Today’s news that Just Eat has raised $64m to complete their European conquest and continue their expansion outside Europe (India, Canada, Brazil, etc.) is validation of a both a winning recipe and talented team of chefs. As with all businesses however the path to success curved around many blind corners. When Index Ventures first invested in 2009, the seeds of success may have been sown, but a number of risks and challenges lay ahead for the Company. I’ve gone back to my original notes from 2009 to look at risk factors my colleagues and I identified and the key questions we discussed before our original investment and provided a brief update on how the Company has progressed.

All we really knew reliably back then was that the business seemed to work very well in Denmark. The Company also had a foothold and very slender early mover advantage in the UK and embryonic operations in a few other countries. We were impressed by the team and there were a number of other positives.

1. Concept risk – will different food cultures and eating habits mean the Just Eat proposition doesn’t resonate in all the target markets?

Very limited data is available on the size and structure of the delivery and take-out industry in different countries. We had the sense that it was big in the UK which has the “trinity” of take-out cuisines (Pizza, Indian, Chinese) unlike other markets where Pizza predominates, but whether online ordering would appeal in multiple markets, particularly Southern Europe was unproven. If we roll forwards three years Just Eat has validated its model in 13 territories on 4 continents, including markets with vastly different eating habits and levels of online penetration. This is clearly a global phenomenon.

 2. Competition – will multiple ordering networks emerge in each territory increasing dramatically the cost of building the network and acquiring consumers?

At the time we invested, various other investors were not so excited as we were about the take-away sector. I suspect to many the idea of backing a business with field sales walking the streets of every town and city somehow didn’t have the sex appeal of some other internet sectors. If we wind the clock forward three years, many investors and entrepreneurs have witnessed the rapid growth of Groupon and now any business linking local merchants to the internet is seen as potentially attractive to investors. Competitors to Just Eat have emerged in many countries and include many venture-funded competitors. However the complexities of managing a sales team and technology platform and providing a compelling consumer front end is not easily replicated. In spite of competition, Just Eat is probably 4x the size of the closest European competitor and around 2x the size of the closest global competitor.

3. Execution risk – Can one team manage aggressive growth in multiple countries?

This has been a massive challenge and one of the greatest strengths of the Just Eat team has been their ability to manage this complexity. Multiple countries means facing multiple competitors, operating in multiple legal and cultural environments, running multiple marketing campaigns and is some cases where Just Eat has made acquisitions integrating multiple tech platforms. It is easy for a whole company to be dragged down to level of the lowest common denominator in the network. In the case of Just Eat however the network has accelerated not decelerated the path to best practice. Close and structured cooperation between countries allows testing different ideas in multiple markets and rapidly adopting the best practice observed in one country across the entire Just Eat group.

4. Brand-building – will consumers really grow to love and trust the brand or will Just Eat keep having to ‘re-acquire’ customers?

When Index Ventures analyse consumer internet businesses we look carefully at two things:

• Repeat purchase behaviour;
• Proportion of traffic which comes direct or viral versus through paid marketing activities.

Often we come across businesses that have a “business model” (i.e. Customer Lifetime Value > Subscriber Acquisition Cost) but still no real brand (low proportion of direct traffic, limited repeat purchase). The danger of investing in the former type of business even if it seems to be working at the time is that SAC is always dangerous to predict going forwards. Changes to Google algorithms, irrational marketing spend from competitors and other items can impact this and turn a good business model into a bad one.

At Just Eat they have always understood this and focused both on tactical marketing but also long term brand-building. A culmination of this in the UK occurred in February when Just Eat overtook Domino’s to become the most visited UK food and beverage website

There are still many challenges and opportunities ahead for Just Eat – more customers, more countries and probably more acquisitions. Also the need to leverage new technology platforms as they emerge to help restaurant partners do business and to provide an ever more seamless consumer experience. There could be no better team to pull this off and as an investor am delighted to have Vitruvian Partners joining for the next stage in the Journey.

One area where we are committed to enhance our proposition to entrepreneurs and invest more time and money is the Nordic and Baltic area.  Index Ventures has already invested a disproportionately high share of funds and time here relative to the size of the markets.  Here we reflect on what Index has been up to in the region, and just why it creates so many innovative and successful tech companies.

