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Saul Klein is generally thought of as the top VC in Europe. He’s a partner at Index Ventures, which invested in companies like MySQL, Skype, Last.fm and BetFair. Klein got his start in Silicon Valley was later a co-founder of the company that became Lovefilm, which was recently acquired by Amazon for $312 million, and a top executive at Skype before its acquisition by eBay.
He also co-founded SeedCamp, the “Y Combinator of Europe” and The Accelerator Group, a seed-stage fund.
We caught up with him today by phone while he was in Tel Aviv, where he’s recently relocated. The conversation has been edited for clarity.
Pascal-Emmanuel Gobry, SAI: So, you decided to relocate to Tel Aviv for 12 to 18 months. Everyone knows there’s lots of startups in Israel, but why you, why now?
Saul Klein, Index Ventures: I had already made two investments in Israel. One of them, MyHeritage, is now the world’s biggest family network with over 50 million users, and big growing revenues. It’s the first global internet consumer company founded in Israel.
I realised that there’s something going on in Israel. It’s not just deep technology, networking, semiconductors and security anymore, but also also great consumer web companies that are getting started.
So I wanted to spend time on the ground, to get to know the entrepreneurs and investors. Since then, we’ve made two seed investments.
What’s striking isn’t just the quality of talent, but the ambition. Israel has fantastic entrepreneurs. When Israelis put their mind to something, they can be pretty good.
SAI: That’s for sure. European VCs get plenty of criticism; what’s your thought on the state of VC in Europe?
Klein: I can’t really speak about other firms, but Index was started with the idea of bringing the Silicon Valley mindset to Europe. We have offices in Geneva and London but we all have links to the US, whether it’s having worked there, started companies there, invested there or studied there.
The most interesting entrepreneurs are the ones building international businesses; you need to have a platform to enable those entrepreneurs to access markets & talent globally.
Our focus has always been to cover everything between San Francisco and Tel Aviv, and find the great entrepreneurs wherever they are.
The technology industry is now a global business; there are very few highly ambitious startups, and even fewer of them are focused on dominating a single market, except for Wonga and Netflix. So LPs are looking at venture as a global asset class, and saying “We’re going to allocate that to funds that are top performing on a global basis.” That means investing just in local markets is going to be increasingly challenging.
Because of things like open source, cloud computing, social distribution, mobile marketplaces, etc. if you are trying to build a tech business you can get a product out very cheaply. That means traditional venture is getting disrupted. Entrepreneurs increasingly want to work at the early stage with investors who have real experience, whether it’s angels, superangels or traditional venture firms. Outside of Silicon Valley that’s a relatively small group.
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SAI: Index Ventures has been investing in US companies and recently opened a Silicon Valley office. What’s the story there?Klein: We always considered ourselves an international firm. We don’t have a presence in China or in India, but we’ve always felt that we want to cover the ground between San Francisco and Tel Aviv and everything in-between. Europe and Israel are only at the beginning of the opportunities. There’s not a country in Europe that isn’t producing great companies, including the Czech Republic and Estonia. So we’re incredibly bullish on Europe.
But we continue to believe these companies will want access to the US market and we think by having a presence there we can better support these companies. But on the flip side we see US companies increasingly want access to the European market. So being transatlantic experts positions us well to serve entrepreneurs who have big ambitions.
SAI: So, you’re a VC partner but you also run three seed funds (SeedCamp, TAG and Index Seed). What’s your take on the venture signaling problem?
Klein: I think it’s way overblown. The reality is, whoever you have as an investor, whether it’s an angel, a superangel, a VC or the government, what matters is whether you’re building a great company or not. The rest is secondary.
There are times when it can be problematic, but in my experience the positives outweigh the negatives. If you’re doing well, people will want to fund you whatever. And if you’re in the middle of the road, arguably the positives still outweigh, because the VC is going to be more likely to be able to bridge you to a Series A than angels. And if your company is going nowhere, no one will support you, not even angels, except your mother and your wife.
SAI: You’re one of the most international VCs. Which tech hubs do you think aren’t on people’s radars and will surprise them?
Klein: I did a thing on Quora called Project RFC $10m+ to find the places with the most tech startups with revenues higher than $10 million. I think that’s the best criterion because it shows not just where companies are getting started but where they’re growing.
Certainly after the Bay Area, the places with the highest density are New York and London. And after that, you would have Tel Aviv, Paris, Berlin, then LA, then Boston. After that, you’re talking about regions, not cities: places like the Nordics and Eastern Europe. Most people wouldn’t think that Paris has 30-plus startups with revenues above $10 million.
But you have to distinguish between global hubs and regional hubs. There’s great entrepreneurs and great companies everywhere, but in many places they’re isolated. It’s hard enough to get people to talk to each other between London and Cambridge, let alone London and Paris.
It’s really Europe’s challenge, I think: it’s not that there isn’t critical mass, it’s that people aren’t connected enough. It’s what we try to do with SeedCamp, it’s what Loic is trying with LeWeb. It’s not about just one city or region, but about what goes on between cities and regions.
SAI: Thanks a lot. Anything else on your mind right now?
Klein: Only Arsenal’s amazing win against Barcelona last night. For an Arsenal fan that was a great moment.