Addie Lerner and Tali Vogelstein have started Avid Ventures, a new venture capital fund for fintech, software, and consumer internet startups. The pair raised an initial $68 million with the aim of being high-touch investors who put money into diverse early-stage companies and accelerate their growth. It took about 10 months to raise the fund — all during the pandemic.
Lerner founded Avid after spending a decade as an investor at larger firms, including General Catalyst, General Atlantic, and Goldman Sachs. Vogelstein is a former investor at Bessemer Venture Partners who previously sourced early-stage investments in Avid’s core geographies and sectors.
Lerner told me she wants to be something like an external chief financial officer, available to help companies at an early stage and form a deeper relationship with founders than is practical at the larger venture funds.
Limited partners include Schusterman Family Investments and the George Kaiser Family Foundation, First Close Ventures, Foundry Group, General Catalyst, 14W, Slow Ventures, and LocalGlobe/Latitude through their Basecamp initiative.
Avid also counts 50 strategic founders, entrepreneurs, and investors as limited partners, 40% of whom are female, including Mirror founder Brynn Putnam, Getty Images cofounder Jonathan Klein, Acrew Capital founding partner Theresia Gouw, General Atlantic’s Anton Levy, and The Wing cofounder and COO Lauren Kassan.
New York-based Avid Ventures focuses on everything from pre-series A to series B rounds and has already put money into Staircase, Nava, Nova Credit, The Wing, and Alloy. Three out of five of these companies have female founders. Those companies are in the credit, identity verification, coworking, health care brokerage, and mortgage industries.
Lerner previously helped invest more than $450 million across 18 investments in software, fintech, and consumer internet companies spanning North America, Europe, and Israel.
Here’s an edited transcript of our interview.
Above: Addie Lerner formerly invested at General Catalyst, General Atlantic, and Goldman Sachs.
VentureBeat: You have the new fund going. Can you tell me about that, and a little more about yourself and your background?
Addie Lerner: I’ve been investing in venture and growth-stage companies for the last decade, based here in New York City. I started my career at Goldman Sachs in their special situations group. I spent some time at General Atlantic, working the internet technology team for Anton Levy, one of the co-presidents of the firm, who’s now on Avid’s advisory board. I also spent nine months in the London office at GA and helped cover and develop deep relationships in Europe and Israel.
From GA, I made my way to General Catalyst to focus on earlier stage investing. I made everything from seed through lead stage venture investments at GC, but focused on my sweet spot of series A and B investing. I made a number of fintech investments during my time at GC, including companies like Rapyd out of Tel Aviv, Monzo in London, and Shift Technology in Paris. Then some software investments as well, companies like Remesh in New York. It was a great experience. I left GC in the summer of 2019 to start and build Avid.
VentureBeat: What’s the mission with Avid? How is it a different opportunity than what you were doing at General Catalyst?
Lerner: I was lucky to have a fabulous experience at General Catalyst, making investments, working with a number of additional companies, and learned that my differentiation as an investor was the ability to apply the growth-stage skillset and lens to earlier-stage companies. To really take a metrics-driven approach to an investment thesis, but also helping my companies grow more efficiently and faster. I saw a lot of the constraints, though, that come into place at larger firms. The ownership they need in series A and beyond to make the math work, and simply how spread thin a lot of the partners can get when they’re sitting on 10 boards.
I wanted to create an investment strategy, and I thought there was a real opportunity in the market for it, for a very collaborative, flexible investment model, where being disproportionately helpful relative to check size was a core part of the thesis. I believe that investing in a founder’s startup is a privilege to be earned. I wanted to return to that thesis in how we work for our founders as an extension of their team, even before we invest and thereafter, to continue to earn the right and the ability to put more money into their companies and back them. That was a huge mission and driver for me in why I wanted to leave an amazing platform but do it to go start a smaller, more focused firm.
VentureBeat: $68 million is the amount of the fund. Is that a good amount of funding for a particular purpose here?
Lerner: We’re proud of it, and we’re one of the few firms starting as a fund that focuses on series A and B. We’ve done that, again, quite deliberately, and our investment strategy can support that with a $68 million fund size. Our investment strategy is to write small checks, follow-on checks, into the series A, or around the A, alongside a top-tier lead investor — $500,000 to $1 million into a series A round. We then stay close and try to be, again, disproportionately helpful as this strategic finance, metrics-driven investor. Then we have very deep pockets to write bigger checks into and around the series B.
That’s both out of our fund — a majority of the capital in the fund will be deployed at the series B stage when we’ve stayed super close to the founders — and we can syndicate a larger check to our LPs, many of whom, including our anchor investors, have a very strong interest in doing direct co-investments into companies. We also like that this strategy creates a lot of alignment around the co-invest because our LPs are getting to invest alongside the fund, as opposed to just in our pro-rata and marking us up.
