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Lightspeed Venture Partners<\/a> is having quite a year, between the sale of AppDynamics to Cisco for $3.7 billion<\/a> on the eve of its IPO (Lightspeed wrote its first check);\u00a0to the March sale of publicly traded Nimble Storage to Hewlett Packard Enterprise for just north of $1 billion in cash<\/a>; to the IPO<\/a> of the enterprise software company MuleSoft<\/a> in March (the company is now valued at $2.8 billion); to the March IPO of the consumer tech company Snap<\/a>, which is currently valued at $28 billion, despite a terrible earnings call<\/a> earlier today (Lightspeed famously wrote the company its first check<\/a> and remains its\u00a0second largest outside shareholder).<\/p>\n Other exits look to be coming up fast, too. According to Bloomberg, for example, men\u2019s retailer\u00a0Bonobos is in talks<\/a> with Walmart. Meanwhile, the personal styling service Stitch Fix is reportedly\u00a0weighing an IPO.<\/a><\/p>\n Success is nothing new for Lightspeed, though its string of hits has certainly helped cement its status as\u00a0one of\u00a0Silicon Valley\u2019s most elite firms<\/a>. To learn a little more about the firm\u2019s earliest days, how exactly it helps startups and whether it thinks the pace of innovation right now can keep up with the amount of capital flooding the market, investor Semil Shah of the seed-stage firm Haystack<\/a> sat down with\u00a0Lightspeed co-founders Ravi Mhatre and Barry Eggers at a StrictlyVC event<\/a> late last week. You can check out a bit of video from that sit-down below. Here are other outtakes from the conversation that you might\u00a0find interesting. Their chat has been edited for length and clarity.<\/p>\n SS: When you started Lightspeed, what was the mood like in the Valley?<\/strong><\/p>\n BE: The year was 1856. [Audience laughs.] It was the early 2000s. We were sort of in the middle of the venture desert, for those of you who were there. We\u2019d gotten out of the bubble, and we were all waiting to see what was next, and it was a long wait. And that\u2019s where we sort of looked around and realized most of the people we\u2019d known who were doing Series A deals had either closed shop or gone through a generational transition or just weren\u2019t around any more and there was a big vacuum for Series A deals. That\u2019s when we said,\u00a0hey,\u00a0we need to go and stake out that real estate, so that\u2019s what we did.<\/p>\n SS: You were raising a first-time fund, though you had some venture experience. Presumably that\u00a0helped?<\/strong><\/p>\n RM: Barry and I and Peter [Nieh] and Chris [Schaepe]\u00a0\u2014 we\u2019d all known each other to some degree before. We\u2019d all gone to school [at Stanford] around the same time. When we went to fundraise, I remember it was a\u00a0little scary. We didn\u2019t have a salary. We\u2019d all done a little venture but not a lot. And there wasn\u2019t as much venture capital firm formation as there is now, so we spent a lot of time meeting with LPs and they spent a lot of time looking at the four of us. [They wanted to know that we were] likely to stick together because it takes a long time to build a platform and a brand.<\/p>\n People spent a lot of time trying to figure that out about the four of us. Retrospectively, I\u2019d say, almost 20 years later, [we were a good bet].\u00a0All four of us, we\u2019re still working with each other. When we get mad, we go and wrestle each other. But by and large, we\u2019re working together and [are very much a team].<\/p>\n SS: You were enterprise investors, but you eventually added a consumer practice. Was that a tough sell? Did your investors want you to stay in your lane, so to speak?<\/strong><\/p>\n BE: Because the four founders\u00a0were all enterprise investors, the first thing we wanted to do was stake out and establish ourselves credibly as [enterprise-focused]\u00a0Series A investors.\u00a0It\u2019s different, establishing yourself in enterprise versus consumer. It\u2019s more of a body of work that helps you get there. But at least we had Riverbed [Technologies] as a Series\u00a0A deal; it became one of the prominent deals of the early 2000s and that helped give us a platform.<\/p>\n RM: The bet LPs made on Lightspeed was really on the four original people and did\u00a0these people have enough\u00a0connective fabric to work together over a long period of time. Once they were convinced of that, once we said we wanted to go into consumer, it was less [about having to convince LPs] but find the right person to join us who could spearhead the consumer effort. [That person would ultimately become\u00a0Jeremy Liew.]<\/p>\n SS: AppDynamics was set to go public and was scooped up.\u00a0What did you envision for that company?