Venture Capital Gravitational Physics (with Ravi Mhatre)

**Eric Newcomer** (0:01)
Hey, it's Eric Newcomer, author of Newcomer. This week, I have a great guest, the top behind the scenes venture capitalist, Ravi Mhatre, who co-founded Lightspeed in 1999 Ravi's invested in Nutanix, MuleSoft, AppDynamics, Zscaler, Aurora, and Blend Labs, to name a few. He's perhaps the key partner at Lightspeed, which has raised $7 billion, and announced $7 billion in 2022
And we talk about the Silicon Valley Bank debacle, how the laws of gravity in venture capital world may or may not be changing. And generally he talks about what it's like to run a venture capital firm and invest at the same time. Give it a listen. Before we get there, I want to thank our launch sponsor, Vanta. Newcomers brought to you by Vanta. To close and grow major customers, you have to earn trust. But demonstrating your security and compliance can be time-consuming, tedious, and expensive until you use Vanta. Vanta automates up to 90% of the work for the most sought after security and privacy standards. Save time and money on compliance with Vanta's enterprise-ready trust management platform. For a limited time, newcomer listeners get $1,000 off Vanta. Go to vanta.com/newcomer to get started. Ravi, great to have you on the podcast. Thanks for coming on.

**Ravi Mhatre** (1:25)
Yeah, thanks for having me, Eric. Happy to be here.

**Eric Newcomer** (1:27)
I feel like you don't do a ton of podcasts. I've had a couple of behind-the-scenes players now, and I was really happy to get you on the podcast. I wanted to start off just like really zooming out. because you're someone who understands sort of the venture landscape, you know, built Lightspeed. You co-founded it in 1999, is that right?

**Ravi Mhatre** (1:45)
Yeah.

**Eric Newcomer** (1:46)
So that's just as the.com is unwinding. What was that like, founding a firm right ahead of.com? In 1999, and what inspired you to start Lightspeed at the time?

**Ravi Mhatre** (1:58)
Well, I guess the first sort of observation with hindsight, and you know, it's the same with founders of our company. Sometimes it's better that you don't know what you don't know. Had we known there was going to be sort of an existential downturn that affected every corner of technology, you know, nine to 12 months after we started the firm, I certain we would have done some things differently. Certainly, we started the firm. We raised a relatively large fund, one, even by today's standards. It was in the high hundreds of millions, you know, and our focus was at the time, there was a high-velocity market, but was to work with early-stage founders and really be high conviction.

**Eric Newcomer** (2:38)
Did it feel like you might not make it through the chasm?

**Ravi Mhatre** (2:41)
When we really realized how severe the trough was going to be, we probably had deployed about a third of the fund already. And you know, with hindsight, when you get into sort of downturns that big, it's like the rules of gravity, just somebody made that, you know, change them. And the rules of gravity that you were penciling out, all your assumptions to just don't apply anymore. So you're in the state of a little bit of vertigo and weightlessness where you've invested money in companies, their premise of how they're going to spend that money to build a product. And frankly, even who's going to have a sort of money in the market to buy your product, everything from the root assumptions up and the top assumptions down have changed. And so you're in a position where you're sort of staring at it and saying, hey, we did all of things we think kind of right, but when the kind of fundamental laws of physics change, you have to reorient in a way, and frankly, some of the things you've done, you just can't get the math to compile in a new environment where you're weightless and floating. And before you knew that there was some kind of pulling force to keep you grounded.

**Eric Newcomer** (3:41)
That is like the perfect metaphor for the question of this podcast, like the rules of gravity changing, the rules of physics changing. Does it feel like we're in that type of world now where the rules of gravity have changed? I mean, to sketch it out briefly, 2022 was sort of a brutal correction for tech stocks. To me, it seemed like early 2023, we had hope, and now we have this sort of SVB, Silicon Valley Bank crisis and broader banking situation. Summing that all up is that rules of gravity have gone away level situation to you or not quite.

**Ravi Mhatre** (4:18)
Now, having personally seen and at Lightspeed having experienced three major, I'd say, cyclical events for technology, first the 1999 through 03.com burst, then the financial crisis in 08, 09, most recently COVID, there are some things that are the same about companies having, and I'll get to this, fundamentally retool how they think about what they need to do to operate their businesses. So, there are some laws of physics that have changed, and they are going to be more or less painful to realign to, depending on how much a business was optimized for the 2021 and before environment. But what I would say is different at this point, and this is really more about the technology industry as a whole. When we started Lightspeed in 99, of the top 10 most valuable companies in the world, one was a technology company, was Microsoft, is valued around 200 billion. I think today, if even in the sort of depressed market environment, if you looked at the 10 most valuable companies in the world, it's something like seven or eight are technology companies, and this is Google, Facebook, Amazon, Baidu, Tesla, Apple, and there's a couple I'm probably forgetting. But these are companies that are valued in, some are in the trillions and many are in the high hundreds of billions. So if you just do that math, it's an example or a barometric reading of how much broader and secular technology is today. It pervades every industry. It's not really a vertical industry anymore. So when you say that, and there is a downturn and there are things that companies have to do to retool to the new physics. On the other hand, if you are a technology innovator, it is not a situation where every kind of potential buyer or consumer of what you do has essentially gone into a mode where they are in a defensive posture. And that is good news because it means that it's not like somebody said you went from having gravity to being weightless. It's more saying, hey, we went from an environment where we were at kind of five gravities in terms of the pull in the market in 2021 And you didn't have to worry about whether you were making a profit because with low interest rates and the ability literally for capital to be available on demand at a higher price at a very non-dilutive basis, you could make those assumptions about the fuel you were going to have and you could build product and you could grow. And I'd say that the laws of physics that have changed now are, hey, maybe we're in a half gravitational pull environment and you're feeling like based on the way you ran your company before, your feet are slipping a little bit on the ground. But if you take a hard nosed look at what you need to do, there are still buyers there, but one needs to look at how you operate a business in a way that is fundamentally more operating efficient that what people are buying allows you as a company to extract value back from your customer. And then in terms of how you operate your business, flow that through to something that can generate, if not profit, only a much smaller margin of loss. And so that can be a pretty traumatic exercise in terms of the DNA of the company organism, but it is a doable transition.