Underscore

Underscore VC, founded in Boston in 2015, focuses on early-stage investments, particularly in enterprise software, AI, machine learning, and data analytics.

In 2023, they raised $58 million for their third fund, increasing their total assets under management to over $300 million.

This latest fund targets pre-seed and seed-stage B2B software startups, with initial investments typically ranging from $500,000 to $5 million. The firm often leads or co-leads seed rounds and provides follow-on capital for promising portfolio companies.

Key Focus Areas

1. 1. Investment focus: Enterprise software, SaaS, AI/ML, data analytics
   2. Stage: Primarily seed-stage investments

1. Geographic focus: While based in Boston, they invest across North America
2. Core Investment Thesis: The firm’s distinctive “community-driven investing” model emphasizes collaboration with seasoned operators and domain experts, who provide hands-on support and mentorship to portfolio companies.

Underscore’s Core Community model sets it apart from other venture firms. This approach not only aids portfolio companies with expert guidance but also includes a Core Limited Partners Program, where community members can directly invest in the fund. This ecosystem enables Underscore to offer tailored support to founders while maintaining agility.

However, the firm faces scrutiny regarding whether this community-driven approach can effectively scale as their portfolio grows. As more funds enter the venture space, many firms are vying for the same deals, and differentiation is crucial. Competitors argue that scaling personalized mentorship might dilute quality.

Leadership transitions also present a potential challenge, with founding partner Michael Skok now in an emeritus role and a new generation of general partners, including Lily Lyman and Richard Dulude, taking charge. While the new leadership team is well-regarded, questions linger about whether Skok’s reduced involvement might impact deal sourcing and strategy.

Underscore’s portfolio includes notable companies such as:

The firm has backed four unicorns to date, but recent market conditions have prompted a more cautious investment approach. In 2024, Underscore VC has been less aggressive in making new investments compared to peers, reflecting broader market trends as venture capital firms reassess their strategies in a slower funding environment.

Underscore’s lean fund structure (I’ve seen a few VC decks where there is a slide stating they purposefully keep the fund size small) mirrors the strategy of several other VCs.

Ben Sun at Primary VC argues writing larger initial checks in fewer deals enables partners (2 GPS may do 2 deals a year, but other check writers do one deal a year) and the supporting team to be more focused on what they invest in (He doesn’t believe in getting pro-rata).

While Underscore VC’s agility and focus on small, tailored investments are appealing, the challenge lies in scaling this strategy without compromising the quality of their portfolio support, particularly as the firm faces a more competitive and cautious venture landscape.

Notably, they have a 17-foot tall photographer given they have to gaze up.

Deals Underscore funded

I obviously don’t update every blog constantly so data will get old.

Underscore investment thesis

Our overarching investment in cloud is based on the “Everything as a Service” thesis we wrote over a decade ago.

As business leaders are challenged to do more with less, companies have focused on their core competencies and have outsourced the rest – many to cost effective services available in the cloud. We call this the “Out-Services” era, where outsourcing is being enabled by Cloud Services.

The Out-Services Era

As the Out-Services era has played out, we continue to update our thesis to look ahead for the next decade. We see the critical need for “Trusted Cloud Intelligence” to make sense of, manage, and benefit from a period when every person, place, and thing that can be connected will become part of the trusted cloud with the intelligence to serve their needs.

Trusted

Trust is fundamental to all businesses. The notion of creating and exchanging value between businesses is based on the trust of delivering and securing value. In the past, this required central currencies and intermediaries to manage the supply and value chains. In the future, blockchain will not only enable this in a decentralized manner, it will enable distributed blocks of transactions, programmable smart contracts, and applications that embed trust throughout their indelible chains. This will be as foundational as the internet itself, providing a new level of architecture for business to build on and also for consumers to enjoy in everything from education to entertainment.

Intelligence

As connectivity among machines, devices and processes increases, everything will stream data to the cloud. Whether it’s the Fitbit on your wrist, the NEST thermostat in your home, the beacons in a store or the sensors and instruments in a laboratory, the Internet of Things (IoT) will continuously monitor our world and record an unprecedented amount of data.

This torrent of data will be our most prevalent currency. But to realize any value from it will require a new level of Cloud Intelligence to filter for the usable signal in the cacophony of noise.

The intelligence required to find that signal in such high volumes, velocity and variety will require beyond human, Machine and Deep learning to derive actionable insights. The resulting actions will, in turn, drive business process improvement and optimization, continuously modeled and monitored in a self reinforcing machine learning loop.

New Applications and Microservices

As we learn how to optimize our businesses around these new and better-informed processes, it will give rise to new kinds of SaaS applications, which to be modeled more granularly will drive the use of microservices that can me more tightly fit to the unique needs of both businesses and consumer engagements.

New Business Models

These cloud-based applications and microservices will be monetized around new business models with new systems of record, reference data, new linkages for trust (such as blockchains) with new kinds of micro-payments, long running transactions and even entirely new value chains built around network economics.

New Creation and Delivery Models

Discontinuous innovation and models for co-creation such as Open Source will continue to be a disruptive force as large communities address problems too broad for any one organization to tackle alone. The possibilities for data driven, network enabled, community-powered applications are endless.

These new applications can be served in increasingly mobile, portable, wearable, Augmented or Virtual (AR/VR) formats. As part of this we expect to see both disruptions in existing hardware and software categories and the combinations of the two in things like smart devices, robotics and autonomous vehicles. The computing, sensory perception and other analog digital interfacing required to power these different applications and form factors will open up new fields such as quantum computing and drive new categories of investment opportunities.

Trusted Cloud Infrastructure

All of this – the IoT, AI / Machine Learning for Actionable Analytics and the resulting new Applications – will require an underlying Cloud Infrastructure that is both agile and adaptable, yet secure and reliable. In short, trusted.

This infrastructural trust will need to run parallel to the business trust that blockchains will drive, requiring Development, Operations (DevOps), and Security products to become more integrated for continuous delivery of Trusted Cloud intelligence at increasing scale as the connectivity to the cloud and transactions thereon multiply exponentially.

Investment Opportunity

We are in the early stages of a multi-hundred billion dollar Trusted Cloud Intelligence transformation and we will continue to invest in it for years to come, by partnering with exceptional entrepreneurs supported by the Underscore VC community and specific Core groups focused around everything from Blockchain, to AI/ML and Applications like Commerce at the top of the stack.

Yet, it’s always still about underscoring you.

While our thesis is based around investing in Trusted Cloud Intelligence,  we are foremost seeking to invest in bold, brave entrepreneurs who have their own vision formed from understanding problems deeply, challenging the status quo and thinking big about the impact they are going to make when they execute persistently. If that sounds like you, we want to hear how we can support you in your mission!

Underscore invests in companies at the earliest stages.

Even when you’re a nascent entrepreneur looking to discovering meaningful problems we’re ready to get behind you. We look for exceptional entrepreneurs uniquely qualified to pursue an opportunity.

For most founders, our earliest stage investing means it’s too early for thm to share what they’re working on and they remain silent as we seed them. But even as “silent seeds”, we love supporting them in several ways.

Beyond the commodity of capital, we like to help our entrepreneurs discover, define, and validate their potential ventures.

Aligning our Core Community by domain, stage, and function, we introduce the right mentors, gaining access to prospects, customers and talent, or even matching them with their future co-founders.

Currently, we have several silent seed investments in our portfolio in a variety of domains pursuing their vision in Trusted Cloud Intelligence Thesis such as:

The 2021 investment thesis

Since I noticed their current investment thesis changed, here is their thesis from 2021: