Index Ventures raises $2.3bn to chase AI breakthroughs

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Index Ventures has raised more than $2bn to take advantage of recent breakthroughs in artificial intelligence, which the venture capital firm believes will ultimately reshape the entire economy.

“It’s an incredibly exciting time to invest,” said Jan Hammer, a partner at Index, driven by a technological “platform shift” from AI that compares with the arrival of PCs, smartphones or cloud computing. “The last year or two has been characterised by AI everywhere.”

The 28-year-old firm, which is a backer of start-ups including Revolut, Discord and Figma, has raised a total of $2.3bn from institutional investors. Index, which has offices in London, San Francisco and New York as well as Geneva and Jersey, has earmarked $800mn of that total for early stage start-ups and $1.5bn for larger bets on later stage companies.

More than half of its recent investments have been in AI, said Martin Mignot, another partner.

Index was an early investor in Mistral, Europe’s most valuable AI start-up, and Cohere, a Toronto-headquartered start-up building AI models for enterprises. The firm has also backed Scale AI, which provides infrastructure for AI model companies and was recently valued at $14bn.

Martin Mignot, an Index Ventures partner
Martin Mignot: ‘Venture is not a value game, quite the opposite. With the very best companies, you always feel like you’re paying up. A lot of the time . . . great companies [seem] very expensive, but they turn out to be very cheap in five years’

The company has examined the impact of AI on everything from accounting, to molecular research and data centre optimisation, said Mignot. “AI is a tide that changes a lot of sectors of the economy.”

The past year’s AI investment boom has stoked concerns about a bubble forming. In a recent blog post, David Cahn, a partner at Sequoia Capital, another Silicon Valley VC firm, warned of a “speculative frenzy” around AI, adding that “a lot of people lose a lot of money during speculative technology waves”.

Mignot admitted that hype had pushed up valuations, but argued that should not concern venture investors.

“Venture is not a value game, quite the opposite,” he said. “With the very best companies, you always feel like you’re paying up. That’s what makes you uncomfortable.”

He added: “A lot of the time . . . great companies [seem] very expensive, but they turn out to be very cheap in five years.”

Index first invested in Mistral one year ago, in what was at the time the largest-ever seed round for a European start-up, putting the Paris-based company’s worth at €240mn. Its valuation has since shot up to almost €6bn.

Most of the tens of billions of dollars that have poured into AI start-ups have come from the biggest tech groups such as Microsoft, Amazon and Google, which have helped give a handful of companies such as OpenAI and Anthropic a lead in developing powerful AI models.

“There might be models which are in specialised niches . . . but we don’t see mainstream new model companies competing against the established incumbents on their own turf,” Hammer said. “That’s a pretty capital-intensive game.”

But VCs with more limited resources still hope to compete and are betting that powerful AI models will create a platform for new applications, in the way that the advent of the internet or smartphones did.

There was still “a lot of room” for start-ups to build in areas that do not directly compete with Big Tech, said Mignot. “AI is just a different platform to build on but the last mile [with direct relationships with customers] is still going to be very important.”

Index’s latest financing is below the $3.1bn it raised in 2021 across three new funds at the peak of the most recent tech cycle. That reflects a very different market for start-ups today, despite the huge sums raised by a few outlier AI companies.

“We want to match the fund size to the opportunity set,” said Mignot, as round sizes at the growth stage have “come down significantly” in the past three years.

Nonetheless, the fundraising is the latest sign of a partial thaw in venture capital after two years in which firms put off seeking fresh funds.

Andreessen Horowitz closed a $7.2bn fund in April, and General Catalyst is close to raising around $6bn, according to people with knowledge of the matter.

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