Observing the venture industry over the past 15 years, one notices that successful startups have often been sold before reaching their full potential, especially in Europe.
In some cases an early exit is appropriate. Certain startups should be sold in the early years of their success if, for example, the size of the opportunity turns out to be more limited than originally anticipated, or when management and investors have diverging views about the future potential for the business.
But when an already successful young company enjoys the combination of a validated large market opportunity coupled with a highly motivated and ambitious management team, capable to sustain excitinggrowth rates for several more years, we see a truly exceptional growth company that can generate a very significant independent business.
In these situations selling out early would be a real pity. This is the reason we launched our first dedicated Growth fund in 2007.
Our first Growth fund has been dedicated to helping companies with high potential to continue on a further growth-cycle over the subsequent 3 to 5 years, elevating the value of their business to aspire to reach beyond the $1 billion revenue category.
For European entrepreneurs, the first Index Growth fund constituted a unique opportunity. Prior to its launch, there was very limited availability of European technology growth equity funds.
The success of our first Growth fund makes the case for the second Index Ventures Growth fund very clear. Our strategy for this new Growth fund is consistent with what we have done so far in with the original Growth fund; investing between €10M and €50M in the equity of fast growing companies, with proven business models and solid management teams going after large market opportunities in which they have already built an initial leadership position that can be extended.
To give you more color about the companies we love to back, we will share some elements and a few examples from the first Growth fund portfolio: the average revenue growth rate of our portfolio companies was above 70% in 2010 vs 2009, and from an initial level of generally around €20M at the time of our initial investment, several have already crossed the €100M bar this year.
They all had proven business models, although not all were profitable at the time of investment.
In terms of sectors, we like to invest in areas that are aligned with our core expertise in technology, especially inInternet and online businesses, as well as software.
We love category leaders like Etsy in NY, or ASOS in London, which are rapidly expanding their e-commerce activities internationally.
We also like regional leaders that enjoy leadership in several local markets, like Privalia, the leading online private-sales player in Spain, Italy and Brazil, or Just-eat, leader in online restaurant shopping in the UK and Scandinavia.
And we love massively scalable business models like Dropbox, the latest addition to the Index Growth portfolio, which we believe will revolutionize the way we store and share files on the Internet, are a strong fit with our values.
Outside our core internet and software focus, we look for large market opportunities that can leverage technology to sustain high growth rates.
Take Moleskine, a company that has built a phenomenal brand offline with its legendary notebooks and is continuously increasing its online presence, or Sonos, an innovative wireless music system for the home, or Adyen, a company that is transforming the online payment landscape.
We also like highly scalable models, like the one adopted by RPX, a defensive patent aggregation business now public on Nasdaq, which builds on a clear understanding of technology patents and unique expertise to rationalize the US-patent market.
Geographically, we seek to invest in emerging leaders with international expansion ambitions wherever they may be located.
To give you and idea, within the first Index Growth fund, we have invested in companies located in many different cities, including London, Paris, New York, Amsterdam, San Francisco, Milan, Copenhagen, and Moscow.
Generally, these companies have strong links to Europe because are European companies expanding internationally and to the US, or because are US-based companies for which the European expansion is a key element of their growth strategy.
The Growth fund is a very important part of our integrated strategy to support entrepreneurs at various stages of their development, enabling us to tailor our investment offering to the needs of companies through their lifecycle, all the way from an initial seed investment to their more mature growth stages.
With our early-stage venture fund focused on seed and startup investments, we are dedicated to creating companies that have the potential to become global category leaders.
With our new Growth fund, we are passionate about embracing emerging category leaders as their leadership becomes apparent, and are dedicated to helping them reach their full potential.
The revolutions constantly taking place in our industry from cloud and SaaS through to social and mobile platforms, have created an environment where it is cheaper and more capital efficient than ever before for entrepreneurs to quickly launch innovative products and services, and test them in the market.
At the same time, this makes it essential for companies that get initial success to rapidly have access to the resources and networks required to scale very quickly and establish defensible leadership.
We have been working hard to make sure we remain a very closely integrated firm across the different funds and offices and to be a value-added partner of choice for entrepreneurs regardless of stage, funding amount or geographical location. With the opening of our office in San Francisco this opportunity is only increased.
We are super excited about the next step in the Index story that the launch of new Growth fund represents, and look forward to continually improving the way we work as a team with our entrepreneurs across stages and geographies.
- Giuseppe, Dom and the Index Growth team