An affable security guard leads me to a lift, swipes a card and presses a sequence of buttons, then punches the floor number.
He steps out and the door slides shut. It is fitting that you have to know the code to reach the level Index Ventures is on. Since it was founded by Giuseppe Zocco just over ten years ago, this firm, which has $1 billion (£500 million) under management, has been making edgy, disruptive fast-growth companies must-have purchases for larger organisations. Index’s successes to date include the sale of Skype to eBay, Last.fm to CBS and Minerva to Sun Microsystems.
Saul Klein has been associated with Index for years, either receiving its backing and expertise, or co-investing. ‘It’s one of the few firms in Europe with a US approach to investment,’ he says.
Starting out
Klein’s speciality, unsurprisingly for Index, is the web. After graduating from Cambridge, he went to The Telegraph, ‘a fairly traditional media company’, he says. In October 1994, he put the paper on the web: ‘I think we went live in the same week as the San Jose Mercury News in Silicon Valley. At that stage, they were the only two mainstream publications on the internet.’
From there, he went to WPP’s Ogilvy and Mather Worldwide as director of digital communication. The role inevitably involved trips to the US, where he encountered five young men from the famous Media Lab at the Massachusetts Institute of Technology: ‘They were all in their mid-20s and were going to leave their postgraduate courses and start a technology company. In the UK, that just wasn’t what people did.’
Having an entrepreneur for a father made the decision to quit the corporate ladder easier: ‘These guys said “come over and join us”, which I did. I was in my 20s, [living in London], and had nothing to lose. There was no sense in my family that this was some crazy thing to do.’
Klein served as senior vice-president for the start-up venture, Firefly Network, which went on to be acquired by Microsoft, where he stayed in various management positions. He’s been moving onwards and upwards ever since.
‘I wanted to be surrounded by people who had the right belief and attitude. I don’t think either the business climate or the culture [in the UK] encouraged people to be entrepreneurs; they were the anomaly rather than the norm. To an extent, it’s still true today, although it’s not nearly as bad as it was ten to 12 years ago.’
Coming home
In 2002, Klein returned to the UK to set up the movie mail-order service, Video Island, backed by Index, which later went on to merge with Lovefilm in 2005. He had seen the idea work in the US with Netflix, and guessed rightly that consumers in Europe would be equally receptive if the business was marketed correctly.
The idea appealed because the company could reach a mass audience and, when compared to the competition, provide a better service at a lower cost. These three elements are the common denominators or “family gene” you find uniting Index-backed companies.
It was at VoIP provider Skype, famously sold to eBay for $2.6 billion, where following these principles demonstrated that Europe could produce its own great disruptive technology giants. Klein hooked up with Skype co-founders Niklas Zennstrom and Janus Friis in 2005, acting as the global vice-president of marketing and e-commerce.
‘Skype was not the first to provide VoIP, which had been around since the late 1990s, but it was the first business that made it so simple and easy that using the service became a no-brainer. With a lot of good businesses, success comes down to how well you execute the idea.’
Ironically, luck played a part in the form of the telecoms companies that recognised the threat posed by this Nordic invader that wanted ‘the whole world to talk for free’.
‘The response of the corporates suited us incredibly,’ recalls Klein. ‘We neither had the marketing budget or desire to take ads out in The Times, for example, but it was great when BT would advertise and boast that they were x-per cent cheaper than Skype. We were like: “Thanks for putting us in the newspaper guys.”’
Klein’s involvement with Skype ended in October last year. Aside from sitting on a number of boards of Index-backed companies, he is highly active in promoting entrepreneurship through organisations like The Accelerator Group, Seedcamp and OpenCoffee Club.
‘As I moved more onto the investing side, through OpenCoffee Club, I felt it was possible to make it easier for entrepreneurs and investors to meet. It’s the notion of taking two hours out of my diary every week and letting entrepreneurs know that they don’t have to break down our office in Mayfair or negotiate 20 levels of inboxes or emails – we’d make it like Silicon Valley, where you can bump into investors and entrepreneurs.’ It’s proved to be popular, running in 80 cities throughout the world.
Even here, Klein is thinking about scale. Whatever the project, there has to be an international element for it to be worthwhile and that explains the attraction of businesses on the net: ‘The web is fundamentally a global medium and one of the exciting opportunities European companies have is that the web is no longer an American English-speaking internet.
‘One of the disadvantages for a European entrepreneur in the past was that their national market wasn’t big enough to sustain an enormous business. If you were a US entrepreneur you wouldn’t have to look beyond your borders for a market of 300 million people. The web, now that it is so global and heterogeneous, favours people who don’t just think in such vanilla, English-speaking terms.’
At Index, a billion dollar-plus sale is considered a successful exit or ‘home run’. The latest has seen portfolio company Minerva, the developer of the MySQL open-source database, purchased by computing giant Sun Microsystems for $1 billion. It should be noted that Index is often a co-investor with other firms on these sorts of deals, but the (undisclosed) return on investment will still be substantial.
The recent launch of a €400 million fund shows the firm still sees plenty of exciting businesses to back. ‘There are always smart entrepreneurs who are spotting opportunities,’ says Klein. ‘Some of the best investments over the past ten years were made when the bubble was bursting. Google was created at about that time, as were Betfair, Lovefilm, Skype and Oanda. Many of these companies nobody wanted to bet on, as people thought that the internet was stupid. You need to take the long-term view that the internet is a secular trend that isn’t going away.’
