Index's Danny Rimer on Investing Lessons from Hits like Figma, Discord and Etsy to…

Welcome to 20 VC with me, Stebbings.

Thanks for having me back. You know, it was such a pleasure last time. I can’t wait for being under under this interview process this time.

They would have described me as very close to my mom, at my mom’s side, very consistently. You can always trust a mama’s boy. Exactly. So definitely a mama’s boy. Already into art. I was definitely already looking at art books and talking about art and trying to learn as much about artists as possible, hanging out and and watching as many James Bonds as I could. Favorite James Bond? You know, they’re impossible to watch now. I’m trying to show them to my kids, and they are so canceled.

It’s absurd. Really? But oh, yeah. You can’t watch them. But at the time, Goldfinger was was really pretty amazing.

I knew that I was comfortable in being a little different and odd, but I didn’t really thinking about it in terms of success. I was just gonna do my own thing, slightly difficult to do when I had three elder brothers who were really focused on also doing their own thing. Did you and do you care what other people think? Yeah. Of course. I care about whether or not they can see that I’m as transparent as possible and that I’m staying true to what I subscribe to.

Does that change with success?

I think it’s important from a personal standpoint to make sure that I follow through on what I’m about, and that I don’t wanna lose or I don’t wanna take for granted.

I really did get to learn so much from Jim. Two of the most pertinent ones, clearly one is what we’ve really adopted at Index from the beginning, is Danny, the main thing is to keep the main thing the main thing. You know, that has been so important to reflect on repeatedly.

Reflecting back, not jumping on the bandwagon and going to China or India was was actually a really important lesson for us in maintaining our focus. So I would put it up there. I don’t know if it’s the most important one, but it’s absolutely one that I that I remind myself frequently about. What was the second big takeaway? Another one that I talk to my entrepreneurs about all the time, the snake rules. So Jim was an incredible executive. You know, he was the COO of Federal Express during its heyday for fourteen years.

Then he became the CEO of AT and T, which was McCaw Cellular. And then at the beginning of the Internet, literally the first company of import was Netscape, probably the OpenAI of its day. And Jim was tapped to become CEO of Netscape. He had the pick of the pack of the smartest young talent joining. And they were running around trying to figure out what Netscape should be. Should it be an enterprise play? Should it be a consumer play? Should it do this partnership with Cisco and get paid?

Should it reinvent, you know, the security socket layer and and build a company, or should it create a new company called VeriSign? They had so many people running around with so many opportunities that he was looking around and he was seeing that all these people, all these young folks, a lot of management consultants, a lot of business school folks were constantly in meetings, constantly reevaluating the same thing. And so he created an all hands and at the all hands said, Folks, I grew up in Mississippi and we have snake rules that are very important and I want you to think about this.

The first one is if you see a snake, you kill it. You don’t stick around and look at it. You actually have to kill it because otherwise it’s gonna kill you. The second one, you don’t play with dead snakes. In other words, they might have venom in them, they might still be alive, so as soon as you’ve killed it, don’t play with it. And then he said the third one is all opportunities start up looking like snakes, which really made people scratch their heads. So he’s really saying that your job is to make a decision.

That’s the concept of seeing a snake and killing it. You make a decision. The most important one is don’t revisit that decision. Once you’ve made that decision, once you have commit, you’re all in. It’s not up for debate. It’s not up for folks discussing it or disagreeing with it. Everyone is committed. And then the third one is I do understand that it’s gonna be tough to make decisions because they look like opportunities, but your job is to assess them and make a decision.

We have gone through so many iterations, but we actually landed on something which I probably would say stayed with us for over a decade, which is every investor has a vote, and we have a voting system that goes from one to four and from seven to 10, so you can’t do a five or six, and you need a certain threshold of positive votes north of six to get an investment passed through the partnership. Do you worry about losing outliers? I think the voting is twofold. The first is to make sure that the partners who are really bringing a deal in have an enormous amount of conviction.

So if they’re coming in and it’s like a seven, you know, it’s gonna be really difficult unless it’s unanimous. Our best decisions, our best investments have always been unanimous. But really the point is to see whether the partner has so much conviction that they’re gonna get us to be positive about it. And so the outlier is going to be welcome, but we’re gonna look at the partner who’s bringing it in, the sponsor, to ensure that they really wanna do this. They’re not sort of saying like, I’m scratching my head, I don’t know whether we should do this or not.

If that’s the case, we’ll have a healthy conversation about it and unlikely we’ll do it. But if a person comes in and it’s crazy and we really are looking for that partner to show how excited they are, that will have a huge amount influence on us.

There have been a number of opportunities that for a reason or another we passed or we didn’t show up in the right way to win the deal. One is Spotify, another one is Snap, another one is Airbnb, another one is LinkedIn. Those are the four that we had real opportunity in some fashion or another to manufacture the opportunity for Index to be in the round, and we failed for different reasons.

