Joe Medved of Lerer Hippeau joins Nick to discuss The ‘Softbank Effect’, Financial Discipline and the Interworkings of a Top Seed Investment Firm. In this episode, we cover:
- The focus at Lerer Hippeau
- The adoption and integration of the Binary Capital Portfolio
- Why they dropped ventures from the name
- Joe’s take on the “Softbank Effect” and the challenges and opportunities created by it.
- how founders should think about raise amount and valuations
- The effect of late-stage capital on early stage investors
- The capital strategy mistakes that lead to startup death
- Joe’s take on early-stage investors taking early exits when they are offered liquidity.
- The strategy for their sixth, $150 million fund
- How Joe’s team approaches sourcing, vetting, diligence
- LH’s focus on outbound vs. inbound
- Joe mentions a key analysis item that is often overlooked by many investors
- Lerer Hippeau’s portfolio management process: How often they interact and what activities they engage in.
- The impact of raise amount on outcomes
Guest Links:
Quick Takeaways:
- Lerer Hippeau is a New York-first, seed-first fund. They have expanded investments to SF, LA, Canada, and Europe.
- They write a $1M check into $2-$3M rounds. They are very active and take a board seat.
- The early-stage Softbank portfolio was transferred over to Lerer Hippeau. At that point Joe also made the move. This is when Sofbank decided to focus on later stage, growth investing w/ their Vision Fund.
- The influx of late stage capital has significant impact on liquidity. Incremental, late-stage capital delays going public, lengthening time till liquidity.
- Lerer Hippeau adopted the Binary Capital portfolio in a similar fashion to the way they took over the Softbank early-stage portfolio.
- A big challenge to founders is financial discipline. There should be greater focus on optimizing outcomes.
- It’s important for founders to consider taking liquidity when they can, as it offers stability even when there are temporary downturns. This allows for greater risks.
- Lerer Hippeau reserves 2:1 for incremental Capital in select investments
- 3/4 of a firm’s decision is made by assessing the quality of the team.
- LH runs two regular meetings: One to discuss the investment pipeline and one for a broader discussion of the firm.
- When approaching firms, Lerer Hippeau doesn’t focus purely on themes. They are opportunistic. They start by identifying segments of interest and then a team member dives into that segment.
- The “direct to consumer” space is becoming an area of increasing interest. However, it’s often overlooked how vital experience is, especially within logistics and operations.
- At the Seed Stage, board meetings take a back seat to planning strategy, networking, fundraising, and improving engagement.
- Lerer Hippeau created a talent tracker containing connections to those with engineering and sales expertise, which is provided to their portfolio.
- Lerer Hippeau hosts events to facilitate interactions between those in their portfolio such as breakfast sessions. These are used to promote sharing of best practices.
- Mutual connections are the best way to get in contact with VCs.
- VCs should focus on leveraging data for investing decisions– biases often impact judgment.
