Danny Rimer on why Index wouldn’t do a sector-specific fund

Danny Rimer has, by his own admission, been around for a while. 

He’s one of those VCs who has sat on the boards of companies even your mum knows — Dropbox, Etsy, Farfetch and Glossier, and currently Discord, Linktree, Motorway, Multiverse and Otrium. 

He first joined VC giant Index in 2002, to open its London office. In 2011, he moved back to San Francisco, and in 2018 he came back to London. 

Despite a rocky year for tech, it’s been a big one for Rimer. In September this year, news of Figma’s $20bn acquisition by Adobe was announced; Rimer led Index’s seed investment into the design startup, and sat on the board for almost a decade. Last week, Index announced its second dedicated seed fund of $300m — the team are now investing out of three funds with a total of $3.2bn. 

We grabbed some time with Rimer at Slush last week for our podcast. We learned how he thinks it’s best to approach pay rises, why Index has long avoided crypto and what the big layoffs at tech giants mean for earlier-stage companies. 

For the full interview — including Rimer’s thoughts on debt, the Figma deal and The Next Big Thing — subscribe to Startup Europe — The Sifted Podcast. We’ll release it next week. In the meantime, you can listen here to pearls of wisdom from another European VC partner — EQT Growth’s Carolina Brochado.

We’ve seen massive layoffs at tech giants and startups. What impact is that going to have on the early-stage companies? Do you think some people who’ve been laid off are going to found businesses?

I would suspect so. What’s been interesting in these most recent rounds of layoffs, is that in different situations they really are cutting deep. And a lot of the great people have now been laid off.

And I think for a number of them, who were sort of sitting comfortably inside great organisations who took care of them very well, they probably now are really going to have to think through, “Okay, what do we want to do next? Do we want to join a bigger company, join a startup, start our own?”

Of course, not everyone should start a company. Founders are very unusual. It’s an incredibly lonely endeavour. You cannot be rational and be an entrepreneur. And so I think most of the folks who have been laid off or have chosen to be laid off, because that’s also happening — we’re seeing it at Twitter — they’re going to contemplate, “Where do I sit in the stack? And maybe I’m actually not as risk-averse as I used to be, maybe I’m willing to really commit.”

The other aspect is, obviously, the implosion of Web3 and crypto means that a lot of the folks who were joining the tech industry out of this expectation that it was a gold rush now are rethinking what their priorities are and, fundamentally, whether they really believe in the startup that they’re joining — which feels like the most important part of our work, to be able to assess the sincerity of the founders and the team who are going to go on this journey.

I was speaking to a founder who said that she thinks the people who are applying for jobs with them have less crazy salary expectations, because there isn’t that kind of bar that’s been set by some of those big companies. But she also said that she felt people were savvier. She said they were asking, ‘What’s your runway?’ It’s almost like an education for people who work at startups. Have you seen that?

Absolutely. I think that probably folks are questioning the value of their equity. Certainly, what’s been interesting about our journey at Index is just to see how entrepreneurs and management teams in Europe have become so much more intelligent and sophisticated about the value of equity — and don’t discard it, which was the case when we started.

But they also realise that it’s not all about the compensation, it’s fundamentally about the people that you’re going to work with, and whether you’re going to be excited about being with these folks through ups and downs. 

What are you seeing in terms of pay rises among the portfolio? I spoke to one founder here at Slush who said he’d given all 2,000 of his employees a 20%-plus pay rise because of inflation. And I was thinking he’s got to be in the 1% of founders able to offer that.

Well, that’s an interesting one — we would definitely not recommend that. We think that it’s super important to evaluate how the company is doing.

And it’s really an opportunity to evaluate folks on the team — how committed they are, how excited they are — and not really do it as a blanket, but rather look at the respective comp of different people and make it count rather than do a blanket.

Reading between the lines, are you saying some people are going to be employees you want to hang on to more than others, and they’re the ones you need to incentivise?

Absolutely. And I think that’s always going to be the case. I mean, you know, it’s not even a question of whether they’re super competent versus other folks being mediocre. In many cases, it’s just the wrong fit. 

I’ve never met an entrepreneur who said, ‘I should have waited six more months before letting someone go’. I’ve never heard of an entrepreneur feeling like they had really prematurely let someone go. And I’ve also never seen founders who try and retrofit the person in another role than the original role and make it work. It’s very rare, maybe never is a big statement, but most of the time, that never works. And you’re usually not doing a favour for the person who is staying, or is being retrofitted. 

Do you think there was quite a lot of over-hiring last year?

Typically there’s over-hiring, period. So the challenge that we have as investors is to make sure that our companies don’t confuse a great business with great execution. And usually, when there’s a great business, because there’s great product-market fit, the first knee-jerk is to hire because the number of people equates to better execution, which is just not the case.

So it’s very rare that a company has truly figured out the optimal level of hiring that they need. And oftentimes, it makes sense because you’re growing into a larger position very quickly. And so as a result of that, you do have to build capacity. That is obviously not the environment that we live in today.

Looking back on last year, when we reached a funding frenzy, what were some of the real excesses?

​​You’re right, there was a lot of that. We took a pretty contrarian position when it came to Web3 and crypto. And while our peers that we respect enormously, we’re doubling down in that area, we just didn’t buy it. And we didn’t buy the calibre of entrepreneur going after that, and the reason that they were doing it, and felt that it was super mercenary, and so we didn’t invest in that arena. 

We also didn’t do sector-specific funds. Because we feel like when you do a sector-specific fund — investing just in game companies, or just in fintech companies, or just in crypto companies — you’re not looking for the best company, you’re looking for the best fintech company, and you’re looking for the best game company. So it’s adverse selection from the get-go. And so I think that there was a lot of money available to a lot of investors. And it was very easy for entrepreneurs who could storytell to raise, and that equated to a bunch of excesses. 

It’s not the only time that it’s happened. I’ve definitely seen it a few times now. But I think that for what our business is — the business of backing fantastic founders and teams — this is just a much healthier environment. And I say that with trepidation, because obviously there’s so much in our world that’s upside down. But for what we do, this is where a lot of the best companies have in the past come out of these types of periods.

For the full interview — including Rimer’s thoughts on debt, the Figma deal and The Next Big Thing — subscribe to Startup Europe — The Sifted Podcast. We’ll release it next week.