Index seeks more early stage deals

Index Ventures is stepping up the pace of its early stage investments as the plummeting costs of launching a business make smaller investments more meaningful.

Index—which has previously backed Boku Inc., MySQL, Playfish, Skype and Zend Technologies, among others—announced it is forming a new team, called Index Seed, and allocating a dedicated pool of capital with the aim of closing about 20 early stage deals in the next two years with initial amounts of between $50,000 and $1 million, compared to about 30 such deals in the last five years.

The dedicated seed capital will come from Index Ventures V, a $440 million fund that the firm closed last year.

Index Ventures, which has offices in Geneva and London, will join forces with seed capital investor TAG (a.k.a. The Accelerator Group), which is run by Index Partner Saul Klein and his father Robin. Robin and Saul will join the five-member Index Seed team, along with Index Partners Danny Rimer, Neil Rimer and Mike Volpi.

Index Ventures and TAG are co-investors in 14 companies, including Moo, My Heritage, Glasses Direct, OpenX, Stardoll, Moshi Monsters and LoveFilm, according to Robin Klein. He also pointed out that the deal sourcing of the firms’ past co-investment has been both ways, with TAG now and then introducing the startups to Index and sometimes Index inviting TAG’s participation.

With the formation of Index Seed, TAG will have co-investment rights in all seed deals, but will have the freedom to invest on its own if circumstances dictate, according to Robin Klein.

Klein, whose title at Index Seed is venture partner, said: “We will seek to invest alongside ‘fellow travelers,’ people with whom we have been investing for a number of years and the growing band of active angels in Europe and the United States.” Those fellow travelers include individual investors Jeff Clavier, Dave McClure, Aydin Senkut, Ron Conway, Reid Hoffman, Satish Dharmaraj, Stefan Glaenzer, Klaus Hommels and Joi Ito, and early stage and seed stage investors OATV, YCombinator, Betaworks, Union Square Ventures and First Round Capital.

“We are also super excited by the emergence of dedicated seed and early stage funds in the United States and Europe, so we can continue to expand our network of fellow seed travelers.” says Saul Klein, in reference to True Ventures, Floodgate, Founder Collective, Eden Ventures and ProFounders Capital.

Saul Klein said last week that venture firms needed to get more involved earlier in the process by investing sums as small as $50,000, or risk being too late to help entrepreneurs.

“We are really energized by seed investing, because it gives us a chance to work with entrepreneurs at the earliest stages and really help them shape their businesses,” Klein wrote in a blog on the firm’s website.

New technology, such as open-source software, cloud computing, Internet telephony and free publicity platforms such as Facebook all mean starting up a business today is not the costly business it once was, he said.

“When I helped to start a business in Boston in ‘95, to buy a Web server was $1 million dollars. Nowadays you can rent server capacity from Amazon [$77] a month,” he told Reuters. —Georgina Prodhan, ReutersAlastair Goldfisher contributed to this report