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Venture Capital and Its Discontents

40 points by hodgesrm 10y ago

cdvonstinkpot 10y ago
Blocked by a paywall when I try to read the article. :-(
- winslow 10y ago
  Access it via Google and there is no paywall. (It's stupid) https://www.google.com/#safe=off&q=Venture+Capital+and+Its+Discontents https://www.google.com/#safe=off&q=Venture+Capital+and+Its+D...
  - achow 10y ago
    The reason: First click free: We've worked with subscription-based news services to arrange that the very first article seen by a Google News user (identifiable by referrer) doesn't require a subscription. Although this first article can be seen without subscribing, any further clicks on the article page will prompt the user to log-in or subscribe to the news site. https://support.google.com/news/publisher/answer/40543 https://support.google.com/news/publisher/answer/40543
- pc86 10y ago
  That what the "web" link is for under the article.
projectramo 10y ago
*Just type the title into google and click on it to read the article. Anyway, the article talks about how this company didn't take VC money, but took money from Indie.vc (backed by traditional VC money). And then describes the economics which is almost identical to the economics of taking money from a VC firm. The big difference is the apparent lack of pressure, but that pressure is internal. Its not like the VC forces you to spend money a certain way. To put it another way, if the advantage of indie.vc is that they don't pressure you, its a difference in management style, not a difference in deal structure.
- hugs 10y ago
  But there is a difference in deal structure. If you want to, you can pay back the investment via profit sharing, which is unheard of in traditional seed/early stage VC deals. (Disclosure: My current company, Tapster Robotics, is one of the first Indie.vc investments. I would have happily remained self-funded/bootstrapped if it wasn't for Indie's alternative deal structure.)
  - projectramo 10y ago
    Wouldn't that be a version of venture debt?
    - mrkurt 10y ago
      Venture debt is really just a loan you can get from a bank that is "backed" by the reputation of a VC you've already raised money from. Normally the bank gets some warrants as well, but it's just a loan. And it's not accessible to companies with the $10k/mo in revenue that indie.vc looks for.
      - projectramo 10y ago
        That's true, but it doesn't sound too different. Are you saying that this money is not "just a loan," that can be paid off at liquidity or through monthly cash. $10k/mo is very small for a loan. Does that mean that indie.vc has some other way of doing diligence? That's the main reason the bank won't lend to such a small company.
    - taylorwc 10y ago
      There are two pretty big differences. The first is that venture debt is usually only available to very established companies, as far as startups go, and have restrictive covenants (regarding cash balance, profitability, other indebtedness, etc). The second is that most venture debt comes with warrant coverage, so the lender ends up taking equity as well.
      - 10y ago
btown 10y ago
Whenever I see an article about a single company that only quotes its leadership and customers, I'm always reminded of http://paulgraham.com/submarine.html http://paulgraham.com/submarine.html ... Not that this pattern is bad per say, but caveat emptor.
- hugs 10y ago
  Are you saying a PR firm planted this story?
- bryc3 10y ago
  Candidly, I thought the piece was going to be a broader look at VC alternatives. I was as surprised as anyone to see that Indie.vc WAS the story.
  - nickpsecurity 10y ago
    Me too. I figured I was about to see problems with and alternatives to current VC models. Instead, the site is an advertisement for an unusual VC. Title should probably reflect that.
    - hodgesrm 10y ago
      You have a good point. I was following the submission guidelines on the title. Anyway, it's sometimes hard to figure out an a propos title until after reading all the insightful HN commentary. :)
cirm 10y ago
Small Business Financing, Black People and Venture Capital https://youtu.be/gXGBEUoxHHs https://youtu.be/gXGBEUoxHHs
ryporter 10y ago
This is similar to revenue sharing agreements that many investors enter into with startups. Many angels at least bake this option into their Seed Stage investment if they fear that the company could turn into a "lifestyle" business.
- hugs 10y ago
  "many angels" Can you name a few? The difference with Indie is that paying back via cash distributions is not something to fear and is not considered a failure.
ryporter 10y ago
“Venture capital can be like a mortgage you can’t afford,” says Atlassian co-founder Scott Farquhar. “It sounds great at the time, but you regret it when your mortgage payments overwhelm you and you realize you didn’t really need a big house in the first place.” No, venture capital is not at all like a mortgage. There are no payments due, unlike a small business loan, which is very much like a mortgage.
- chrisabrams 10y ago
  I couldn't have said it better myself.
- achow 10y ago
  I guess Scott Farquhar perhaps meant that 'payments due' are the growth numbers that one has to meet periodically (monthly, quarterly, annually) - to which one had agreed on during the VC funding.
- genericresponse 10y ago
  I believe that's why that particular figure of speech is called an analogy...
bradhe 10y ago
> A recent report from the Kauffman Foundation found that less than 5% of all startup funding comes from venture capitalists, and only 6.5% of high-growth startups take venture funding. However, 37% of companies that had IPOs between 1980 and 2005 had VC funding. Wow, if that's true I'm very shocked by those numbers! To be fair I haven't ever considered the macros of the industry, but perhaps this points out just how much of a bubble (perhaps echo chamber?) I live within!

