Deliveroo and Revolut backer Index Ventures is launching its second seed-focused fund, of $300m. It comes a year and a half after its first seed-focused fund, a $200m vehicle.
That means the San Francisco and London-headquartered firm is now investing across continents out of three vehicles — the seed fund, a $900m venture fund and a $2bn growth fund.
Where will the money go?
- The fund will back companies in the US, Europe and Israel. “There'll definitely be an increased focus on both East Coast US but also more seed investing in Israel, which we see as an important ecosystem with masses of opportunity, especially in areas that are core to Index like fintech and cybersecurity,” says partner Hannah Seal. The fund opened a New York office earlier this year and appointed a partner in Tel Aviv.
- The fund is sector agnostic but Index does have core investing themes which include fintech, gaming, marketplaces and enterprise software. Seal says she is excited about B2B software and the future of work. Post-Covid, "the way that people work has fundamentally shifted and is never going to go back to the way it was before, whether it's remote or hybrid. There's tonnes of new challenges that are being born out of this new reality," Seal adds.
We think it takes a village to build a company at the early stages
- Index says it doesn’t want to commit the entire amount of a round, but prefers to invest alongside other investors like seed funds, solo GPs and angel investors. “We think it takes a village to build a company at the early stages,” Seal says.
- Seal admits that “bigger is definitely not always better” when it comes to fund sizes but that they believe the $300m vehicle “is the right size to be able to invest in the best early-stage founders across Europe, US and Israel.”
Do companies that Index backs at seed get investment at later stages from Index?
- Index has invested in companies that it originally backed at seed in subsequent rounds, including incident management platform Incident and Berlin-based database service Xata.
- Index does not have separate teams for each of the stages. “All of our investors invest across all the stages and make decisions across all the stages.”
What is Index’s track record?
- Index has been investing at seed for a long time but until last year, did not have a dedicated fund to startups at this stage. It has backed companies like Figma, Revolut and Remote at seed.
- Seal says that seed fund portfolio companies have found introductions to later-stage portfolio companies helpful, in particular to find early employees and new customers.
Who is backing Index?
- The LPs in the seed fund are the same as for the venture and growth funds and include non-profit foundations, pension funds, education, healthcare and research endowments, and other institutional investors.
The seed market
- The seed market has been strong in Europe this year despite a slowdown in later stages that are closer to the impact of public markets. Investors say that it’s easier to back companies at the earliest stages which will not likely mature and exit until macroeconomic and market headwinds have improved.
- On an annualised basis, European seed companies are on track to raise $8bn this year, according to Dealroom, very close to last year’s $8.5bn (and it may well exceed it given reporting lags). Meanwhile, companies at Series C+ have only raised half of what they raised last year, with less than two months to go until the end of 2022.
If you’re going to be building a business in these kinds of times, when it’s a challenging macroeconomic environment, you’ve got to be mission-driven
- Seal says that “the earliest stages were slower to adjust to the new market environment than later stages” and that founders are becoming “more realistic around valuation and [the market] is returning to a more reasonable level akin to what it was in 2019 and pre-Covid times”.
- She also says that Index is seeing “slightly lower volume” of seed-stage companies compared to last year, but that the founders are higher quality. “If you’re going to be building a business in these kinds of times, when it’s a challenging macroeconomic environment, you’ve got to be mission-driven. You've got to be dedicated.”
Another week, another fundraise by a European VC — and even bigger than before. Seal tells Sifted that Index expects the deployment pace of this fund to be “roughly the same” as the first, which means there’s still lots of money to be raised out there for high-performing teams at the earliest stages of their journey. Given that Index now will be looking more at the US and Israel as well it will be interesting to see which area of the world gets the most money, however.