A few weeks ago, after many many months of development by Playfish and the EA Sims studio, The Sims Social was released. When Playfish was acquired by EA in 2009, part of the thesis was that with EA’s strong game brands and the Playfish understanding of social gaming, a winning combination could be forged which could give Zynga a real run for its money.

There is a lot to admire about Zynga as a Company with its highly disciplined marketing and product development processes and the incredible ability it has shown to scale and release new and bigger hits on a regular basis. However on an emotional level I have always felt that Zynga were the “bad guys” often borrowing heavily on others innovative ideas and in their early days using questionable methods to monetise. By contrast the Playfish team were always the “good guys” – creative, fun, hard-working and respectful of other companies IP and innovations.

Source: DAU Comparison from Developer Analytics

While am sure Zynga has many great titles in the offing, at least for now the hot game seems to be the Sims Social, recently overtaking Farmville on DAU and with a shot at catching Cityville over the coming weeks. So congratulations to the Playfish team on all their hardwork post the acquisition. Congratulations also to EA for identifying the best Company to acquire, persuading them to sell and then realising the synergies. Nothing is healthier for the VC ecosystem than happy and satisfied acquirors and everyone loves to see the “good guys” still thriving at the end of the movie…

We are delighted to announce that Sami Lababidi has started to work part-time at Index Ventures as an Entrepreneur in Residence. Sami was absolutely pivotal in the success of Playfish but always extremely humble and generally left the promotional slots to be filled by Kristian Segerstråle and Sebastian De Halleux.

We got to know Sami during the investment process in Spring and Summer 2008. At the time Playfish was already one of the most successful gaming companies on Facebook, with titles like “Who has the Biggest Brain” rapidly growing to what at the time seemed very impressive metrics. We didn’t know then that just round the corner Playfish was just about to crack the code with Pet Society. This game reached millions of users and essentially defined the social game as we know it today.

Equally pioneering however was what Sami and the technical team were doing behind the scenes to support this growth. Way back in 2007, at the very early stages of the Amazon Web Services ramp-up, Sami had taken the decision that to build a Company which could keep pace with a rapid viral growth in usage, he would have to completely re-invent the technology stack. Essentially Playfish decided to go “all-in” on the emerging cloud services platforms. The decision to exclusively use Amazon, Rightscale, Google apps, Boku and other SAAS components not only proved vital in supporting the growth when it came, but also meant that almost all development resource in the Company could be focused on building great games not managing infrastructure. This pioneering approach is now essentially the de facto standard we see in all web startups. Over the following years Sami has kindly shared his opinions on technology and internet with us particularly around cloud services which has become a key theme in our portfolio.

We learned from our experience with Thai Tran (previous EIR who we have backed at Lightbox) that technically gifted EIRs are immensely valuable both for their insights and leads. We also know that they tend to follow parabolic rather than elliptical orbits – so we look forward to working with Sami for as long as are able to hang on to him!

I’m delighted to announce that after long discussions and a lot of hard work on the part of Philips, our co-investors Union Square Ventures and Simon Levene and most specifically Peter Weijmarshausen and his team at Shapeways, that we have finalised our investment in the company. The New York Times coverage is here and Shapeways commentary here. What I thought might be interesting is to give some context on the company and why we are so excited about it.

Background to the deal

Shapeways has been funded since inception by Philips within their incubator programme. If 3D printing seems like science fiction now, this was even more the case three years ago so they deserve a ton of credit for taking a view back then as to how this technology would develop, identifying a valuable space to occupy in the ecosystem and executing brilliantly to build a real business with thousands of happy customers. Greg Marsh, a former colleague at Index Ventures met them a couple of years ago and was impressed by the concept. When we spent more time with them this year, the traction we witnessed validated the concept and persuaded us now was the right time to invest. While Philips is not investing in this round, they will remain a material shareholder alongside founders and employees and the new investors.

What is 3D printing?

