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Big Payday for a Skype Investor

A European venture capital firm makes a bid for a place on the A-list.
September 21, 2005

Alarm:clock is a daily news site that evaluates privately-held technology startups in the areas of hardware, software, the Internet, and wireless communications. One company profile and one industry overview by alarm:clock’s editors come to Technology Review every Wednesday by special arrangement.

A European venture capital firm makes a bid for a place on the A-list

The news of eBay’s purchase of Skype for $2.6 billion dominated the tech blogosphere last week – with good reason. The deal conjured up memories of wilder Internet days, when major acquisitions were commonplace, despite vague business models and scant revenues. It also reminded us how quickly an idea can command real value from investors (Skype is just two years old) and how lucrative the venture capital business can be.

On this latter point, regular readers of alarm:clock may recall that we have closely followed the moves of one of Skype’s first investors, Index Ventures. And we’re not surprised that the firm has finally hit one out of the park.

In March, when Index Ventures raised its latest fund of 300 million euros, we pointed out that the Index team has been “on message” since 1996, applying Silicon Valley-style investment principles to European tech investing. Much of Index’s Silicon Valley DNA was carried across the Atlantic by Neil and Danny Rimer, two of the four Rimer brothers who run Index Ventures, which is based in Geneva, Switzerland.

Neil, the eldest of the Rimers, spent four years at Montgomery Securities, one of the original Silicon Valley boutique investment banks. Kid-brother Danny followed his lead, joining San Francisco-based Hambrecht & Quist, another household name in technology investment banking.

Danny, who served as a board member at Skype, helped fuel the first cycle of Internet exuberance in his role as an analyst, taking high-flyers – Amazon, CNET, and Netscape – through successful IPOs. He launched his VC career with The Barksdale Group, a firm headed by Netscape’s former CEO, Jim Barksdale. Danny Rimer now runs Index Ventures’ London office.

With its deep ties in Silicon Valley, Index has been able to gain access to the right people and opportunities on behalf of its portfolio companies. For example, one of its investor co-travelers, Benchmark Capital, made its fortunes with an early investment in eBay and Benchmark partner Robert Kagle still sits on eBay’s board. With such well-established connections between Index and eBay, we suspect the introduction between Skype and eBay was easily made.

Meanwhile, Index has invested alongside Benchmark Capital in a number of deals, including current investments in Betfair, a rapidly growing and profitable online betting company, and MySQL, the developer of the largest open-source database program. While we don’t expect MySQL and Betfair to reap Skype-like rewards, positive outcomes on these investments seem likely.

These successes may not do much to alter Silicon Valley’s status as the center of gravity for venture capital activity; but we believe that, with a few more big paydays, Index Ventures can submit its application for inclusion on the venture capital A-list.

Alarm:clock is a daily news site that evaluates privately-held technology startups in the areas of hardware, software, the Internet, and wireless communications. One company profile and one industry overview by alarm:clock’s editors come to Technology Review every Wednesday by special arrangement.

For Love and Money
Vivox Adds Internet voice and video capability to text chat

Company: Vivox
HQ: Wayland, MA
Founded: 2003

Management: The chairman is Jeff Pulver, who is also a co-founder of Vonage, organizes the VON (Voice on the Net) events, publishes VON magazine, and runs a set of companies under the Pulver.com brand. No CEO or other management has been announced.

Investors: In September, Vivox raised $6 million in Series A venture capital funding from Canaan Partners and GrandBanks Capital. Prior to that, the company’s technology was being developed within Pulver.com.

Business Model: Vivox has developed IP-based applications that add voice and video to text-based communications. The company will focus first on online dating and gaming niches. Their product will allow couples or players who are text chatting online to escalate to voice and video chat. The company’s platform currently powers FreeWorld Dialup – another Pulver.com company.

Competitors: No direct competitors today, but leaders in the Voice over Internet Protocol (VoIP) market – Skype, Net2Phone, Lingo, SIPPhone, and Packet8 – may eventually get into dating and gaming applications.

Dirt: Chairman Jeff Pulver’s name is synonymous with “visionary” and “thought leader” in VoIP; he’s built several of the companies at the core of the accelerating VoIP market. When an entrepreneur is juggling as many endeavors as Pulver is, however, there’s always the danger that a new venture, like Vivox, will get short shrift. Indeed, Pulver did not even announce Vivox’s Series A funding on his blog, because he was in the midst of managing the VON conference. On the other hand, nobody knows the VoIP landscape better: where demand lies and where the competition is weak. Instant chat in the arenas of PC gaming and dating seems to be a natural and underserved market.

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