4. December 2012–
Index Ventures is one of the world's leading venture capital firms, with previous investments in such heavy hitters as MySQL, Skype, Dropbox and SoundCloud. Recently, the firm invested $6m in leading social analytics platform Socialbakers.
Jan Hammer, a partner at Index, explains to us what he looks for in a pitch, how entrepreneurs can break a deal and the types of companies that inspire him.
You worked at General Atlantic London and Morgan Stanley before joining Index Ventures - what sparked your interest in investing?
For me, it’s the velocity. At Index we work on dozens of deals a year, which means we need to meet hundreds of companies. Our focus is tech and because we invest earlier, these are young, exciting businesses, which are growing fast. So there’s the thrill of the chase - of ensuring I don’t miss out on the next great deal.
Then there’s the moment when we drop everything to work round-the-clock on the one deal currently on the table. General Atlantic is a great growth equity fund, but I love the Index "way", which means an ongoing relationship with my portfolio companies, where I stay involved and see the milestones of progress as they speed by.
What are three pieces of advice you would give to a startup or entrepreneur looking for an investor?
One, clarity is all. Too often you see and hear pitches in which the entrepreneurs utterly fail to explain their idea and business. If you cannot summarise it on a single slide or in a thirty second elevator journey, then how can you possibly hope to sell it in a noisy marketplace?
Two, show that you have fired up others with your idea. One of the signs you look for as investor is that a startup has convinced other people that a business will fly; it might be another entrepreneur, who joined as a co-founder, or a partner, who will give them distribution, or they have a marquee customer on board. If you see an entrepreneur who has been flying solo for a year, having failed to bring in anyone else, it sends a signal that something’s not right.
Three, I always want to understand what sort of an investor the entrepreneur wants. Personally, I want to work with people who have asked themselves, "Can my investor bring me new customers and business relationships? Can they help me build my company?"
What are some dealbreakers?
Some of the worst pitches I hear are the ones which fail to focus on the business plan, but instead slip into serial name-dropping and unintelligible jargon. What truly makes my heart sink are 20-page pitches containing generic references to "the industry", rather than a specific description about which "pain point" a product or service is solving.
We also often see entrepreneurs who have overly complicated conditions, or worst of all, side businesses – subsidiaries or holding companies – where there isn't alignment between them and the business the investor is backing.
Finally, not being friendly and open enough when I have questions is a dealbreaker. As is leaving parts of an answer for later. Being evasive always undermines trust and it’s crucial to start building trust from the first minute of the first meeting.
What are your thoughts on crowdfunding?
At heart, what is crowdfunding apart from a peer-to-peer marketplace? At Index, we love both P2P and marketplaces such as Skype, Betfair and Funding Circle. Funding Circle, for example, is disrupting the tired SME lending sector, which has been blighted by the failure of traditional banks to lend to small businesses. It’s helping to get money flowing around the economy again.
What advice would you give to a budding investor?
First and foremost, there is no such thing as a free lunch. A lot of money has been raised and there’s a great deal of cash sloshing around, which has resulted in some – arguably – inflated valuations. But entrepreneurs are getting ever-smarter and are correctly focused on the additional value which an investor can bring, rather than simply casting around for the highest valuation.
Similarly, investors should think about how they can help companies grow. Investing isn’t just about deploying capital – it’s about the "human capital" and assistance we provide at Index. The best investors will not only make great returns, but they will have built some lasting companies that will become industry icons.
Who or what inspires you?
I’m inspired by risk-takers and companies which shoot for the stars. The ones which scale fast, without burning too much cash, and refuse to compromise in their ambition to become great global leaders. I always try to find a way to bring those guys – if we can’t invest in them – into our circle in some other way, perhaps as board members or mentors.
Growth stage investing is a well-developed industry in the US and we’re encouraging a similar culture here in Europe. I find the quest to identify and help build the next big, ambitious European breakout hits – the next Skype, MySQL or Lovefilm – inspirational.
And finally, do you still get any comments on sharing your name with the composer of Crockett's Theme?
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