3d Printing is the fabrication of tangible objects in 3 dimensions. Items can be produced in various forms of plastics, resins, metal alloys and even glass. There are a few different technological approaches, but I would crudely describe the two principal techniques as

• Deposition – building up an object layer by layer with the material being deposited by a device conceptually similar to an inkjet printer
• Laser sintering – Here a volume of powder is enclosed in something the size of a large fish tank. Lasers are then selectively fired at locations within this space causing the material to fuse. After a print run the excess, unfused powder is shaken away for reuse and the printed objects can be removed and cleaned.

If you are interested the Shapeways Youtube page has various videos of the machines and techniques they use. The interesting factors about this technology with respect to the Shapeways business model are

• Enables new types of production. Certain complex geometries (e.g. below) which couldn’t be produced by extrusion or moulding process can be printed by these new printing technologies. This has made the service very popular with puzzle designers and enabled beautiful objects with fascinating mathematical properties to be made for the first time.
• Enables cost-effective production of single or low volume items. The cheapest way to produce a metal or plastic item at volume is still to injection mould it. However there are very high setup costs to make a mould and deploy the associated machinery which probably only get covered when thousands or millions of items are going to be produced.
• Democratises production. All that is needed to produce an item is data (a 3D model) so essentially any consumer can produce an item and printing can be centralised and completely isolated from design, enabling an internet service bureau model

Image of Gyroid from Bathsheba/Shapeways – http://www.shapeways.com/model/24470/gyroid.html?gid=mg

What was the investment rationale?

Proven Business Model. Many other  companies such as eBay, ETSY*, Notonthehighstreet.com* and Moo* have all become very successful by tapping into people’s creative instinct and providing a marketplace for the long tail of designers to access production capacity or by exposing the small producer to mass market online. In this sense, Shapeways is operating a model which had substantial prior validation and where many network effects can help rapidly build a big business. Some of the effects are already coming into play for Shapeways, yet there is great opportunity to learn more from the success of other great companies and harness the network and scale effects to our advantage.

Market Timing. A key external factor which will impact the success of the Company will be how 3D technology develops both in terms of the quality of the output (resolution of printing, range of materials and finishes which can be produced, colours) and critically the price. Shapeways itself doesn’t develop the machines although it does work in very close collaboration with machine producers and operators to maximise product quality and minimise costs passing these savings onto the consumer. Our sense was that both on quality and price there were already many interesting applications for 3D printing (e.g. Puzzles, Jewellery, Homewares, etc.) but that the universe of potential applications could explode if prices and quality continue to progress in their current direction over the next few years.

Team. As with every investment a founding team with passion, determination, insight and openness to learn and experiment is what we look for and these guys have that in spades.

Traction. While the concept might be compelling, it is always nice to see a bunch of graphs heading up to the right. Whether it is community size, printing volumes, or revenue we saw a lot evidence that consumers were like engaging, buying, and referring this service to others.

There will be many risks and challenges ahead for the Company, but we look forward to help them with these as best we can, however long the journey.

*Index Ventures investments

I was lucky enough to be on a panel with a bunch of great game companies at an event hosted by Investec. At Index we have probably done as many investments in online games as any other firm in Europe with King.com, Stardoll, Moshi Monsters, Playfish and Betfair.

So a few decent companies and no real flame-outs to speak of…yet But how in an industry which people often classify as “hit-driven” can a VC make a decent return? That’s exactly the question I try to tackle in the following video (links to external site). Thanks to Investec for inviting me to participate and putting on a great event.

Slightly offtopic, but interesting. For those readers outside Europe/UK, you should know that  as well as having the Volcano in the news a lot, we also have an election in May in our country. That means endless polls and too many pundits on telly and the interweb debating the likely result.

One interesting comparison to make is to look at the predictions from the Polls with the predictions implied by betting markets (Betfair is an Index investment). The following widget allows you to do just that. If you click on the “Seat” forecast below and then switch between Comres and Betfair you see there is big difference between the number of seats each is predicting.

