Iconic New York venture capital firm Lerer Hippeau announced $230 million in additional funding in two new funds: LH Seed VIII, which focuses on pre-seed and seed-stage companies, and LH Select IV, which invests in companies from Series A to C.
The new funds come about two years after the unannounced sixth seed and third Select fund, the company said. Those totaled $215 million. The company plans to make about 40 to 45 investments in the seed fund and then hold follow-up rounds on a mix of companies in its portfolio. Lerer Hippeau has invested in 400 portfolio companies since its inception in 2010.
In addition, the company has made some personnel changes including co-founder, managing partner Ben Lerer returning to the company full-time after completing the sale of Group Nine Media to Vox Media earlier this year. He started Thrillist with Adam Rich in 2004, which later became Group Nine Media in 2016.
The firm also promoted Graham Brown to managing partner and engaged Tanaz Mody as Lerer Hippeau’s first head of staff to support the portfolio.
Lerer and managing partner Eric Hippeau spoke to me about the new funds. The following has been edited for length and clarity.
australiabusinessblog.com: Ben, how does it feel to return to VC full-time?
Learn: It’s nice of you to say “back to VC full time”. I actually started Thrillist after college and didn’t start the fund until four years later with Ken (Lerer, his father) and Eric, so I’d always had a full-time operational job even when we started. I am proud to have done a good job of time management and prioritization and have worked quite tirelessly for a long time. I tried to do both things, but this is actually the first time in my professional life that I’ve been 100% committed to one thing and it feels very, very, very good. Kind of what I had to do.
TC: What was the fundraising environment like for these two funds?
hippeau: Last year we raised the most money and last year was a very different environment than now. Last year, all limited partners were completely overwhelmed with people raising two funds in one year, or much more than they usually do. For us it was ok because we are well established. We have been around for 12 years and we have very loyal LPs. It was the usual amount of work, but we heard from others that it was a bit difficult because it was difficult to get the LP’s attention to new faces, because so many people came back for more money.
Learn: We’ve got a really good base of people that we’ve worked with and given good returns for a while and so maybe a little less pompous.
TC: Why was now a good time to have a new fund?
Learn: For us, there’s kind of a natural cadence for the investment period we have with the funds, usually it’s about two years. I think we really know what we’re good at, and we’ve stuck with our knitting. Our funds have been very organic in the way we have grown and started as an early stage fund. Five years later, we founded Select with the express purpose of moving forward with our existing breakout portfolio companies at later stages. Over the years, we have monitored the size of the funds step by step. But we don’t want to be in the “AUM Hall of Fame”. We are really concerned with delivering great returns for our partners and so we think the fund size we have is good. Over time, we will continue to evaluate our position in the market.
hippeau: Consistency is the keyword for us. We don’t want to follow the ups and downs. We just want to continue with a sustained, consistent strategy.
TC: Is there anything new about where and how to deploy the funds?
hippeau: We’ve talked about the seed fund and the Select fund will be deployed for a mix of companies in our portfolio and then some Series A investments where we don’t have previous seed investments in companies that we are familiar with and have followed. We started with mostly consumer businesses in the beginning and over the years we’ve added a lot of B2B business software, marketplaces, robot automation and non-consumer oriented businesses. Today we invest as much in consumers as we invest in businesses. We were full of generalists, but we like exploring new sectors as entrepreneurs start thinking about how to disrupt new things.
Learn: Often we meet a company that we pass on incorrectly, but stay close to the founder. We didn’t like the conditions or the kind of setup for the round, but we’re really impressed with the founders. Companies that raised money a year ago come back nine months or a year later and say they’ve made a lot of progress and are now raising more money. That’s a really interesting opportunity for a fund like ours to say we got to know you, we got to see and see how you perform and we’re glad we didn’t go after last year’s madness.
TC: Do you feel like a lot of VCs are sticking to dry powder right now?
hippeau: Sure, especially the late stage investors as they have a hard time figuring out exactly what the prices should be. There has been margin compression. We went from super highs last year to fast, dramatic lows. People are trying to figure out what the real price should be. At the seed and Serie A I would say it’s pretty normal. It’s really mostly from B to C and then at the later stage.
TC: What about the investment flow? Has it slowed down or are we doing some significant activity in the fourth quarter?
Learn: The early pace in the market has remained much the same. A lot of the later funds have all this dry powder but don’t want to sit completely still and so they have calmed down and therefore they are more involved. Some B’s and C’s are being done but these funds were hyperactive in the C, D and pre-IPO phases but now that the IPO market is closed and public multiples are low everyone is figuring out what’s happening . And you see companies waiting a little longer: they want to progress before they go on the market. You also see investors say, “I have all this dry powder. I want to see where the price is.” We are very excited about deploying these funds now. We think it will be a very fruitful business, but the business is still moving and changing faster than it has been in ten years.