On April 8, 2021, Index Ventures, one of the few “original mobsters” on the European VC scene, said it was nice to “go back to your roots.” Announced the launch of a new $200 million dedicated seed investment vehicle dubbed ‘Index Origin’.
Now, if you remember, this was during the tech bull run last year, when valuations soared and startups rarely sought funding. Thus, the new name of the Index fund paid homage to the firm’s origins as a seed fund, having in the past backed companies such as Robinhood, Figma, Deliveroo and Wise, all at the seed stage.
For the past few years, despite and somewhat because of the pandemic, there has been a lot of competition for early-stage capitalization tables for startups. But with a global recession looming next year, a crypto ‘nuclear winter’, and external factors like the war in Ukraine, you might think investors like Index will get nervous.
Not so. Perhaps going back to the old view that the best startups are born countercyclically, Index today is raising the anti with a second “Source Fund” which will be a seed fund of $300 million, yes folks, that’s $100 million. bigger than Origin I last year.
With Index Origin II, Index is now investing from three funds totaling $3.2 billion. Index’s other funds include the early-stage fund Index Ventures XI ($900 million) and the growth fund Index Ventures Growth VI ($2 billion). That means 75% of Index’s initial investments are Seed or Series A.
The new Origin fund also appears, unsurprisingly, to be geared towards the more modern environment where co-financing for startups can also come from sources as disparate as solo GPs, angels and many current or exiting entrepreneurs.
Index says it hopes to repeat the success of entrepreneurs like Dylan Field, for whom Index wrote its first check.
As an example, Index is confident that the macroeconomic downturn will produce the next Airbnb, Adyen, Slack, Skype, Google and Spotify, all newborns during broader economic downturns.
Therefore, it plans to invest in any vertical of interest and in any geography (mainly the United States and Europe, although it is not explicitly limited to those markets).
I asked, why double down on the early stage of Index Ventures?
Nina Achadjian, a San Francisco-based Index Partner, told me by email: “Throughout our experience as early-stage investors, we realized that a different type of early-stage fund is needed. Entrepreneurs have told us for a long time that in the seed stage, they have been torn between choosing well-established investors who have great resources and a large network and seed funds that only focus on the seed stage.”
The idea, he said, is to combine those two approaches: “With Index Origin, we wanted to make it possible for founders to get the best of both worlds: the resources they need to grow quickly, combined with early-stage experience and a hands-on approach. We know it takes a village, so we take a collaborative approach to the initial investment. We proactively bring in seed funds, independent GPs and angels to co-invest with us so that together we can give entrepreneurs the best possible support network and chance for success.”
However, why raise a larger fund than the previous one? “The strategy we took with Origin I when it launched last year has resonated very well with the founders. Having invested in 32 companies since launch, we decided to raise a new fund and increase the size to build on this momentum,” Achadjian said.
How did Index discover that it was raising money in this ‘recession’ environment?
London-based partner Danny Rimer said (also via email): “Index is all about conviction. As a result of keeping first things first, we have taken a very contrarian approach when it comes to investing in cryptocurrencies and China, so unlike our peers, we have not invested in these areas. Also, LPs really understand Index Origin’s value proposition as a fund that offers the best of both worlds to entrepreneurs.”
Is Index seeing more angels and former entrepreneurs/traders in early rounds in Europe and the US?
“We see more experienced angels joining rounds in all geographies, and that’s a good thing. Building a company requires different expertise, and having angels from different backgrounds is a significant advantage. That is why we established Origin II as a highly collaborative fund that is open to working with seed funds, solo GPs, and angels,” Rimer said.
What is the early stage environment like in the US? And in Europe? What is your forecast for next year?
Rimer added: “Unlike in the growth stages, where the pace of investment has slowed dramatically, in the early stages we are seeing healthy activity across all of our regions. In terms of focus areas, we continue to double down on our core areas, which include gaming, marketplaces, enterprise/cloud/SaaS and vertical SaaS, AI, security, fintech, and open source.”
Does Index plan to make any cryptocurrency investments with this new fund?
Rimer: “I wouldn’t rule it out, but as I wrote recently, for us, most of the companies we’ve seen so far in this sector are not the ones we would invest in. We see blockchain for what it is: a powerful new technology, but not the new internet Our hope is that given everything that has happened to this industry in the past year, we will focus on companies that want to create real value for users by solving a real problem rather than something speculative in nature ”.
In recent months, Index has expanded by opening an office in New York and hiring a new partner in Tel Aviv.