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Indie.vc
- hv23 12y agoInteresting concept. Who's behind it?
- kbody 12y agoLooks like Bryce Roberts, Managing Director & Cofounder of OATV ( O'Reilly AlphaTech Ventures - http://oatv.com/are.html http://oatv.com/are.html )
- hongquan 12y agoBryce just replied on Twitter to say it's an OATV thing, so not just him. I wonder how that affects follow-on investment if the company needed it.
- cturitzin 12y agoAt first thought, this is very refreshing. I know many founders who would love to build a sustainable business that does something useful and not have to continually spin a tail of "being the next IPO".
- forsaken 12y agoThis is really interesting. I have been having conversations with a bunch of folks in the Portland area about trying to find funding with a very similar model. Glad to hear that other folks are thinking, and doing things, along these lines. I love the fact that it is offered as a line of equity. Being able to get money when you need it, but not take it if you don't, makes it a lot easier to keep your spending low, and not have a pile of cash burning a whole in your pocket.
- fivedogit 12y agoI really like this idea. There is no "right" way to start a business and, in fact, there are many right ways. It all depends on what you're starting and what you need to get to the end goal. More importantly, I'm hoping that by looking at seed funding from a different perspective, this can put another dent in the sometimes-fallacious "you need a cofounding team to start a company" myth. Until now, accelerators have put an outsized penalty on one-man-bands when there is a significant risk mitigation benefit to letting one guy get traction and then hire the founding team. In such situations there is far less potential for messy (and almost always fatal) startup "divorce". The cheaper and easier it becomes to start potentially huge businesses, solo-founding should become commonplace. To clarify, I don't know if this is something the organizers of Indie.vc are thinking about. I'm just glad to see fresh eyes on the current YC/TS/Angelpad paradigm.
- dwightgunning 12y agoI'm curious to see what factors will drive their investment decisions. Typical "exit oriented" investors are taking very high risk for high reward. This significantly changes the potential upside ROI although it is probably still interesting to some investors. It's cheaper/faster to start up nowadays but there is also far more people doing it. So what I don't see is how they tangibly reduce the risk of failure?
- xg 12y agoI think the biggest qualification factor of a cash flow positive business mitigates quite a bit of risk (as long as there's some minimum bar of >= $50k / year). The part that's tough is: what's the use of raising additional capital? Is it to go full time on the product? Is it for marketing?
- deleted 12y ago[deleted]
- dwightgunning 12y agoPositive cash flow is a great indicator although with early-stage companies that haven't achieved meaningful scale or been in the game very long it still seems a tricky sell. That said I like the idea and hope the model proves success for people. Sidenote: is $50k/year a generally accepted figure or were you just demonstrating the point?
- BillFranklin 12y agoIs Aral Balkan involved in this?
- mindcrash 12y agoNo, and this has nothing to do with https://ind.ie https://ind.ie nor its non-VC backed business model.
- kolektiv 12y agoMy first thought on this was "wow, that name couldn't clash any more with the ethos of ind.ie". I would hope they'd think about changing it, as it's really a bit insensitive at the least.
- deleted 12y ago[deleted]
- loceng 12y agoCanadian companies accepted?
- svarrall 12y agoOr more generally non-us? (UK)
- curiously 12y agowell why would you need to when canadian government funds tech startups with amounts greater than what YC offers?
- loceng 12y agoI hear of some money sometimes being given out, however unsure of how fast of a process it is, and what state your company needs to be at to qualify - or what types of companies qualify.
- curiously 12y agoI'm not sure either what they are looking for exactly either.
