Lightspeed, After Backing xAI and Anthropic, Aims to Raise $7 Billion in New Funds
The Takeaway
• Lightspeed has quietly invested in xAI, Anthropic
• New money would help it buy controlling stakes in aging startups
• Fundraising follows megafunds from Insight, Andreessen Horowitz, Thrive
Lightspeed Venture Partners is raising money for three new funds that could total around $7 billion, according to a person who has discussed the fundraising with the firm’s partners. It’s the latest firm seeking to raise billions after a period when institutional investors pulled back from venture capital.
Close to 40% of the new money will go to an opportunity fund that will make follow-on investments in its portfolio companies and buy shares in late-stage startups such as Stripe and Rippling from existing investors. In some cases, Lightspeed will seek controlling stakes in aging enterprise software startups and try to prepare the companies for a sale or public listing.
The rest of the new money will go to a fund that invests in growth-stage firms and one that focuses on seed and Series A companies. If Lightspeed hits its fundraising target, the new funds collectively would top the firm’s last group of three flagship funds, totaling $6.7 billion, which closed in 2022.
The fundraising, which started in mid-September, will add to a growing number of megafunds U.S. VC firms have raised. Insight Partners has raised $10 billion and Andreessen Horowitz $7.2 billion for their latest funds. Thrive Capital recently raised $5 billion for two funds. General Catalyst has raised new funds worth several billion dollars, according to a person close to the firm.
Those totals show that the pension funds, endowments and wealthy individuals who invest as limited partners in venture funds have regained their appetite for the sector after slowing investments following a jump in interest rates two years ago. U.S. VC funding fell nearly 60% in 2023 from the prior year, according to PitchBook. But fundraising has shown signs of rebounding this year.
“We’ve seen the market thaw,” said Jeff Grabow, the U.S. venture capital leader for EY, which advises VC funds and startups. Interest rates are starting to drop and the stock market has rebounded, lifting the value of limited partners’ public stock portfolios, which makes it easier for them to make more private investments, he said. Plus, VC firms have somewhere to put this money—artificial intelligence.
“A lot of [AI] infrastructure needs to be built; that cycle is more capital intensive and needs more venture dollars,” Grabow said.
Recently, Lightspeed invested in xAI’s $6 billion round, according to the person. It also invested in a round Anthropic closed earlier this year that valued it at $18 billion. VC firms have typically avoided investing in startups that compete with each other, as xAI and Anthropic do, though such investments have become more common during the generative AI craze.
Lightspeed’s involvement in these high-profile rounds hasn’t been previously reported.
If Lightspeed is successful, the new funds raised would allow the Menlo Park, Calif., firm to back more enterprise software startups—its main focus—and particularly generative AI startups. Lightspeed has been one of the most active investors in startups developing technology that creates text or images, or that reasons similarly to how humans do, according to The Information’s Generative AI Database.
From early 2022 until June, it led more than 20 deals totaling $1.2 billion, The Information previously reported. These included a $200 million Series D round in work assistant Glean that it co-led with Kleiner Perkins in February. It led the seed round for Paris-based Mistral AI and has invested in later rounds; its investment in the Paris-based open-source developer has totaled $192 million.
Some of its early AI investments have already run into trouble. In late 2022, Lightspeed co-led Stability AI’s Series A round, which valued the image generation startup at more than $1 billion. Earlier this year, high cash burn forced Stability to get a bailout from new and existing investors. Lightspeed participated in that round of funding.
Private Equity Plans
The firm—started in 2000 and led by partner Bejul Somaia and co-founder and partner Ravi Mhatre—plans to use some of the new money to buy shares in late-stage startups from other investors. Potentially that includes buying controlling stakes and executing private-equity-style turnarounds, according to the person who has discussed the fundraising with the firm’s partners.
Earlier this year, Lightspeed hired Isaac Kim, a former senior managing director at hedge fund Elliott Investment Management, to lead a four-person team identifying aging enterprise software startups with valuations of $1 billion or more—of which it estimates there are close to 400.
After buying controlling stakes in these companies, Lightspeed hopes to boost their revenue and profitability by suggesting strategic changes, such as streamlining products. The aim is to sell the businesses to another tech company or private equity firm or to take them public. Lightspeed hopes to make its first such investment this year, according to a second person who has discussed the firm's plans.
The strategy is part of a trend among VC firms to expand beyond their core focus of early-stage investing. Bessemer Venture Partners two years ago raised a $780 million fund to buy controlling stakes in software startups it hadn’t previously backed. General Catalyst has also expanded well beyond traditional VC, with deals in the last year to buy nonprofit healthcare system Summa Health as well as two VC firms.
At the same time, some VC firms have been buying shares from existing investors in startups whose paper valuations collapsed with the drop in tech stocks. Lightspeed bought shares in Stripe when the fintech company arranged for a sale of existing shares at a $50 billion valuation early last year, down from $95 billion in its prior, 2021 round.
Last year, Lightspeed bought shares in Rippling that valued the startup at about $7 billion, down from a 2022 valuation of $11 billion. Rippling recently raised money at a $13.5 billion valuation.
Lightspeed plans to become a registered investment adviser, a regulatory status that will allow it to hold more secondary shares, and has hired Jessica Adams from PE firm Hellman & Friedman as its first chief compliance officer. It expects to get the designation next year.
Earlier this year, it raised $1.2 billion from new and existing investors for a continuation fund that bought shares in 10 portfolio companies from its limited partners. Such funds, which give limited partners a chance to cash out of their holdings before startups go public or are acquired, have been one of the most popular ways for VC firms to distribute cash to their backers during the two-year IPO drought.