Alright. That does not make me feel any better.

Brian Brian Chesky from Airbnb repeatedly loves to say, Index is the best partner that never invested in the company.

And you regret it every Yeah.

In the case of index, it is it is a story of discipline, and it’s a story about manufacturing discipline in as many different ways as possible. And so for us, creating investment theses are a way of making sure that we are building conviction and that we can support the conviction that we have. And so everyone is encouraged to have a major and a minor. When it comes to investment thesis on the major or the minor, it’s taking a new approach at looking at a specific area.

Whether we’re right or wrong is actually less important. It’s a way of sifting through opportunities and figuring out what we’re looking for and whether once we see it we’re gonna be able to pounce or not. So having that clarity around the thesis is helpful. So what would

Okay. So an example that I would think about is when we decide that fashion might replace music as a social lubricant. So when I was growing up, you know, I could go to Nairobi and sing a Michael Jackson song, and a guy who spoke Swahili would sing the same song and we would bond over that. And then with Spotify actually, you know, has become more pervasive, but albums have shifted. The focus on albums is less important. So we were thinking maybe fashion becomes that lubricant. Maybe people are going to identify and become part of communities around the brands or around the style that they align to.

So that led us to Net a Porter and then clothing and ASOS and Farfetch and GOAT and Anita Bing. And so it was really helpful to have this crazy idea about fashion replacing music.

Yes. Absolutely. I mean, we want them to be really passionate about the major and minor. So

It’s a combination. I would say that probably you start by doing a lot of work on your own and making sure that you’re actually committed to it and that it’s gonna stand the test of time, and then bring in colleagues and spar with them and bat it around. And then once it’s more mature, then pitch it to the partnership and see if they think this is a helpful thesis in terms of looking at things.

Probably being categorical on not backing certain founders that are phenomenal, but don’t really fit the thesis.

Right. No. I agree with you. I mean, I think that in the case of Spotify, for instance actually, I was able to know that Daniel was exceptional from the work that he did for a previous startup in his spare time when he was still a high school student. He built the back end in a matter of weeks. I knew that he was extraordinary. That was a big lesson is if the person’s extraordinary, throw all theses out the window and just back the founder. But it was really more a case in that situation of having dealt with so many music opportunities and they were so challenging, you know, selling Last.

Fm to CBS, being an investor in SoundCloud, being an investor in Juiced, which was a shit show, that by the time he came about, we didn’t have the conviction to throw away all of our preconceived notions and just back him.

You know, that’s probably been a big learning over the years and I would like to think that Index has learned from its mistakes. I would say that we would back the founder, period.

Well, it depends on the stage, obviously. But if it’s seed in Series A and you’re talking about an exceptional founder, we would throw away any preconceived notions of market, especially if they already have a really good instinct of the team that they’re bringing on board and clearly have a high bar for colleagues, I’d like to think that we’d back back that founder every time.

Yeah.

I mean, we don’t really do outcome scenario planning, but we absolutely try and get comfort on the size of the market. Sometimes it’s helpful. Most of the time, it doesn’t really mean much.

Yeah. Well, you have a good excuse. I mean, one one of our tenants is definitely that market size TAM is noise. That is a clear viewpoint that we learned early on that we were not gonna be able to judge. As you said, you can’t judge the market, and so therefore, it’s crazy to assess an investment based on the size of the market. I mean, one of the big lessons on Airbnb was when we were evaluating it, were thinking how many hotel rooms is Airbnb gonna cannibalize?

Rather than thinking actually, Airbnb is gonna create an entirely new market, an entirely new amount of inventory that has never hit the market prior. Do you prefer category creation plays? I would say yes. As a firm, we love category creators. Yeah.

It’s really difficult. We’re trying to get to the essence of why we made a mistake. So we really learn more from our mistakes, right, than our successes. Do you think we do or we just don’t analyze our successes in the same way? It’s a great question. I would suspect that we’re pretty good at analyzing, at least as a firm, as a partnership, our successes. Probably have a tougher time than we should at celebrating our successes. I think anyone who’s competitive and driven has a difficult time at celebrating successes.

It’s one of the aspects that I really focus on my entrepreneurs to do. They have such a high bar and such high ambition that they forget to really celebrate the success in the journey. And it’s a tough journey, so you should really take advantage of those successes. I I really do believe that we can get better and better at this craft. And the way that we get better and better is at analyzing our mistakes and as an institution, understanding those mistakes and making sure that we don’t do the same thing the next time.

As uncomfortable as it may seem, we make sure that we don’t fall into the same pattern the next time.

There are many, but clearly TAM is one of those that always raises its head and we always sort of like bash it down, remind ourselves how often we’ve gotten that wrong. So the other one is valuation. We always evaluate the multiple that we’re paying based on the current snapshot of comps rather than thinking out what is it going to be worth if every company continues to grow and if this specific sector grows, what are the implications of it? Honestly, I hadn’t really thought about companies being worth multiple trillions until Apple hit that trillion number.