- eswat 12y agoHere’s a very brief gist of the Canadian government programs applicable to startups. You’re looking at either IRAP or SR&ED (aka SHRED), the former being a <$50k grant and the latter being tax credits. Because one is finite cash and the other being credits, there’s less competition with getting into SR&ED than IRAP. For both you need to be developing a tech-driven product in Canada that has the potential to drive growth and earn revenue, so side projects are a no go. IRAP is for new-ish projects while SR&ED can be for new or existing teams. I’m not sure about SR&ED but to get IRAP funding you need to talk to a representative who will assess the project you’re pitching. Depending on the person you get they can be brutal with expectations, expecting a business model canvas, strategies for driving growth and revenue, clear details of why you need the $30k being offered, the technical aptitude of the team executing the idea, etc. Hope my chicken scratch clears some things up. Getting both is not a quick process but shouldn’t take more than a couple months to go from contacting your CRA representative to getting the money.
- 7Figures2Commas 12y ago> A unique aspect of the IdVC funding model includes the option of cash distributions to investors. > Traditionally, technology investors only get their money out when you sell out (another term for this is a “Liquidity Event”). An investment from IdVC doesn’t preclude you from selling, but in the event you stay independent, our investment will get paid out as distributions from cashflow over time. This is fairly common in most other industries, but we have not seen it applied to technology companies until now. Are distributions required? How are they structured? When do they start? How are distribution amounts determined? Does the founder have a say in any of this? The attractiveness of this program depends a huge deal on the answers to these questions so it's kind of surprising that interested parties are asked to apply before any detail about the distribution terms are disclosed. Incidentally, as for the suggestion about novelty, there are a number of revenue based financing companies that are focused on SaaS businesses. They function somewhat similarly but usually without an equity component. The financing company provides the SaaS business with a loan. The amount and repayment terms are tied to the recurring revenue the business generates. Some of these are structured so that they function like a line of credit, and many can be paid off early without penalty.
- larrykubin 12y agoI attended a talk in Seattle earlier this year about distributions like this. Here are the slides with some details on how it might work: http://www.element8angels.com/wp-content/uploads/2014/04/Structured-Exits-David-Bangs.pdf http://www.element8angels.com/wp-content/uploads/2014/04/Str...
- hongquan 12y agoI think I'm going to apply. Anyone else?
- deleted 12y ago[deleted]
- curiously 12y agoYes and Yes a thousand Yes for this intiative. But how will you compete with the government of Canada who gives $50k to $500k in grant money for new startups?
- dataminer 12y agoCan you provide more information about Canadian government grant?
- jevyjevjevs 12y agohttp://www.nrc-cnrc.gc.ca/eng/irap/index.html http://www.nrc-cnrc.gc.ca/eng/irap/index.html
- MichaelGG 12y agoLast I checked, these startup grants were for 29 and under or for less populated areas (like Northern Ontario). Although one friend got $80k to write some open source software. It may have been Ontario specific.
- curiously 12y agowhat are the requirements?
- karamazov 12y agoBy not requiring the company to be in Canada, for one.
- deleted 12y ago[deleted]
- bjorntastic 12y agoBack to the roots. This is very similar to how investing is done outside of tech. Someone opening up a hotel/restaurant will probably not have a huge exit, but promises his investors a payback either through dividends or loan paybacks with interest.
- seizethecheese 12y agoThe interesting corollary to this is: what kinds of tech businesses are likely to generate 1-3X returns w/ lower failure rate + cash flow vs. the typical 10x returns + high failure rate seen in tech investing while also requiring capital?
- Negitivefrags 12y agoThe kind of company where you have one or two founders who are going to take 6-12 months to personally create their product but have no savings and so would need money to live during that time.
- seizethecheese 12y agoYou're describing the need for investment generally, I'm asking what companies fit this model specifically. It's pretty well known that tech startups have an extremely high failure rate and return rate and traditional VCs fit this model well.
