Neil Rimer has been backing European businesses for more than ten years, but his passion for the entrepreneurs of his adopted continent appears to be undimmed. “We're privileged to meet lots of entrepreneurs, who are just about the most exciting people to spend time with,” says Rimer. “They're passionate, hard-working, versatile and never boring. That's always enriching.”
These entrepreneurs are part of a market that Rimer has done more than most to create. Index Ventures, the firm he co-founded in 1996, has helped a generation of managers turn bright ideas into global businesses – and in the process established itself as one of the world's most influential venture capital firms, a genuine European rival to the giants of Silicon Valley.
Rimer's own passion can almost certainly be traced back to his father Gerald, a bond trader who built up his own business in Switzerland. Gerald's entrepreneurial drive and risk management skills clearly had a profound and lasting effect on his family, because no fewer than four of his sons have gone on to be venture capitalists or entrepreneurs in their own rights. Neil began his career working alongside his father, before teaming up with brother David (and ex-McKinsey consultant Giuseppe Zocco) to found Index Ventures. Younger brother Danny joined them in 2002 to launch the London office, while a fourth brother, Richard, also spent five years with the firm before leaving to do his own thing last year.
Perhaps there was something in the water in the Rimer household in Geneva – or perhaps it was all down to Gerald's skilful cultivation of his sons' appetite for risk. Either way, family poker nights were probably not for the faint-hearted.
Neil, the eldest, says always wanted to emulate his father by running his own business: “I always wanted to have control of my own destiny. And really that's essential to the practise of venture capital – you're looking for entrepreneurs with the same drive to control their own destiny.”
A NEW FRONTIER
Rimer was destined to become a pioneer of the venture market in Europe. When he started his career in the early 1990s, venture capital was all about Silicon Valley – an environment he had seen at close quarters during his college years at Stanford University.
But Rimer, who was born in Canada but brought up in Switzerland, was convinced that Europe also had plenty to offer. So after finishing business school, he headed back to Geneva determined to bring the US model to Europe. “We wanted to build a venture firm to rival those in Silicon Valley,” he says. “All venture funds are measured by comparison to the Valley, because that's the best venture environment in the world.”
The new firm was established in Geneva, the Rimers' home town and an easy staging point for deals across the continent. “From the beginning we took a pan-European approach. We knew that if we wanted returns to rival the Valley, we had to cultivate investments from a larger area.” Geneva had other advantages, too. “We didn't expect to see lots of dealflow in our own back yard. In London it's very different; you might expect the best deals to come to you.”
In its original incarnation, Index would find and structure deals, then work with investors to finance them. Without any real track record, and with no venture market to speak of, Rimer didn't have much choice. “It meant we were effectively raising a fund each time, but that's what it took to build up a track record.” It took four years to convince investors that there was money to be made. “By 1996, a handful of the institutions we'd been cultivating were saying that it was logistically very complicated to do this on a deal-by-deal basis, and suggested that we should raise a fund.” Index Ventures was born, and in the subsequent decade third party investors like these have contributed more than $1 billion to the firm's coffers.
“There's a whole generation of entrepreneurs that are transforming Europe, and we're fortunate enough to be able to work with them.”
A SENSE OF PERSPECTIVE
The journey has not exactly been smooth sailing, of course. In fact, the European venture industry has enjoyed a pretty turbulent first decade of existence – the frenzy of the dotcom bubble, when for a time it seemed as though everyone wanted to be an entrepreneur or a venture capitalist, followed shortly by the subsequent crash, where almost all concerned incurred catastrophic losses. Many of the venture “tourists” were quick to cut and run.
But for those firms like Index that have been able to stay the course, the turbulence has not all been bad news. “The industry's actually developed quite quickly,” says Rimer. “We've seen the full life cycle in a short time period.”
This experience has also left Rimer better qualified than most to compare the current state of the market to its (much longer established) equivalent in the US.
“The main difference is the cultural and geographical diversity of opportunities in Europe. The US is a huge, monolithic market. There are media and distribution channels that operate across the country, so it's very easy to advertise to 300 million people.” In Europe, however, it's not so easy. “European businesses don't have that same luxury: they're in a huge, heterogeneous, complicated market, and they have to deal with that from day one.”
That said, he does not think the markets are hugely dissimilar. “The entrepreneurial class in the US is largely first and second generation immigrants. They have the least to lose and the biggest dreams. They've learned to make sacrifices. Europe's the same, it just happens over a much larger area.”
Even the much-vaunted gap between the two in terms of willingness to take risks has been narrowing recently, he adds. “It has changed very rapidly in the last five or six years. It used to be very hard to recruit management teams from big companies to go and work in start-ups; you were competing against the perception of greater job security. Nowadays they're often looking at opportunities or talking to us about something before we even approach them.” This is because managers have a better understanding of what this kind of opportunity can offer them, he explains. “People are starting to appreciate that taking the entrepreneurial path actually offers even more job security, because you learn to work in a more dynamic, competitive environment and the skills you acquire will be relevant whatever you go on to do.”
STICKING TO ITS GUNS
During its lifetime, Index has seen many of its European rivals – Apax, 3i, Permira to name but a few – steadily progress away from venture deals to doing larger, more highly leveraged transactions. However, Index has shied away from morphing into a growth capital or private equity firm, sticking resolutely to its core area of expertise – backing smaller European businesses with global aspirations.
Rimer's firm concentrates primarily on backing companies in the information technology space – notably online consumer offerings – and the life sciences sector, aiming to do about 6 to 10 deals per year with an average equity commitment of $3 million to $10 million per deal. There have been some notable successes, businesses that with Index's help have become household names in Europe: Betfair, the online betting exchange; mySQL, the open source software company, and most famously Skype, the voice-over IP telephony system that Index sold to eBay for a huge return (see boxed article).
