Danny Rimer: In a nation of shopkeepers, great start-ups don't fly off the shelf
It's hard to get European investors to part with their cash, but the man who backed Skype is one of the few
Sunday 11 June 2006
For someone who makes his living by investing other people's millions in long-shot business ideas, Danny Rimer's philosophy seems an unusual one.
"The best companies are the ones that offer their products for free," he says serenely. That notion might be unsettling for the investors who last year gave €300m (£205m) to Index Ventures, the firm run by Rimer and his three older brothers, but the clan has some serious street cred to back up these lofty ideals.
Much of it is due to Danny, the baby-faced Canadian-Belgian with a US accent and laid-back Californian manner, who at 35 is already one of the best-respected venture capitalists this side of the Atlantic.
In September last year, eBay agreed to pay up to $4.1bn (£2.2bn) in cash for Skype, the internet telephone company in which Index had invested $9m less than two years before. It was the biggest, most lucrative venture capital deal ever done in Europe. Since then, Index has been investing at a rate of one company per month in search of the next Skype, or something even bigger.
"Everything is up for grabs again," he says. "Is Amazon truly the best online buying experience? Absolutely not. Is eBay the best platform for auction? Probably not. Are dating sites like match.com really a reflection of the way people date? Probably not."
Rimer argues that investors are able to invest "very little money" in start-ups and yet still see them go on to became global brands. Opportunities are far more abundant than in the late 1990s when the tech boom first got under way. Skype is a case in point, he says: it could not have achieved the growth it has without the proliferation of cheap broadband, which has opened up a wealth of new investing opportunities.
Parting with Skype, however, was bittersweet. Rimer is keen to displace Silicon Valley as the de facto centre of the technol- ogy universe. "We are very committed to making sure that Europe does not get notoriety for being a territory where companies are built to be sold," he says.
But like so many of Europe's best technology companies, instead of growing to become an industry giant, Skype was picked off by an American rival with bulging pockets.
"We still give ourselves a hard time about [selling the com- pany]," Rimer says.
Probably not too hard. He won't say how much of eBay's cash has flowed back to Index, but industry sources confirm that the Skype deal was enough to pay back the firm's entire $300m fund, and then some. It helped, he says, to "demonstrate the fact that you can get enormous returns in Europe".
In the UK and on the Continent, venture capital firms have always had a harder time than large buyout funds in attracting money and producing returns - except for a blip before the technology bubble burst in 2001.
The problem, says Rimer, is to some extent cultural. "To be an entrepreneur in Europe, there is a stigma attached to it," he explains. "There's a reason why England is known as a nation of shopkeepers. Part of it is the idea that it's better to have a shop and keep it up and running than close the doors and try to do something much more significant."
The environment in Europe these days is a brutal one, as huge private equity houses pull in billions while smaller venture groups struggle. Index is one of the few to have had little trouble attracting big investors.
Rimer's older brother Neil founded Index in 1996 in Geneva - where the family grew up and their father ran a bond business - with his partner Guiseppe Zocco. Richard, also based in the Geneva office, is responsible for life sciences investing, while David is the chief financial officer and operating partner. Danny is general partner and head of the London office.
While Neil was getting Index off the ground in Europe, the youngest Rimer brother was entrenched in the madness that was Silicon Valley in the late Nineties tech boom. Armed with a degree from Harvard, he arrived in the Bay Area in 1994 with what he thought was a bulletproof plan to make him millions. He and some friends started a business to digitise the images of great works of art around the world, offering them on the then-embryonic internet to download for a fee. He signed deals with the likes of the Louvre in Paris and Florence's Uffizi Gallery, in which the museums gave him exclusive rights to commercialise their images.
It didn't work out. "You could paint a picture faster than you could download them," he says with a laugh. Not long after, he got a job at Hambrecht & Quist, a boutique investment bank, where he built up an equity research team for the burgeoning internet sector.
As the so-called "new econ-omy" companies took off, Rimer was in the eye of the storm, working on the initial public offerings of Netscape, Amazon and Lycos, among others.
He left the bank to become a founding partner of the Barksdale Group, the venture capital firm started by the Netscape founder Jim Barksdale. There he spent two and a half years investing in companies as prices first spiralled out of control and then came crashing down as the bubble burst. It was a trial by fire that has served him well as he sifts through the hundreds of wacky ideas to have crossed his desk since he arrived in the UK to set up his family firm's London office in 2002.
Skype may be Index's biggest success, but it is not its only one. The firm was an early backer of Betfair, the world's largest online betting exchange. It was also an investor in Virata, the Cambridge-based company that became the world's largest maker of broadband chips and was listed on Nasdaq before being bought by Conexant, a Silicon Valley tech company.
So is there another Skype lurking in the portfolio? Rimer names one of its current stars as MySQL, a maker of a free-to-install database that started in the Ukraine and has twice the market share of its giant rival Oracle. It is expected to list on Nasdaq next year. Another top performer is Fon, a Madrid wireless network company that has more internet hotspots (though they are free and of lower quality) than market leader T-Mobile.
Innovation, in other words, is not a problem in Europe. But the lack of a unified market to sell that innovation, or even give it away, is a problem - and so is the paucity of investors willing to back it. "The next Google is more likely going to come from outside the US," says Rimer. "Whether it's in Europe, I am not sure. A lot of things have to change."
BORN 28 September 1970.
EDUCATION BA in literature and fine arts from Harvard.
1994: managing director, equity research division, Hambrecht & Quist (now part of JPMorgan).
1999: general partner, the Barksdale Group.
2002: general partner, Index Ventures.
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