Danny Rimer's Biggest Lessons from Missed Investments

What Did Danny Rimer Learn from Missing Airbnb?

Danny Rimer from Index Ventures reflects on missing the opportunity to invest in Airbnb with several key takeaways and lessons learned.

Key Takeaways:

• Market Size TAM is Noise:

  • Danny highlights how the market size assumptions can mislead decision-making.
  • Initially, Index Ventures underestimated how Airbnb could create a new market rather than just cannibalize hotel rooms.

• Backing Exceptional Founders:

  • Despite having preconceived notions about industries, backing exceptional founders like Brian Chesky should take precedence.
  • The focus should be on the capability and vision of the founders instead of rigidly following theses.

• Learning from Missed Opportunities:

  • Reflection on past decision-making errors helps improve future strategies.
  • Being aware of such missed chances strengthens the resolve to not let market size be a barrier.

Lessons Learned:

1. Re-Evaluate Market Assumptions:

   • Airbnb's growth taught Danny to reconsider how new business models expand market horizons.

2. Prioritize Founder Quality Over Market Preconceptions:

   • Exceptional leadership can redefine market boundaries, emphasizing the importance of prioritizing extraordinary founders.

3. Institutional Learning:

   • Mistakes serve as learning tools, helping Index Ventures refine their approach and avoid repeating errors in evaluating emerging opportunities.

How Did Danny Rimer Miss Investing in Spotify?

Danny Rimer's decision to pass on Spotify came with several key reasons and important lessons learned.

Key Reasons:

• Past Music Investments:

  • Danny's previous experiences with music investments like Last.fm and SoundCloud impacted his confidence.
  • The challenges faced in those investments made him cautious.

• Market Challenges:

  • At the time, the music industry seemed highly uncertain and fraught with legal and licensing issues.
  • Danny believed that these issues would hinder Spotify's success.

• Preconceived Notions:

  • He had preconceived notions about the viability and scalability of music streaming services.
  • These notions led to hesitation and ultimately the decision to pass on Spotify.

Lessons Learned:

1. Founder Excellence:

   • Danny realized that exceptional founders, like Daniel Ek, should override market hesitations.
   • Daniel's previous work had already demonstrated his extraordinary capability.

2. Re-Evaluate Preconceptions:

   • It's crucial to challenge and re-evaluate preconceived notions about specific markets.
   • Understanding that new business models can overcome traditional market barriers.

3. Decision-Making Flexibility:

   • This experience underscored the importance of maintaining flexibility in investment strategies.
   • Being open to opportunities even in challenging markets can lead to significant gains.

"If the person's extraordinary, throw all theses out the window and just back the founder." - Danny

Why Did Danny Rimer Turn Down Facebook at $10 Billion?

Danny Rimer from Index Ventures faced a difficult decision when presented the opportunity to invest in Facebook at a $10 billion valuation.

Context and Reasoning:

• First Growth Fund:

  • This was one of the first opportunities presented to Index Ventures' newly raised growth fund.
  • At the time, a $10 billion valuation seemed extraordinarily high for a social media platform.

• Initial Proposal:

  • Index initially offered $50 million at a $5 billion valuation.
  • Facebook returned with a counter-offer after securing a $10 billion valuation from Microsoft.

• Judgment Call:

  • The investment at $10 billion would have represented over 10% of the growth fund, which felt risky.
  • The decision was driven by concerns over valuation and fund allocation strategy.

Lessons Learned:

1. Risk Assessment and Valuation:

   • The experience highlighted the importance of re-evaluating valuation risks, especially in high growth sectors like social media.

2. Market Evolution:

   • Danny acknowledges that market expectations evolve and that early valuations can often seem inflated but may prove justified over time.

3. Creative Problem-Solving:

   • Although they missed the primary deal, Index managed to secure significant secondary shares, showcasing the value of adaptability.

"We should have just said, yes, we're in for it and figured out on the back end how

What Prevented Index Ventures from Leading Snapchat’s Series B?

