With $550 million of new funds at its disposal, we discover why Index Ventures has never been more sure of the European technology market and what it looks for from investable entrepreneurs.
When you get invited to visit the offices of Index Ventures to be briefed by partner Ben Holmes you know there must be some exciting news in the pipeline.
The last time I made the trip to meet Holmes was back in 2012 when the firm was just settling into its new offices behind Saville Row and the investor had been placed top of the pile in our GrowthBusiness Power Top 50 2012 ranking list.
Moving forward exactly two years and the venture capital firm has been prolific in its backing of early and growth-stage businesses in the UK – predominantly in the technology space.
Led by a well-known group of partners including Danny and Neil Rimer, Saul and Robin Klein, Giuseppe Zocco and Jan Hammer, the firm has taken the lead on investments into European heavyweights including Funding Circle, Farfetch and SoundCloud during the last year.
Arriving at the Index London HQ I sit down with Holmes in one of the firm’s many light and airy meeting rooms and am presented with a document which, at the top, reads: Index Ventures announces a new early stage $550 million fund for building iconic companies in Europe, US and Israel.
Only two years ago the firm raised its last fund, Index Ventures VI, and has now returned to its backers to boost the coffers ahead of a new investment surge.
The use of ‘iconic’ in its declaration of intent is a powerful one. While others might lean towards buzz words such as ‘disruptive’ or ‘profitable’ or ‘game-changing’, iconic is a word which resonates with most people and succinctly describes what will probably be a pretty successful venture.
Put simply, Holmes tells me that Index Ventures promises to try and get its investors into any great European technology company. While the firm does not have a 100 per cent hit rate, its greater than lion’s share of exit activity during the last year shows its success.
The pledge has certainly also borne some fruit during the last 12 months when it comes to investments. That period has seen Index make more than 20 new capital injections into spaces ranging from financial services to mobile technology.
Its biggest commitments have seen UK-based firms such as Funding Circle equip themselves with the funds required to make a big global push.
It hasn’t just been the investment side of things which has kept Index busy through. The re-awaking of the IPO market, particularly on this side of the Atlantic, has resulted in a number of lucrative exits. Seven exits worth a combined $1 billion saw online takeaway service Just Eat (one of Holmes’s own investments) list on the London Stock Exchange, while King.com, Criteo and Zendesk made the decision to float on US exchanges.
More on recent Index Ventures deals:
- Digital keyboard start-up closes £7.6 million VC deal
- Index Ventures makes first foray into Bitcoin sector
- Luxury brand Farfetch struts off with $66 million of new funding
Perhaps more impressive is the statistic that last year its crop of portfolio companies generated more than $8.2 billion in combined revenues, growing at 117 per cent. That represents a dollar figure equivalent to the Bahamas in GDP.
The new $550 million fund is the seventh early-stage fund to be raised by Index Ventures, and is part of a total $4 billion raised since inception. In an era when getting money out of the door and then returning it to LPs in a profitable way is no mean feat, raising a new fund so quickly is a letter of intent.
When quizzed on whether competition for deals is increasing, Holmes says that despite a number of other firms such as Balderton Capital raising their own new war chest, the ecosystem has grown to a stage where it can support the range of capital up for grabs.
‘From seed to growth equity there is more capital, with more serious intent backing companies throughout the cycle, than there has been for some time.’
Holmes adds that just because a particular entrepreneur is not successful in netting funding it does not therefore mean that a funding gap exists.
Business builders are also now able to be more particular when it comes to selecting their chosen investor, he believes. ‘It’s not the case that the deals we do we’re the only source of capital available, often they have other competitive offers.’
For entrepreneurs seeing the new fundraising as an opportunity to fit into the Index investment spectrum and secure growth capital, Holmes says that the firm makes commitment decisions based on four different pillars. The first, he explains, centres on scale and whether a business can scale quickly to generate efficiencies. He points to Amazon as the shining beacon in this area, but acknowledges that for start-ups this can be a very difficult thing to achieve.
The next pillar to create value is technical innovation: does a company have something valuable like protected intellectual property (IP) or hard to recreate IP.
Third and fourth are where Index is making most of their plays – network effects and brand. With network effects Holmes says that bringing buyers and sellers together in a strong enough way to become a gravitational attractor has great value. For brand, investments such as The Cambridge Satchel Company and Moleskine epitomise how Index has placed value in businesses that convince consumers their product has design at the core and is more desirable than comparable ones.
Also placed rather high up on the document Holmes presented to me was the line, ‘The internet is the new Silicon Valley’. Index believes that the internet is now part of the ‘social and economic fabric of every major country’, with Europe very much coming into its own.
Hubs such as Berlin, Stockholm, Paris and Tel Aviv are serving as worthy competitors, or complementary forces depending on how you look at it, to London.
This is epitomised by the growing prevalence of US venture capital firms flexing their muscles in Europe. ‘I don’t think we’ve got a wave of US investors coming here but there is a continual stream, particularly the growth funds,’ Holmes adds.
‘US funds are active in Europe, and definitely some of the great tech companies are seen to come from Europe.’
These companies are ones which have been successful in both creating a category, and then becoming a market leader in it, Holmes reveals. Leaders such as Just Eat first aggregated takeaway establishments by taking them online, and then grew to a stage where it was outstripping rivals.
One area that Holmes still sees as, at least for the short term, being US dominated is mergers and acquisitions. Driven by a need to not just have engineering talent in the US and Silicon Valley, buyers such as Microsoft and Google will continue to acquire the 50 or 100-member strong tech teams that provide an important foothold into the cities of London, Madrid or Berlin.
Going back two years again Holmes was convincing me how much he believed in Just Eat, which he labelled as his best business decision for not being scared to invest when others were scared of the sector. It seems he has now validated that instinct with a lucrative exit. Keep your eyes open for the future developments of Funding Circle, iZettle and Secret Escapes.
Since then the firm has managed to poach former prime ministerial advisor and lead force behind Tech City Rohan Silva as an entrepreneur-in-residence.
As I leave the Index offices I spot Israeli 3D artist Eyal Gever amazing a room with his latest digital offering and begin to think, if Index hasn’t already found it, they probably will soon.