Key insights from Lily Lyman
On promising workflow automation trends: “The blend between services and software is increasingly merging, as the focus moves toward delivering the ‘work’ or ‘outcome’ to a customer versus just the ‘software to support doing the work.’”
On supporting early-stage founders during key inflection points: “The combination of empathy, candor and a strong community backing them is what makes those moments navigable – and ultimately, transformative.”
On the rebound in life sciences deal activity: “We are particularly excited about new opportunities emerging at the intersection of AI and life sciences, where machine learning can dramatically compress drug discovery, clinical trials and manufacturing timelines. The companies that win here won’t just generate insights, they’ll rewire entire workflows, accelerating science itself.”
Our data shows the number of venture financing deals increased by more than 20% across all stages of financing in Q2 compared to the beginning of the year. Do you anticipate this trend will continue throughout the rest of 2025?
The pickup in deal volume is encouraging, and it reflects founders and investors finding a new equilibrium after the volatility of the past 18 months. I expect activity to remain strong through the rest of 2025, particularly with the pickup in M&A activity and recent successful initial public offerings in the tech sector, which help drive liquidity back into the system. At least at the early stages, there remains significant dry powder sitting on the sidelines and investor optimism on the market-expanding opportunities driven by artificial intelligence (AI).
That said, we are in a “flight to quality” environment, which is more reflected at the growth rounds with more selective financings, and we expect that dynamic to continue.
We saw the largest percentage of deals with a pay-to-play provision (10.1%) in the 11 years we have issued our Venture Financing Report. Are you seeing this more frequently in your deals as well? Are there any market factors you attribute this to?
We are not seeing this trend uniformly in our portfolio. In the market broadly, when this occurs, it is likely a reflection of investors wanting alignment in this market – particularly in flat or down rounds, where insiders are being asked to double down. The rise also speaks to the pressure on late-stage companies, where high valuations from prior years are meeting today’s tighter growth capital environment.
You focus on workflow automation and vertical AI across industries like insurance, healthcare and life sciences. What are some of the most promising trends or white spaces you’re seeing in these sectors right now?
We are people-first investors, so we get excited by founders who have big ambitions to solve hard, real problems. Given what’s possible with technology now, we see huge opportunities to reimagine how legacy industries work using AI.
The shift is from hype to utility. In insurance and healthcare, AI is quietly rewiring manual, high-cost processes like claims, underwriting, billing and clinical documentation. In life sciences, the opportunity to collapse drug discovery and manufacturing timelines remains a huge white space.
The most compelling opportunities I see today are in AI-native workflows that unlock hidden data, replace outdated processes and create real-time visibility in industries still constrained by slow, siloed systems. And while powerful models are now table stakes, defensibility will come from context moats – capturing proprietary learning from each user, feeding it back into the workflow and embedding it within the right data, workflows and interfaces. That’s how products become tuned, relevant and impossible to replicate.
We are also seeing a shift in how companies get built and how value is delivered to customers. The blend between services and software is increasingly merging, as the focus moves toward delivering the “work” or “outcome” to a customer versus just “the software to support doing the work.” This shift unlocks new business models and new surface areas of value for technology to capture.
You’ve lived and worked in more than 75 countries, which gives you a rare global lens. How does that experience shape the way you identify companies with global potential, and what do you look for in a founding team or product that signals it can scale internationally?
My time operating abroad gave me a deep appreciation for adaptability and aptitude, two attributes I value highly in founding teams. A global mindset inherently requires huge ambition and savviness, which sets founders apart. Particularly given the pace of change in today’s market, I look for high-velocity learners and builders obsessed with really big, really hard problems (that usually span across geographies, such as infrastructure for financial access or software to power small and medium-sized businesses).
It also taught me to operate with empathy and humanity. It’s remarkable how you can find common ground with people from all walks of life. This perspective helps me identify the exceptional founder attributes we look for across a wide variety of founder profiles.
Underscore’s “open-source” investing model is a distinctive differentiator in the venture space. How does this philosophy influence the types of startups you choose to back, and what are some of the positive outcomes you have seen emerge from embracing this collaborative approach?
At Underscore, we believe capital is table stakes – what truly sets founders up to win is being surrounded by the right people, at the right time, with real alignment and expertise. Our “open source” venture model brings this to life through the Core Community, a curated network of operators, experts and functional leaders. Founders hand-select advisors, who are “Core Partners” from this network, to address their unique needs. To ensure incentives are aligned, we share our carry with these Core Partners, creating a structure where everyone is invested in building lasting, outsized value.
The Core Community supports our companies across areas such as hiring, go-to-market, product, CEO coaching and fundraising. It’s not a static directory – it’s a living, collaborative community designed to accelerate founder success.
You work closely with founders and also serve on several boards that support the Boston startup ecosystem. In your experience, what are some of the soft skills or approaches you take and have found most effective to helping early-stage founders, especially during those critical early inflection points?
In the earliest stages, founders are often navigating ambiguity and making high-stakes decisions with limited data, so my role is as much about listening and providing perspective as it is about strategy. I focus on building trust, asking the right questions to help founders see around corners, and bringing pattern recognition from past company-building journeys without prescribing a single path.
Especially at key inflection points, it’s about helping founders clarify priorities, stay grounded in first principles and connect with the right people who can support their next step. The combination of empathy, candor and a strong community backing them is what makes those moments navigable – and ultimately, transformative.
Are there any other key trends or notable insights from this quarter’s VC data that you think are important to highlight?
One notable trend is the rebound in life sciences deal activity, both in volume and capital deployed. It underscores how resilient the sector is, even amid broader market fluctuations. We are particularly excited about new opportunities emerging at the intersection of AI and life sciences, where machine learning can dramatically compress drug discovery, clinical trials and manufacturing timelines. The companies that win here won’t just generate insights, they’ll rewire entire workflows, accelerating science itself.
I also find it significant that median valuations are ticking up across most stages – a sign of renewed confidence (and flight to quality), even as capital deployment remains uneven.
About Lily Lyman
Lily Lyman is a general partner at Underscore VC, backing bold business-to-business (B2B) software founders at the earliest stage. She focuses on companies redefining industries through workflow automation and applied AI – across insurance, healthcare, life sciences and commerce.
Her global perspective is shaped by living and working in 75+ countries, giving her a rare ability to connect with founders from all walks of life. Before venture, Lily was a growth leader at Facebook, launching products that brought in 100 million new users in just four years. She also co-founded an agtech startup while at Stanford and held strategy and operating roles across tech and entrepreneurship.
Lily serves on the boards of the New England Venture Capital Association, WBUR, MIT Sandbox and the Harvard Allston Fund, and helps lead Boston’s All Raise chapter. She earned her undergraduate degree from Harvard and her MBA from Stanford GSB, where she also completed certificates in public management and entrepreneurship.
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