And I was like, oh, yeah. Of course.

Yeah.

it used to be five and now it’s seven. Right? And you’re making it sound like NVIDIA’s a no brainer that’s been around and valued at trillions for a long time. So I would say the reality is that set of highly valuable companies in the trillions but also in the hundreds of billions is going to change, certainly the hundreds of billions ones. And the ones that are languishing probably is more a reflection of execution and product market fit rather than the fact that they’re languishing for other reasons.

The way that my mind operates, I try and sort of cancel out the noise and focus on the things that are really critical. So I don’t really think about which companies are gonna be worth hundreds of billions. I’m trying to think of how do I make so many index backed companies worth tens of billions and possibly hundreds of billions. But clearly, I invested in NVIDIA. I should have doubled down a lot more when I did a couple of years ago. That was a big mistake. Back to my equity analyst days, there are a number of companies that are reinventing themselves today that have not been public for such a long time who are probably gonna be worth hundreds of billions.

How do you feel about it? It’s critical. No credit for being too early. However, what has been a truism, companies that are excellent can go out in any market. So I don’t really believe in these IPO windows for exceptional companies. I think that the best companies can go out in any market and they can even do stupid things. Google went out in the worst of markets and did a Dutch auction, which there was absolutely no need for. So many entrepreneurs want to reinvent Wall Street and the mechanism of going public in a similar way than they’re taking on their sector.

I wish they would leave that alone. That is such a distraction. But I do believe that the best companies at that stage when they are ready to go public can go public in any market.

Probably more patient on the technology and the amount of time that it takes to come to fruition rather than a question of whether the market is gonna be excited. I would call that a second derivative play. Not only does the product or service have to be excellent, but I’m also assuming that once the product and service is out there, there’s gonna be a new interest in that product or service, I wouldn’t do that. In the case of Figma, clearly it was gonna take three years plus to come up with an alpha.

But that was more a question of were they going to be able to deliver the product of significance enough to be relevant and to dominate the market? And Sketch was the best example of what Figma could become. So that was more a question of product development, but the market was clearly there rather than product development and I have to assume that the market’s gonna be

They were very clear on on how much time. Maybe my ignorance is bliss in that one. You know, they were very clear on how long it was gonna take to actually come up with the technology, and I had no reason of disbelieving them. As the more and more I learned about Evan and Dylan and the team that they were putting together, the better the team was and the more confidence I had that they were developing great product.

You know, we’re very fortunate, right, because we have a seed, a venture, and a growth fund, and we’ve had the same in LPs for a long time. They give us enormous amount of latitude, and it’s the same folks who invest across multiple funds. As soon as we have signal that we think is better than our peers, and that validates what we’re betting on and that we can convince the team to take our money is as soon as we wanna double down. Do you

It used to be more of a concern. I think there’s so much money sloshing around and so many folks have so many different funds that signal risk is more of the past. I mean, if you look at the continuum of entrepreneurial power versus investor power over the last couple of decades, it’s only gone in the entrepreneurial direction. If you want to raise at this point and you are capable, you’re gonna be able to raise irrespective of who’s been in previous rounds. It sounds self serving, but I really feel like it’s happened.

It’s really rare that we ever not get to invest because folks concerned about signalling any longer.

I think so. I think it’s more a question of how thoughtful are folks being about putting that money to work. We’ve talked about this before. I’m not a huge fan of sector funds because I think that with sectors, you’re not looking for the best companies. You’re looking for the best company in that sector. I’m not a fan of impact funds because you’re rationalizing a mediocre investment because you’re doing something good for the world. I’m not a fan of like geographic funds because again, you’re looking for the best companies in a geo.

Those are all compromises on the caliber of entrepreneur and company that you’re backing.

First of all, because we have plenty of resources. It’s more a question of making sure that we have enough resources to continue to back the entrepreneur. The second one, it would have probably changed the whole dynamic and culture of the firm. How so? Well, the larger the funds, the more folks you have to hire, the more partners you have around the table. Everyone at Index, we have very varied personalities, but we all really enjoy working with one another. And it’s a relatively small crew that fits around a table.

The more funds we have, the larger the organization. The strategists that we would have would have to have bigger teams, and they also like being smaller, so it just changes the configuration, and possibly it changes also the motivation. We’ve always been focused on getting to carry as soon as possible. And the larger the funds, the longer it will take and the more attractive the management fee is. So it just doesn’t sit right.

I mean, of course, we’re trying to wedge ourselves in between. Yeah. Right? That’s not that’s the plan, but I agree with you. I think there there will be asset aggregators and artisans. And what we’re trying to be, what we talk about internally is scaled artisans. The parallel that, you know, obviously, we have to come up with examples of how to think about it, and I do have Swiss roots. Right? I grew up in Switzerland, and and Index started in Switzerland. So we were thinking that the Apple Watch is actually the most successful luxury watch out there.

