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How Mike Speiser and Sutter Hill are changing the rules for venture investing

How Mike Speiser and Sutter Hill are changing the rules for venture investing

1/24/2021 5:32:00 PM

How Mike Speiser and Sutter Hill are changing the rules for venture investing

Investors are taking note of the success enjoyed by Sutter Hill Ventures, a longstanding firm that has gone big on incubating start-ups and growing them fast.

uses Lacework, too.Sutter Hill also helps with recruiting, and can sometimes act like the research and development wing of a company."The second product at Pure Storage was incubated at Sutter Hill and spun in at no cost to Pure Storage right before they went public," Speiser said.

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Different financial structureThe firm's all-or-nothing style is risky. Sutter Hill doesn't have the massively diversified portfolio that larger venture firms rely on to balance the losing bets.But the firm has an uncommon financial structure that provides it this kind of freedom.

Many of Sutter Hill's peers in venture capital go to limited partners and raise hundreds of millions of dollars or more, and then bring in returns over a set period of time. Big wins help persuade limited partners to put in money for the next fund.

Sutter Hill works differently. For decades it has maintained an evergreen fund. Limited partnershave made investments, and Speiser and his fellow investors contribute money, too, with no set end date. Instead, a limited partner can invest money for a cycle that lasts a few years, and the limited partner's money remains invested during the next cycle unless it opts out. Sutter Hill decides when to distribute money or company shares to the limited partner. The firm can also invest money into new or existing portfolio companies.

Sutter Hill regularly leads early rounds of funding for its start-ups, because it's not making a whole lot of other bets."It's quite rare for a venture firm to be all-in and lead multiple rounds of funding," said Vik Singh, a former Yahoo architect who spent time working on his start-up Infer at Sutter Hill as an entrepreneur in residence in 2009 and 2010.

In the later stages of a company's life, Sutter Hill is willing to put up serious money right next to deep-pocketed investors. Some prominent firms, such as Sequoia, have growth funds to do that, but Sutter Hill invests from its evergreen fund.For instance, in the case of Pure Storage, which Speiser worked on in 2009, Sutter Hill

than Greylock Partners, Index Ventures and Redpoint Ventures in 2013 and 2014 funding rounds, before Pure's 2015 debut on the New York Stock Exchange.Similarly, when Snowflake raised money in 2020 before its IPO, Sutter Hill was.Speiser's influence

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