Q&A with Lerer Hippeau's Isabelle Phelps

Isabelle Phelps is an investor at Lerer Hippeau, based in New York City. Prior to joining LH full-time, Isabelle was an investor at student-run Dorm Room Fund, and held positions in marketing strategy and business planning and operations at Yahoo and eBay. You can follow her on Twitter: @isabellevop.

What drew you to venture capital and working with startups?

I took a circuitous path. I didn’t start off thinking that I wanted to end up in early-stage venture capital. In fact, I began my career working on the operations side at much larger tech companies: first at eBay Enterprise and then at Yahoo. Both companies had significant scale, but were also in the process of reacting to changing markets, consumer expectations, and technological innovation. And through my roles in marketing strategy and business planning and operations, I spent the first part of my career focused on identifying internal and external opportunities to drive competitiveness.

I really enjoyed my time at both eBay Enterprise and Yahoo, but ultimately became frustrated in a large corporate setting. When I started business school at MIT Sloan, I began working with much smaller companies through Dorm Room Fund, and really fell in love with it. Once I sat down with passionate entrepreneurs building entirely new markets and technologies, I was hooked.

If we think of competencies in marketing strategy and business planning and operations as building blocks, what makes them important for you as an investor?

As an investor, I’m thinking about what’s around the corner: new markets, products, and technologies that will generate value for consumers and businesses in the future. I think a background in marketing strategy and business planning has allowed me to better understand those dynamics. That experience helps when I’m analyzing market trends and competitive landscapes, understanding consumers’ needs and product fit, and building internal operations to support various businesses needs.

At Lerer Hippeau, we invest in early-stage businesses across all sectors. And my background allows me to quickly understand and analyze market dynamics. But, more importantly, I also use my experience to help our businesses post-investment. We typically invest in companies that have recently launched and have early traction. So when we come in, we’re helping the business accelerate efficient, strategic growth. We’re also helping companies navigate the many operational challenges that come with that growth: managing finances, defining goals, codifying culture, etc. And my background in business planning and operations equipped me with the tools to help advise companies as they navigate those challenges.

There’s no one background or formula that defines a good investor. Each person has different biases based on their background that inform how they evaluate businesses. Based on my experience, I tend to be a market-driven investor. I think a lot about the market opportunity, the size, the competitive landscape, the timing, as well as team and product. It’s important to figure out your strengths--which help you develop conviction and set you apart--while being conscious of the underlying biases.

I think that’s a strong muscle as well because you’re in New York, the heart of consumer startups. 

That’s something I thought about a lot when considering whether to go back to San Francisco versus moving to New York from Boston. The New York tech ecosystem supports a diverse range of industries – from finance to real estate to retail. For both enterprise and consumer businesses, I find teams are more market and user or client-focused in New York. And as a result, I think New York businesses are well-suited to build products informed by the gaps, pain points, and inefficiencies within markets.

You were definitely getting pulled towards New York but walk me through your decision to join Lerer Hippeau from Sloan.

Based on my experience at Dorm Room Fund, I knew I wanted to work with early-stage companies. Between Seed and Series A, companies experience an extraordinary amount of growth and change, and go through the strategic process of defining product-market fit. I wanted to help companies during that important inflection point.

Lerer Hippeau was a great fit. We’re an early-stage, New York-based fund, with a majority of our portfolio based in New York. Importantly, our partners all have operating experience, which - along with our Platform Team and strong founder network - is a meaningful resource for early-stage companies. We also invest across all sectors with our portfolio roughly divided across enterprise and consumer businesses, and touching dozens of industries.

Ultimately, Lerer Hippeau checked all of the boxes for me. I worked for the firm as a Summer Associate during the summer in between my first and second years at business school, and joined full-time after I graduated.

How important is the operating experience as an investor? Is it more helpful for certain types of early stage companies?

There are two schools of thought here. Some people believe investors have value to add by applying best practices from across the portfolio. And some believe that if they need to get involved in operations, it’s a sign the company is struggling and therefore isn’t worth their time. We ascribe to the first school of thought and spend a lot of time working alongside our founders.

We add value in a few ways. We have a Platform team that is responsible for building scalable tools and resources for our founders based on the shared needs and priorities across the portfolio. Hiring talent, for example, or driving efficient consumer acquisition through organic and earned media. We facilitate the sharing of best practices across our portfolio through events and introductions, often providing introductions that generate a partnership or client relationship over time. And we provide value as advisors for our founders. This last area is where I spent a fair amount of time, and is why, for me, having operational experience has been extremely valuable.