It has many more SKUs than Rolex that sells a million watches. However, from a profit standpoint, Rolex and used Rolexes are a much better business than Apple. Maybe it could be the Scaled Artisans.

There you go. Okay. That was off But

The technology space has been so lucrative. It’s been such an incredible industry that most companies create brands as a byproduct of a great product or service. I really couldn’t tell you what Google’s marketing strategy has been from the get go other than a cool white screen with like a cool couple of colors with their logo and maybe a drawing, I really have no idea how they’ve impacted me from a marketing standpoint. And most companies that have been successful, be they enterprise or consumer in the tech space, the marketing has been a byproduct of a great product or service.

Really, the exception to the rule would be Apple and probably Airbnb, and I scratch my head to try and think of others. So given how deliberate Index is, we obviously are gonna spend a lot of time thinking of branding and try and bring that to our entrepreneurs, force them to think about branding proactively, the concept of what you stand for and how you tell that story. It’s very difficult to build a brand if it’s diluted and you see it everywhere, unless that’s your model, which is a franchise model.

So scarcity and brand really go hand in hand. And then it’s a question of how appreciate those facets and how do you increase them and decrease them at certain points.

I guess we’re saying the same thing, Harry, which is most brands are not real brands. There are very few companies that have true brands.

Yeah. That’s right. But it also takes a long time to get to that scale where your brand is actually relevant to people. Very few of our companies across the portfolio, and we have a pretty significant portfolio and we thankfully have some great entrepreneurs, very few of them legitimately have brands yet. In fact, I’m not sure that any of them truly have mainstream brands.

I think probably one of the things that Index is best at is the exiting part because we spend a lot of time thinking about exiting.

Back to the discipline, our LPs are we have no family offices and sovereign wealth funds. They’re all institutions and they’re mostly nonprofits or their customers are non profits. So we’re really trying to make sure that our fiduciary responsibility is creating the most amount of returns as possible because their professionals are giving it away. We’re not gonna sacrifice the quality of the company based on anything but trying to create the most amount of carry as possible. When it comes to exiting, it really clarifies things, right?

Like we’re just trying to make sure that we don’t believe our own BS, we don’t get emotional about our own entrepreneurs, and that we stay true to creating the biggest exits possible or getting to a decision of exiting the company as quickly as possible when it’s not working. So exiting is both for successes and failures.

Well, in the case of a failure, you wanna make sure that you’re aware of that failure as quickly as possible. You’ve learned those lessons, and you convince the entrepreneur to shut down shop and start something new with the scar tissue at hand.

I’m sorry to be so unclear about this. It’s really going to be based on how much conviction they have on what they’re starting up afresh Yeah. Rather than trying to come up with something because they feel like They have to. They have another shot at it or they don’t wanna disappoint people. We’re not disappointed ever. If a company shuts down, they’ve given it their best shot. God bless. Thank you for letting us be part of the ride, and let’s move on.

Yes. We will. In our winners, it’s a question of, first of all, just being disciplined about when to exit, making sure that we are not falling into the trap of thinking that because they’ve been successful, they will naturally be more successful over time, and making sure that we hold the partner who’s associated with the company very honest by insisting that they have one vote rather than the primary vote on deciding when to exit. That’s a really tough thing, but it’s made an enormous amount of difference from Adyen to Datadog to When do you

When it’s a private sale, it’s really difficult to do. Right? Because the market is not clear not as clear. It’s more difficult to really have transparency on what’s going on in the company. When I was talking about exiting, I was really talking about exiting when the company is public. From one investor to the next, that’s difficult. Unless you’re getting fully out. You know, in the case of Enclothing, we sold it to a private equity firm that was a clear sale. But it’s really tough when you’re taking increments off as the company is growing.

I mean, you might be very good at that. We’re not even trying to do that.

I’m talking about when a company is public, just making sure that there’s discipline around not optimizing because we think that they’re gonna be worth so much more the next year than they are today, but rather evaluating the company. And and I’ve been a recipient of this advice like, Danny, if you like it so much, you can keep the stock. Or if you like it so much, you can buy back that stock. But right now, we’re making the right decision for our LPs. But when have you done

The biggest mistakes that we’ve done as a firm is holding on too long rather than selling too early. Which one would that be? Another one where we sold too early was definitely Etsy. We didn’t take into consideration the fact that Josh Silverman was gonna come in and totally transform the organization and that obviously we left a lot of money on the table. At that point we weren’t on the board and so therefore we didn’t have the same knowledge of the company. Back to your earlier question, guess, in all cases have we lost money by holding too long.

It’s been mixed, but it’s mostly been holding too long.

It’s all me, by the way. Yeah. Has nothing to do with my partners or the companies. Are a true venture capitalist.

I mean, I have so many stories. Come on, Harry. Yeah.

