20VC Lerer Hippeau's Ben Lerer on 'Investing With Imagination', Strategies To Avoid Fomo & Develop Pattern Recognition As An Investor and Why We Have Seen The Rise of Direct To Consumer Business & Will This Continue With Further M&A

Summary Notes


In this episode of "20 minutes VC," host Harry Stebbings interviews Ben Lerer, managing partner at Lerer Hippeau Ventures and co-founder and CEO of Thrillist Media Group. Lerer, a celebrated entrepreneur recognized by Forbes and Ernst & Young, discusses his accidental venture into VC through his experience building Thrillist and the Huffington Post with his father, Ken Lerer. They discuss the evolution of the New York tech ecosystem, the importance of operational experience for VCs, and maintaining the founder's vision when considering mergers and acquisitions. Lerer also tackles the rise of direct-to-consumer businesses, emphasizing the necessity of adapting to modern marketing channels and consumer behavior. He shares insights on brand building, the changing landscape of retail, and the significance of mission-driven companies, highlighting his recent investment in Everytable, a socially conscious food venture.

Summary Notes

Introduction to the Episode

  • Harry Stebbings introduces Ben Lerer, Managing Partner at Lerer Hippeau and CEO at Thrillist Media Group.
  • Ben Lerer's accolades include Ernst & Young's 2013 Entrepreneur of the Year award, Forbes list of most powerful CEOs under 40, Entrepreneur magazine's top 5 entrepreneurs of the year, and Silicon Alley Insider's 100 coolest people in tech.
  • Acknowledgment to Kate Shillow at Galvanize for the introduction to Ben Lerer.
  • Mention of Cooley, a global law firm specializing in startups and venture capital.
  • Promotion of Eve, the UK's number one direct-to-consumer mattress company.

"I'm thrilled to welcome Ben Lerer. Now Ben is a managing partner, Lerer Hippeau, and he's also the co-founder and CEO at Thrillist Media Group."

The quote introduces Ben Lerer as the guest for the episode, highlighting his roles and achievements.

Ben Lerer's Path into Venture Capital

  • Ben Lerer discusses how he "fell backwards into venture" while operating and building Thrillist.
  • His father, co-founder of the Huffington Post, and Ben began making small angel investments in New York's tech ecosystem.
  • They noticed a shift in the ecosystem, with more people wanting to start businesses rather than joining established companies.
  • The success of their early investments, including companies like Business Insider and BuzzFeed, led to the idea of raising a fund.
  • Lerer Hippeau Ventures was formed, with Ben bringing deal flow and his father bringing capital.

"I sort of fell backwards into venture in that I had been operating and building Thrillist, which I'm still building, and actually my father was operating as well and had been the co-founder of the Huffington Post."

This quote explains how Ben Lerer's venture capital career began as a result of his and his father's entrepreneurial activities and angel investments.

The Shift in New York's Tech Ecosystem

  • A decade ago, the New York tech ecosystem was not as vibrant as it is today.
  • The popularity of Facebook and the portrayal of entrepreneurs in media like "The Social Network" inspired more people to start companies.
  • Ben Lerer and his father saw this shift as an opportunity to have a more active role in the ecosystem.

"And in particular in New York, people graduating from the best colleges and the best graduate schools didn't automatically want to go and start companies like they do today."

The quote highlights the change in career aspirations among graduates in New York, shifting towards entrepreneurship.

Formation of Lerer Hippeau Ventures

  • Ben Lerer and his father decided to raise a venture fund to invest in startups.
  • Despite being young and having limited success in raising money himself, Ben's access to deal flow complemented his father's ability to raise capital.
  • Their first group of investments included successful companies like Warby Parker, Birchbox, and Everlane.
  • The success and brand recognition of these investments allowed them to raise more money and scale their operations.
  • Eric Hippeau joined the team after selling the Huffington Post, marking a turning point in their venture capital endeavors.

"We said, let's go see if we can raise some money. He raised a lot of money. I raised approximately no money, but 23."

Ben Lerer humorously comments on the initial fundraising efforts for their venture fund, where his father was more successful in raising capital.

Ben Lerer's Perspective on Venture Capital

  • Ben Lerer considers himself an operator first, who has the ability to invest due to the structure of his business life.
  • He believes the best early-stage investors have operating experience, having built and sold their own businesses, rather than just being skilled in financial analysis.
  • Lerer emphasizes the importance of understanding the challenges of building a business from an operator's perspective for successful venture investing.

"At the end of the day, I don't feel like I am a venture capitalist. I feel like I'm an operator who is able to invest because of the way we sort of set up our life and our businesses."