- Negitivefrags 12y agoI think you might find that the failure rate goes down significantly with business models that are targeting smaller market segments and intend to make smaller businesses generally with the intention of just being profitable, not selling. To take my company as an example, we are a online game specifically targeting players who were addicted to playing Diablo 2 for an extended amount of time. This is because we felt we understood what that exact market wanted better than anyone else and had a unique opportunity to deliver on it. The intention from the start was to make a business that makes a profit, not to make a company with the intention of selling out. Infact, when we did do a capital raise at one point we were very clear in our pitch to investors that the intention was to distribute profit via dividends. We have been successful at doing that and the project felt like a reasonably sure thing from beginning to end even when it took a lot more time and budget than we were expecting. We were 100% confident that the exact market that we were targeting existed and that they would give us money when we were done. In our minds, the only thing that could go wrong was failing to finish the product by running out of money. Now admittedly this particular tale is probably just survivorship bias so you should take it with a grain of salt. However, my point is just that there are a lot of little markets that VCs will not care about because they are too small. They are just waiting for someone to walk in a grab the few millions of dollars a year of profit that are sitting on the table.
- ChuckMcM 12y agoInteresting pitch, but it is confusing to me. How is this different than just getting a small business loan / line-of-credit? It seems like most financial institutions can price into that an expected rate of return and price out the loan appropriately. Does it "feel" less bad if you leave someone with worthless equity than a worthless promissory note if the business fails to take off? Would be interested in reading one of their typical term sheets and comparing it to say a SAFE from YC or a simple business loan.
- joshu 12y agoIt says how it's different in the TFA. > An investment from IdVC doesn’t preclude you from selling, but in the event you stay independent, our investment will get paid out as distributions from cashflow over time.
- ChuckMcM 12y agoI got that, that is the 'small business loan' part. I would be amazed if it was charitably paid back 1:1 over time, rather there is going to be some sort of baked in interest rate which will compute what it costs to remove the obligation from the business. Is that 5%? 10%? set by market rates? compounded or simple? What percentage of equity does is represent? Does it participate pro-rata in future financings or does it always convert to cash at that point? That is where the term sheet helps as it lays out that stuff. Looking at it cynically, it could be a great Goldman Sachs instrument - no exit we win! exit we win! But from a founder perspective, it would be helpful to have a couple of worked examples.
- JohnHaugeland 12y agoI think the expected payback is going to be a large multiple. The part that's not a small business loan, I'm guessing, is that these are venture capitalists acting on longshots. 5-10% won't let you tolerate any misses.
- forsaken 12y ago
- jonbarker 12y agoHow is this different from a convertible bond?
- javery 12y agoDoesn't Lighter Capital do this? Or other royalty based investments?
- zacharycohn 12y agoMy biggest question... who are you?
- MrAlmostWrong 12y agoIf you check the bottom of the site there is an email address that you contact to get invited into the slack. It belongs to http://oatv.com/ http://oatv.com/ so I would assume that is who is behind this.
- zacharycohn 12y agoI don't really want to join their Slack... I'd love to just see the "About us" page.
- dhimes 12y agoOT: how does slack make money? What's the tradeoff for using them?
- detaro 12y agohttps://slack.com/pricing https://slack.com/pricing
- karamazov 12y agoI'm curious to know how they plan to compensate for the failure rate of startups. If half of the portfolio fails (a good outcome), the cashout option would need to be 2x the original investment for them to break even. More if failing companies are likely to use up the entire line-of-credit and successful companies are not. Setting the payout to be a percent of revenue might work, but could also kill a company with thin margins. Setting it to be a percent of profit will encourage companies to post zero profits. I'm not sure what the other options are.
- Negitivefrags 12y agoI think you might be missing how a traditional company works. Nobody sets an arbitrary percentage of anything and forces dividends. When the companies directors think that there is enough spare money in the bank account, generated from profits, they distribute those profits to the people who own the company. The founders and investors of the company get the actual profits that the company generates. A strange concept I know!
- lubos 12y agoThe problem is that for small companies, it's too easy for management (aka founders) to funnel funds out without giving shareholders anything. That's why VC is not interested because even if the company is a success, there is no guarantee they will ever see a penny.
- Negitivefrags 12y agoIf you are talking about that kind of fraud then can't you do that regardless of if you are trying to make a profitable company or one which you intend to sell?
