When yesterday, the keyboard developer Swiftkey was reported to be acquired by Microsoft for $250 million — about 10 times what it raised from investors — it seemed just another success in a string for Index Ventures, the venture firm with offices in San Francisco, London, and Geneva.
Indeed, the now 20-year-old venture firm has had a very good run of things, with eight companies in its portfolio going public over the last two years, including Pure Storage, King, Just Eat and Hortonworks, while many other companies have grown considerably since the firm first wrote them a check, including BlaBlaCar, Funding Circle, Deliveroo, Slack and Sonos.
No wonder Index has just closed its eighth early-stage venture firm, a $550 million pool that it plans to invest in the U.S. and Europe in equal parts. (The firm had raised around the same amount for its seventh early-stage fund, closed in 2014.)
Index — whose U.S. partners include firm cofounder Danny Rimer, former Cisco chief strategy officer Mike Volpi, and former Dropbox head of product Ilya Fushman — has also promoted to partner Shadul Shah. Shah had joined the firm from Summit Partners in 2008 as an associate.
We spoke earlier this week with Volpi and Shah about the new fund. We also talked about how they concurrently manage the firm’s $706 million growth fund, closed in April of last year; how closely the team will be working with former Twitter CEO Dick Costolo, who joined Index as a venture partner earlier this month; and where they’ll be shopping in 2016. Our chat has been edited for length.
TC: Mike, in the U.S., where you opened an office in 2011, you’ve now gone from two partners — you and Danny — to four, plus a venture partner. How involved will Dick Costolo be, exactly?
MV: Yes, we have quite a bit more manpower here in the U.S. Dick is roughly half time with us and half time with the fitness startup that he’s incubating in our offices. He’ll be sponsoring investments, taking board seats — doing the full gig at Index, but half the time.
TC: Shardul, you’ve been focused on enterprise investments for the firm.
SS: Yes, for the last three years, I’ve been focused on enterprise and within that, security and developer services. I think we’ll continue to double down on those themes, as well as extend into [related] themes.
TC: You also raised a giant growth fund last year. How much overlap is there with your earlier-stage efforts?
MV: When we’re excited about [a startup in our] venture portfolio, we’ll double down on the growth fund, but the investments are largely de novo. I’d say about 20 percent of the companies [were also previously backed by Index as early-stage companies].
TC: And is anyone focusing on growth in particular? Do you have any separate team members?
MV: No, each of us is investing in everything from pre Series A to growth investments. We orient around themes first and stages second.
TC: You say that 7 out of 10 of your investments are seed or pre-Series A bets, and that you look for 20 to 25 percent ownership with those checks.
MV: It’s typically before there are any proof points about scalability. Once a company has demonstrated that a product or service works and that there’s a path to accelerating its growth, [we start thinking about] Series C and D rounds.
TC: You wouldn’t seem to have a lot of bandwidth for those later investments.
MV: That’s been one of our challenges, a lot coming our way and not sufficient bandwidth to cover it. But Index isn’t just partners. We have a strong and up-and-coming team of associates and principals who help us look at things. Growth-stage companies tend to have much more data to sift through, and that’s where our team really helps us in doing analytics.
TC: You’ve invested in all kinds of things. What are you tracking for 2016? Mike, I know you were personally interested in bitcoin and had bought some in late 2013.
MV: We’ve made two investments, in Xapo and Bitpay, that we’re helping along. Bitcoin has gone through a very interesting stage over the last 12 months, where the currency itself went up, then down, then way up again. Now there’s this debate about the length of the blockchain. We still believe in it, but it’s going to be a long journey and we’re generally coaching [our entrepreneurs] to take a long-term view and don’t spend a lot of money and wait for things to settle out.
TC: Shardul, what about AI and VR and all the other things that people are now talking about?
SS: AI is certainly very interesting. The amount of compute in the last five years and data processing has grown such that Google, DeepMind and others can provide responses much more quickly based on things like AI. We’re paying attention to applications of AI in areas like messaging, first-party applications and companies that are formed around the ecosystem of Slack [whose new, $80 million venture fund is backed partly by Index].
TC: What do you make of the public markets and this startling lack of IPOs?
MV: It’s a tricky time to go public, but I wouldn’t say it’s wholly unreceptive. [The workplace collaboration company] Atlassian staged a very successful IPO in December.
TC: You aren’t worried about valuations getting squeezed?
MV: From the perspective of a VC, it’s a double-edged sword. For our portfolio, it’s not great when valuations go down, but it also gives us an opportunity to invest and get better deals. It’s part of the natural course of the business we’re in, so it hurts us and it creates opportunities.
Featured above: A snapshot of Index Ventures’ San Francisco office.
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