Digital disruption and startups: Q&A with Saul Klein, Index Ventures

With the internet accounting for 8% of the UK's GDP it is becoming more and more fundamental to the economy

Ahead of the Changing Media Summit 2013, Saul Klein, a partner at Index Ventures, spoke to us about digital disruption, startups and why the internet has an impact on every single area of our lives.

Can you tell us a little about Index Ventures?

Index Ventures is an early-stage venture capital firm. We invest around the world, at all stages from seed to early to growth and across sectors from media, retail, financial services to life science.

Which media/tech areas do you think are ripe for disruption in 2013?

We focus our investments on the internet and software. What we've seen is that both the internet and software have disrupted sector after sector. From the mid-90s, entertainment and media have been feeling the effects. Retail is probably the second major sector to have experienced significant levels of disruption over the past 10 years, with e-commerce, particularly in the UK, accounting for a huge amount of how people go about buying and selling things.

Increasingly, other sectors, financial services, education – are being disrupted as well. I would say that there are five or six sectors – media, retail, financial services, telecoms, education and software – that are all actively being affected by a combination of the internet and cloud computing.

Our long-term belief is that there is no sector of the economy that will not end up being changed by a combination of the internet and software. If you look at the UK, 8% of GDP is accounted for by the internet, the highest level in the G20. Arguably, the internet is disrupting the economy rather than any sector of the economy.

What advice would you give to startups and entrepreneurs?

I think it depends at what stage. At the earlier stages we would always say to people to pick a market that is very large and significant. Focus on building a product or a service that people really want and ideally would be prepared to pay for, even if you choose to give it away for free. So building a really valuable product or service that customers like that they become reliant on is critical. And obviously to try and do that in a market that is large enough that were you to succeed you could build a business both significant and meaningful in scale.

We tell people not to worry about incumbents. Not to worry too much about your competition. Just focus on making something great in a big market and making sure you build the best team you can possibly build.

How do you think the digital startup scene differs here compared to Israel and to the US?

I think the key hubs are becoming more and more similar. If you are in involved in the tech ecosystem in London you will feel pretty at home in New York, Tel Aviv, San Francisco or Berlin or Stockholm. I think there is a level of convergence between these different ecosystems where founders and people within them know each other pretty well and you can go from one to another fairly easily.

What's different is the world outside of your bubble. So in San Francisco and the Bay area generally big companies, the media, friends, family really understand the language and modus operandi of the startup community and you feel very much supported there. The same is true of Israel, where startups part of the culture to the extent that it has been called the startup nation.

In cities where there are long-established alternative ecosystems, such as London and New York, it's much harder to be fully integrated into the wider network of that city. But I think that's starting to change where big companies and the media and the government become very aware of how fundamental the internet is to the economy. In the UK it's the third largest sector in our economy.

Finally — what will be your message to the industry at the Changing Media Summit 2013?

People are very aware how fundamental the internet and software's impact has been on media to date. But what's interesting to me now is not just how fundamental an impact the internet and software is having on media or on retail, but on the economy and society as a whole. When the internet is 8% of GDP, it's fundamental. Today it's starting to seep into education, soon it'll be in healthcare, transportation, food and energy. Media and retail are just the beginning.

Saul Klein is a partner at Index Ventures

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