Above: Avid Ventures will focus on software, fintech and other categories.
VentureBeat: How early do you mean by early stage? How would you describe the kind of company that you’re talking to more, that you’re more likely to invest in?
Lerner: It’s funny because the stages of rounds these days are a bit meaningless. It’s right to understand the attributes of a company that make it a good fit. We’re trying to come in for an initial check after a seed round. If we define seed as backing mostly a founder, a team, and an idea, maybe an initial product, we’re trying to come in at the next stage. That could be a seed extension, a series A, an A extension. We’re looking for some sort of initial traction that we can underwrite.
We call it non-obvious product-market fit. Can we see something in users, their engagement, initial customers, the expansion of what they’re spending with the company, a pipeline where we can understand the probability of some of the more exciting customers in the near term? What are these data points that we can put into our “What do you have to believe?” model to build out that growth case and what’s going to happen over the next five years?
For us, it’s then being able to zoom in on the key drivers and assumptions in the model that we have to believe for this business to become super exciting. Then we triangulate that with what we think is the most part of our investment thesis, which is the founder and team. Believing that this is the founder and team that can execute on the “What do you have to believe?” assumptions to build a big company. We don’t have hard and fast thresholds around revenue, around team, around product, around the P&L. It’s more about “What is that initial traction, whatever it might be, where we can see momentum and underwrite it?”
VentureBeat: How have you rounded out the investor team and decided on what it takes to get an investment approved?
Lerner: Another big motivator and mission for starting Avid was how I would approach team-building and how our team would evolve to be a real partnership — the kind of culture we would have. By having and hopefully maintaining a pretty lean team, even as Avid grows, that’s going to be the key to our success. This summer I brought on an incredibly talented investor to the team named Tali Vogelstein. She joined Avid from Bessemer Venture Partners, where she spent the last two and a half years.
Tali is what I’d call a jack of all trades investor. She’s a sourcing machine. She sourced a number of deals that went through. She is incredibly charismatic, has a super high EQ, is whip-smart, and can evaluate founders from a social perspective, but also businesses and underlying fundamentals. She can also take a step back and have the perspective on how an investment would fit into our portfolio.
We work very closely as a team on every opportunity that we pursue, and it’s nice having that partnership where we both go out and source from our networks and investment theses we’re individually working on, but we come together as a team to work on every opportunity. Most important, we make it clear to our founders and prospective founders that when they get Avid as an investor, they’re getting both of us. That underlines that not only is Avid a true partnership, but an investment with our companies becomes a real partnership between them and Avid, as well.
VentureBeat: How did you get to the focus on fintech, consumer internet, and software, and the regions you’re focused on?
Lerner: For two people it’s not much of a focus, but we like to keep it broad from a sector perspective because our thesis on investing is quite founder-led. We want to meet the absolute best people and founders through our network and come up with a specific thesis on the industry or problem that they’re solving within these broader categories of fintech, software, and consumer internet. These areas are where I’ve focused on my deals and my background in my investments at General Atlantic and General Catalyst.
I also think that there are fascinating changes happening within each of these industries that are creating the opportunities for early-stage investments that can become multi-billion-dollar companies. We’ve already seen that with one of my investments from GC, which now Avid invested in through an SPV — Rapyd — which is an alternative payments network. I invested in series B when I was at General Catalyst, and this round was the D. Already in that time frame, less than two years, Rapyd has exploded similarly to Stripe on the back of their underlying merchant and ecommerce customers, growing exponentially.
Some of that is just the general trend of digital penetration and success with some of these tech companies, but the COVID tailwinds in the past year have also been a massive driver, as we’ve seen with a number of massive growth rounds on the back of huge growth from fintech companies.
VentureBeat: Has it been tough starting something up during the pandemic?
Lerner: Yes and no. From a schedule perspective, it can be a lot more efficient, packing those Zoom meetings in. But one of my favorite parts of this business is the ability to connect deeply with people, and you lose so much of that over a screen. I very much miss the in-person connection of this business. But with that said, I’m fortunate to have incredible limited partners and investors in the fund, who’ve been super supportive even through the craziness of this year. It’s pretty amazing how the VC and tech world has adjusted to doing business entirely over screens. We’ve been quite active this year, in addition to the Rapyd investment. We’ve made five investments so far, and we have another three that we’re live on right now.
Above: Nova Credit is one of Avid Ventures’ first investments.
VentureBeat: I had a conference in April. The investors on the panel we had said, “Yeah, we don’t invest in people unless we’ve visited them.” I’m sure they had to get over that.
Lerner: A lot of folks did. That was part of the post-COVID freeze, the excuse for why we were all frozen. Then people realized that — one of my mother’s favorite quotes, which I repeat often, is “You can get used to anything.” In this case, we had to.
