On May 20th 2021, I hosted “Investor Chat and Founder Pitch” event with Sofia Dolfe, Principal at Index Ventures, to talk about how to raise venture capital and grow a global company.
Index Ventures is a venture capital firm based in London, San Francisco and Geneva, helping entrepreneurs turn bold ideas into transformative international businesses.
Index covers every investment stage, from earliest seed through to explosive growth. We believe that opportunity is a mindset and we look for people who spot something others haven’t seen; something that they foresee can change the world and are committed to realising. More than anything, we are passionate about building lifelong relationships with the entrepreneurs we work with, which is why they are our best reference.
Sofia Dolfe joined Index Ventures, a multistage venture capital firm, from EQT Ventures in April 2018. She splits her time between covering the Nordic region and focusing on European-wide consumer opportunities in large markets (eg. PropTech, HealthTech, FemTech).
Prior to Index, Dolfe worked on large Commercial Due Diligence projects for Parthenon-EY in London and Paris, and spent time at the European Union Delegation to the OECD.
Sofia is a graduate of the London School of Economics (M.Sc. Management) and of the University of Edinburgh (M.A.), where she graduated at the top of her class.
The panellists and startups in the discussion include:
- Johan Åkesson, Investor Relations & Incubator Operations from Hetch
- Rickard Vernet from Advokatfirman Vinge.
- Martin Hassler Hallstedt of Akribian, turning children into math stars using science and game design.
- Rickard Hansson of <weavy/>, enables your users to engage each other to make faster, better decisions through contextual collaboration using in-app messaging, activity feeds, secure file sharing, and more.
- Henrik Karlsson of Talk.onl, connect with professionals knowing today's most in demand topics or earn money sharing what you know with curious minds.
- Martin Rugfelt of Sentian.AI, an Industrial AI product and solutions company. Anna Tinglöf of Simplr AB, a newly started company in the Gent Group, which offer a digital drop-in service for haircuts. Maksym Plakhotnyuk of Atlant 3D, enable on demand next generation micro and nanoelectronics printing atom by atom.
You can read the key learnings below:
About Index Ventures
Index Ventures is a global venture capital firm that was founded 25 years ago in Geneva. The entire premise of Index Ventures was that the founders had spent much time on the west coast of the United States. The Silicon Valley way of investing inspired them. This type of investing at the time was foreign in Europe. Founders had to go to the United States to attract talent and capital.
Index Ventures embarks on a mission to help founders, with the first step taking place in the heart of Europe, Geneva. They promised to fly everywhere, build meaningful connections with entrepreneurs, and secure first checks into companies all over Europe. As a result, Index Venture is very relationship-driven. For the investors, every transaction means a lifelong relationship throughout the time of the investment.
Since the expanding process, Index Venture is working dually, with headquarters between London and San Francisco. Each headquarter has ten investors. In addition, Index Venture has its own long-term LPs (nonprofits, universities, and funds) who are fund backers.
Investments are from three vehicles:
First, a $200 million Seed Fund, dedicated to issuing the first checks to the company and acting as the company's first investor.
Second, an $800 million Venture Fund with investments of up to $20 million per ticket, focusing on Series A investments.
Finally, there's a $1.2 billion Growth Fund, with the investments up until the pre-IPO stage.
With that said, Index Venture is a multi-stage firm with the potential to be a long-term partner. In terms of sectors, their investments have generally been split evenly between consumer and marketplace-related businesses, enterprise software, and FinTech.
Whether it's payment processing enablers like Adyen, neobanks like Revolute, or infrastructure that enable open banking like Plaid, Index Venture has a strong history of investing in FinTech firms across the value chain.
Index Venture supports its portfolio companies in a variety of ways.
The first one is through optimizing for talent and ensuring support. Index Venture has a full-time talent team dedicated to uncovering next-generation superstars across Europe in product tech marketing, sales, and any other area. In addition, they are assisting businesses with hiring, recruiting, and occasionally relocating.
The second area is corporate development. The corporate development team is focused on establishing all ties with C-level executives at significant financial institutions, banks, FMCG and Fortune 500 companies. Moreover, the team focuses on developing meaningful connections between the companies as potential collaboration in the future.
Index Venture assists its European companies in expanding in the United States by showcasing its own successful example of international expansion. They executed seamless international roadshows for King (the world's leading casual gaming company) and Zendesk (transforming customer service).
On Index Origin
Q: Earlier this year, your team launched Index Origin, a $200 Million Seed Fund investing in early-stage tech companies. What made your team decide to launch a dedicated seed fund during the pandemic?
We have been in seed investing for a long time. Seeds such as Robinhood, Figma, and Revolute, have proven to be some of our best investments. Those are a few examples that have had meaningful returns for us.
However, given that those investments came out of our Venture Fund, it was sometimes misrepresented and unclear to entrepreneurs that they could contact us and that we were approachable even for small check sizes.
Lunching Index Origin was a way for us to formalize that strategy and make it obvious that we are also seed investors. We are no longer optimizing for ownership with this dedicated fund. Instead, we are aiming for the best possible exposure and collaboration.
As a result, we see it as a method to collaborate with angel investors, local seed funds, and other solo general partners at the setup stage. Then Index can be the next lead investor, followed by some of our other funds in a subsequent round. That, in a nutshell, was the justification for establishing this fund.
In terms of timing, we believe that the European venture market has never been more exciting, both in terms of capital access and in terms of talent. Today, I think Europe has more full-stack engineers than the United States.
In addition, Europe has never been riper in terms of technology and products. Subsequently, we felt that it was the best time to make sure that the market knew we were available for seed investing. We had something that was a differentiated offer to what's available.
Q: Other firms invest in deals, Index invests in people. So what kind of people or founders is Index looking for? And what kind of support do you offer to support those founders? Would you please elaborate on this with a few examples?