I don’t I don’t know. I would like to think that my biggest winner is something that’s gestating right now. There’s no reason why they shouldn’t be bigger. I mean, you know, Charmaine at Get Harley should be a huge winner. Tom at motorway.

Harry? I don’t we’re we’re gonna choose one. I’m not gonna choose one.

Big successes, you know, King was an amazing lesson in the sense that King was a company where the market really collapsed on them. So at first, it was skill based games on the web, that didn’t happen. Then it was skill based games on mobile, but it wasn’t quite working. Then they had to reinvent themselves and be on Facebook mobile games channel, and they had some successes there. It’s such a great lesson of an incredible team like Riccardo, Sebastian, and then eventually Stefan, who you know well, coming in and just grinding away at excellence.

That was an amazing story of success. It was also a lesson for Index because we wanted to lead that round and then the Apax folks who didn’t really play in our space came in and offered a much bigger valuation, Michael Chalfin and Mike Rimer. And then we decided to make an exception to the rule and still put in a smaller check. So we were gonna lead with $15,000,000 which at the time was a huge Series A, and they came in with $25,000,000 and we had an opportunity to put in an incremental $5,000,000 at their valuation, and we decided to hold our breath and do it.

And it was clearly a great decision. That was really based on the team.

When we have conviction on the early rounds, there’s a lot of room to stretch on price. In the later stage growth rounds, when the multiples are gonna be more challenging to get, we have much more discipline on valuation.

Right. Well, you don’t have Shardullah as in as a partner. So Shardullah is always like, do you like this company or not? Like, why are we not increasing our ownership even though it’s a later stage round? I mean, you and I have talked about this. The dynamic of having peers around a table who think very differently from you, but are emphatic about their perspective and it’s clearly different from yours, you just get to a better decision.

It really depends on the story. In the case of King, they kept on reinventing themselves. They reinvented the team or members of the team. They reinvented the org structure. They reinvented the approach that we’re taking to the market. So it was almost as though they were hitting the reboot button every twelve to fourteen months with a new approach getting further conviction about the market and about the fact that they were gonna win irrespective of what everyone else was saying. That is such a great team to continually give them more time to figure it out.

The recommendation that I always give new partners who join, like Vlad from Airbnb just joined us, the visceral desire is to put points on the board, get involved, make a lot of investments, develop that muscle, meet as many company as possible, kiss every frog, etcetera. And my recommendation is always the antithesis of that. Take your time, make very few bets, really think through every meeting, don’t see that many folks unless the bar is maintained. But you don’t have a bar. The bar is the index bar.

Yes. You’re right. You gotta meet a lot of people, but you have to make sure that your time is not equally distributed with those people. Have enormous amount of time with folks who clearly are exceptional and try and limit the amount of time that you spend with folks who are still figuring out what they should be doing.

Well, I don’t it’s clearly a loss. I mean, we didn’t make the investment. That one was an unusual Sorry.

So what happened there was, to my recollection, we had the opportunity to invest, but we had a growth fund and we were unwilling to put the amount necessary to lock in the round. And so as a result of that, we didn’t do the deal. Why were you unwilling? I mean, was naivete. Right? We it was one of our first growth funds and it was gonna represent north of 10% of the fund in one investment and we didn’t think creatively on how we could justify that amount.

I remember it distinctly as $61,000,000, and we were willing to invest $40,000,000. And that incremental 21, we should have just said, yes, we’re in for it, and figured out on the back end how we were gonna do that. So

Clearly, we could appreciate how brilliant Evan was. Was it really obvious? Brilliant. I mean, had such clarity on what Snap was and what it wasn’t and how he was doing it. To my recollection, that was really a case of having full conviction about him, but did not having the courage of investing north of 10% of our fund in the company. And you know how I was talking about valuations? At the time, we thought the peak amount that a social platform would be worth was a billion dollars because Instagram sold to Facebook for a billion dollars.

So we’re like, okay. We’re tie how big can Snap really be fundamentally? You know, and and YouTube was $600,000,000 or, you know, how big can Snapchat truly be? Is it realistically going to be another social media platform? Can you be worth hundreds of billions as a social media platform? We were very naive about that.

So gosh, it’s interesting what you’re digging up here. No. We so this was a funny one. So we raised the growth fund, the first growth fund. The first call was to Facebook. So Owen Van Nara and Chamath came to London and Gideon, and they presented. It was the first company that presented. And we offered them what we thought was an incredible term sheet, which was to put in 50,000,000 at 5,000,000,000. And they came back and to their credit went to Microsoft, and they got an offer for 10,000,000,000 valuation.

And they came back and said, look, we won’t do 5, but we’ll do it at ten. And we said, absolutely no way. That’s there’s just no way that that we can justify doing it at 10, and so we passed on that. Thankfully, to Owen’s credit, he felt so appreciative of the fact that we helped him get that Microsoft deal that he ended up selling us some pretty significant secondary. And so it turned out to be a great investment for Index.