This quote reflects Ben Lerer's self-perception as an entrepreneur and operator, rather than strictly a venture capitalist, which influences his approach to investing.

The Mentality Shift in Institutional Investing

  • Ben Lerer discusses the transition from making small angel investments with his father to managing institutional funds.
  • He believes that the best scenario is to invest other people's money with the same care as one's own money.
  • The goal is to invest in things that you're passionate about and believe in, regardless of whose money it is.

"I think in its best scenario, you invest other people's money the same way that you would invest your own money, because obviously you're very careful with your own money and you're trying to turn some of it into more of it."

The quote captures Ben Lerer's investment philosophy, which is to treat investor funds with the same diligence and care as one would with personal funds.

Evolution of Investment Strategy

  • Transitioning from angel investing to fund management necessitates a more structured approach to risk and reward.
  • Maintaining a consistent line of communication with portfolio companies is important to avoid surprises.
  • The core investment principle remains the same: investing in people who solve obvious problems with amazing ideas.
  • The check sizes have increased, and there is now a focus on securing terms that provide optionality in future funding rounds.

"I think having to be a little bit more buttoned up around thinking about the sort of balancing of risk and reward and thinking about reporting and thinking about just like how we have a real line into all of our companies at all times and know what's going on so that we don't have surprises is probably the biggest difference."

The quote emphasizes the shift from a casual approach in angel investing to a more meticulous and informed approach in fund management, highlighting the importance of risk management and constant communication with portfolio companies.

Importance of Brand in Investment

  • Creating a fund and institutionalizing investment practices helped in building a brand.
  • A strong brand attracts a high volume of deal flow, allowing for better identification of exceptional companies.
  • The balance between professional fund investing and using personal judgment and intuition is crucial.

"And I think by creating a fund and by sort of institutionalizing what we did, we were able to build a brand. And the importance of brand shouldn't be understated."

This quote underscores the strategic advantage of having a recognized brand in the investment industry, which leads to better deal flow and potential investment opportunities.

Dealing with FOMO in Investing

  • FOMO is more prevalent in early-stage investing due to the speculative nature of the investments.
  • Awareness and a strategic approach to investment decisions help mitigate FOMO.
  • Decision-making should be based on the merits of the company, not on co-investor identities or fear of missing out.
  • Leading investment rounds requires conviction and the ability to make quick decisions, which can help avoid FOMO.

"Being aware of it is how you don't fall victim to it. Always making sure that you are making investments, not because of a herd mentality, not out of fear, but out of sort of offensive desire and interest in a company, not out of. Oh, but if we miss this, we're going to look like schmucks because we see it first and because our peers are doing it."

The quote highlights the importance of self-awareness and intentionality in investment decisions to prevent FOMO from influencing choices, emphasizing the need for genuine interest and belief in a company's potential.

Evolution of Pattern Recognition in Investing

  • Exposure to various companies' operations, successes, and failures provides a rich data set for pattern recognition.
  • Disruption is moving beyond core industries into more specialized fields.
  • The team remains the most important factor in investment decisions, rather than being swayed by appealing but unfamiliar ideas.

"And so more data is better as long as you're willing to sort of parse through it."

This quote reflects on the value of extensive experience and the diverse insights gained from it, which contribute to more informed investment decisions based on pattern recognition.

"It's rarer that we see some life changing, brilliant invention or idea that we never imagined would be possible."

The quote suggests that groundbreaking ideas are becoming less frequent, and investors are seeing more innovation in niche areas outside of their core expertise. This highlights the importance of staying focused on familiar sectors and prioritizing team quality over the allure of novel concepts.

Rise of Direct to Consumer Business Models

  • Direct to consumer (DTC) models are appealing because they allow businesses to own customer relationships and data.
  • DTC avoids margin dilution from intermediaries and leverages the internet to build brands more quickly and cost-effectively.
  • Being DTC alone is not considered disruptive anymore; it's about how businesses build and advertise their brands using modern technology.
  • Traditional retail companies built on old models are not poised to thrive due to outdated skills and consumer understanding.
  • Retail and media are expected to undergo consolidation, with acquisitions of DTC brands by traditional companies.

"Direct to consumer, from a commerce perspective, I think is very appealing for obvious reasons, in that you own your own customer, you own your own data, you sort of control your own destiny, you're able to avoid margin dilution from middlemen."

This quote underscores the core advantages of a DTC approach, emphasizing the control and efficiency it grants a business over its operations and customer relationships.

"Just selling products without a middleman is no longer enough to sort of consider yourself to be sort of breaking the old model."

