Pre-Venture: Doubling Down on Seed
Index is doubling down on seed.
As more seed capital becomes available through angels and micro-funds, and other VCs scale back, we are focusing on being the first institutional check into transformative companies. In this expanding landscape, we see more iconic companies being born and a growing opportunity to back founders from day one. We are dedicating more resources and more time to an approach that we believe is both powerful for founders, and complimentary to the early stage community.
Index began seed investing in 2005 and later formalized the practice in 2010. We love seeing what founders and other co-investors see, taking that early leap of faith and helping to build the company—together. During this time, we’ve made mistakes, and been blessed with successes, like Climate Corp, Citymapper, Drivy, Justworks, Figma, Path, Robinhood and Transferwise. Yet like our founders, we continually look to improve.
Looking across the 100 seed deals we’ve done over the past five years, our approach to seed today has been shaped by three primary lessons:
- Conviction and collaboration work best. Our best seed investments are those that are marked by conviction investing and strong support of the founding team. The less-successful ones have tended to be passive exercises of "invest and see." We’ve also learned founders can always opt for any series A lead they want, so when we invest at seed, we view leading the series A as a right we must earn.
- Invest at seed with venture discipline. We’ve had the most success when we invested in seed companies with the essential venture ingredients: a large market, a differentiated model and a remarkable founding team. When we were less disciplined on such fundamentals, our results tended toward the sub-optimal—and may have even contributed to a few cases of “signaling.” A VC fund should only write a seed check if the only missing variable for the Series A is traction.
- Exceptional founders are more likely to build exceptional companies. The better the founders, the higher the likelihood of success. In the market versus team debate, we will bet on the team, twice.
Based on these learnings we have begun to shape of our seed program into what we call a “pre-venture” practice. It’s the term we feel best captures our conviction and commitment to founders and the early stage community. We dedicate meaningful capital and resources toward seed: we carve off around $40 million from each of our venture funds for it, and every partner leads pre-venture investments.
"Pre-venture" means that we will invest in fewer companies and work more closely with you, the founders. We support you with a team approach. We offer you our time, the breadth of Index’s capabilities and strive to earn the right to lead your series A. And if we are successful, we hope to continue backing you through multiple venture and growth rounds, to exit.
We have a fast, simple voting process and consider all pre-venture rounds, from first money in through to late-stage seed. We lead, co-lead, and at times just participate, and invest anywhere from $100,000 to $2 million.
We believe that having the right people around the table will maximize your chances of success. Consequently, we don’t optimize for ownership; we optimize for the success of your company, which means extensive co-investing.
TO THE EARLY STAGE COMMUNITY
To the wider seed community, we know the right co-investor can be transformative to the business. We are happy to make room to bring the right co-investors in. We work across geographies and with a wide variety of folks, including Atlantic Labs, Betaworks, Box Group, Collaborative Fund, Caffeinated Capital, Connect Ventures, Data Collective, Designer Fund, Eniac, The Family, Felicis Ventures, First Round Capital, Floodgate, Fuel Capital, Gotham Gal, Harrison Metal, Hoxton Ventures, Notation, Point Nine Capital, SeedCamp, SV Angel, LocalGlobe, Y Combinator as well as other VC funds, and a host of independent angels and operators. If we haven’t worked with you yet, we are looking forward to do so.
Importantly, when we write a seed check, you can know we don’t do this to be a passive name on the cap table—or for “option value.” We are here to help, and want to support the team together.
We are proud of everything that our “pre-venture” approach stands for and believe it stands unique in the market.
WHAT WE LOOK FOR IN A SEED COMPANY
Index backs companies across sectors, but we do have evergreen themes, including Marketplaces, SaaS, Mobile, Consumer, Enterprise and Open Source. Within this rich array, we see threads linking brands like Blue Bottle Coffee to open-source platforms like Elastic: remarkable founders who craft exceptional products that customers love.
This is no different at the seed stage. We look for the essence of an exceptional product, even if it’s just a prototype. We believe in pursuing new markets or exploiting a fundamental change in an existing one. Most importantly, we seek remarkable founders—those with unique insight who are intrinsically driven to bring their vision to the world.
Finally, we ask ourselves three fundamental questions:
- Could this be an iconic, multi-billion dollar company?
- Would we invest $1 million right now, even if there is only $100-200k available?
- If the company is successful in the coming months, would we be happy to lead the series A and take a seat on the board?
When we answer “yes” to all three questions, we happily invest, and begin what we hope will be a life-long relationship with the team. For Index, its not “just seed,” it’s a first check from Index.