Yeah.

I will I’ll never forget meeting Tomaj. He was at DST at the time, and we met up. And it was a year after we had done that Facebook investment, and it was still pre IPO. And we were exchanging notes, and he asked me, so how have you been spending your year? And so I told him about the new companies that I was excited about and the new investments that we made. And I asked him, so how’s your year been? What have you been doing? He’s like, I’ve literally spent my year just trying to scoop up as much Facebook secondary as possible.

And I promptly paid for that lunch and went back to the partnership and said, guys, we’ve wasted a year. That was a brilliant understanding of where to double down on value and where to spend your time.

Clearly, the one or two that you make per year. So my wife who’s a spiritual student, but really she’s a teacher more than a student, but she probably would not acknowledge that. You know, she talks about the fact that we are constantly at forks in the road, and really our path is just making decisions at different forks in the road. So we make hundreds of forks in the road every day, and so whatever our path is is based on this ledger of what we’ve done, whether we’ve gone left or right.

And so a lot of luck and a lot of decision making, I think, is aligned with those forks in the road.

By the way, what I would say about Evan is he spiked in certain areas. I mean, was not great in other areas, and I’m still not sure that he’s great in the other areas. So I think it’s more about having a really clear spike in a particular part of your personality or vision rather than the full product. And part of the reason why at Index we love working in The US and in Europe is that those spikes manifest themselves in very different ways. In The US, folks are super confident.

And so, you know, they will not only spike in certain areas, but they’re actually not that good in certain areas, but they’ll still think that they spike in those areas. And so the level of polish sophistication that you have to sift through is really significant. In Europe, of course, it’s the antithesis of that. Right? Like, they’re not even aware at how good they are in particular areas, let alone the fact that they’re much better than they think they are in other areas. So it’s really sifting through and being able to actually recognize that spike in Europe and celebrate that spike and get them to continue to focus on it.

It’s more than one zero. But the one that I learned the most lessons from is probably Nasty Gal, this company that was in The US. It was an ecommerce company. Actually, the founder, wrote a book that was really popular about her journey as an entrepreneur. But what I learned about the Nasty Gal situation the most was the fact that I was trying my darndest to make it somewhat successful, just money back or an ongoing concern. Even though my partners were saying, Danny, please let this go.

You are spending so much time thinking about it. I’m like, guys, I hardly have any more board meetings. They’re like, yeah, but how much time at night are you thinking about this? You know, before you go to go to bed, how much time are you trying to figure out how Nasty Gala is gonna work? What is the first thing that you’re thinking about when you wake up? And it was a big lesson that I had to just let go of the failure and move on, and that was the biggest lesson that I learned.

Because it’s difficult for anyone. I mean, that’s part of the reason why I think that operators are not necessarily the best investors because Do you

Okay. So great question. As I reflect on it, it was a big check that I had written. It was a growth investment. I had pounded the table on it. I got full support, unanimous support, so it felt good in the first round. But then I came back because the company needed more money and I pounded the table there. And the partners are like, you sure about this? And I did get a positive vote, but it was not the high average that I got on the first one.

And so I felt responsible to the partners that I didn’t put good money after bad. And not only did I put good money after bad, but the opportunity cost of spending time trying to turn around Nasty Gal versus focusing on the next great opportunity was very expensive.

Absolutely. Absolutely.

The only way I can do it is by trying to remember all the mistakes that I’ve done as much as possible, trying to remember what our true north is, what we’re trying to do, and making sure that my partners keep me honest.

They don’t need us to be a success, but our contribution can create another multiple. If I can take a certain 10 x and make it a 12 x or 14 x, it’s well worth the time.

You know, one of the ways that we talk about Index is compassionate ass kickers. So I prefer the term compassionate to empathetic. And I credit Jeff Weiner, who is definitely one of the best CEOs that has ever been in this industry, who if you haven’t interviewed, you should He said no. Really? So we should

Because he’s such an amazing coach for And an investor. An investor. Amazing investor. Mhmm. But he explained to me the difference. So empathy, you’re taking on and understanding. You’re like literally taking on the pain of the other, which is not really helpful. Compassion means you understand what the person is going through, but there’s distance between you and the other person. So you can actually be much more helpful because you’re not taking on all of that difficult energy and that difficult emotion that is coming from the other person.

So compassionate ass kickers means that you’re compassionate, An ass kicker means that you get stuff done. So if things are not happening, you actually push someone out of the way and you make sure that you execute on the plan. So back to that true north, when it comes to giving feedback to entrepreneurs, I’m being very transparent. I’m very vulnerable and explain my issues. I always ask for feedback on what I am doing well, but more importantly, what I could improve on, how I’m supporting the company or how I’m delivering the message.

