Exclusive: Underscore VC closes its $58 million third fund as the firm completes a generational transfer
I certainly haven’t. But Lily Lyman, Underscore VC managing partner, definitely has. She’s hard-pivoted international travel plans, while pregnant and en route to a wedding, to meet a founder. And Lyman’s done it more than once, diverting a vacation to stop in London for one founder, and going from Mexico to San Francisco to get in front of another.
There’s a zen, self-effacing quality to the way Lyman talks about it, combined with determination. As it turns out, there are all sorts of stories like this—she even once offered to coach a kids’ lacrosse team to get a deal done.
Lyman was recently promoted to managing partner at Underscore, an early-stage firm started nearly a decade ago. And, amid a leadership transition from one generation to another, Underscore has closed its third fund at $58 million, Fortune has exclusively learned. The firm’s most notable investments to date include Hi Marley, Hue, Cloudzero, Slang, and Kard.
Underscore is based in Boston and, though the firm doesn’t only invest in its hometown, it is also a product of its place—as Lyman and I talk on Zoom, behind her, there’s a yellow, wall-high map of Boston.
“We joke that Boston’s always in the top-three ecosystems of early-stage funding—this year is number two, we beat New York!—but it’s always top-three,” said Lyman.
One LP told Fortune they invested in this latest Underscore fund because they liked Underscore’s odds at dominating early-stage in Boston over the coming decades. It’s an ecosystem defined by its close ties to academia (about one-third of Underscore’s portfolio comes out of places like Harvard and MIT) and a track record of success in life sciences and AI. Boston’s startup success stories are also starting to pave the way for more founders.
“We’re seeing a whole bunch of little ‘mafias,’ if you will, spinning out of places like HubSpot, Klaviyo, Datarobot, Flywire, and Toast—a lot of those folks are actually part of our Core Community,” said Lyman.
This Core Community—a network of entrepreneurs, operators, and executives who advise founders—is part of the vision that Underscore founder Michael Skok had when he considered launching a VC firm.
In 2014, the year before he cofounded Underscore, Skok went on a listening tour of sorts, speaking to founders as they especially lamented the challenge of finding the right people at the right time in their startups’ evolution, and listened as they expressed their general low-regard for VC firms. He co-launched Underscore with a goal to “organize founders to help founders, and do so in a community that’s self-serving.”
And from the start, Underscore was set up for a generational transition. “I’ve made it very clear the management company has zero value and would have no value,” Skok says of the firm. “It would be budget-based, and we wouldn’t take any access fees.”
That’s made the current leadership transition more natural, even in the most difficult and unexpected circumstances. Underscore cofounder John Pearce passed away last year, and Skok learned he had a brain tumor. Skok was given a choice—ten days to live, or go into surgery. He chose the latter, and sometime later, he is very much still here—and incredibly enthusiastic about my Orson Welles movie recommendations (a rare occurrence, I assure you).
Skok feels strongly about setting Underscore for success, even if it means he has to get out of the way: “People don’t understand this, but even if you’re just a presence in the back of the room, you’re still taking up space,” Skok told me. “So, I needed to not be in the room.”
So, he’s passed the baton to Lyman, and the firm is moving towards its future. Because that’s what being alive is, right? The worst possible thing happens—then you wake up the next day and figure out how to keep on living. And Underscore’s at an inflection point, amid a larger AI-fueled inflection point for the industry. For all the twists and turns of the last year, Lyman sees opportunity.
“How lucky are we? That’s really how I feel, and I think that’s how our team feels,” she told Term Sheet. “As we wrap up this transition, we’re kind of like ‘well, let’s go.’”
And Lyman seems ready to go. For me, I’m still stuck on the rerouted flights to founders: I’m competitive, but this one’s new to me. I texted Lyman: Would she do it again?
“The short answer is yes,” she called me to say. “Within the appropriate boundaries of work-life balance, yes…As long as you’re not sacrificing sustainability, you gotta bring a little hustle.”
See you Monday,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.
VENTURE DEALS
– Factorial, a Barcelona, Spain-based business and HR management platform for small-to-medium sized businesses, raised $80 million from General Catalyst.
– Herrick Technology Laboratories, a Germantown, M.D.-based provider of software defined radio technology solutions for military operations, raised $25 million from Blue Delta Capital Partners.
– Abre, a Cincinnati, Ohio-based data platform for K-12 education districts, raised $24 million in Series A funding. PeakSpan Capital led the round and was joined by JumpStart Ventures, JobsOhio Growth Capital Fund, and Golden Angels Investors.
– Mimo, a London, U.K.-based unified payments platform for small-to-medium sized businesses, raised £15.5 million ($19.5 million) in funding. Northzone led the round and was joined by Cocoa Ventures, Seedcamp, Upfin VC, and others.
– Tabs, a New York City-based accounts receivable platform for B2B businesses, raised $7 million in seed funding from Lightspeed Venture Partners.
– Writ, a San Francisco-based business intelligence company, raised $3.8 million in seed funding. Gradient Ventures led the round and was joined by Defy.vc, High Alpha, Toba Capital, and angel investors.
– Libretto, a New York City-based platform for automated LLM prompt testing, monitoring and continuous optimization, raised $3.7 million in seed funding from XYZ Venture Capital and The General Partnership.
PRIVATE EQUITY
– General Atlantic acquired a minority stake in HighLevel, a Dallas, Texas-based provider of sales and marketing automation software. Financial terms were not disclosed.
– Highland Commercial Roofing, backed by HCI Equity Partners, acquired Fidelity Roof Company, an Oakland, Calif.-based full-service roofing provider. Financial terms were not disclosed.
– OceanSound Partners and Energy Impact Partners acquired Message Broadcast, a Newport Beach, Calif.-based provider of customer engagement software for the electric utility industry. Financial terms were not disclosed.
– Postman, backed by Coatue Management and Insight Partners, acquired Orbit, a San Francisco-based community growth platform for developer companies. Financial terms were not disclosed.
– Scantron, backed by Transom Capital, acquired BTech, a Pasadena, Calif.-based managed IT services provider. Financial terms were not disclosed.
– Sign Zone, a portfolio company of Pfingsten Partners, acquired AAA Innovations, a Norwood, New Jersey-based provider of custom umbrellas, coolers, and outdoor recreational products.
– Washington Harbour Partners invested $60 million in Raft, a Reston, Va.-based developer of software, data, and AI products and solutions designed for national security purposes.
IPOS
– PACS Group, a Farmington, Utah-based provider of post-acute health care, raised $450 million in an offering of 21.4 million shares priced at $21 on the New York Stock Exchange.
FUNDS + FUNDS OF FUNDS
– Floating Point, a Boston and New York City-based venture capital firm, raised $70 million for their second fund focused on companies in overlooked sectors.
PEOPLE
– Varsity Healthcare Partners, a Los Angeles, Calif.-based private equity firm, hired Steve Hamman as an executive-in-residence. Formerly, he served as president of Blue Cross Blue Shield Illinois.
