Serial web investor
as a venture partner by London-based VC firm Index Ventures. Saul is planning to help Index spend its new technology fund and he will also work with its existing portfolio.
He spoke to us about why European start-ups need better access to experienced entrepreneurs, why he thinks social shopping is over-hyped, and what’s driving the renewed interest in internet companies from investors.
What’s your role at Index going to involve?
My role is venture partner, which means I’ll be looking for new investment opportunities for Index alongside the new fund. The fact that we have raised the new fund obviously means we have significant additional capital to invest in early stage European businesses. I’ll also be working with the existing Index portfolio.
I’ve been lucky enough to have worked with Index closely over the years – they backed Video Island, which I started, and they were the backers behind Skype, where I was an exec. Also in the last two or three years, I’ve done a lot of angel investing alongside Index – companies like Moo, last.fm, Spot Runner and Stardoll.
So I’m really going to be looking to find great new companies we can work with, who have disruptive ideas and who want to build global businesses.
How much of the new fund do you expect to devote to web companies?
Index has a pretty interesting and balanced portfolio – there are a large number of life science investments, as well as investments in semiconductor and enterprise software businesses.
So I think we look to put money behind companies that we feel have great teams and great ideas and are going after big markets, rather than saying x% of the fund will go towards the internet or any specific area.
The story for us is also really about the opportunities that are now available within Europe for people to start businesses that can go on and be players on a global level.
There is a new generation of European-based players like last.fm in London or Netvibes in Paris, who are really competing on a global level and are leaders in their category. You can start great businesses in Europe – you don’t have to be in Silicon Valley.
I think it’s very interesting and it’s something I’ve been looking at it quite a lot.
The web and open source technology have enabled people to create prototype applications relatively cheaply and get things up and running pretty quickly. But the difference between getting something out there and making a real business means you still need more significant external funding. VCs are still a part of that model.
What Paul Graham is doing is helping first time entrepreneurs refine their product and put together business plans and pitches for venture capitalists.
It’s great for entrepreneurs to start having access to people who really want to get down and dirty with them and help them think about their product and business strategy, and I hope we can catalyse some of that activity in Europe.
I’m involved with Imperial Entrepreneurs, which was set up by the students at Imperial to help encourage people from Imperial to start companies.
There’s a huge amount of talent in Europe, particularly technical talent, that traditionally hasn’t had access to successful serial entrepreneurs who can serve as role models and mentors, or the funding process, or the business constitution process.
That’s going to change and that’s something I’m interested in leading the charge on in Europe.
There’s another model called Techstars which is another take on the start-up school model, and I’m not quite sure what the right model is. It’s debatable whether $6,000 per founder for a small stake is the right way to do it.
But I think the real issue is how you get people who want to start businesses in contact with the people who can help them start businesses.
The time and the expertise is much more valuable than the money. The money comes when you have a well-thought-out-idea that can be built into a real business, and that’s not always an easy thing to do.
So you don’t think just setting up a European YCombinator would solve that problem?
The problem with the YCombinator model is it works for the eight or ten people that get selected, but it’s not diffusing knowledge and access at a broad scale. It’s fantastic at doing what it is doing, but the challenge is how you widen the net.
One of the things I’m hoping to do is to stimulate that conversation and bring more entrepreneurs and investors into the discussion. Talent needs access to experience, as well as capital.
The most important thing is that we start having this discussion in Europe right now and acknowledging that we have this issue. There are a couple of models that have emerged in the States and we should look at whether they suit us. They may do but I think they are only solving part of the issue.
How good are the conditions at the moment for exits?
Good companies that are growing, generating revenues and building customer bases can always find an opportunity to exit.
A lot of the major internet companies are recognising that innovation is very hard to do inside their own businesses, so there is a lot of opportunity there.
The major companies – the eBays, Googles and Microsofts of this world – are being joined by traditional media companies in recognising that the internet is becoming a standard part of anyone’s business, and that innovation is not necessarily something these companies have in-house. That definitely gives businesses the opportunity to find decent exits.
Also, you have started to see the stirrings of public markets, both here in Europe and in the US.
But the bottom line is that companies that are growing and are being well-run can always find an opportunity to exit.
How much of a factor is the need for talent in driving investments?
It’s absolutely critical. An A team with a B idea is more backable than a B team with an A idea, every single day of the week.
The reality of a start-up or any development project is that there are so many twists and turns between the start and the end, so you need people who are flexible and open-minded, and are prepared to take risks and think on their feet. The first idea you have is not always going to be the most successful one. Very few successful businesses are based on the idea they started on.
Again, that’s one area where we are behind the US because we don’t have such an appetite for experimentation and failure.
What’s your view on mobile?
There are some really interesting areas of the mobile internet and some really exciting players, other than Skype, who are bringing VoIP to the mobile phone -companies that are saying mobile is ripe for the same kind of disruption as fixed line.
The killer application on mobile is still voice and people are really attacking the voice market on mobile and thinking about how it can be reinvented.
The second area is around digital content but we haven’t seen any market other than ringtones take off in any major way. We are going to see a lot of innovation in mobile but the real innovation will happen around simple solutions and improving things people already like to do, like voice.
There are interesting applications like mobile gaming and mobile payment but the core innovation is still around voice for now. That’s the short-term win, I think.
Is there a particular area of the industry that you feel is over-hyped at the moment?
Where there’s hype, there often tends to be something very interesting. The challenge is to sift through the hype and look for the real businesses that can be sustainable.
In the last twelve months, we’ve been seeing too many businesses being launched with me-too ideas that aren’t really innovating beyond the other ten or twenty businesses in their space.
But people are justified in being very excited about the web’s potential to bring people together, and there are still interesting applications around social networking, even though that’s been massively hyped.
I think one area that has been a little over-hyped is the social shopping space, which I think works very well in very specific verticals, such as travel, movies, consumer electronics and music, but generically, you don’t really look to friends for what you buy. You look to experts.
My friend might be able to give me a good music recommendation but would they be able to give me a good washing machine recommendation.
A generic social shopping service is a hard thing to do. It’s an example of a space that is taking some good concepts but perhaps mis-applying them.
For someone with a start-up and wanting to email you a pitch, what are the big dos and don’ts?
The main thing for me is always focusing on who the customer is and making sure your customer is delighted by your service. Also, how you bring your product to market in a cost-effective way.
How you market your product is very important, but the business model and how you bring that idea to market is as important as the idea itself.