Lightspeed just filed for $1.8 billion in new funding, as the race continues

Just a day after General Catalyst, the 18-year-old venture firm, revealed plans in an SEC filing to raise a record $1.375 billion in capital, another firm that we’d said was likely to file any second has done just that.

According to a fresh SEC filing, Lightspeed Venture Partners, also 18 years old, is raising a record $1.8 billion in new capital commitments from its investors, just two years after raising what was then a record for the firm: $1.2 billion in funding across two funds (one early-stage and the other for “select” companies in its portfolio that had garnered traction).

Still on our watch list: news of bigger-and-better-than-ever funds from other firms that announced their latest funds roughly two years ago, including Founders Fund, Andreessen Horowitz and Accel Partners.

The supersizing of venture firms isn’t a shock, as we wrote yesterday — though it’s also not necessarily good for returns, as we also noted. Right now, venture firms are reacting in part to the $100 billion SoftBank Vision Fund, which SoftBank has hinted is merely the first of more gigantic funds it plans to raise, including from investors in the Middle East who’d like to plug more money into Silicon Valley than they’ve been able to do historically.

The game, as ever, has also changed, these firms could argue. For one thing, the size of rounds has soared in recent years, making it easy for venture firms to convince themselves that to “stay in the game,” they need to have more cash at their disposal.

Further, so-called limited partners from universities, pension funds and elsewhere want to plug more money into venture capital, given the lackluster performance some other asset classes have produced.

When they want to write bigger checks to the funds in which they are already investors, the funds often try accommodating them out of loyalty. (We’re guessing the greater management fees they receive, which are tied to the amount of assets they manage, are also persuasive.)

What’s neglected in this race is the fact that the biggest outcomes can usually be traced to the earlier rounds in which VCs participate. Look at Sequoia’s early investment in Dropbox, for example, or Lightspeed’s early check to Snapchat. No matter the outcome of these companies, short of total failure, both venture firms will have made a mint, unlike later investors that might not be able to say the same.

There is also ample evidence that it’s far harder to produce meaningful returns to investors when managing a giant fund. (This Kaufmann study from 2012 is among the mostly highly cited, if you’re curious.)

Whether raising so much will prove wise for Lightspeed is an open question. What is not in doubt: Lightspeed is right now among the best-performing venture firms in Silicon Valley.

In addition to being the first institutional investor in now publicly traded Snap, the company wrote early checks to MuleSoft, which staged a successful IPO in 2018; in StitchFix, which staged a successful IPO in 2018; in AppDynamics, which sold to Cisco for $3.7 billion last year. It was an early investor in Nimble Storage, which sold to Hewlett Packard Enterprise for just north of $1 billion in cash last March. And just two weeks ago, another of its portfolio companies, Zscaler, also staged a successful IPO.

At a StrictlyVC event hosted last year by this editor, firm co-founders Ravi Mhatre and Barry Eggers talked about their very long “overnight” success story, and about the importance of funding companies early to help them set up durable businesses.

It will be interesting to see whether this new capital is invested in more early-stage deals, or the firm sees growing opportunity to compete at the growth stage. Probably both? Stay tuned.

Pictured, left to right: investors Semil Shah, Ravi Mhatre, and Barry Eggers.