Iconic New York venture capital firm Lerer Hippeau announced $230 million in additional funding across 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 following unannounced sixth seed and third Select funds, the firm said. Those totaled $215 million. The firm intends to make about 40 to 45 investments in the seed fund and then stick follow-on rounds to a mix of companies in its portfolio. Lerer Hippeau has invested in 400 portfolio companies since it was founded in 2010.
In addition, the company made some personnel changes, which included co-founding managing partner Ben Lerer coming back to the firm 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 brought on Tanaz Mody as Lerer Hippeau’s first head of people to support the portfolio.
Lerer and managing partner Eric Hippeau spoke to me about the new funds. The following was edited for length and clarity.
TechCrunch: Ben, how does it feel to come back to VC full-time?
Lehrer: It’s nice of you to say “back to VC full-time.” I started Thrillist basically out of college and didn’t start the fund until four years later with Ken (Lerer, his father) and Eric, so I always had a full-time operating job even as we started. I pride myself on doing a good job of time management and prioritization and working pretty tirelessly for a long time. I was trying to do both things, but this is actually the first time that I am 100% dedicated in my professional life to one thing and it feels really, really, really good. Sort of what I was meant to be doing.
TC: What was the fundraising environment like for these two funds?
Hippeau: We raised most of the money last year, and last year was a very different environment than it is today. Last year, all of the limited partners were completely overwhelmed by people raising two funds in one year or way more than they usually do. For us, it was okay because we’re well established. We’ve been in business 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 little tough because it was hard to get the LPs to pay attention to new faces since there were so many people returning for more money.
Lehrer: We have a really good base of folks who we’ve worked with and given a good return for a while and so maybe a little bit less of a high wire act.
TC: Why was now a good time to have a new fund?
Lehrer: For us, there is a sort of natural cadence to the investment time period that we have with the funds, typically it’s about two years. I think we really know what we’re good at, and we’ve stuck to our knitting. Our funds have been very organic in the way that we’ve grown and that we started as an early-stage fund. Five years later, we created Select with an express purpose of following on in later stages with our existing breakout portfolio companies. As the years have gone on, we incrementally checked up to the sort of the size of the funds. But we don’t want to be in the “AUM Hall of Fame.” We’re really about driving great returns for our partners and so we think that the fund sizes that we have are good. Over time we’ll continue to reassess our position in the market.
Hippeau: Consistency is the key for us. We don’t want to follow the ups and downs. We just want to continue with a persistent, consistent strategy.
TC: Is there anything new about where and how you are deploying the funds?
Hippeau: We talked about the seed fund, and the Select fund will be deployed to a mix of companies in our portfolio and then some Series A investments where we don’t have a prior seed investment in companies that we’re familiar with that we’ve been following. We started with mostly consumer companies in the very early days, and over the years, we have added a lot of B2B enterprise software, marketplaces, robotics automation and non-consumer facing companies. Today we’re investing equally in consumer and enterprise. We were jammed with generalists, but we like exploring new sectors as entrepreneurs start to think about how to disrupt new things.
Lehrer: Oftentimes we meet a company we incorrectly pass on, but stay close to the founder. We didn’t love the terms or the sort of setup for the round, but we’re really impressed with the founders. Companies that raised a year ago are coming back nine months or a year later and say they’ve made a lot of progress and are raising more money now. That’s a really interesting opportunity for a fund like ours to say we’ve gotten to know you, we’ve been able to watch and see you execute and we’re happy that we didn’t chase into last year’s insanity.
TC: Do you feel like a lot of VCs are holding on to dry powder right now?
Hippeau: For sure, particularly the late-stage investors because they’re having a hard time figuring out exactly what the prices should be. There’s been margin compression. We went from super high highs last year to quick, dramatic lows. People are trying to figure out what the real pricing should be. At the seed and the Series A, I would say it is pretty normal. It’s really mostly at B to C and then at the later stage.
TC: What about investment flow? Has it slowed down or are we ramping up to some major activity in the fourth quarter?
Lehrer: Early-stage pace across the market has remained pretty much the way it was. A lot of the later-stage funds have all this dry powder, but are not wanting to totally sit out and so they’ve calmed down and therefore they are participating more. There’s some Bs and Cs getting done, but these funds were hyperactive at the C, D and pre IPO stages, but with the IPO market closed and public multiples down, everyone is figuring out what’s happening. And you’re seeing companies wait a little bit: they want to get further along before they go to market. You’re also seeing investors saying, “I’ve got all this dry powder. I want to see where the floor is on price.” We’re really excited about deploying these funds right now. We think it’s going to be a very fruitful thing, but the business is still moving and changing more quickly than it has in a decade.