VentureBeat: It seems like fintech entrepreneurs might be more aware of things like metrics that you’re interested in, the metrics-focused approach. Is that a helpful aspect of finding good fintech entrepreneurs?
Lerner: It depends on their background. Those who’ve gone through banking backgrounds and are developing products and services related to capital markets, tools to sell to hedge funds, they might already naturally be more financial metrics-oriented. On the other hand, some of the most disruptive products and companies being built in fintech are by founders who come more from the product side of the world.
Two of our fintech investments, Nova Credit and Alloy, are companies that have amazing visionary and diverse founding teams, but their founders really appreciated our strategic finance approach because modeling and KPI analysis is very new to them, even within the last couple of years, as their business have grown quickly and now they have great data to analyze and dig in on. Within every sector, you can have folks who have more of that financial modeling background and experience, but some of our favorite founders, real visionaries, are so good because they’re coming at solving problems from a very deep product or go-to-market background.
VentureBeat: So far, I haven’t heard about Bitcoin or cryptocurrency, and often I do hear that in relation to fintech. It doesn’t sound like you’re a Bitcoin miner.
Lerner: Not personally, no. I can’t say I’m a great Bitcoin investor either. I bought at the high a couple of years ago. But it’s looking good now.
VentureBeat: Is that an area that you think could be interesting, or is it something you might avoid?
Lerner: We approach cryptocurrencies similarly to how we would approach biotech or deep infrastructure technology. We will invest in companies that are taking a productized approach to enabling that industry. We’ll invest at the software layer. But we’re not going to invest in anything that’s so technical that we don’t understand it.
For example, for crypto, we’re actually looking at platforms that are more enabling platforms, whether it’s trading marketplaces or tools and software for Bitcoin miners or traders. Those are business models that we can analyze and understand. We can understand sales and marketing efficiency. We can understand how a business like that scales without having to understand the underlying technology. The way I phrase it is, if the differentiation of the company comes down to differentiation in the lines of code, we’re not the right investors for that business. But we will touch the space, similarly for biotech, if we’re looking at the software that can enable that technological development.
VentureBeat: It feels like crypto needs to go mainstream more. I don’t know if that means creating good wallets is the opportunity, or if that’s already been done and people just aren’t interested. Do you get a fair amount of these wallet-oriented pitches, where people believe that if we only get this right, there will be a mainstream opportunity?
Lerner: I agree that one of the critical pieces of crypto becoming more mainstream is — for example, organizations like JP Morgan and some of the larger banks normalizing crypto, or advisors starting to incorporate some of that into some of their more conservative client portfolios. What’s still a bit alienating about crypto is when you see Bitcoin having these massive run-ups and massive swings in valuation. It’s still something folks don’t quite understand enough that they can feel comfortable with that happening, in the way a stock like Tesla might trade. But I do think more institutions buying and trading and legitimizing crypto will be positive. That will lead to more investors investing in wallets and the infrastructure layer.
VentureBeat: That’s a lot about what you’re not investing in that much. If we go deeper into the kinds of things that are interesting to you, what are some more of those opportunities?
Lerner: Within fintech, we’re excited about a lot of the acceleration of growth that’s happened as a result of COVID. Banks digitizing, being forced to digitize, which is a core part of our thesis about Alloy, which helps banks and fintechs do digital KYC and compliance when they onboard new customers. We’re excited about these API-driven businesses like Rapyd, Alloy, and Nova Credit, as well as one of our new investments, Staircase, which is a suite of mortgage APIs. They’re all building platforms leveraging API connectivity, which is now quite ubiquitous.
One area we think is now interesting is that now that we have these APIs to connect into data platforms, data companies, and surface up all of this rich data, we’re seeing a lot of businesses developing ways to drive insights from that data, which can be hard, especially for an SMB company, that doesn’t have a team of data scientists to crunch through it. Those sorts of BI tools can get a lot more interesting because of the data that APIs enable them to collect.
Above: Tali Vogelstein formerly invested at Bessemer.
VentureBeat: Have you heard some interesting data stories on that front?
Lerner: We’ve talked to a number of consumer credit businesses, consumer credit card companies, neobanks, that are able to — beyond just simply having their customers connect directly to their banks or their other checking accounts for cash flow data that they can use to underwrite credit, they can now start to use these APIs to connect into other systems or platforms, like payroll, for example, that can get other kinds of personal financial information. Now they have all this data, but they still need to figure out how to turn it into useful insights to inform how they might build out their credit algorithms.
Another example of SMB-focused credit or payments businesses that can now use API connectivity through platforms like Codat to connect into the ERPs and accounting systems that these SMBs are using — they can gather all this rich data about the company to then compete with companies like Brex and figure out how to underwrite credit or financial products for these SMBs. I think we’ve solved the problem of how to get all that data. Now we need to solve the problem of how to derive insights from it.