<\/strong><\/p>\n RM: There was no company when we invested in AppDynamics. It was Jyoti Bansal, who was the founder. I think Barry knew Jyoti and I got to know him and we decided to fund him and through the funding, he was able to incorporate the company. Then we called [fellow VC] Asheem [Chandna] at Greylock and said, we\u2019ve got this really bright guy and we\u2019re going to get behind him to start a company. And we walked him over to Greylock and they also got excited and invested.<\/p>\n SS: Why invest so early?<\/strong><\/p>\n RM: We do have a philosophy, that success isn\u2019t just about product design but also business design.<\/p>\n When you\u2019re designing your architecture and technology stack early, you want it to have a really strong foundation, so when you bring a product to market it\u2019ll have some sustainable underlying value that allows you to improve it for years to come so you can improve your business. Well, you also want to design your business so it can be durable and set up to grow really fast without becoming destabilized. So when we get involved early, we think a lot about business and company design. That\u2019s where,\u00a0as a venture firm, we can bring in institutional knowledge and our network and people on the business side who have experience and know what the patterns of success look like, rather than [having founders]\u00a0reinvent the wheel.<\/p>\n SS: Companies are staying private a lot longer. How do you deal with an entrepreneur who doesn\u2019t want to go public?<\/strong><\/p>\n BE: We haven\u2019t had that problem yet. Sometimes they get a day away from going public and they get acquired, like AppDynamics, but mostly [our portfolio companies] want to [get to an IPO].<\/p>\n SS:<\/strong>\u00a0In the broader market, there\u2019s a lot of narrative around founders wanting to avoid public markets today, though.<\/strong><\/p>\n RM:\u00a0I think there\u2019s an element, when you have companies, because they\u2019ve grown fast, they haven\u2019t put exceptional rigor into the kind of business metrics that they operate to, and frankly, it can be easier to just stay private. It\u2019s sometimes more comfortable. But our feedback to entrepreneurs is generally\u00a0that going public isn\u2019t the end game [but it\u2019s good to be preparing for it from the outset]. You have to do a whole host of things to be what we call public-company ready in terms of the sophistication with which you operate and run your financial processes and your controls, such that you really can understand and say in advance, \u2018This is the path we\u2019re going to be on,\u2019 then meet those expectations.<\/p>\n If you want to build something that\u2019s going to last, [you need to set]\u00a0the foundation for the things that are going to let you build a company that can be independent long term. If you don\u2019t want to go public because you don\u2019t want to do the hard things, that\u2019s fine. But\u00a0maybe that means your company doesn\u2019t have the strength required to get profitable; maybe it\u2019s something that\u2019s not going to keep growing. If you can\u2019t figure those things out and you stay private, it just means your chances of being a long-term independent company probably go down.<\/p>\n SS: Is there too much money in the market or no?<\/strong><\/p>\n BE: Yes, there\u2019s definitely too much money in the market. This isn\u2019t the hedge fund market. Venture capital isn\u2019t a scalable asset class. When we add capital to the market, returns go down. When we take out capital, returns go up.<\/p>\n SS: Do you feel like we\u2019re out of touch in the Bay Area? Do you have any concerns about this region right now?<\/strong><\/p>\n RM: I\u2019ve definitely drunk some of the Kool Aid. I\u2019ve been here since 1981.<\/p>\n The innovation cycle is a little strange, though. It\u2019s a weird place in time, dimension and space right now. I mean, we\u2019ve had a bubble financial market, but in the last five to seven years, we\u2019ve had this thing where the innovation aperture just keeps getting bigger and bigger. Take Uber, a $50 billion company. I guarantee you that even five to seven years ago, if you said to a VC, \u201cLet\u2019s use computer technology to change the taxi industry<\/em>,\u201d you\u2019d have gotten laughed out of the office. Whether it\u2019s SpaceX or Stemcentrix, there are all kinds of areas where digital technology is transforming these industries where technology never really had relevance before.<\/p>\n So I think it\u2019s maybe a little overdone \u2014 that always happens. But I do think the innovation cycle is extremely robust and that Silicon Valley\u00a0and the Bay Area [remains]\u00a0sort of ground zero [for innovation]. It\u2019s the heart of where people think about what\u2019s never been possible, so I\u2019m bullish on that.<\/p>\n There\u2019s probably too much capital, and that means prices will be high. But when you find these new disruptive things, even when prices are high, you can generate huge returns if you can figure which are the real deal and which are the pretenders that are going to fall off the curb.<\/p>\n