Israeli VC firm Cyberstarts, which bets on early-stage cybersecurity startups, has posted a 300% internal rate of return since its fund's inception in 2018
Israeli venture capital investor Cyberstarts has generated top returns by betting on cybersecurity entrepreneurs at the early stages … Tweets: @middleeast and @ivanlevingston Tweets: @middleeast : Israeli VC 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. https://www.bloomberg.com/... Ivan Levingston / @ivanlevingston : VC Cyberstarts is generating top returns — 300% IRR — with early bets on Israeli cyber entrepreneurs Sequoia's Doug Leone told me in an interview they've solved Israeli founders' “Achilles heel” I hear they are raising a new fund Exclusive: https://www.bloomberg.com/...
Context & Ripple Effects
The 300% IRR caps a run that Bloomberg's Ivan Levingston reports drew praise from Sequoia's Doug Leone, and it validates the model Gili Raanan's firm has used since 2018: seeding Israeli cybersecurity founders before the market prices them. The exit environment made that thesis liquid — a record 129 VC-backed cyber acquisitions in 2021 turned early checks into distributions fast.
The returns also set up everything that followed: the same playbook that produced Wiz later drew ethical scrutiny over Cyberstarts' executive profit-sharing program, and by 2025 the firm was recycling its gains into a $300M fund letting portfolio employees cash out vested shares — a liquidity tool only a top-returning franchise could raise.
First-order effects
- Cyberstarts' limited partners now hold proof that early-stage Israeli cyber was the best-performing venture strategy of the fund's vintage, strengthening the firm's position for future fundraising.
- The headline number puts pressure on peer Israeli cyber seed investors like YL Ventures, whose count of $4B raised across 89 rounds in 2024 shows the same market Cyberstarts harvested getting far more crowded and expensive at the entry point.
Second-order effects
- Success at the seed stage forces Cyberstarts and rivals to compete on non-price terms — the employee-liquidity fund and the executive profit-sharing program are both retention weapons aimed at locking in founders and operators before competitors' term sheets arrive.
- Late-stage capital keeps chasing the companies this pipeline produces: Cyera's climb to a $12B valuation on a $300M raise shows how quickly seed-stage cyber bets now compound into mega-rounds, pulling growth investors deeper into Israeli deal flow.
Third-order effects
- If the pattern holds, Israeli cybersecurity consolidates around a small set of repeat-founder factories — firms that manufacture companies with shared executives and pre-committed follow-on capital rather than waiting for pitches — raising barriers for first-time seed investors.
- The concentration invites governance scrutiny: profit-sharing arrangements between investors and the executives who staff portfolio startups sit close to the line on conflicts, and sustained outsized returns make regulators and LPs more likely to examine them.
The trend: Venture returns in cybersecurity are concentrating in a handful of Israeli seed firms that industrialize company creation, converting record M&A and funding cycles into durable franchise advantages.