This quote suggests that simply removing intermediaries is not sufficient for disruption; businesses must innovate beyond that to truly break away from traditional models.

"The traditional guys in retail, the traditional guys in media, really, the traditional guys in sort of most consumer businesses are all waking up and saying, oh shit. This digital thing, which has been an annoyance for the last ten or 15 years, is going to be a lot more than an annoyance for the next ten or 15 years."

This quote reflects the realization by traditional businesses that digital transformation is not a temporary challenge but a fundamental shift in the industry that requires a strategic response, including acquisitions and embracing new business models.

M&A versus Independent Growth for Startups

  • The decision between M&A and staying private is driven by the founding team's vision and desires.
  • Investors should not dictate the decision, but there are times when an offer may be too good for a company to refuse.
  • Founders should respect their investors' need for returns, potentially offering liquidity opportunities even if they choose not to sell the company.
  • Companies like Warby Parker exemplify a long-term, independent growth approach while acknowledging investor interests.

"I think it's very driven by the founding team and what they want."

This quote emphasizes that the choice between M&A and independent growth is primarily influenced by the startup founders' goals and vision for the company.

"We'd love our companies to sort of take the approach that you've seen a war be. Take, for instance, which is we're going to build something for 20 years."

This quote reflects the speaker's preference for startups to aim for long-term, sustainable growth, similar to the approach taken by Warby Parker.

Brand Building in the Modern Era versus 20 Years Ago

  • Building a brand was easier 20 years ago due to the dominance of television advertising.
  • Today, consumer attention is fragmented across various channels, making brand building more complex.
  • Despite increased competition, brands built for modern platforms can grow more efficiently if they are a step ahead in using these channels.

"Brand building 20 years ago was easier in that you sort of could buy your brand growth, which was, there was really one channel that was so much more powerful than all the others from a marketing perspective, which was television advertising."

This quote contrasts the past simplicity of brand building through TV advertising with the current complexity due to the fragmentation of consumer attention across multiple channels.

"It's a double edged sword. It's more democratic today, sort of anyone can win, but there are more people competing for time and a more diverse range of places where people spend their time."

This quote captures the dual nature of modern brand building: while it is more accessible to a broader range of players, the competition is fiercer due to the multiplicity of platforms where consumers can be reached.

Current Business Climate

  • The business world is perceived as scary and frantic.
  • Rapid changes contribute to the current atmosphere in the business environment.

this, it's just a sort of scary, frantic business world right now because of how quickly things are changing.

This quote highlights the speaker's view on the current pace of change in the business world, which is causing a sense of fear and urgency.

Quick Fire Segment Overview

  • The quick fire segment is a rapid response section of the conversation.
  • Participants respond to statements with thoughts in 60 seconds or less.

And then I want to finish today on a quick fire. So I say a statement and you give me your thoughts in 60 seconds or less per one. How does that fire?

The speaker is introducing a segment of the conversation where responses should be quick and succinct.

Reading Preferences

  • The speaker prefers smutty fiction over nonfiction.
  • "The Goldfinch" is currently their favorite book.
  • They have not read the "50 Shades" books.

Favorite book? Well, I don't read nonfiction. I read smutty fiction. I don't know what my favorite. I love so many 50 shades books. I have not read 50 shades. I'm reading the Goldfinch right now, which I adore. I'm loving the Goldfinch. So today, that's my favorite book, the Goldfinch.

This quote reveals the speaker's current favorite book and their general preference for fiction, specifically mentioning "The Goldfinch" as a book they are enjoying.

Vision for Lira

  • Lira aims to be the strongest early-stage technology investment fund globally.
  • The fund focuses on early-stage investing and building a strong brand.
  • There is a possibility of supporting companies with later-stage money through opportunity funds.

Well, I think we've very clearly decided as a fund, we love early stage investing. We think we built an incredibly strong brand in it. We think we offer a lot of value as a partner to sort of early founders. And so hopefully we can have a bunch more funds doing more of the same, building a great portfolio of early stage founders. Maybe over time, we're helping some of our companies with more later stage money, with some sort of opportunity funds of various sorts. But generally speaking, we want to be the strongest fund in early stage technology investing in the world.

This quote outlines the strategic direction of Lira, emphasizing their commitment to early-stage technology investing and brand building.

Mentorship and Business Advice

  • The speaker's father is their biggest mentor.
  • Their father emphasized happiness before business performance.
  • This philosophy is passed on to the speaker's son and the companies they work with.

