Transatlantic VC firm Index Ventures has raised two new funds — a $900m fund to back startups at Series A and B and a $2bn growth fund for later rounds — just one year after raising its last set of funds.
In that time, it’s backed European startups like brand marketplace Ankorstore, online grocer Rohlik and used car startup Motorway for the first time — and participated in later-stage rounds for portfolio unicorns like Swedish healthtech giant Kry and French healthtech star Alan. It’s also seen portfolio companies Deliveroo and Trustpilot list in the UK.
The pace at which Index has been investing is a sign of how hot the market is right now — and how much a year of remote work and pressure from fast-moving investors has enabled startups and VCs to get done.
Sifted sat down with partner Martin Mignot to find out what the European team is focusing on, how they feel about Tiger Global and what they learned from Deliveroo’s IPO.
The three funds
Index is now investing out of three funds — a $200m seed fund (its first) which it announced in April, the new $900m venture fund and the new $2bn growth fund.
Across all three, it has five core focus areas: enterprise software, SaaS, fintech, marketplaces and consumer. About 80% of its investments fall into those categories, says Mignot.
Within those areas, partners have more specific things they’re looking at — like future of work software, B2B-focused marketplaces and data and AI.
And then there are the new areas Index is dabbling in, like warehouse automation, drones and climate tech. (In May, Index’s newest partner Carlos Gonzalez-Cadenas led the $7.8m seed round into Sylvera, a platform which rates carbon offsetting projects.)
It turns out that both new and repeat entrepreneurs are keen to have a positive impact… It’s an area of increasing growth.
“It turns out that both new and repeat entrepreneurs are keen to have a positive impact… It’s an area of increasing growth. I was checking the price of carbon credits this morning — and the returns are better than Bitcoin or Ethereum these past few years! Joking aside, it shows that there is value starting to accrue in businesses that help manage carbon [impact],” says Mignot.
With its growth fund, Index will back both portfolio and non-portfolio companies. A handful will be startups it passed or missed earlier on — like Munich-based HR software startup Personio. “We felt that at the Series A, it was very German and trying to do a lot of things. The product definition wasn’t super clear and we were worried that it would be mediocre at everything it was trying to do, rather than really good at one or two things,” explains Mignot, who now sits on the Personio board.
“But Hanno [Renner, founder] turned out to be an incredible recruiter and an execution machine. He managed to get the entire product suite to a decent level — it wasn’t best in class, but it was good enough — and it started getting momentum.”
“Most of the time we get it wrong,” Mignot adds: the growth fund is another chance to get it right.
A crazy market
Investment cycles have massively sped up over the past year; VCs used to invest funds over three to four years, now they’re spending them in just one.
“Lockdown has had a big impact on the industry — companies are doing really well — and our own processes have been transformed deeply,” says Mignot.
In the olden days, Index would have to coordinate bringing founders into its London office to pitch on a Monday afternoon and partners would fly around Europe to do due diligence in person at startups’ offices. “Suddenly, we can conduct due diligence in two days.”
Going forward, the question is: is it going to go back to the pre-Covid pace? Or will it be even faster?
“Going forward, the question is: is it going to go back to the pre-Covid pace? Or will it be even faster? My sense is that it’s slowing down a little bit but it’s still at a much higher level than before. Our capacity to diligence and make decisions quickly has been improved — and that won’t change.”
New investors are also stalking European hunting grounds — namely deep-pocketed global funds like Tiger Global — making rounds even more frenzied. But Mignot insists that’s no bad thing.
“Tiger’s been a massive boon for us. We have a very different value proposition — they make it clear that they’re not going to do any work or be on the board. It’s ‘here’s the money, then ciao, bye bye’. We have a very different pitch; we like to come in earlier, if we can, and really partner with the founder, build a personal relationship, be on the board, work with them on hiring, internationalisation and customer development.”
Tiger’s been a massive boon for us.
What Tiger does offer — capital, and lots of it — is welcome. “Take Ankorstore: that market [of brand marketplaces] is a bit of a land grab. You want to be well funded so you can be aggressive; [with Tiger], instead of waiting two years to raise, you can raise in six months and that gives you an advantage. There’s really a need for that.”
These market dynamics do, however, mean that “some valuations are pretty rich”, says Mignot — although he adds that investors have been saying that for years — and they just keep getting higher.
Positive impact LPs
Raising the funds was equally speedy — it took just “a few weeks”. Index’s LPs are a mixture of US and European organisations, university endowments, medical institutions and pension funds — and are increasingly “mission-driven”.
“We’re trying to get most of the LP base to be non-profits or positive impact investors,” says Mignot.
The questions LPs ask have also changed over time, and they’re looking closer at ESG. “Historically, it was like ‘Here’s our ESG policy on this Word document that we pulled together last year and haven’t touched since’."
"That’s definitely not good enough now,” says Mignot. “You really need to have a process, have live data you can share and be able to prove your positive impact. The bar has been raised.”
Mignot adds that Rini Banerjee, senior legal counsel at Index, now “dedicates a good portion of her time to ESG; internally at Index, but also with the portfolio, helping them with tracking and also sharing best practices”.
On the diversity front... we’re still not fully there yet.
Index is not best in class internally, at least on gender diversity. It has five European investment partners — all are men.
“On the diversity front — that’s a universal topic — and internally at Index I think we’ve made good progress. We’re still not fully there yet,” says Mignot. “The team in Europe has a lot of investors who are women but not yet at the partner level. It’s just a matter of time.”
On the startup side of things, he says positive change has been made. “Teams are reporting on employee diversity — and diversity at the board level — a lot more. That used to come when companies were going public; now it’s moved a lot earlier.”
That Deliveroo IPO
The past year hasn’t been entirely smooth sailing for team Index. In March, one of its portfolio stars, Deliveroo, listed on the London Stock Exchange. Things didn’t go entirely to plan; it lost more than a quarter of its value on its first day of trading and was dubbed “the worst IPO in London’s history” by one banker.
“There are lots of learnings,” says Mignot. “With the company itself, people had questions about the competitive positioning, the rider situation, the Covid impact and some strategic questions around the future of the company. That’s out of your control.”
“Then there were issues with the transaction itself. The timing, size, structure, voting rights, size of offering… The timing was quite unlucky; the Archegos hedge fund had just blown up… With an IPO, those little things matter.”
“The retail offering [Deliveroo offered £50m worth of shares to its customers before the IPO] also limited the flexibility a fair bit — on how we could change the size and price of the offering. I think keeping flexibility [is important] to have a successful offering.”
“Clearly it’s important to create momentum when you go public; having a positive story and good price action in the early weeks and months.”
But Mignot says the listing is far from the end of the story. “For us, the most important thing is that the company raised £1bn and already had quite a bit on the balance sheet, so now finally after all these years it’s adequately funded for the size of the opportunity it’s going after.”
“We still hold 90%+ of our holding — and we are locked up — so for us the short-term price action doesn’t matter so much. It’s not back to the level it was, but it’s done well in the past few weeks, and we’re still bullish on the company. Now [Deliveroo] can be aggressive. It could be a future giant of the European ecosystem.”