Danny Rimer of Index Ventures elaborates on the reasons they couldn't lead Snapchat's Series B and how this impacted his future strategies.

Key Factors:

• Growth Fund Constraints:

  • At the time, Index Ventures had just launched their growth fund.
  • The proposed investment amount would have exceeded 10% of the fund, which felt risky.

• Financial Hesitation:

  • Snapchat required an investment of $61 million.
  • Index was only willing to commit $40 million, leading to their loss of the deal.

• Valuation Concerns:

  • Early growth funds require careful allocation.
  • The large check size for a consumer social company added to the hesitation.

Future Strategic Adjustments:

1. Flexibility in Allocation:

   • The Snapchat experience emphasized the need for flexibility in fund allocation.
   • Being prepared to meet the required investment amounts is crucial.

2. Increased Risk Appetite:

   • Understanding the importance of sometimes exceeding normal constraints for exceptional opportunities.

3. Conviction and Courage:

   • This incident taught the importance of having the conviction and courage to make larger bets when necessary.

"We should have just said, yes, we're in for it and figured out on the back end how we were going to do that." - Danny

How Does Danny Rimer Approach Market Sizing and Valuations?

Danny Rimer of Index Ventures has unique views on market sizing and valuations, considering them often to be noise and mental traps.

Key Points:

• Market Size TAM is Noise:

  • Rimer believes that Total Addressable Market (TAM) is often misleading.
  • He focuses more on the potential of the founders and the product.

• Underestimating Market Potential:

  • Historical examples like Airbnb and Spotify show that traditional market sizing can underestimate the disruptive potential of a company.
  • Valuations based on current market conditions can constrain visionary thinking.

• Investment Approach:

  • Rimer prioritizes founder quality over rigid market analysis.
  • His strategy involves a flexible assessment, ready to back exceptional talent regardless of market size.

"Market size TAM is noise. Exceptional founders can redefine market boundaries." - Danny Rimer

What Are the Biggest BS Rules in Venture Capital According to Danny Rimer?

Danny Rimer from Index Ventures shares his views on certain rules in venture capital that he believes are just plain nonsense.

Venture Capital BS Rules:

• Stage-Specific Funds

  • Rimer criticizes funds that are exclusively focused on specific stages like seed or growth.
  • He believes this approach limits the potential to back the best companies, as opposed to the best in that particular stage.

• Geo-Specific Funds

  • Similar to stage-focused funds, geographic-specific funds are seen as a constraint.
  • According to Danny, focusing on a single geography can compromise finding the best companies globally.

• Signaling Risk

  • Danny argues that signaling risk is overstated in today's market.
  • With plenty of capital available, he feels that entrepreneurs can raise funds irrespective of previous investors.

"Sectors, you're not looking for the best companies, you're looking for the best company in that sector." - Danny Rimer

What Are Danny Rimer’s Lessons from Big Wins and Losses?

Danny Rimer, a partner at Index Ventures, has encountered both significant wins and notable losses throughout his investment career. These experiences have provided him with valuable lessons.

Big Wins

King and Discord:

• Adaptability and Persistence:

  • King constantly reinvented itself, from skill-based games on the web to mobile gaming on Facebook.
  • Discord returned to its roots, focusing on gamers, demonstrating the importance of sticking to core competencies.

• Strong Teams:

  • Successful companies often have exceptional leaders and cohesive teams.
  • Their ability to pivot and adapt stems from having a solid team foundation.

Notable Losses

Nasty Gal:

• Letting Go:

  • Danny initially spent too much time trying to save failing investments.
  • Learning to let go and move on can save valuable time and resources for new opportunities.

• Emotional Detachment:

  • Emotional attachment can cloud judgment.
  • Keeping a rational perspective is crucial in making sound investment decisions.

"We need to understand and learn from our mistakes as much as we celebrate our wins." - Danny Rimer