Index Ventures doubles down on Europe with huge new growth fund

When two key partners at Index Ventures, Danny Rimer and Mike Volpi, moved from London to open the tech investor’s first Silicon Valley office, many European entrepreneurs saw it as a loss for the region.

But as it raises a huge new €500m ($700m) late-stage fund, Index insists that it’s just as focused on Europe – and London – as it’s ever been.

“As with all other Index funds, the heart and soul of the fund is based in Europe and will be invested in Europe, but it definitely has a US component,” said Saul Klein, Index partner, adding that around two thirds will be invested in Europe and a third in America.

Index uses the Eurovision definition of Europe, to include Israel and much of the former Soviet bloc, recently taking part in a big round for Ozon, the “Russian”. With its new Growth fund – Europe’s biggest raise for five years – Index plans to take minority equity stakes of €10m to €50m in fast growing companies that need an extra boost for three to five years, ahead of an IPO.

Index’s previous growth fund, raised in 2007, is now fully invested in 20-plus companies, including the likes of Sonos, the wireless music system, JustEat, a site for takeaway ordering, and Moleskine, the fashionable notepad maker which Index believes exemplifies an “offline” company upon which its expertise can help build an ecommerce business.

The new funds could land anywhere in the world, but with more of a London focus than most VCs, who tend to migrate from Silicon Valley outward.

“A consistent theme for Index is we are very focused on going where the best entrepreneurs are and to build out their opportunities in the markets that matter,” says Mr Klein, referencing previous investments in Amsterdam, Barcelona, Munich and LA. “It’s a very eclectic, regionally diverse set of investments that feed through these two core hubs of London and now San Francisco, which we continue to believe are the major places in the world that entrepreneurs want to access in terms of capital and business developments.”

Index has made more than 60 investments in North America since the mid-1990s, from Santa Barbara to Toronto. The most recent is Dropbox, where Index led a $250m round, partly from the last Growth fund and partly from the new raise.

And while the focus today will be on later-stage tech, Index is still investing across earlier stages too; in the last 12 months, it’s made 29 seed, 57 venture and 15 growth investments.

“There is no question capital is becoming more concentrated, but for the good businesses – at every stage, whether seed, venture or growth – there is a lot of available capital,” said Mr Klein. “For the better deals, Dropbox for example, these are highly competitive deals to get into or lead. If you look at the macro conditions of the fundraising market, smart entrepreneurs whether in Tallinn, Tel Aviv or Silicon Valley now have an abundance of sources of capital – whether really early stage like Seedcamp or disruptive marketplaces like AngelList, capital is much more visible now.”

But for the really knockout exits from its growth fund, Index – like every other VC – will be watching to see if Zynga and Facebook can follow in Groupon’s footsteps to the public market.

Additional reporting by Daniel Schäfer, Private Equity Correspondent