Cheer someone on from the sidelines for long enough, and you might just get too attached.
“Everyone’s baby is beautiful, especially when you’ve been involved in some of these portfolio companies from a seed or Series A,” says Michael Romano, Chief Business Officer of Lightspeed Venture Partners.
That’s the reason why Lightspeed, the Menlo Park, Calif.-based VC that collectively oversees some $18 billion in assets under management across its funds, set up what it calls a “re-investment team” about three years ago. That and the company was anticipating a correction.
This new team, comprised of four people, has a couple of responsibilities: First, to standardize the metrics the firm is using to evaluate all its investments. Second, to challenge every single one of Lightspeed’s investment assumptions.
It’s one interesting thing Lightspeed partners told me they had been up to over the past few years—and likely one of the reasons the firm’s limited partners were willing to throw another $7.1 billion in their direction amid the widespread uncertainty we’re seeing in both the public and private markets. (You can read about some of those other things in my latest feature here)
So what exactly does this look like in practice? The team constructs its own forecasts, crunches its own data, and makes its own customer reference calls—then evaluates whether the firm is paying the right price before the checks are signed.
Lightspeed says the re-investment team put a damper on several follow-on investments that the firm looked at making last year.
“Sometimes it’s a great company—and it’s one that we know well—but the price just didn’t make sense,” Romano says. “We spent quite a lot of time last year, and the preceding years really, saying no.”
Approximately 70% of Lightspeed’s growth investments last year were made in pre-existing portfolio companies—where the investment team knew the founder and felt they had “asymmetric access” to the company’s performance and “long term tailwinds,” Romano says.
Come 2022, those “nos” likely weren’t a bad idea.
You can read my full piece on Lightspeed, including how their funds are performing and what’s next post-Jeremy Liew, here.
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Jessica Mathews Twitter: @jessicakmathews Email: jessica.mathews@fortune.com Submit a deal for the Term Sheet newsletter here.
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