Meritech Capital Partners has just closed on a fifth, $500 million fund.

That’s a lot of money, but the 15-year-old, Palo Alto, Ca.-based late-stage venture firm could have raised much more than that. Fully 38 of the firm’s portfolio companies have either been acquired or gone public since the second half of 2009. Among them: Facebook, which went public in 2012; the e-commerce company Zulily, which held its IPO last November; and the social networking network Yammer, acquired by Microsoft for $1.2 billion in cash in 2012. In fact, Meritech’s fourth, $425 million fund, closed just three years ago, has already reaped nearly as much as investors poured into it.

So why didn’t Meritech collect more than it did, especially when startups are eschewing public markets longer and raising more of their capital from private investors? Because the firm’s five partners think the trend is temporary and not part of a permanent restructuring. Yesterday, I talked about it with Meritech’s cofounder and managing director, Paul Madera.

You’ve had loads of exits over the last five years. What do you see happening over the next 6 to 12 months in terms of IPOs and M&A?

I think we’ll continue to have a strong IPO market – which also helps M&A. A healthy IPO market means valuations are generally stable and increasing, and since acquirers rely on having stability and ever more valuable currency, it makes them more comfortable about reaching out and making acquisitions. It will also continue to be a great time to harvest liquidity from our venture portfolio.

Interesting phrasing. Do you think it’s a better time for exits than new investments?

It’s a wonderful time to harvest and a time to be very careful with new investments. I say that as someone who invests in later-stage companies, where the value is running ahead of the economic opportunity. Valuations are just horrific. Now is just not a great time to put a lot of money into later-stage companies. Now is a time to be cautious and slow and careful.

How much have valuations jumped in the last year, would you say?

I think they may be two or three times where they were a year ago, with similar performance parameters. Of course, that doesn’t apply to everything out there. But it does apply to a narrower group of companies that tend to be within certain sectors where you can show tremendous growth very quickly and that are backed by great, brand-name early-stage firms.

Soaring valuations are obviously being driven, at least in part, by “outside” investors, including mutual funds and hedge funds. Do you have any sense that their days of offering sky-high valuations are numbered?

A lot of groups pulled back from March through early June given the downturn in the public markets, but they’re back investing at full speed once again right now. They’re in a new sector of investing. It used to be early-, mid-, and late-stage investing. Now there’s this pre-IPO stage that’s growing dramatically in terms of the money going in, and it’s the functional result of companies staying private longer, which these private IPOs allow them to do and that companies have gotten quite smart about. They’re hiring agents and advisors who will let them get [in front of] these groups in an efficient way, and they’re running processes that let’s them get the best valuation and terms.

Is this the new normal?

I think it’s [part of] a cycle, that it’s transitory, and that’s why we didn’t raise more money. I think some of these groups are doing, and will do, fine. But the last time we saw firms doing pre-IPO stuff was in 1999 and 2000. And they aren’t doing it anymore.

Correction: The original version of this story stated that Meritech’s fourth fund had been nearly returned to investors already, but it hasn’t yet distributed all of its returns as of this writing.

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