Danny Rimer knows how to deliver. Just one of his bets as a partner at Index Ventures—VoIP company Skype—will recoup the entire amount invested in the firm’s $300-million second fund. The payoff came in October, after eBay completed its acquisition of Luxembourg-based Skype for $4.1 billion.
Two years after joining his brothers Richard, Neil, and David at Index Ventures and opening the firm’s office in London, Mr. Rimer was one of four venture capitalists who participated in Skype’s $18.8-million second financing round. Other investors in that March 2004 deal included Draper Fisher Jurvetson, Bessemer Venture Partners, and Mangrove Capital Partners.
In all, the HarvardUniversity history major and former stock analyst has backed some 18 startups, including Red Herring 100 company MySQL, which sells open-source database software (see Vol. 2, No. 14, p. 59).
Mr. Rimer recently spoke to Red Herring about the pros and cons of investing in Europe.
Q: Why focus Index’ newest fund on Europe?
A: In a small pond you can be a relatively big fish. The only true hubs of tech investing are Silicon Valley, Israel, and Boston. By no means is Europe a hub, but if you’re one of the few people investing in this market you can get superior returns for your [limited partners].
So much venture investing is related to entrepreneurs out there wanting to start companies. Success breeds success, and the fact of the matter is that Europe doesn’t have that many examples of huge success stories in this industry.
Q: What do you need to do to change that?
A: You want IT customers and consumers that understand tech. This market is bubbling into a much larger territory for tech than it used to be.
Q: What’s causing this trend?
A: The Internet has become more pervasive. It allows companies to start at a much lower price and with better understanding of what the markets want in the rest of the world. And you can be more distributed. Skype is operational in 17 countries. You don’t have to be in one headquarters anymore.
Q: But is the exit market big enough to field a big win?
A: If you truly have a great company it will find a market and you find enough liquidity to trade that stock. The issue in Europe is very little success, not an issue of market liquidity.
Q: People moan about the exit market. Are there just no good companies?
A: Europe has certainly had some very good technology exits recently. Take Wolfson [Microelectronics], Cambridge Silicon Radio, or Party Gaming. We also have a buoyant market that is taking off: AIM [the London Stock Exchange’s Alternative Investment Market, which has attracted small, high-growth companies]. Sarbanes-Oxley has made it very difficult for companies to go public in the U.S.
To be sure, there are fewer European companies that are truly world-class. It’s less about the markets themselves.
Q: Can we expect to see more U.S. companies going public on AIM?
A: The U.S. tends to be a little more risk-averse when it comes to markets. Expect to see more Israeli companies going public on AIM, and more European companies, too.
What will make the difference on AIM is whether we have some really stellar companies going public on AIM, or if it’s just the problem children of various portfolios. And that is yet to be determined. You have some examples of great companies and some really dodgy companies that are going public more as a private placement alternative.
Let’s remember that AIM’s qualifications necessary both for going public and for reporting are dramatically different from what you see on the Nasdaq or the LSE.