- prostoalex 12y agoIf you're doing a build-and-flip, the incentive would be to limit the payouts in order to decrease the cash flow and improve the margins.
- ykumar6 12y agoIs bootstrapping really a viable path to an exit in 2015? Most of the companies indie.vc mention were founded in the early or mid 2000s, so these are bad examples to follow. Back then, there was much less competition for eyeballs, resources, developers, etc. You could grow slowly, without worrying about VC-funded company X or Y or Z catching up. Today, that seems much much harder.
- frozenport 12y ago>>Is bootstrapping really a viable path to an exit in 2015? Academic startups where the technology is based on research are bootstrapped until the commercial viability of their ideas is demonstrated, wherein they sell their patent portfolios. Is this an exit?
- jeremyjh 12y agoI think the opportunities are there just the same - it just takes a while for these companies to grow to the point where they are well-known.
- yesimahuman 12y agoIncredibly viable. If you make something people want, companies will want to buy that. The plus side is you could make the bulk of the return due to lack of dilution. The downside is the valuation could be lower (though I might be totally wrong about that) due to lack of formal valuation in the financing market, and lack of social pressure to make investors happy.
- joshdotsmith 12y agoI'm very curious to hear others' insights on the valuation issues with bootstrapped companies. I share your concerns here.
- zkhalique 12y agoWe are running such a company. We were founded in 2011, have a quarter million users, revenue, etc. In many ways it's easier today because of so much open-source software, and so much to disrupt :)
- mtgentry 12y ago"Each successive quarter will involve a 3 day weekend to be held in various startup cities including Austin, LA, Portland, NYC, Salt Lake City, Chicago among others." So are distributed teams frowned upon?
- pcarolan 12y agoIt would be nice to get some more info on the VCs behind this. Who are you, and what have you made?
- xasos 12y agoI would love this as well. Looks like it's Bryce Roberts and OATV spearheading the effort[1] and they will probably reveal more soon. [1] https://twitter.com/bryce/status/551206219885473792 https://twitter.com/bryce/status/551206219885473792
- spuiszis 12y agoThe email address listed at the bottom is Bryce Roberts from OATV: http://oatv.com/ http://oatv.com/
- antics 12y agoOne problem with traditional VC money is that (most?) major VCs seem to enter the discussions with an idea of how much stake they want in the company they're investing in. So, when you have a number of VCs with this idea in a competitive round, the only thing that a VC can really change is the amount they're putting in relative to what others are putting in, so they all put more money in and the valuation goes way up and the amount of money ends up ballooning to 2 or 3 times what the founders originally wanted to raise. Lame. Likely or not to succeed, it's clear who the VC system serves right now, and it's good to see the scene starting to shake up. If indie.vc can attract a nontrivial number of good early-stage startups, then they have a legit shot here. And good on them for taking that risk.
- joshdotsmith 12y agoThe "who" describes my situation perfectly, but at first blush the logic and positioning both read as internal contradictions. > Those who focus on raising outside capital and achieving fundable milestones have a very difficult time getting off that VC treadmill. In other words, getting off the "VC treadmill" is hard because of structural problems from deals and milestones, and psychological problems instilled in a team now dependent upon outside money. While I see how Indie.vc addresses the former, they seem to sweep aside the internal contradiction in the latter. Anecdotally, those bootstrappers who have succeeded have not done so in spite of their difficulties raising capital, but because of the attitudes those very difficulties cultivated. You know, the ability to make tough choices on product development, the urgency to prioritize customer development, the clarity to cut costs and increase margins. As a casual observer of other startups, I tend to see an inverse correlation between the strength of these attitudes and their total capital raised. Maybe this is a non-issue when the sum is just $100,000. I don't know. But it concerns me just enough to be skeptical. Assuming those concerns are unfounded, my next concern is with the positioning. > While it’s true that some companies really do need outside capital, there are many examples of great companies that have reached revenues of hundreds of millions of dollars, or even gone public, without ever taking in capital, or taking it in only at a late stage, when they’d already created a high valuation by bootstrapping the company. This seems to contradict the pitch that I need money. Others before me have bootstrapped without it. So remind me: why do I need to raise capital? My fear is that this pitch will attract founders who couldn't figure out how to get $100,000 of working capital, rather than those who'd rather be building than running on the bootstrapping treadmill. I'm guessing this is a concern for them, as well, since their application asks: > How have you been funding your company until now? I feel you need to dig that knife deeper on the pains shared by my fellow bootstrappers. What pains are you hoping we'll avoid? Early death by cash flow problems? Lack of dedicated focus? Sputtering growth? And why is your approach right vs other options? I hate being a wet sock on HN about potentially innovative things. I just hope my 2¢ helps clarify their vision. I really want to see something like this succeed.
