Danny Rimer: The Biggest Lessons from Missing Snap, Airbnb, Spotify and Facebook | E1166

Core Investment Philosophy

• "The main thing is to keep the main thing the main thing," a principle adopted from Jim Barksdale to maintain focus on exceptional founders.
• If a founder is "extraordinary," Index will "throw all theses out the window and just back the founder," even if the market size or sector seems challenging.
• Index rejects sector-specific, geographic, or impact-focused funds, arguing they force investors to choose the "best company in a sector" rather than "the best company."
• The firm believes "market-size TAM is noise" and that the best companies can go public in any market condition.

Decision-Making Mechanics

• Index uses a voting system where partners rate deals on a scale of 1–4 and 7–10 (skipping 5–6), requiring a threshold of roughly 6.5 positive votes to pass.
• The "Snake Rule" from Jim Barksdale governs decision discipline: kill a snake immediately, do not play with a dead snake, and recognize that opportunities initially look like snakes.
• Once a decision is made ("killed"), the firm does not revisit or debate it, ensuring total commitment.
• Partners bring in "outliers" (e.g., Justin TV/Twitch), but must demonstrate high conviction (a 7+ rating) to trigger a deep dive.

Notable Investment History & Misses

• Misses: Index missed investing in Spotify, Snap, Airbnb, and LinkedIn, citing a failure to suspend belief on market size or lack of conviction in specific rounds.
• Snap Loss: The firm passed on Snap's Series B because they were unwilling to commit over 10% of a new growth fund to a single consumer company, underestimating the platform's potential value.
• Nasty Gal Failure: Index held onto the e-commerce company Nasty Gal too long due to emotional attachment; the partner learned to "let go of the failure and move on" to avoid opportunity cost.
• Winners: King (mobile gaming) is cited as a major lesson in team resilience, requiring a "reboot" of their business model multiple times before success.
• Figma & Discord: Early investments in Figma and Discord highlight the importance of product development timelines and founder integrity over market hype.

Thesis-Based Investing & Market Views

• Partners are encouraged to develop "major" and "minor" theses (e.g., "fashion replacing music as a social lubricant") to guide sourcing, though these can be discarded for exceptional founders.
• Index avoids "second derivative plays" where investors must bet on product quality and future market excitement; they prefer betting on product excellence in existing demand.
• The firm believes most companies create brands as a byproduct of great products, but Index proactively teaches founders that "scarcity and brand really go hand in hand."
• Index refuses to invest in crypto, a decision requiring intense internal debate where no partner could find the "champion" for the asset class.

Fund Management & Operations

• Index operates as "scaled artisans," aiming to stay small enough to preserve culture and avoid the management fee incentives of massive asset aggregators.
• The firm expanded into San Francisco and New York by physically moving existing London partners rather than hiring locally to maintain cultural integrity.
• Exit strategy focuses on maximizing returns for LPs; Index admits to "holding on too long" as a more common mistake than selling too early (e.g., selling early on Etsy was a missed opportunity).
• The firm recently hired new partners like Vlad (formerly of Airbnb) and emphasizes "compassionate ass-kicking" to deliver hard feedback with empathy but decisive action.

Founder Insights & Trends

• Founder Spikes: Investors should look for "spikes" in specific areas rather than well-roundedness; US founders often overestimate their spikes, while European founders often underestimate them.
• Market Timing: Index does not believe in "IPO windows"; exceptional companies can go public in any market if they are ready.
• Geographic Dynamics: The firm corrected a major error by over-rotating away from London post-Brexit, realizing entrepreneurial dynamism remained intact in the UK.
• Valuation Discipline: The firm stretches on price in early rounds but maintains strict discipline on valuation and ownership in later-stage growth rounds.

Future Outlook & Personal Reflections

• Danny Cohen plans to trust his "first reaction" and instinct more, moving away from purely analytical, first-principles thinking for initial founder assessment.
• The firm has no "family office" or "sovereign wealth" LPs, only institutional investors (mostly nonprofits), aligning incentives purely on maximizing returns.
• Cohen identifies his wife as a primary influence on work-life balance, admitting regrets about prioritizing work over family trips in the past.
• In 10 years, Cohen hopes Index will have a larger partnership, better returns, and potentially one new office, while maintaining its current size and culture.