Rimer believes the next generation of Index portfolio companies will be just as successful. “As well as the high-profile success stories, plus the others that aren't so well known yet, there are a number of others in the portfolio that are going to have at least as much impact,” he says.
OLD AND THE NEW
But where are these opportunities likely to be found in the coming months? The firm has just closed a $350 million fund, its biggest yet, so it has plenty of money to spend. Rimer suggests that fund four will see more of the same, in investment terms – plus one or two new areas.
For example, the phenomenon of social networking has still not run its course, according to Rimer. Indeed, Index was about to close another deal in this space as PEI went to press. “We're only just at the beginning of this trend,” he insists. “So far people have hit the low-hanging fruit, but there are plenty of other communities out there that are also interested in the internet. There are plenty of groups that are still untapped, which can be targeted and monetised”.
“We wanted to build a venture firm to rival those in Silicon Valley.”
One new area of interest is products or services related to clean technology, particularly where it links to the firm's historical strengths in IT and life sciences. “Developing cleaner technology is a global issue, acknowledged by the public all over the world, so it has a global market. The trap of course is that just because there's interest, it doesn't necessarily mean there are investment opportunities.” One area of potential interest is energy networks, which in Europe are hindered by an antiquated infrastructure. “It's a dumb network,” he explains. “You can't monitor or manage how power is moved about or consumed.”
Geographically, the firm is also looking further east than before. Eastern European opportunities will be higher on the agenda this time round, while Index recently completed its first ever Russian deal – taking a minority stake in OZON.ru, Russia's equivalent of Amazon and the country's biggest online retailer.
When asked whether these extended geographical horizons might stretch as far as China and India – considered by some to be the hottest countries on the planet for venture capital, and recently named as the two most enterprising countries in the world by the Global Entrepreneurship Monitor, Rimer says no – as ever, his firm will stick to what it does best. “We're not rushing into India and China, just because we're not close to being done in Europe yet. There's still a huge opportunity here.” So why the current land grab, with a number of US firms seemingly eager to pour money into the two countries? “US firms see the same kind of monolithic market in China as they have at home,” he suggests. “Though in practice there's not the same level of infrastructure or media reach.”
Index will continue to invest in the US – but largely opportunistically, and usually with a local partner. “We still invest in the US, as we always have, because we have lots of good relationships in the Valley and access to such good dealflow. You need to be there, because often these companies are looking to migrate across from Europe.”
INDEX VENTURES• Francesco De Rubertis, general partner• Saul Klein, venture partnerFounded: 1992, raised their first fund in 1996Offices: Geneva, London, JerseyNeil Rimer:Typical deal:Co-founder and General Partner• European venture capital dealsBased:• $3-10 million equity per deal, 6-10 deals per year• Prefer lead positions and an active board seatGenevaSector interests:• Information technology (applications and services; communications;
components; enterprise infrastructure)Educated:
BA History & Economics, Stanford University; MBA, Harvard Business School• Life science (drug discovery and enabling platforms; healthcareinfrastructure)• Clean technologyInvestment interests:Online and mobile services, green technology solutionsKey personnel:• Neil Rimer, co-founder and general partner
• David Rimer, operating partner and chief financial officerBoard seats:Trolltech, Netvibes, Last.fm, Photoways, Innovative Silicon, Pulsic and Kimotion.• Giuseppe Zocco, co-founder and general partner• Bernard Dallé, general partner• Danny Rimer, general partnerPrevious deals include:Betfair, Ofoto (now Kodak), Listen (now Real Networks), GenmabSKYPE PROVIDES TEMPLATE
One of Index Ventures' most notable successes of recent years was Skype, a web-based telephony company.
The Geneva-based business, which offers users free telecommunications by routing voice calls over the internet, was originally founded by Swedish entrepreneur Niklas Zennström and Janus Friis, the Danish founder of peer-to-peer file trading network Kazaa.
Skype fitted Index's investment template perfectly: a business using technology to solve a real problem with a novel approach. The venture firm first invested in Skype's Series A round in 2003, and then again in its second round in March 2004.
The attraction was apparently mutual. “We had offers from many of the top US firms but Janus and I chose to work with Index because they focused on what could go right with Skype and have worked tirelessly to help us fulfil our vision,” Zennström said later.
Three other venture firms also got in on the act: Draper Fisher Jurvetson, Bessemer Venture Partners and Mangrove Capital Partners; according to reports, the four groups invested about $24 million in the business between them.
In September 2005, just two years after the company's foundation, online auction site eBay came in with a knockout offer for Skype: $2.6 billion (€1.9 billion) in cash and shares, rising to $4.1 billion if certain performance targets were met.
At the time, this seemed a remarkable price for a business that had recorded revenues of just $7 million in 2004, the last full year before the sale. Even the basic price was a multiple of about 12 times its projected revenues for 2006. But eBay was keen to gain access to Skype's impressive user base: at the time of the sale, the service had more than 50 million members in 225 countries, with 150,000 users signing up every day.
“They paid [that amount] because that's what its worth,” Index's Danny Rimer said at the time of the deal.
For its venture backers, who had been in no rush to sell, the offer proved irresistible and all four firms walked off with enormous returns. Although Index has never revealed the multiple it made on the investment, Bessemer admitted they made over 100 times their money on the sale.
Index's investment in Skype may have been one of its shortest-lived, but this massive ‘home run’ success will have a long-lasting effect on the firm's reputation.