And I don’t hold back from making sure that they understand what I’m recognizing and what patterns I’m seeing repeat themselves, which I’ve seen 10 times before.

Yeah. It is much easier out of one office. That’s why when we open offices, we don’t actually hire folks to open the office. We actually take partners from one office and move them. So Mike and I moved to San Francisco to open that office, and Chardeau and Martin moved to New York to open that office. And it’s not in either situation as though this was a family led decision. There was a lot of revolt with families to do what was right for the firm. But we felt that was the only way to make sure that we understood body language through Zoom calls and screens by bringing that culture to those new geos.

I mean, making the tough calls. It’s it’s me. It is again. It’s me. It is. No. You know, it’s making the tough calls as a partnership. Like, you you know, the fact that the partners in London were holding the fort while we set up to start San Francisco, they gave us the time to make a presence but also invest it. I mean, Jan was flying there back and forth, you know, once a month for a long time as we were setting up San Francisco.

Making sure that we didn’t fall into the herd like mentality and staying true to our roots of being outsiders. That was really tough because basically it’s a one industry town and folks have been there for a long time or folks scream for mountaintops incredibly loudly, but we do have a differentiated approach. So just making sure that we weren’t falling prey to what everyone else was doing. And those are some of the proudest moments of index, right, like when we didn’t invest in crypto, when it was more contrarian to not invest rather than to invest in crypto.

That was tough, but it felt right.

You know, it was many discussions because we were trying to squint and figure out who was going to be the champion, was gonna lead us to the promised land of being excited about crypto, and none of us could do it. There were many approaches. Martin is really good at being disciplined and process oriented, really thinking through new areas. And so he dabbled, tried to get excited, but he couldn’t. So the baton was passed to Mike at the time, and he could. And then the baton was passed to me, maybe on the consumer side, maybe on the gaming side, and I couldn’t.

Okay. How God bless. We need more of those folks. How do you feel about

Yeah. Bullshit? No. But absurd. I mean, we’re seeing so many opportunities. Every time we’ve messed up is when we over rotate a bet against Europe. Here’s one that was shocking to us. You know, as a firm, we sort of felt like Brexit is going to have an impact on The UK when it comes to starting companies. So we have to spend more time in Berlin and Paris and Amsterdam, Stockholm, all these other places where entrepreneurs are more likely to kick off companies. Well, guess what? We were totally wrong on that.

London has continued to maintain basically an equivalent dynamism of entrepreneurialism as it did pre Brexit, which is a total shock to me, but it’s absolutely true. So we over rotated against a geo and we’ve proactively fixed that. Europe is just moving forward and the entrepreneurs are better and the teams are better and the support that’s being provided is better, the ability to be a global phenomenon and be globally successful has only gotten greater.

Always. I mean, as I said, you know, we expect the American founders to be very polished and sophisticated, and so therefore we discount quite a bit of what they say. And and we do the opposite for European entrepreneurs. What’s sort of cool is that we feel like outsiders in both continents, and so therefore we have a little distance, but we do understand the culture as well. That’s why we really invest in Europe, in The US, and Israel.

We don’t really invest in other geos because don’t, that was why we didn’t invest in China or in India or Latin America because we didn’t see what competitive advantage we had to understand those cultures, to understand and have the right filter to be able to truly see what the entrepreneur was saying and sift through, you know, what was true and what was probably an exaggeration.

It’s more about whether their passion is true to what they’re going after. They might have different reasons. Like, you know, one of the companies that we’ve invested in that I’m super excited about in a new market that we haven’t spent any time on in a long time and that sort of felt like a sleeper for us, we’re super excited about it, is the insurance market and we invest in Ron from empathy. Ron, is he an outsider to the insurance industry? Yes. Is he an outsider to enterprise sales to insurers?

Yes. He’s an insider to the whole concept of empathy through personal experience that has rocked him to the soul. And I have met very few people who have thought about grief and how to help people who are grieving as much as Ron. So he’s sort of an outsider and an insider. The outsider insider is really based on the passion that we recognize. Is this person placed on this earth to go after this opportunity? In the case of Ron, he’s an outsider, but wow has he been placed on this earth.

Yes.

I’m glad that you’re saying that I have a great marriage. I spoke to your wife. She was one who

go. I mean, it’s kind of you to say. I do think we have a great marriage. I think it’s a question of just prioritizing the right things. You know, like, there are very few priorities in my life, and my family is the first, and my work is the second, and my interests are the third, and that’s it. I don’t really have time for much else. And so once I have that clarity, then it’s a question of putting in the time and the effort in the best way possible, and a lot of it is luck.

Right? Has there ever

Holy shit. So many. Unfortunately, the priorities have always been to prioritize work over family and those are the biggest regrets always rather than the other way around.

You know, there have been certain trips that I thought were absolutely essential for Index where I really pounded the table at home that I should go on. And I really regret those trips because they were completely meaningless in the grand scheme of things.