VentureBeat: I can’t say I’ve talked to that many woman-led venture capital funds with an all-women cast. It’s still pretty rare. How do you feel about that part of your opportunity?
Lerner: We absolutely see it as an opportunity. One thing that we love about being two women who are earlier in our investing careers with a $67 million fund is that we don’t have any sort of diversity thesis about ourselves, about our companies, about our LPs. But diversity has naturally come to all of those elements of Avid because of my thesis on diversity, which is that if you put capital in the hands of diverse managers, that’ll naturally lead to different perspectives, different decisions that will enable that diversity to trickle down.
So far with Avid, 60% of our founding teams have at least one woman cofounder, and another 60% have at least one cofounder who’s an immigrant. Of our LP base, some of our largest LPs are families that have women, matriarchs sort of, running the family, and then others — of the 50 individual strategic investors we have as LPs in Avid — these are operators, entrepreneurs, GPs — 40% of them are women. Just under 15% of them are people of color. It’s incredibly important for us to have that diversity around the table in the money that we’re managing so that we have a diversity of perspectives on both sides of the aisle. Again, it’s all come about organically, which is exciting to us.
VentureBeat: It feels like it fills a hole in the market, and you wonder why that hole is there, why it’s so big. Why haven’t more people done this before?
Lerner: I am encouraged, especially coming from Goldman Sachs and more traditional private equity or growth backgrounds, where I was almost always the only woman in the room, and a young woman at that. Certainly in the venture world, more and more, I’m universally not the only woman in the room or at the Zoom table. I’m having more and more Zooms where it’s four or five or six women on the screen from two or three different organizations.
We have a lot of room to go, especially if you look at the stats. Only 5% of U.S.-based VC partners are women, and fewer than half of those are founding partners. We need to keep getting women up to higher levels, and we need more women starting their own firms. Retention is one of the biggest issues VC firms probably face around diversity. But it’s been encouraging to me, at least in the community fabric, to see more incredible women leaders and investors in the room.
Above: Avid Ventures has $68 million to invest.
VentureBeat: What change do you think your business can make for the industry and the world?
Lerner: On the point of what we were just talking about, I do think that being women leaders, women investors who are decision-makers deploying capital — that in and of itself is hopefully contributing to making the VC industry more diverse, to getting more capital in the hands of women founders. That’s something I hope we’re playing just a small part in. Both Tali and I are very involved with All Raise, and I think that organization is doing incredible work to help contribute to some of the trends I just talked about.
Both Tali and I also have a bigger vision for Avid and the companies we’re backing, the founders we’re partnering with. Again, we don’t have this in our mandate, but we feel pretty honored that the missions that a lot of companies are solving are non-trivial problems that can improve the world. For example, Nova Credit started out by building a global credit bureau for immigrants, helping immigrants port their home country credit scores to the U.S. This is still a core piece of what Nova Credit does, but they’ve accelerated their product offerings in the last year to help serve many other types of underserved customers, including those who have bad or no credit, beyond just immigrants.
Companies like Nava, which is building an SMB benefits brokerage — they’re trying to aggregate demand at the SMB employer level to be able to provide cheaper and better, more innovative health care solutions to SMBs by giving them as much purchasing power as a large organization. When we find these companies where not only do we think they’ll be amazing businesses, but they’re changing industries and changing the world — which is probably why they’re going to become big businesses — it makes our job as investors that much more satisfying.
VentureBeat: It’s encouraging that the limited partners also found that the time has come for your kind of company as well.
Lerner: Absolutely. That’s probably the third piece of the mission or vision for Avid, which is, we’re incredibly fortunate that the majority of the capital that we’re managing is the capital of philanthropic foundations and organizations. They have missions very aligned with our values and causes that we believe in. Knowing that the money we’re making, hopefully in many multiples, is going directly to these causes is also quite satisfying and quite an honor.
As I think about looking forward for this year, one thing I’m excited about for Avid, and one thing I hope for us, is that in a cycle that seems all too potentially frothy — which is overall good for the tech sector and good for exits — we see so much activity. I think what’s going to win in the long term is staying disciplined, staying focused, and honing in on one of our core values, which is building long-term relationships.
There can be a tendency to rush, a tendency for FOMO to take over, to do quick deals at any price. That’s quite antithetical to how we think about relationships with our founders, with our LPs, and with each other. I suspect that many in the industry ultimately feel that, and my hope for 2021 is that we can let that calmness prevail, focus on knowing this is a long-term game, and orient toward that long term success together.
- up-to-date information on the subjects of interest to you
- our newsletters
- gated thought-leader content and discounted access to our prized events, such as Transform
- networking features, and more
Source: Read Full Article