How Low-Profile VC Firm Sutter Hill Lands Big Exits

Venture capital firm Sutter Hill Ventures keeps a very low profile.  So low, in fact that its website is a single landing page with its address and little else.

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While it’s definitely not one of the Silicon Valley VC firms vying for headlines, its power player status lies in its record and its reputation. 

As a standout among a crowd of firms that have seen large exits this year, Sutter Hill’s early bet on Snowflake–which became the largest software IPO of all time–illustrates its larger playbook.

By being hands-on early in a startup’s trajectory, Sutter Hill has been able to guide its investments to massive exits. In fact, Sutter Hill had two of its portfolio companies, Snowflake and Sumo Logic, go public last month on back-to-back days. 

Not a bad day at the office for one of Silicon Valley’s oldest VC firms that has quietly been deploying its hands-on strategy for years.

‘The incubation playbook’

Sutter Hill led Snowflake’s $5 million Series A in August 2012, and Managing Director Mike Speiser served as the company’s founding CEO from 2012 to 2014. It has a smaller stake in Sumo Logic, but that company’s public debut was a success nonetheless. The company raised $325 million through its IPO.

Speiser declined a request for an interview, noting that Sutter Hill generally doesn’t speak with the press. When the firm does participate in an interview, it’s when one of its portfolio companies requests it, he said, and those conversations are more about the portfolio company than the firm.

Part of Sutter Hill’s playbook includes its incubation strategy rather than finding later-stage companies to invest in, according to Sigma Computing CEO Rob Woollen.

Woollen is a former entrepreneur in residence at Sutter Hill and his experience at the firm influenced what would later become his company. The idea for Sigma Computing, a Sutter Hill portfolio company, was formed primarily while he was at the firm, he said. He also met his co-founder, another entrepreneur in residence, there.

“I think since they’re starting the companies, that gives them a different perspective from any other VC  I’ve met,” Woollen said

Having a partner from the start of a company’s life makes a difference, Woollen said. And since Sutter Hill has seen numerous companies “grow up,” entrepreneurs can draw on that expertise. 

Kevin Kwok, a former investor at Greylock Partners, laid out what he calls “The Mike Speiser Incubation Playbook” in a recent blog post. As Kwok explains it, the idea behind Speiser’s approach is that an investor can serve as an interim CEO in the early days of a company before transitioning out after hiring a top CEO. This allows the VC to hire for the key positions and provide funding, leading to consistent high returns.

“The core of [Speiser’s] model is to find 2-3 co-founders and be the founding investor,” Kwok wrote. “Often he takes on the interim CEO role himself for the first year or two. This has many advantages. The biggest is that it reshapes the ideal founding team profile. He can focus on getting the right top technical co-founders that will have strong views on what to build and the ability to build it—even if they are people who don’t generally view themselves as having a natural inclination to be founders. This is a significant talent arbitrage.”

It’s a method Speiser used for Snowflake, where he served as interim CEO and an early investor before hiring Frank Slootman, a seasoned executive and board member of another early Sutter Hill investment that has since gone public, Pure Storage.

After investing in Snowflake’s Series A round, Sutter Hill owned 17.4 percent of the company’s Class B common stock, according to Snowflake’s S-1 filing. At the time of Snowflake’s IPO, when it priced its shares at $120 apiece, Sutter Hill’s stake in the company was valued at $5.9 billion. By the end of the first day of trading, Sutter Hill’s stake in Snowflake had exceeded $12.5 billion. 

While Sutter Hill’s results with Sumo Logic were less dramatic (its stake is much smaller), they were notable nonetheless. Sutter Hill began investing in Sumo Logic around the time of its $15 million Series B round in January 2012, according to Crunchbase.

The firm holds 120,337 shares of Series F redeemable convertible preferred stock and 4,539 shares of Series G redeemable convertible preferred stock, according to the company’s S-1. Combined, its stake comes out to more than $2.7 million at the IPO price of $22 per share. 

For Woollen at Sigma Computing, the relationship with Sutter Hill is a close one. 

Sigma Computing executives speak with Sutter Hill investors frequently, leveraging them for everything from interviews to sourcing candidates and building relationships, he said. Candidates for potential positions will often meet Sigma Computing’s investors, Woollen noted.

“I think they’re very special in that they have a very long-term outcome view,” Woollen said. “They’re very focused on building companies that are building for the future. So (they) have a clear vision of where the market is going, and building something that is technically differentiated.”

A Silicon Valley innovator

Sutter Hill is widely regarded as the oldest Silicon Valley venture capital firm still in operation. Founded in the 1960s, it made its name during the 1970s as a top-performer. 

Sebastian Mallaby, a senior fellow for international economics at the Council on Foreign Relations is working on a history of Silicon Valley. As he explains it, Sutter Hill was influential in innovating the “Qume model.” 

Qume was a company that made the daisy wheel printer, which Sutter Hill Ventures invested in. As part of the deal, Sutter Hill could replace the CEO with someone it chose and give them equity. While Sutter Hill liked the technology and the engineer at Qume, the firm wanted a strong leader at the helm, according to Mallaby.

“That model of financing where you could turn a technology that didn’t really have a business around it into a business by having very hands-on venture capital, that was very important,” Mallaby said. 

Sutter Hill didn’t single-handedly create that model, but they, along with the likes of Tom Perkins (Kleiner Perkins) and Don Valentine (Sequoia), were leaders of the 1970s hands-on activist venture capital movement, Mallaby said.

“Their historical significance is that they were one of the key firms in the 1970s that created an activist tradition in venture capital and that would in turn explain why the Valley overtook Boston as a leading tech hub in the U.S.,” Mallaby said.

That tradition of involvement has clearly stuck around. Speiser makes very few bets, but goes all in on those bets. He stays involved in all aspects of the business, according to Clumio CEO Poojan Kumar

Kumar has known Speiser for about seven years, first getting to know him when his former startup, PernixData, was raising its Series B round. Speiser passed on the Series B, citing the lack of a large market for the product, but was the founding investor in Clumio when Kumar had the idea for it. 

Clumio started with its early team working out of Sutter Hill’s office.

Speiser is generous with his time, and has surrounded himself with experts, forming something of an ecosystem of talented people who can also help each other, Kumar said.

“He immerses himself in the company, which both helps the company and, I would say, also keeps him grounded as an entrepreneur,” Kumar said.

“He likes to look for a great team, he likes to look for a great idea that’s disrupting a big market and at the same time he likes to look for technologies that are very hard to build,” Kumar said. 

But while Speiser is known for being very involved in the companies in which he invests, he’s no control freak. That combination of work ethic, smarts and humility in an investor is rare to find, Kumar said.

“He basically tells you what he thinks is right, but he lets you do what you think is right,” Kumar said.

Illustration: Dom Guzman

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