GENEVA – Index Ventures held a final close on its $300 million third fund, Index Ventures II LP, in late June, said Neil Rimer, a general partner at the firm. Fund II, which launched last September, held an initial close in December, Rimer added.
Unlike some other European funds which take a hybrid approach to the private equity business and invest out of the same fund in everything from early-stage venture capital to buyouts, Index’s strategy is to apply U.S.-style venture capital to the European market, Rimer said. “Our basic philosophy is there is no reason why the U.S. should be the only country to develop a vibrant VC economy,” he added.
Practically, this means the new vehicle will focus on early-stage information technology and life sciences deals, Rimer said. Approximately two-thirds of the fund will go toward IT plays, with the remainder being slotted for life sciences deals, he added. Index will invest as early in a company’s lifecycle as the firm feels acceptable, which typically means a first investment at the A or B round, Rimer said.
Initial investment size for the new vehicle will vary depending on what each opportunity requires, he said, adding the firm is comfortable committing as little as $1 million and as much as $10 million at first. The firm’s target is to commit $15 million to each of its portfolio companies over the life of a deal, which means Fund II should back between 20 and 25 companies, Rimer added.
The fund will scout for deals primarily in Western and Northern Europe, although the vehicle may do some deals in the U.S., he said. In order for Index to participate in a U.S.-based deal, the company must have a clear need for a European investor, besides just another provider of capital, Rimer noted. “So this would likely be in companies that are early leaders in a new space and want a partner to help bring them to Europe,” he explained. The other requirement for doing a U.S. deal is if it was committing alongside a top tier U.S. firm that Index felt comfortable with.
Deal flow in the European venture market is slow like it is in the U.S., but the European venture scene does have its differences, Rimer noted. “The European market is less crowded and the quality of investment opportunities and entrepreneurs is up,” he added. “In the U.S. the market is mature and there is already a lot of money out there.”
Fund raising for the new vehicle, despite the tough market conditions, went well, as potential limited partners remain willing to commit to groups they know and like, Rimer said. “Investors liked what we were doing and the fact that we can show exits,” he added, noting the firm’s portfolio of companies from its second fund has already had seven liquidity events, while the firm’s pilot vehicle of 14 companies has also had six liquidity events so far. Nearly 99% of the firm’s existing investors re-upped for this vehicle, he said, noting the roster of LPs for the new fund is evenly split between European and American investors.
Some of the returning and new LPs include Oak Investment Partners, UBS Capital, LGT Capital Partners, Cisco Systems Inc., Oracle Corp., HarbourVest Partners LLC, Sun Microsystems Inc., CalPERS through Grove Street Advisors, Thomas Weisel Partners and Frank Russell Co.
The new fund retains an industry standard 2% management fee and 80%/20% carried interest structure, Rimer said. Index’s general partners put up 1% of the fund’s total capital, he added.