How I Invest with David Weisburd
E167: The Hardest Questions Limited Partners Ask GPs w/Stepstone’s Hunter Somerville
Tue, 27 May 2025
Hunter Somerville helps allocate billions of dollars across venture capital at StepStone—and he’s one of the most thoughtful LPs I’ve ever met. In this episode of How I Invest, Hunter gives us a rare look into how top institutional investors evaluate funds, pick managers, and underwrite spinouts before they even happen. We go deep on what separates the best emerging managers from the rest, how LPs think about performance before DPI, and why some GPs win repeatedly while others fade. Hunter also shares his own personal playbook—from how he manages his time to the biggest lessons he’s learned over two decades in venture. If you're raising a fund, building a firm, or just curious about how top LPs think, this one is a must-listen.
Chapter 1: What insights does Hunter Somerville offer on emerging managers?
Today, I'm very excited to welcome Hunter Somerville, partner at StepStone Group, a private investment firm with $179 billion under management as of end of year 2024. Hunter shares his insights on emerging managers, what makes VC successful in 2025, and how StepStone tracks performance at the individual partner level across 300 venture and growth managers.
We'll explore StepStone's approach to spinouts, key metrics beyond simply DPI and TVPI, and leading indicators that a manager can build enduring venture capital franchise. Without further ado, here's my conversation with Hunter. Are emerging managers dead on arrival?
For us, not at all. I think it will be a harder fundraising market for emerging managers, but there's so many different profiles of emerging managers to consider out there. I think for some, it will be much easier and more straightforward from a timeline standpoint. For others, more difficult. And I guess to break that down a little bit further,
For those that are leaving an established brand that have a very clear and fully attributable track record that have reached some level of seniority, we are seeing those fundraisers happen quite quickly. And I think the reason for that is LPs have realized they probably have too much exposure in groups that are larger in the multi-billion dollar kind of size range.
and need to mix in and dollar cost average down with fund sizes that are probably more in the 50 to 300 million range. That being said, they're not in a huge hurry to go out on the risk curve and add managers that have never run organizations or have bodies of work that are more opaque or less clear.
When you see someone leave an established brand and start a new organization that has done all of that, you know, sophisticated LPs that are active in venture move pretty quickly. And those fundraisers happen, you know, in very short timeframes.
Where I think emerging managers are in more jeopardy are when it's someone that's a mid-level person that's never run an organization, that has a body of work that maybe they sourced, but they didn't cover, they didn't sit on the board of, or operators that have never invested before.
don't have an investment track record or have done very tiny angel checks that are just not indicative of their ability to execute as a lead or a number two in seed rounds going forward. So it becomes a bit of a have or have not story. The other groups that I think are in trouble are groups on Roman numeral, maybe two or three that have just not shown enough in their early body of work.
There's these two conflicting memes in the marketplace. One is emerging managers are higher risk, higher rewards. A lot of emerging managers and fund to fund subscribe to that. The other one is, I would call it the David Clark Venn cap, which is we want to invest into all the traditional funds because even on a post-risk adjusted basis, they perform better than emerging managers.
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Chapter 2: Are emerging managers dead on arrival in today's market?
Talk to me about the second order effects of this, the game theory on valuation.
Yeah, I mean, it's indicative to some degree of like what kind of communicator you are. And I generally find like when you back an emerging manager, you get a sense for that pretty quickly. And I think people who are really focused on building like a lasting best in breed organization, over-optimized in a good way for communication upfront.
And they try to be extremely transparent with their investors on what's going well and what isn't going well. And I think that's appreciated and it creates trust.
So I don't want to like overstate this, but we've seen pretty consistently that when we back a fund one or a fund two, and they're great communicators just on the progress of their portfolio, it tends to be pretty good from a partnership standpoint. That doesn't ultimately mean they're good selectors or their sourcing is better than others. And so both need to be the case.
But I do look for these kind of indicators on people that really care about building best in breed organizations, because for that, that's important to us. We can't back hobbyists. We can't back people that want to do this for five to 10 years and then get out or people that view this as sort of like a side family office where they're bringing in third party capital.
So, yeah, I would say there is some indication that comes along with that just in terms of how they're thinking about building their firm and the organization around it.
What other behaviors and character traits do you see are predictive or leading indicators for someone that's trying to build a long term franchise?
There's a bunch. I mean, there are personality indicators we care about very deeply. I've talked about that historically, just around grit, chip on your shoulder, wanting to knock down walls to get things done, no sense of entitlement, even if you have worked for one of those upper echelon brands, like you should come into starting your own firm with a completely different mindset.
I think it's generally a bad sign when you're automatically creating barriers between your investors and you up front or trying to insert people in the middle or just not being a good communicator. I think there are ways to build the internal operations of your team.
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Chapter 3: How do LPs evaluate spinouts and performance metrics?
That is how we view success and why we think we've built something unique and different within the Venture Asset Club.
How do you align incentives with this brandless, egoless organization that you guys have developed at Stemstone? How do you operate?
We create a very fluid meritocracy where people aren't promoted on timelines. They're promoted on contribution. We create KPIs at every level. People know what they need to do to succeed and to be promoted. And economics come along with that as they rise and do great work. And So nothing is overly dogmatic or rigid.
Like we have to be flexible and we have to move people along on a pace where it's warranted. And we have to move people on that don't fit the culture, the objectives or hit the KPIs within the organization and not just keep people because we don't want to write in an RFI that, you know, People have moved on and are doing something else.
We're happy for people who don't work here to join companies or join our GPs and do it there. And that's happened a lot of times. That's actually success in a lot of different levels because it reinforces the ecosystem and the network.
Ultimately, your culture is not defined by what you put on your website or even what you repeat over and over. It's who you incentivize, what behaviors are incentivized, who you promote internally. That's ultimately the... the culture that is displayed versus... Yeah, we're not a lateral promote, a lateral hire kind of group.
We start at the very beginning. We have like 40 to 50 interns. We make 10 to 15 analyst hires out of that. We promote people on fast clips if they warrant it. We don't want to insert people from the outside above them when they've done good work and have spent time in the salt mines here doing some of the less glamorous work.
We'd be happy if we can always groom and grow versus like selectively add shiny objects.
Hunter, again, this has been a second masterclass. Thanks for spending the time and look forward to seeing down in person.
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