40 points by hodgesrm 10y ago

cdvonstinkpot 10y ago

Blocked by a paywall when I try to read the article. :-(

winslow 10y ago
Access it via Google and there is no paywall. (It's stupid) https://www.google.com/#safe=off&q=Venture+Capital+and+Its+Discontents https://www.google.com/#safe=off&q=Venture+Capital+and+Its+D...
- achow 10y ago
  The reason: First click free: We've worked with subscription-based news services to arrange that the very first article seen by a Google News user (identifiable by referrer) doesn't require a subscription. Although this first article can be seen without subscribing, any further clicks on the article page will prompt the user to log-in or subscribe to the news site. https://support.google.com/news/publisher/answer/40543 https://support.google.com/news/publisher/answer/40543
pc86 10y ago
That what the "web" link is for under the article.

projectramo 10y ago

*Just type the title into google and click on it to read the article. Anyway, the article talks about how this company didn't take VC money, but took money from Indie.vc (backed by traditional VC money). And then describes the economics which is almost identical to the economics of taking money from a VC firm. The big difference is the apparent lack of pressure, but that pressure is internal. Its not like the VC forces you to spend money a certain way. To put it another way, if the advantage of indie.vc is that they don't pressure you, its a difference in management style, not a difference in deal structure.

hugs 10y ago
But there is a difference in deal structure. If you want to, you can pay back the investment via profit sharing, which is unheard of in traditional seed/early stage VC deals. (Disclosure: My current company, Tapster Robotics, is one of the first Indie.vc investments. I would have happily remained self-funded/bootstrapped if it wasn't for Indie's alternative deal structure.)
- projectramo 10y ago
  Wouldn't that be a version of venture debt?
  - mrkurt 10y ago
    Venture debt is really just a loan you can get from a bank that is "backed" by the reputation of a VC you've already raised money from. Normally the bank gets some warrants as well, but it's just a loan. And it's not accessible to companies with the $10k/mo in revenue that indie.vc looks for.
    - projectramo 10y ago
      That's true, but it doesn't sound too different. Are you saying that this money is not "just a loan," that can be paid off at liquidity or through monthly cash. $10k/mo is very small for a loan. Does that mean that indie.vc has some other way of doing diligence? That's the main reason the bank won't lend to such a small company.
  - taylorwc 10y ago
    There are two pretty big differences. The first is that venture debt is usually only available to very established companies, as far as startups go, and have restrictive covenants (regarding cash balance, profitability, other indebtedness, etc). The second is that most venture debt comes with warrant coverage, so the lender ends up taking equity as well.
    - 10y ago

btown 10y ago

Whenever I see an article about a single company that only quotes its leadership and customers, I'm always reminded of http://paulgraham.com/submarine.html http://paulgraham.com/submarine.html ... Not that this pattern is bad per say, but caveat emptor.

hugs 10y ago
Are you saying a PR firm planted this story?
bryc3 10y ago
Candidly, I thought the piece was going to be a broader look at VC alternatives. I was as surprised as anyone to see that Indie.vc WAS the story.
- nickpsecurity 10y ago
  Me too. I figured I was about to see problems with and alternatives to current VC models. Instead, the site is an advertisement for an unusual VC. Title should probably reflect that.
  - hodgesrm 10y ago
    You have a good point. I was following the submission guidelines on the title. Anyway, it's sometimes hard to figure out an a propos title until after reading all the insightful HN commentary. :)

cirm 10y ago

Small Business Financing, Black People and Venture Capital https://youtu.be/gXGBEUoxHHs https://youtu.be/gXGBEUoxHHs

ryporter 10y ago

This is similar to revenue sharing agreements that many investors enter into with startups. Many angels at least bake this option into their Seed Stage investment if they fear that the company could turn into a "lifestyle" business.

hugs 10y ago
"many angels" Can you name a few? The difference with Indie is that paying back via cash distributions is not something to fear and is not considered a failure.

ryporter 10y ago

“Venture capital can be like a mortgage you can’t afford,” says Atlassian co-founder Scott Farquhar. “It sounds great at the time, but you regret it when your mortgage payments overwhelm you and you realize you didn’t really need a big house in the first place.” No, venture capital is not at all like a mortgage. There are no payments due, unlike a small business loan, which is very much like a mortgage.

chrisabrams 10y ago
I couldn't have said it better myself.
achow 10y ago
I guess Scott Farquhar perhaps meant that 'payments due' are the growth numbers that one has to meet periodically (monthly, quarterly, annually) - to which one had agreed on during the VC funding.
genericresponse 10y ago
I believe that's why that particular figure of speech is called an analogy...

bradhe 10y ago

> A recent report from the Kauffman Foundation found that less than 5% of all startup funding comes from venture capitalists, and only 6.5% of high-growth startups take venture funding. However, 37% of companies that had IPOs between 1980 and 2005 had VC funding. Wow, if that's true I'm very shocked by those numbers! To be fair I haven't ever considered the macros of the industry, but perhaps this points out just how much of a bubble (perhaps echo chamber?) I live within!