It’s gonna sound really weird, but there’s this whole dimension, this spiritual dimension that I was sort of holding myself away from. You know, like how do I explore that side? How do I explore instinct and gut? And how do I look for deeper meaning in things that are not evident and clear in the same manner?

It’s twofold. One is just trusting my instinct a lot more and sticking to my instinct.

Yeah. Because especially in this industry, right, we’ve been trained to think through first principle thinking, to be analytical, to think of all these other signals that either are the primary driver for our investment thesis or are the primary support for our investment thesis. And I’m sort of saying actually, what is the first impact, what is the first reaction that you have to the founder, to the opportunity? How does it make you feel? Can you build on that? All of that other stuff is actually gonna help you rationalize one way or another, but try and keep it as far away from your decision making as possible.

Meeting Jason from Discord because none of the investors wanted me to meet him. They had no desire to get another investor in. And I finally convinced Christian from Playfish who was at EA to make an introduction and Jason gave me fifteen minutes and I showed up at a blue bottle. Jason’s like, okay, well, you know, who’s a super nice guy. I don’t know if you’ve ever interviewed but No. I haven’t. Super nice guy. And he’s like, you know, Danny, I’m here. I have fifteen minutes. And I said, great.

And it was just the day or the week that Nasty Gal going into bankruptcy was announced. And so I wanted to talk about Discord. He’s like, so tell me about Nasty Gal. Tell me about that experience. Tell me about how it went with the entrepreneur. Literally, it was an hour of grilling me on how I had handled and we had handled that situation. And it followed up with him agreeing to have dinner with myself and two partners the night after. At that dinner, he showed us two slides.

So Dick Costello from Twitter was spending time with us as an adventure partner at the time. It was Shardul and myself. We had dinner with him, and he showed us two slides. And based on the retention of Discord at the time, we followed up the next day and offered him a term sheet. So that was a really unusual, unorthodox approach.

Actually, interestingly, it’s now back to its roots. So what happened was during COVID, Discord became much more of a mainstream platform. Platform. And now it’s going back to what it was when we invested, which is really a vertical solution for gamers to enjoy themselves. That’s really what they’re about.

the

folks at Sequoia are a big fierce competitor, and the folks at Excel are fierce, and those come to mind for consumer stuff. Certainly, Sequoia comes to mind a lot. Benchmark, we don’t see them as often anymore, but I mean, we pay attention to all these folks.

I mean, we were just talking about benchmarks. So actually, the person I learned most from was one of the original benchmark partners named Kevin Harvey Yeah. Who was incredibly generous in a couple of ways. The first was I joined the board of MySQL after having lost the deal. So I I had decided to partner with KP because it was against Benchmark, and it was in the heyday of KP. And Kevin still won them over, but Martin, the CEO, was excited about Index enough and wanted to give us a shot that he gave us a little sliver so I could join as an observer and then we had the right to build our position up to 10% as secondary came available.

And so Kevin went from not really wanting me at all to being just a great board member to learn from in terms of his approach to also being an incredible source of learnings that he was generous about on how to do things correctly and how to do things appropriately. So a lot of the early decisions that Index did were based on really some important tweaks to the benchmark model that Andy Ratcliffe and Kevin Harvey taught us about. One of them was if you are crazy enough to open an office in another geo, make sure you actually move partners to make it happen.

Don’t think that you’re gonna be able to hire people and that’s gonna translate into the same culture.

What

Yes. Hire peers. Sounds like you’re well on your way of doing that.

I feel like I’ve given so much here. Harry, come on. You want more? Like, what else? I’ve told you everything. I have no secrets.

Some of the best investment advice I think is remembering how humbling this business is and not thinking that you ever have it figured out. That every freaking time, you are going to make mistakes, and all you can do is learn from your partners and learn from the history of mistakes that you’ve done prior, but you’re not much better, if any better, at this game.

I really would love to see that Index in ten years has continued to progress on a number of fronts. First of all, that the partnership is not much bigger than it is today, that our funds are not much bigger than it is today, but that our returns have only gotten better because the caliber of partner that we have is better because we’ve hired better people and they’ve learned from better investors and we’re seeing better companies and we have a better mechanism of really understanding who the best entrepreneurs are that match our culture and that we’re really good at winning and doing the sourcing, winning, operating and exiting side.

I would like to think that Index might have one more office in ten years. We open an office every ten years, at least that’s what we’ve done. So maybe we’ll have another geo in ten years and we’ll have Where would the next geo be? I don’t know. I mean, that’s up to the partnership. I’m one voice and I shouldn’t be there in ten years. If I’m still there, I’m doing something wrong or they’re doing something wrong. So I’d like to see that the baton has been passed and that the folks are taking Index to higher and higher territory, but maintaining what we’re all about.

It’s such a pleasure, Harry. Thank you so much. And your your questions are never what I expect them to be, but I always end up telling you a lot more than I had planned on.