Coming from an operating background, you were able to see outcomes fairly immediately. But in venture you won’t know whether an investment is successful - with an exit of some kind - for more than five years. How do you then measure performance?

It can be uncomfortable. On the operational side, you have quarterly goals that map out what success looks like, and I think most of us are used to concrete forms of performance feedback – grades in school, sales funnel conversion in sales, times or distance in athletics. Venture is a lot hazier: it’s relationship-driven, it’s value-add. You can measure some forms of success through number of investments, company performance, investment outcomes, but, like you said, the ultimate feedback loop (the exit) doesn’t happen for almost a decade on average.

Instead, I look at the relationships I’m building, investments I’m driving, the value I’m generating for portfolio founders. While it's hard to see that pay-off day-to-day, thinking about it this way helps me contextualize the work I do and why I do it.

Are there certain investment areas that you’re interested in and building domain expertise?

We’re industry agnostic, and part of what I love about my job is the ability to learn something new about a new market or industry every day. And I welcome talking with great entrepreneurs from across industries. Because I’m still early in my career, I’m also trying to keep a broad scope as I identify where I’m personally most interested. That said, I’m currently taking a closer look at privacy and security, healthcare, and vertical-focused marketplaces.

What does an average day look like in your role? And how do you organize and prioritize your responsibilities? 

That’s a great question. There’s so much variation day-to-day, so putting structure around my day is an evolving process for me. A typical day includes meetings with entrepreneurs, internal conversations about deals, diligence calls, investor meetings, and board meetings. With emails and project-based work pushed to early morning or the evening. And everything balanced with events, community programming, and after-hours meetings.

I’m taking more meetings than I should right now. Going back to your last question, I’m trying to keep my scope broad – exposing myself to different industries, people, and technologies. I think it’s a helpful approach for me at this stage. It’s been a bit crazy, but I expect it to balance itself out.

I have a lot of admiration for investors who are figuring this out because your life does get subsumed by your work. 

That’s something I’ve talked about with my colleagues and peers a fair amount. Many people get into venture because they want to support founders and those relationships can easily turn into friendships as well because it’s such a relationship-driven industry. But that does mean your personal time - like evening hours or breakfast - get thrown into the mix and it can be challenging to carve out time for yourself and your personal relationships.

It’s a good thing there are such smart, warm people in the New York community. At the very least, you’re spending time with them. 

Absolutely. And I think that’s why it’s so hard: you genuinely want to spend time with everyone in the community, but also have to recharge to be your best self.

LH, with its strong female representation, has always stood out to me as a model for other VC firms. What are some of the things that you're doing to improve diversity and inclusion in the portfolio and ecosystem more broadly?

There are amazing women on our team both on the investing and Platform side. I think in an informal way it makes us approachable for female founders. But in terms of structured efforts, the Platform team - led by Stephanie Manning, who you’ve interviewed - has done a great job of building community and making us a part of conversations about diversity in the industry. Our programming includes female founder dinners and collaborating on diversity-focused content and events like NYC Blend, for example.

This isn’t as easily scalable, but I also try to take as many coffee chat requests from female founders and members of the broader community as I can. They can range from an informal brainstorm to discussing how to approach the fundraising process. I also do this as a mentor for Built By Girls and through All Raise. It can be challenging to enter this industry, which still isn’t representative of the broader population, and I’m conscious about being as accessible as I can be for those who aren’t already a part of that community.

Are you doing anything to filter through all the requests you get?

I started out trying to take all of them, but have had to filter more and more. When I do that, I try to take the meetings with a specific ask. And we’ve also invested in evergreen materials to help share information more democratically. Stephanie and I wrote a series about getting a job in venture capital a few months back, for example.

That’s fantastic. I hope that my website gets added! 

Absolutely – it’s such a great resource!

What advice would you give to young women who want to enter VC - on the investing, operations, or platform side?

I had a conversation before I started business school with a very well-respected woman investor. I didn’t realize how remarkable it was at the time to even get on her calendar. But she was the first person who told me I could do this. As she told me back then, there are so many ways that having a different approach and background gives you and advantage in venture. There’s a fairly homogenous archetype about the ideal founder, business and investment, but if everyone is competing for the same thing then those deals become less attractive. Like with many asset classes, having a differentiated point of view can be very powerful and lucrative. Whenever I sit with young women interested in venture, I echo what I was told a few years ago: that they, too, can be successful in this industry. I think having that affirmation is extraordinarily important.