Lerer Hippeau: venture market enters second generation of AI startups

Artificial intelligence has become the dominant theme in venture capital investments, and companies like OpenAI, Anthropic and xAI are attracting a huge share of global startup funding — so managing partner of Lerer Hippeau fund Eric Hippo described the state of the market in an interview with Ed Ludlow on Bloomberg Tech, discussing the formation of a "second generation" of AI startups.

Who are Lerer Hippeau

Lerer Hippeau is a New York early-stage venture fund founded by Ben Lerer and Eric Hippo. The fund is known for early investments in consumer brands and media companies — among its portfolio stories at various times were names like Warby Parker, Casper and BuzzFeed. This background makes the fund's position instructive: even investors traditionally focused on consumer and media products today evaluate almost any new company through the lens of how it uses generative AI.

• Managing partner — Eric Hippo
• Fund — Lerer Hippeau (New York)
• Leaders in terms of venture funding attracted on the AI market — OpenAI, Anthropic and xAI
• The subject of the interview — the market's transition to a "second generation" of AI startups

What does "second generation" of AI startups mean

The first wave of AI startups in recent years built and trained their own foundational models — giants like OpenAI, Anthropic and Elon Musk's xAI fall into this category, which, according to Hippo, take up the bulk of venture capital in the sector. The second generation is companies that do not create their own fundamental models, but build applied products and services on top of already existing APIs of such labs: narrowly specialized applications for specific industries, automation of work processes, AI agents for solving business tasks.

For venture funds like Lerer Hippeau this shift means a change of strategy: instead of trying to compete with OpenAI and Anthropic for capital-intensive rounds of foundational models, where funds with billion-dollar checks mainly play, early investors are looking for applied companies with more modest rounds, but potentially high speed to profitability.

Why this concerns the entire venture market

According to Hippo, the scale of capital that OpenAI, Anthropic and xAI attract today changes the behavior of investors far beyond narrowly specialized AI funds. Managing partners of early-stage funds, who have specialized in consumer brands and media for many years, are forced to revise their investment theses — almost any company claiming venture money in 2026 must explain exactly how it uses generative AI in its product or business model.

What this means

The concentration of venture capital around a handful of foundational model labs simultaneously clears and narrows the playing field for new players: competing to create your own large model becomes increasingly expensive, while the market for applied AI products on top of existing models remains open — that is where, according to Lerer Hippeau's assessment, the focus of the new generation of startups is shifting.