Index Ventures Seeks Opportunities in Crisis With $2 Billion for New Funds
(Bloomberg) -- While the startup economy reels from the coronavirus-fueled crisis, deep-pocketed investors still have money to spend. Index Ventures has raised about $2 billion for two new funds, the venture capital firm plans to announce Thursday.
The firm will now go on to test a long-held piece of VC wisdom: that the most promising startups, and highest returns, are born out of downturns.
“The best funds come out of difficult positions like this,” said Mike Volpi, an Index partner since 2009. Volpi cites investments the firm made in past downturns, such as payments company Adyen NV, file storage company Dropbox Inc. and wireless-speaker company Sonos Inc.—all of which are now public companies.
With its latest fundraising, Index brought in $800 million for its early-stage fund, Index Ventures X, up from $650 million for the previous iteration in 2018. The firm also raised $1.2 billion to invest in companies at later stages, via the Index Growth V fund, up from $1 billion raised for its previous late-stage fund in 2018.
Index raised the bulk of the cash before the coronavirus crisis deepened. New backers include the Smithsonian Institution and the New York-based Mother Cabrini Health Foundation, which announced last week it is donating $50 million to hospitals and nonprofits in the state to fight the coronavirus.
As much of the economy crumbles, Index isn’t the only firm that has recently raised large amounts of money. General Catalyst last week announced three new funds totaling $2.3 billion. And last month, New Enterprise Associates announced it raised $3.6 billion.
Many venture-backed startups are scrambling for more funding as a buffer in case the pandemic worsens, or because they need the cash to stay afloat. Dozens of startups have shed thousands of employees in the last month.
In particular, valuations have softened for older startups that are near the stage when they compare themselves to public companies, many of which are now taking a beating on Wall Street. In negotiations with startups, “the notion that public markets have corrected comes up every time,” Volpi said. “That’s fair.” However, promising companies can still raise substantial sums. Last week, collaboration-software business Notion said it had raised $50 million from Index and others in a funding round that valued it at $2 billion.
“I wouldn’t say it’s less competitive for the good deals,” Volpi said, particularly at early-stage startups. “The same group at the table have been pretty active,” he added, referring to industry giants like Sequoia Capital and Andreessen Horowitz.
Index has extended offers to four startups in the past month or so. One company is still weighing the terms while the other three are moving ahead, Volpi said.
As many states’ lockdowns drag on, some startups have looked beyond venture firms for help during the downturn. The National Venture Capital Association has lobbied to include venture-backed startups in a federal relief initiative known as the Paycheck Protection Program. It provides loans for small businesses of 50 employees or fewer that maintain their workforce.
“Our view is that PPP loans were created to extend relief to mom-and-pop businesses—my local cleaners,” Volpi said. “As a general rule they probably shouldn’t apply to startups,” although he said he wouldn’t move to block Index-backed startups from applying for relief from the government.
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