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Index Ventures has raised more than $2 billion to capitalize on recent advances in artificial intelligence, a technology the venture capital firm believes will eventually reshape the entire economy.
“It's an incredibly exciting time to invest,” said Jan Hammer, a partner at Index, who is driven by a technological “platform shift” away from AI that he compares to the rise of the PC, smartphone and cloud computing. “The last year or two has been characterised by the fact that we've seen AI everywhere.”
The 28-year-old firm has backed startups such as Revolut, Discord and Figma and has raised a total of $2.3 billion from institutional investors, of which Index, which has offices in London, San Francisco and New York as well as Geneva and Jersey, has allocated $800 million to early-stage startups and $1.5 billion to larger investments in later-stage companies.
Martin Migneau, another partner at the firm, said more than half of its recent investments have been AI-related.
Index was an early investor in Mistral, Europe's most valuable AI startup, and Cohere, a Toronto-based startup building AI models for enterprises. The firm also has backing from Scale AI, which provides infrastructure to AI modeling companies and was recently valued at $14 billion.
The company has been exploring the impact of AI in everything from accounting to molecular research to data center optimization, Migneault said. “AI is a game changer for many sectors of the economy.”
Last year's AI investment boom has stoked fears of a bubble. David Kahn, a partner at Sequoia Capital, another Silicon Valley venture capital firm, warned in a recent blog post about a “speculative frenzy” around AI, adding that “a lot of people are losing a lot of money in the speculative technology wave.”
Mignon acknowledged that hype has inflated valuations, but argued that venture capitalists need not worry about it.
“Venture is not a value game. Quite the opposite,” he says. “At the best companies, you always feel like you're paying too much, and that's unsettling.”
He added: “In many cases, great companies [seem] It's very expensive at first, but five years later it's very cheap.”
Index first invested in Mistral a year ago, valuing the Paris-based company at €240 million in what was then the largest seed round ever for a European startup. The company's valuation has since skyrocketed to nearly €6 billion.
Most of the tens of billions of dollars pumped into AI startups have come from the largest tech groups, such as Microsoft, Amazon, and Google, which have helped a small number of companies, such as OpenAI and Anthropic, take the lead in developing powerful AI models.
“There may be some niche models, but you're not going to see mainstream new model companies competing with the established incumbents in their own space,” Hamer said. “It's a pretty capital-intensive game.”
But resource-limited venture capitalists are still keen to compete, hoping that powerful AI models will create a platform for new applications, much like the advent of the internet and smartphones.
Mignon said there is “still a lot of room” for startups to build in areas where they are not competing directly with the big tech companies. “AI is just a different platform to build on, but the last mile is different.” [with direct relationships with customers] It's still going to be very important.”
The index's latest fundraising total is below the $3.1 billion it raised in 2021 through three new funds at the peak of the most recent tech cycle, reflecting a much changed startup market today, even as a handful of outlier AI companies raised huge amounts of money.
“We want to size the fund to match the opportunity set,” Mignon said, because the size of growth-stage rounds has “shrunk significantly” over the past three years.
Still, the funding is the latest sign that venture capital is beginning to partially thaw after companies held off on raising new money for two years.
Andreessen Horowitz closed a $7.2 billion fund in April, and General Catalyst is close to raising about $6 billion, according to people familiar with the matter.
