A Previously Unexamined Connection -- PureStorage And Mattersight, Via Sutter Hill Ventures

I noticed last night that a financial blogger had commented on Sutter Hill Venture's continuing purchases of Mattersight common stock, on the NASDAQ open market. Sutter Hill, of course, was founded by the great William H. Draper, III, son of General Draper (think Draper, Gaither) -- and the Sutter Hill name holds founding or follow-on stakes in a long list of Silicon Valley legends.

So -- it is not a huge surprise to learn that Sutter Hill Ventures also is a very significant investor in privately-held PureStorage. I came to know this, solely because pure storage just completed another $40 million equity round, in which Sutter Hill Ventures affiliates participated.

Then I remembered that Mattersight made a very large capital purchase of flash storage arrays from the very same PureStorage, just about two months ago. Flash storage is -- at the moment -- significantly pricier than conventional mechanical disk storage, per terabyte. At the time, the CIO of Mattersight said that he needed the speed of PureStorage's flash arrays. [And, in closing the $40 million investment a few days ago, PureStorage officers said ". . .It has certainly been a tumultuous year: Every month it seems a new flash storage product and the associated marketing hype join the milieu. . . . To successfully separate the signal from noise, you only need convictions about what really matters. . . ." Interesting. Why exactly did Mattersight select PureStorage, then?]

Now I am beginning to wonder -- since we have established that the Behavioral Analytics output cannot be delivered in anything like real-time, why is the speed increase so compelling that Mattersight would pay bleeding edge prices for it?

Is it possible that Mattersight (as a decade-long dead money posiiton for Sutter Hill) is being used to accept, and capture, continuing losses -- and thus transfer revenue, and eventually net income, to Sutter Hill's more promising investments -- ones like PureStorage?

I don't know -- but the terms of that purchase ought to be examined by the auditors and the SEC -- at least insofar as the public's money is at stake, as sharehlders of Mattersight.

It might well be that PureStorage offers such a compelling solution that Mattersight would have selected it independently -- even without the overlapping Sutter Hill stakes, but the SEC rules do require that sort of an analysis (under Reg S-K) from Mattersight's auditors, in this situation.

Let's see what the third quarter Form 10-Q has to say on the subject, in about two months' elapsed time.