a highly profitable business because the entry price is so low in relation to the average M&A price," he said. The most notable win is Wiz. Cyberstarts wrote the first check for Wiz through its first seed fund, and then made several investments in Wiz's later-stage rounds, including the Series E that valued the startup at $12 billion. Google has agreed to buy Wiz for $32 billion, which, if it closes, will provide a 222x multiple to Cyberstarts. The firm also put in $4 million in the seed round of Cyera, a cloud cybersecurity firm, and invested a total of $80 million for around a 12% stake in the business. The startup is currently valued at $6 billion as of a financing in June. It also invested in the first VC rounds for Island, now at a $4.8 billion valuation, and Fireblocks, recently valued at $8 billion. Cyberstarts is one of a number of early stage firms, including SV Angel and Khosla Ventures that have launched funds to make larger investments into startups they backed early on. Fund managers tell me they feel compelled to keep investing in their best companies to benefit their returns. "It doesn't make sense to pick a winning company, own 30% of the business at the seed, and then see most of your equity get diluted," as the company gets closer to IPO, Raanan said. Raanan says that the new opportunity, or later-stage, fund will make about 20 investments over the fund's lifetime, in a subset of its fastest-growing startups that set out to raise money. The other impetus for raising the fund, he says, was that it will give his portfolio companies more flexibility on when they raise financing. The alternative for founders is relying on an outside investor, which may request more ownership or put pressure on the timing of the round. "Sometimes all you need is one extra quarter of execution to raise at double the price," he said. In July, the firm launched a $300 million employee liquidity fund, a fund reserved to buy up employee shares in some of Cyberstarts' best companies. Through both of these new funds, the firm has doubled its assets under management this year to $1.4 billion. Despite the fundraising spree, Raanan doesn't seem to want to get into mega-fund territory anytime soon. "As a seed fund, you can find yourself bullied by bigger funds [that have] a big wallet," he said. "Think of us as a tiny seed fund carrying a big wallet that gives our founders a lot of flexibility." There's been a lot of chatter about companies going public this year, as we've scooped again and again. But it's clear that some contenders are first trying to buff up their financial picture before wooing public investors. Over the weekend, my colleagues reported that data startup Fivetran is in talks to buy another data management startup, dbt Labs, in a deal that would likely be worth $5 billion to $10 billion. A merger would bring together startups that sell complimentary data products. That's helpful as artificial intelligence advances have ushered in a wave of competing startups. For Fivetran, the proposed transaction could help the business get bigger and expand its reach, which the public market would reward. It's unclear what the company's plans for going public are at this time, but sometimes these mergers can completely change the growth profile of this company. For example, in February, I reported about data security firm Cohesity projecting that it will hit $2.2 billion in revenue by the end of this fiscal year, largely driven by its acquisition of Veritas, a data storage startup. | 
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