Index Ventures creates seed fund with Kleins at the helm

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In the wake of today’s news that Index Ventures is to launch a new seed fund on Monday focusing on early stage with The Accelerator Group, TAG founder Robin Klein spoke exclusively to TechCrunch Europe about how the new vehicle will operate.

First the news. Index partners Neil Rimer, Danny Rimer, Saul Klein and Mike Volpi will manage Index Seed, which will be run by father and son combination Saul and Robin Klein. Saul Klein is already a partner at Index Ventures and is active among early stage startups through SeedCamp and creating OpenCoffee Club. Kelin will work at Index Seed two days a week but continue to make independent TAG investments.

The detail on Index Seed is this: It has been carved out of Index’s existing $400 million fund and will make twenty early stage investments over the next 24 months ranging from $50,000 – $1 million. The partners will not require board seats with their startups, but expect rights that are the same as other seed investors and to be heavily involved. The emphasis will be on speedy decision making.

TAG is already a co-investor with Index with 14 companies, including Moo, My Heritage, Glasses Direct, OpenX, Stardoll, Moshi Monsters and LoveFilm and it’s exits include Agent Provocateur (3i), Sit Up TV (Virgin Media), (IPO), (CBS) and Dopplr (Nokia). TAG has 44 active investments.

The move is significant because although there has been informal collaboration between TAG and Index in the past, as TAG has informally collaborated with other funds, this is the first time it will work in a formal way with a VC.

It should be noted that Saul Klein is also Chair of Seedcamp, the pan European Y-Combinator-like programme for early stage startups. However, neither Seedcamp or Seedsummit (a Seedcamp initiave bringing Euroean Angels together) is in any way part of Index Ventures. While Saul Klein initiated Seedcamp and remains its Chairman, Seedcamp is owned by 30 VCs and Angels and is run by CEO Reshma Sohoni with a widely sourced board.

Index Seed will be “invested in the TAG Style” says Robin Klein. That means “low friction, few meetings, simple documentation, collaborative in syndicate funding. This is typically the way seed is done in the west coast,” he says.

TAG has done 14 deals together with Index, though not all of its biggest ones. “The way we operated was that if Saul had the introduction [to the startup] then he would take that to Index. If I had the introduction I took it wherever it made sense for TAG.”

Klein had previously been a venture partner at Atlas Venture but with their move effectively out of Europe, he had “lots of approaches” asking him to share offices.

“I considered a number of people’s proposals but what made a real difference to me was about sharing a set of values and making a commitment to the market I am most interested in. It means having capital and resources. We will now have a dedicated associate working on Seed. Other VCs don’t have anyhting like that.”

Klein thinks this move is significant for the market as there has been a lot of concern about the lack of early stage funding, so to get a leading European VC to make this level of commitment is quite significant.

The interesting think about this move is that it is not about the amount invested – that is elastic. Klein says the aim was to aim for the right number of deals, not “rather than having to spend ‘X’ amount of money.” And being able to go as low at $50,000 to help an entrepreneur prove a concept means they will have a lot of flexibilty.

“All VCs would like to do more seed investing but the numbers just don’t add up to it. Resources are too limited to invest with such relatively small amounts so it’s very hard to orgnaise. The relationship we have (between TAG and Index), is that we really enjoy doing this. So this partnership should make a real difference,” says Klein.

Index Seed will also invest in the US. “We think that’s important to remain closely in touch with what we call ‘fellow travellers’. What was said at GeeknRolla on the Investment panel is that it’s not an ‘us and them’ scenario [as in Europe vs US] but a global busineses.”

Kelin is also keen to point out that TAG has never been a VC. “It’s not a fund, we invest our own capital through our own balance sheet. So it’s not a ten year fund or a seven year fund. We can invest on an ‘evergreen’ basis. We believe seed often needs a long time to gestate. Great companies don’t get made overnight.”

Index Seed will also be instrumental in trying to bring the disparate network of Angels across Europe together. The Seedcamp-arranged SeedSummit, held at the end of last year, was created in two weeks and saw 60 angel investors come together to share knowledge.

“Want to try and pull that together. So startup guys know where to go.” says Klein. “Syndicates form in the Valley very quickly. One person takes the lead, another comes in on the strength of a phone call. There is a circle of trust. Here in Europe it’s slower and less coordinated, so we want to change that.”

Updated: Robin Klein blogs about it here. Saul Klein blogs here.

In our view this is a fantastic effort to re-focus investment on earlier/seed stages for startups. Even bigger firms recognize this as an area for focus and potentially strong ROI.

However, it does “consolidate” the market a little bit and there is an element of ‘wagon circling’ going on here as Index seeks to reach across the breadth of investing.

The market also now requires response, so maybe we’ll see similar efforts from PROFounders, the White Bear Yard guys, and other co-investment funds.

  • David Ashwood

    Great writeup Mike and looks like it will really bootstrap seed-funding – especially in the EU.

    You might want to check what the fund expects as part of their investment – from:

    “Five, to make us as easy to do business with as any other active seed or angel investor we are optimizing our process for due diligence and legals. We can make decisions quickly, don’t need a board seat, expect rights that are the same as other seed investors and can invest as little as $50k or as much as $1m in a seed round.”

    Whereas in the above article it suggests differently.

  • robin klein

    David, You are correct, there are a couple of small but important errors. One is that we will NOT require board seats. We DO expect to remain very close to the companies.

    • Shafqat

      Robin – I made a similar comment in the TC US post as well. The fact that you do NOT require board seats is important, but also misrepresented in that post (as of writing this comment, neither post has been corrected)

      • Mike Butcher

        Happy to correct the post. I must have misheard Robin over the phone.

    • David Ashwood

      Cool – great to hear that Robin. Agility is important and there’s no reason, with current communications, the management team (in-house & investors) shouldn’t be on the same page and feelin’ the same market pulse.

      Has the recent events with the ash cloud, and the lock-down on flights, affected how you consider who you invest in?

  • Anibal Damiaio

    Is this just consolidation? I initially read TC news as being a good thing, but this post moved my thoughts toward consolidation.

    Does anyone care to share their ideas about general availability of cash and faster investments in Europe, before and after?

    • robin klein

      The point about board seats corrected – thanks Mike.
      The other point – which I didn’t have time to elaborate on – was the impression created that somehow Seedcamp, Seedsummit are part of Index.
      This leads to lots of confusion and thoughts about consolidation of funding sources.
      It happens that Saul initiated Seedcamp and remains its Chairman but Seedcamp is owned by other 30 VCs and Angels and is run by Reshma with the support of a board – drawn from a wide pool of people – again VCs and Angels.
      Seedsummit is again an initiative of Seedcamp’s and is an important step in bringing Angels together to develop ways to get more capital to start-ups more easily. It is not an Index initiative.
      I think a post on just who owns and is supporting Seedcamp would be interesting. VCs across Europe, active angels and the like.
      Thanks for reaching out …

  • fedd

    Sorry, I didn’t quite understand.

    Can we be an enterprise (b2b) project, not a website?

    Can we be from outside the EU?

    Thank you!

  • Index Seed updates us on progress so far

    […] Seed has released an update on it’s progress since launching in April this year and the stats make for interesting […]

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