In Index, we invest in founders, and a large part of our fundamental filtering process involves much subjective filtering. We believe it is much more about the product's nature, engagement, and whether it piques the customer's attention. If those issues are resolved, financial traction will emerge over time.
Furthermore, it is critical to understand how the founders approach the product and market from the first principles, their long-term thinking and competitive advantage. It's about figuring out what those subjective filters are and why the founder is working on this with the founding team. Founders must be humble and self-aware enough to recognize blind spots and the areas where talent is needed to compliment them. It all boils back to the individuals that founded the company. And that is our philosophy about what matters most.
On Investment
Q: You talked about how you are looking for founders who are inspiring storytellers. What made you believe that this is an important factor? What is your advice for founders who have a great vision and top quality products but are not great at storytelling?
I answered that in our TechCrunch article when asked what I am looking for. For me, it comes down to being an inspiring storyteller. Along the road, you'll have to convince a lot of individuals to join you on your startup journey. If you're a storyteller, you'll have an easier time attracting talent.
To convince others to leave their current jobs in order to work with you. In the end, you want to attract customers. You should be aware: What do you stand for? What is the meaning of your product? How do you promote yourself? How are you differentiating yourself from the competition?
I think it is frequently undervalued how crucial it is to inspire and sell a dream and a vision, especially when things aren't going as smoothly as planned. So, I believe that founders who can do so with nuance and self-awareness are setting themselves in a good position to succeed.
Q: In terms of co-investment, are you investing alongside corporate investors?
We have probably co-invested the majority of the funds in Europe so far. As a result, we are certainly open to it. For our corporate co-investors, it is also something we are considering. To avoid bias and conflicts of interest, I believe we should have two rather than one.
Historically, whether it's banking or telecom companies, it's something we've always been receptive to. Most importantly, we want to make sure that interests are aligned.
Q: What are your thoughts on the Educational Technology (EdTech) market?
My personal bias has always been that it is a relatively budget-strapped industry. Institutions impose capital constraints. So, who will pay?
Perhaps parents will pay because they want to ensure that their child succeeds in school. COVID has pushed limits and forced many institutions to rethink learning mechanisms and their management systems, which I think is fascinating. As a result, I believe it creates ripe for disruption in a sector that has historically been difficult to penetrate.
Q:You mentioned a lot about being relationship-driven while introducing Index Fund. Could you comment on how you manage such relationships, especially in a remote world?
Every company is just a WhatsApp message away. We are much more of a pull than a push-type investor. Therefore, we adapt to the founders' preferred communication frequency. We have a daily check-in with some companies and a once-in-a-while check-in with others. From a relationship standpoint, we make sure to accommodate everyone.
Q: At what stage do founders contact Index Ventures?
It's kind of on a case-by-case basis. If business angels are investing roughly a million dollars, Index Venture could definitely be a part of that round. If it is merely a little angel constellation, it is most likely on Index's earlier side. However, if it is a local accelerator with a few local angels, and the amount is pretty large (for example, in the $1 to $2 million range), we may contribute with a $500k check, or even less.
Q: You have been a board director or observer in some of the exciting gaming and fashion companies, such as Otrium, with which you co-lead the investment of $120 million. What made you decide to continue to invest in Otrium?
As a board member, I've been fortunate because I haven't faced many genuine obstacles. I am confident that it will come. I'm sure challenges begin to mount once you join a failing company. In that case, you'll have to decide whether to liquidate your assets or file for bankruptcy.
The difference between a board member and a founder is that a board member who works with multiple companies will most likely think more programmatically than a founder who will think emotionally. There are many shared interests, but Index is a long term investor.
We recognize the importance of re-strategizing, taking a step back, rethinking, and starting over. However, after a while, we must also serve the investors in our funds. So, at some point, we must consider when the exit is suitable for us. And at that moment, all you need to do is have an open conversation.
Founders should consider the value they provide to investors. So, if you're dealing with three investors, consider what value you can obtain and contribute to each. To get all of the varied viewpoints and inputs, try to build as complementary board as possible.
From a seed perspective, collaborating with local funds provides the founder with the best of both worlds. On the one hand, they will benefit from hands-on geographic proximity, while on the other, Index will provide them with huge pockets and a robust network of investors. Make sure you're optimizing your investors in the best possible manner.
Q: You acknowledged having a long-term commitment with your LP. What exactly do you mean by "long term"?
Our funds are typically invested for a period of ten years. Right now, there are a lot of first-time funds in Europe. It is simple to raise your first round of funding since you are selling a dream and a vision. However, raising a second fund after three to four years will be much more complex because the money from the first fund has been used.
So, if you don't have any returns to show from the first fund, there may be a greater feeling of urgency, purely from an academic standpoint. But I suppose that's where we have an advantage. We are on our tenth venture fund, fifth growth bond and have investors with whom we have worked for over 25 years. There is an inherent sense of trust and loyalty.
In our case, if you have a great belief in a company's future but without proven traction, we may easily extend the fund for another two years. This may be a more complicated alternative for a first-time fund because they must prove themselves to their investors.
Q: You've already mentioned the transition from seed to later financing stages and Series A. Would you mind elaborating more on what founders should consider early on when planning for future funding?
The best thing you can do, in my opinion, is to perfect your product-market fit. Make certain that your clients enjoy your product and that you are selling and expanding. That should be number one on the priority list.
The reality is that if you are growing and your product is well-liked, investors will notice your momentum. Investors spend much time researching and looking for signs that a company is performing well.
If you want to plan ahead, try to identify the top 10 Series A investors who would be suitable partners and keep them in the loop. Furthermore, leverage from your seed investors and angels' network. They can connect you with prospective future investors and set you up for success.