- A changing of the guard is underway at Boston-based venture capital firm Underscore VC.
- Lily Lyman, a stalwart supporter of enterprise startups, has been identified as the next leader.
- Her competitive drive and sterling reputation give her the potential to boost the firm's standing.
Lily Lyman, a partner at the early-stage firm Underscore, has been known to lace up her cleats to chase a deal.
In her second year as a principal, she spent months courting founder Mike Greene to invest in a round of funding. His startup, Hi Marley, allows insurance providers to text with customers, and it had several name-brand firms circling. In her final attempt to win the deal, Lyman offered to coach his 10-year-old daughter's lacrosse team. She played midfield for Harvard University.
"As part of the term sheet, she included a picture of her in full lacrosse gear, mouthpiece in," Greene said.
She won the deal, and Greene took her up on the offer.
The average founder in the Valley might not know Lyman, but she's become a force in Boston's startup scene and the wider world of early-stage investing. She arrived at Underscore after four years at Facebook, where she worked with telecom companies worldwide to bring a hundred million new users to the app. The former growth hacker has made a name for herself over the past six years as an ardent backer of future-of-work software, including companies like insurtech startup Hi Marley, the events business Goldcast, and the phone-answering service Slang.ai — all of which graduated from seed to early stage.
Now, the weight of Underscore's future falls on Lyman as she ascends to a more substantial role. The nine-year-old firm is undergoing a generational transition, Business Insider has learned, positioning Lyman as its next leader.
The succession plan has been in progress for more than a year since founder Michael Skok suffered a brain tumor and stepped back from investing. Skok's cofounder John Pearce, who previously served as chief executive of cloud giant Demandware, died unexpectedly at age 69 last fall.
Lyman's promotion to managing partner is a boon for Underscore, known locally for its stalwart support of Boston's founders — about half of its capital flows into the region, according to Lyman — but flies under the radar of distant entrepreneurs. Her expertise and sterling reputation among founders she invests in give her the potential to raise the firm's profile to new heights.
Speaking to people who know Lyman, it was clear that her peers already looked to her as the face of Underscore.
"I didn't have to tell everybody, 'I think we should appoint Lily,'" said Skok. "Leaders are not appointed, they're acknowledged. And Lily is the acknowledged leader."
The six degrees of Lily Lyman
On a frigid day in Boston, I met Lyman at a Japanese cafe near the Old State House. The venture capitalist, wearing a cherry red cardigan and Apple Watch, cracked open a notebook and set it beside an iced coffee. Before we began, she confessed she was "not interesting enough for this."
Lyman is modest but not meek. She said being a middle child made her fiercely competitive as a young gymnast and a college athlete. Her partner Skok recalled her gusto during a company offsite, saying, "Lily would make damn sure she wins the ping-pong tournament."
Lyman's Facebook credentials could have given her a ticket to many venture firms located down the road in Menlo Park. But a friend, Alessandra Henderson, a founder of the menopause care provider Elektra Health, encouraged her to meet Underscore on the other side of the country. Lyman was in her first trimester of pregnancy when she took a red-eye flight to attend one of its events.
In a hotel conference room buzzing with participants from the Boston tech scene, Lyman got a taste of Underscore's secret sauce. The Core Community is an invite-only coalition of hundreds of Boston's leading entrepreneurs, executives, and tech experts, that serves to provide founders with the resources they need to build an enduring business. For their support — and deal flow — they get carried interest in the fund or a share of profits.
"The thesis is that if you get the right people around the business at the right time, it'll change the trajectory of the business," Lyman said. "People are everything."
Since taking the job, Lyman has only increased her reach. She found a friend and mentor in the head of venture capital at JPMorgan, Pamela Aldsworth; she serves as a leader of the Boston chapter of All Raise and the New England Venture Capital Association; and she fosters the firm's relationships with funds like Dorm Room Fund, MIT Sandbox, and the Allston Venture Fund at Harvard.
"Lily is a gem — a prime example of Boston serving as a talent magnet, even for those wayward souls who temporarily venture West," said Jeff Bussgang, a cofounder and general partner at Boston's Flybridge Capital Partners.
Greene of Hi Marley says Lyman is a force on the cap table, helping to recruit every person in the executive suite. She also introduced Greene to Gordon Ritter at Emergence Capital, who led Hi Marley's Series B round. Greene jokes that Lyman has six degrees of separation from anyone in tech, styling her as a Kevin Bacon of her field.
"Nobody fosters community like Lily Lyman," he said.
As Lyman steps up, so does Underscore
Underscore is moving into its next phase during a reckoning for venture capital. The heady days of the pandemic have led to a global correction in the private markets, making it harder for funds to raise money from outside investors. Firms are scaling back the size of funds they planned. A rare few are going out of business.
In December, OpenView Venture Partners, located just minutes from Underscore, said it would no longer raise funds from outside investors in a sudden move.
Underscore is now raising $50 million for a third fund, according to documents filed with the SEC, in one of the most challenging fundraising markets in a decade.
Underscore is targeting a much smaller fund size than the last $140 million vehicle, which closed in 2018. Some might suggest Underscore's investors, or limited partners, are churning after the firm's two founders departed. But, two people familiar say the fund size reflects a strategy shift.
In the past, some partners went out of their lane to invest at later stages. Skok said he "broke every rule in our book" when he backed Coda, a Greylock-backed documents editor, at its Series C. Some of the younger partners pushed back against the multistage strategy, saying that the best way to hone their craft was to focus on seed, Skok said.
The latest, slimmer fund reflects a more focused strategy on pre-seed and seed, two people familiar with the strategy said. A smaller fund also means the firm can get better multiples on the invested capital, and it doesn't come under pressure to grow the team or the number of deals it executes. Underscore's sweet spot is 20 to 25 rounds per fund, and it expects to continue this pace, one person said.
While Lyman was unable to comment on the fundraise, she says she's excited about what's happening at the seed stage right now. These market conditions are breeding a class of founders who know their space well and have the discipline to build a lasting business. They will embrace new technologies like artificial intelligence, and will hire some of the talent streaming out of tech layoffs.
"A lot of the 'wantrepreneurs' are not coming out to play in this market dynamic, which I actually think is a net positive thing. It helps you filter out," Lyman said. "There's certainly a lot of noise from AI hype, but it is a fundamental shift in technology that is reinventing the way that we do things. It is now allowing us to do things with technology that we couldn't do before."
Being at the helm of Underscore, especially in a thorny fundraising market, will test Lyman's mettle. However, her belief that the right people, at the right time, can change the trajectory of a business may also be true for Underscore.
"She just seems like a person who's really comfortable being herself and not trying to be anybody else," said Ritter, a cofounder of Emergence Capital who serves on the board of Hi Marley with Lyman. "The firm will be rebuilt in her image and that's just what it should be."