My father, for sure, he had me as his son, is how it came about. We've been partnered on investing for a long time and obviously built similar businesses at Huffpo and thrillist and all that's great. But I think just the way that he's advised me from a business perspective in particular around making sure that before he worries about the performance of the business, he worries about me being happy, is a very good lesson and one that I'm trying to pass on to my son and one that I think in some weird way, I actually try to sort of pass on to the companies we work with as well in just helping them understand that while this is important and is serious and we do care deeply about making a return and the business part of this, that this isn't life or death and that you got to have fun while you're building these things.

The speaker credits their father as a mentor who instilled in them the importance of happiness over business success, a lesson they share with others.

Political Concerns

  • The speaker expresses strong concerns about the possibility of Donald Trump winning the presidency.
  • They fear complacency among voters who assume Hillary Clinton will win.
  • The speaker views a Trump presidency as potentially the worst event in U.S. history.
  • Trump is characterized as enabling racist, sexist, and misogynistic behavior.

I am very nervous in that if we take for granted that Hillary has a huge lead and is obviously 1 million times more qualified, we might not show up at the polls the way we need to, to put him down and make him never show his face again. So I'm worried just in people getting complacent. Him becoming the president would be the worst thing that has happened in the history of the United States since its inception. I think he is a racist pig who makes other racist, sexist, misogynistic, disgusting people feel like they are allowed to share those opinions and believe those things. And I would feel very uncomfortable having my family live in a country that would nominate somebody like Donald Trump to be the president.

The speaker is candidly sharing their fears about the potential impact of a Trump presidency on the United States and the importance of voter turnout to prevent it.

Investment in Everytable

  • Everytable is a fast-casual restaurant concept focused on healthy, affordable food.
  • The mission-driven company aims to address public health issues in urban neighborhoods.
  • Dynamic pricing is used to support affordable food options in less affluent areas.
  • The founder, Sam Polk, is praised for his genuine desire to help others and has written a book on the subject.

Our most recent public investment, I think, is a company called every table. And every table is a... Think of it as, like, a manche or a sweet green in that it's a fast casual restaurant concept. It's launched in Los Angeles. And the idea behind it is that it's really mission driven in that the founder, this amazing sort of reformed Wall street banker named Sam Polk, had an idea to solve a public health crisis, which is the obesity and diabetes and just incredibly unhealthy eating that happens in less well off urban neighborhoods around the country. So the concept is that he'll open up healthy, incredibly affordable, incredibly high quality commissary well. There'll be a commissary kitchen that creates for storefronts in less well off neighborhoods that charge anywhere from sort of serving, which is competitive with all the sort of very unhealthy fast food in those areas. To counter that, we'll also open up every tables in more well off business neighborhoods where they'll actually have dynamic pricing, where people in the sort of more well off neighborhoods will pay more for their food, knowing that they are actually helping to offset food in these other neighborhoods where there is the real crisis for him started with something he realized around single mothers raising multiple children and just raising their families in incredibly unhealthy ways that led to shorter lifespans and real health problems. And so what I love about this business is he's building an amazing new food brand, but he's doing it with this incredible cause and this real mission behind it. And it's not a fun little charity hook. It is truly the soul of the business to help people. And Sam has just written an amazing book called for the Love of money, which I believe is going to, if it's not already a New York Times bestseller, is well on its way to being one. It's all about the addiction to money and sort of living a reformed life around really wanting to help people. And I think that that genuine desire to do something that's great for other people, will show through in the concept, will endear his consumers to him, will endear investors and vcs to him, and ultimately give him the sort of tools he needs to build a really big business. And so that's why we did that deal.

This quote provides insight into the speaker's investment in Everytable, highlighting the company's mission, strategy, and the founder's commitment to social impact.

Appreciation and Networking

  • The speakers express gratitude for each other's time and contributions.
  • They offer to assist with introductions and further networking opportunities.

Of course. Thank you so much for having me and I love the show and keep doing it. And if I can ever help with any introductions, just ping me.

This quote reflects the speaker's appreciation for being on the show and willingness to support the host with networking in the future.

Show Reflections

  • The host reflects on the enjoyment of recording the episode with Ben.
  • Acknowledgment of Kate Schiller's role in making the introduction for the interview.
  • Listeners are encouraged to engage with the show through various social media and newsletter channels.

It's funny when you listen back to shows, you remember some with, let's say, more fondness than others. And listening back to that episode today with Ben was so much fun to record and it's been such a pleasure getting to know Ben and a huge hand to him for giving up his time to be on the show. I really do appreciate all he's done for me. And I'd like to say a huge thank you to Kate Schiller at galvanized for making the instruction to Ben today, without which the interview could not have happened.

The host reminisces about the recording experience and expresses gratitude for the contributions that made the episode possible.

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