At time of writing Betfair predicts 330 Seats for the Conservatives – a small majority, while Comres predicts 288 – well into hung parliament territory. While the betters will clearly be closely watching the polls and influenced by these, in this case the market clearly feels the polls are systematically underestimating the likelihood of a a Conservative victory. Will be very interesting to see whether they converge and which proves the better indicator on the night.

One of the most impressive aspects of Apple product launches is that even though the announcements themselves are usually fairly accurately predicted, there is always some element of surprise that remains.

The iPhone OS announcement which followed quickly on from the iPad launch was no exception. Multitasking was a heavily demanded feature and the main competitive weakness of Apple mobile devices versus Android. However the way Apple implemented it was unique and has lots of ramifications on the ecosystem partners.

By mandating that applications write to a multitasking API which is part of the OS, the only background processes which are running are under Apple’s control. While this will require some extra steps from the developers, it seems like a good compromise which will allow Apple to be confident of delivering a good user experience but also retaining a broad ecosystem of developers.

Here’s some of my thoughts on various aspects of the announcement and who the winners and losers will be.

1.  Multitasking – Music

Winners: Pandora, Spotify, Rhapsody, Napster, etc.

Loser: iTunes

Until now only Apple native music applications could run in the background. Other music applications although downloaded in great numbers were at a big disadvantage by only running in the foreground. At the event, Apple presented Pandora as complementary to the iTunes. I don’t think it is or perhaps there is more to this relationship between Pandora and Apple than meets the eye. I’m convinced that people will listen to more streamed music at the expense of downloaded music and by making these services run more smoothly Apple is accelerating the industry towards a future where music is predominantly network based (e.g. Spotify) rather than locally stored. I suspect Apple can see this and will need to own a music streaming service of their own. I think they will build not buy here. Apple always likes to launch a consumer service with a proprietary slant/innovation and you can’t do that if you are just buying a service people are already familiar with.

2.  Multitasking – Voice / Calling

Winners: Rebtel, Skype

Losers: Carriers

Wow, this really can’t have been a popular move with AT&T and the carriers with big iPhone subscriber base. Lack of multitasking for third-party voice services obviously made inbound calling essentially impossible. For IP-based mobile services like Skype and Rebtel (Index investment), enabling multi-tasking is a real godsend. Particularly for international calls and video calling applications I can see people abandon the overpriced tariffs of the mobile operators for third party applications which leverage the phone’s contacts and native calling UI.

3.  Gamecenter

Winners: Small independent App Developers

Losers: Openfeint, Scoreloop, ngmoco’s Plus+ network

The biggest problem however in the iPhone gaming ecosystem is lack of social discovery which was obviously vital to the growth of gaming on Facebook. The other key difference between Facebook and iPhone as gaming platforms is that Facebook is server-based and assumes a permanent connection whereas iPhone games are downloads which are generally designed for offline play or for a play mode where they are only sporadically connected. This makes it much harder to build the “mini-virtual-world” type of game which monetizes so heavily online (e.g. Pet Society, Farmville, Acquarium, Moshi Monsters). While the Apple ecosystem offers lots of games that offer quickfire entertainment, few titles build real emotional connection and engagement with users and hence the monetization per paying user is much lower e.g. $3 bucks versus $30+ LTV for paying users on the leading Facebook games.

The Gamecenter is Apple’s answer to some of these challenges. Apple was pretty fuzzy about what would be released and when but the key elements were a network-based high score table, a “quickmatch” engine for multiplayer gaming and basic social discovery. What they didn’t state was which social graph would power this social discovery. These features are directly competitive with the Openfeint, Scoreloop, Plus+ despite their claims otherwise. Directionally therefore the Gamecenter initiative is a big positive for developers. Will it give rise to a major new player as big as Zynga or Playfish or will these social gaming companies themselves attack the iPhone with more firepower? Watch this space…

That’s already a long post… I’ll call it quits there and well done for getting to the end.

All the best.

Many thanks to Rikke Eckhoff for giving me the opportunity to share thoughts and ideas on the Venture Capital industry. Currently to view it, you need to visit the Unquote site HERE. When I get the chance i’ll try and embed it here also.

Big news for me and my family this week was birth of a second child – Henry Lars Holmes. Comments may therefore go unanswered for a while…