Lerer Hippeau: Venture Market Enters the Second Generation of AI Startups

AI has become the dominant theme in venture investing, and OpenAI, Anthropic and xAI are raising a huge share of global startup funding. That is how Eric Hippeau, managing partner at Lerer Hippeau, described the state of the market in an interview with Ed Ludlow on Bloomberg Tech, where he discussed the emergence of a "second generation" of AI startups.

Who are Lerer Hippeau

Lerer Hippeau is a New York-based early-stage venture fund founded by Ben Lerer and Eric Hippeau. The fund is known for early bets on consumer brands and media companies; its portfolio has at various times included names such as Warby Parker, Casper and BuzzFeed. That background makes the fund's stance telling: even investors traditionally focused on consumer and media products now evaluate almost any new company through the lens of how it uses generative AI.

• Managing partner: Eric Hippeau
• Fund: Lerer Hippeau (New York)
• Leaders in funding raised in the AI market: OpenAI, Anthropic and xAI
• Interview topic: the market's shift to a "second generation" of AI startups

What does the "second generation" of AI startups mean?

The first wave of AI startups in recent years built and trained their own foundation models. This category includes giants like OpenAI, Anthropic and Elon Musk's xAI, which, according to Hippeau, take most of the venture money in the sector. The second generation consists of companies that do not build their own foundation models. Instead, they build applied products and services on top of these labs' existing APIs: narrowly specialized apps for specific industries, workflow automation, and AI agents that solve business problems.

For venture funds like Lerer Hippeau, this shift means a change in strategy. Rather than trying to compete with OpenAI and Anthropic for capital-intensive foundation model rounds, which are mostly the domain of funds writing billion-dollar checks, early-stage investors are looking for application companies with more modest rounds but a potentially fast path to profitability.

Why does this affect the entire venture market?

According to Hippeau, the sheer amount of capital that OpenAI, Anthropic and xAI are now pulling in is changing investor behavior far beyond specialized AI funds. Managing partners at early-stage funds that spent years specializing in consumer brands and media have to rethink their investment theses: almost any company seeking venture money in 2026 has to explain exactly how it uses generative AI in its product or business model.

What this means

The concentration of venture money around a handful of foundation model labs both clears and narrows the field for new players. Competing to build your own large model keeps getting more expensive, but the market for applied AI products built on existing models remains open, and that, by Lerer Hippeau's assessment, is where the new generation of startups is shifting its focus.