Lacework’s Fire Sale Tarnishes Sutter Hill’s Incubation Strategy

Cybersecurity company Lacework is in talks to sell to its competitor, Wiz, for between $150 million and $200 million, a fragment of its 2021 valuation of $8.3 billion, Cory and Aaron report. It’s a painful ending for the investors that poured nearly $2 billion into the 9-year-old startup, as well as the employees, who were hoping for a much better outcome.

Lacework was incubated by Sutter Hill Ventures, meaning the venture capital firm invested and supported the company from the very beginning. (In fact, two of Lacework’s early CEOs were also Sutter Hill partners). By incubating companies, firms amass much larger stakes than they would in a typical investment. That strategy delivered huge returns for Sutter Hill when Snowflake, which the VC firm also incubated, went public in 2020 at a $70 billion valuation. 

Lacework’s flop puts Sutter’s strategy to the test. The firm bets big on a smaller number of companies than most VC firms, and Sutter leader Michael Speiser spends 80% of his time focused on a single company, he told CNBC in 2021. Fresh off Snowflake’s home-run initial public offering, Speiser said he was devoting his attention to Lacework, which he predicted would be the next “$100 billion company in security.”