So I spent some time on the phone with John Malloy, a general partner with BlueRun Ventures, who led the original $14 million investment in Waze. What follows is an edited transcript of our conversation.

FORTUNE: What was the original investment thesis in 2008?

MALLOY: I met the guys at Mobile Congress in Barcelona that February. If you think about that time, the iPhone had been launched but it wasn’t yet clear it would disrupt. In fact, there was a lot of skepticism from incumbents. But we felt that mobile was all about adoption and commoditization, and that it would apply to what we were starting to call smartphones. That meant that new phones would eventually look like the iPhone, with GPS chips becoming ubiquitous and very cheap.

So we go into a meeting with the two tech founders of the company who tell us that there’s a way to create maps by using these devices, and that they basically have a community of people working on it in their spare time. Our bet was basically that they could disrupt old-fashioned cartography, and that they were at just the right time to begin trying it.

Weren’t there other startups with similar thoughts?

From a data science standpoint, there was no one on the level of the technical founders here. Throughout the history of this company, anytime you’d talk to people from the traditional map industry they’d argue what Waze wanted to do was impossible. So they didn’t hire any of those people. It was kind of like the PayPal experience in that we didn’t hire anyone from the banking industry [note: BlueRun was an original investor in PayPal, which was sold to eBay for $1.5 billion in 2002]. You don’t want to get bounded by what someone else thinks is a limit.

In the beginning, the guys used game mechanics just to get people to come on the app because we didn’t have much for people to do. Just giving little nick-nacks, which let them predict algorithmically how much someone would deviate for the sake of the game. That let the company know what was reasonable for someone to deviate for a cheaper cup of coffee, for example.

How worried were you that either a major incumbent like Google or a big geo-location startup like Foursquare would become a direct competitor?

You always have that fear, and great entrepreneurs tend to be on the paranoid side. I was probably a bit more sanguine than the team because I had such great faith in them. Really, there is not a more deserving bunch of people – a lot of them were CEOs at other companies who came in because they were excited about the opportunity. They all did what great entrepreneurs do – they worked harder when they got worried. And they kept focused on trying to figure out how to make your life better in traffic, not on how to be cool.

For example, I went with these guys to China where they would be intent on driving into the teeth of traffic in Shanghai. Or when they were out here we’d take the longest way to a basketball game. I’m not a good person in those situations, but they were so intent on constantly testing their algorithm against everyone else’s to see how accurate they were on ETA. Our users tell us there is no one better on ETA, and that focus is why.

The company was founded in Israel, and reports have suggested that Facebook was insistent the entire team move to Silicon Valley as an acquisition condition. How often did you discuss moving the company, prior to the sale talks?

We had them from the very beginning, and talked about it all the time. As a mobile specialist it’s all about scale and you have to be able to follow the market.

The company really took off and grew well in Israel, and then expanded organically into a lot of other markets. Some of it seemed random, like how Italy adopted us and Spain really didn’t. But our big break was when Noam Bardin came in as CEO and he moved to California. It was very important because we always felt we’d need presence out here to best establish an ad-based model. And then there were other key hires here, like our head of partnerships Di-Ann Eisnor.

But it also helped that we still had a great R&D team in Israel, particularly because the hiring environment wasn’t as crazy there. There obviously are some inefficiencies having offices that far apart, but if you want to be a global company you need to make these choices.

You didn’t invest in the company’s final VC round, which brought in Kleiner Perkins and Horizon Ventures. Why not?

In every round I invested in as much as I possibly could, which is why we’re now the largest shareholder.

There have been reports for months about Waze being in acquisition talks. Did those leaks have any tangible impact on negotiations?

No, although it does make things harder emotionally. Particularly because the press so often writes things that are 70% true, and I have no idea where the other 30% is coming from.

One other thing to remember is that there’s a longstanding frustration in Israel about not having a breakthrough consumer tech company, and we felt that pressure. Maybe Silicon Valley people don’t understand it, but to us this felt like a national treasure to Israel. The Prime Minister called Noam when the Google news came out. President Obama doesn’t call a Silicon Valley company when it gets sold.

Mayor Bloomberg called Tumblr’s David Karp…

Right, because he wants to make a New York tech scene and understands how these sorts of deals help. And those local pressures fuel a lot of the press activity, which was unfortunate but I don’t think had an actual impact on the transaction.

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