- zaroth 12y agoThe model is a fairly quick development cycle, fast early adopter sales, quick conversion to cash flow positive. Well, that's a lot of things that have to go right all in a row with only $100k to start.... It may be enough to start some kinds of businesses, but many will require significantly more in startu pcapital to brave even an accelerated road to break-even. As to the model, the question is does it fully factor in the risk level? The idea is lower the goalpost and manage the cash burn more carefully, to ultimately obtain a faster break-even and then ride growth through reinvesting profits, to some point in the future when you can actually start making distributions. The premise, possibly flawed, is that by not shooting for the stars you should be less likely the fail. They don't need to win as big each time, because they will win more often? Businesses need capital to grow. It's that simple. $100k is a bare minimum startup fund for a sole founder for less than 6 months. It's not a serious amount of money. You can't expect that $100k to buy enough revenue to sustain full-time employees and also be paying out a meaningful dividend. If the idea is to really, truly, avoid VCs and institutional investors.... I think you need to be able to seed about $2m. For example, structured as a Line of Credit, drawn over 48 months, but with warrants to convert into common stock at some ratio. The conversion ratio in the warrants adjusts to provide anti-dilution as needed. That would provide a real amount of money for a 2-3 person team to potentially solve a real problem. And that would give the investors a meaningful percentage of the company and choice between a cash payoff or taking shares. That would be a really appealing alternative to VC funding which some strong founding teams might take notice.
- asanwal 12y ago$2M just to get started? If that is what one needs to just seed a company, then entrepreneurship has just become another career path with little risk (still get a decent salary) with a call option on some upside attached. The reality is that capital is not a requirement for success although we do tend to celebrate it needlessly (1) There are real tech companies out there (many mentioned in the indie.vc post) that built a solid initial product, sold it, got customer feedback, made improvements, and sold some more. They didn't have the luxury of $2 million or necessarily even $100k. If you're selling the shoot-for-the-moon, billion dollar IPO, "change the world" dream from day 1, $100k may be immaterial, but I know of many solid tech companies (ours included) that are growing quickly (we're doubling headcount in 2015 from 25 to 50) who grew the old-fashioned way -- by funding out of revenue and who started with no outside capital at all. (1) Best article about the myth of VC - http://recode.net/2014/09/11/the-myth-of-venture-capital/ http://recode.net/2014/09/11/the-myth-of-venture-capital/
- pkrefta 12y agoWould love to see something like this available for European entrepreneurs. Great idea :)
- kenshiro_o 12y agoAre you guys planning to do something similar in Europe, say London, anytime soon?
- zackmorris 12y ago"Our investment is also structured as a line of equity; meaning, you only draw down the amount of capital you need, when you need it." This is revolutionary. Whether indie.vc works out or not, this is how funding startups should work. The developers who draw the least funding and the investors who provide the most funding should receive the most equity. Does anyone know how much equity each startup receives if it draws the full $100,000? Will it be 50% to developers and 50% to investors, or some other ratio? Hypothetically if they add a second round someday, could it work in a similar fashion, where if the startup draws another $100,000, its equity falls to say somewhere between 0 and 25%? This would probably be nonlinear and depend on a lot of factors (which basically means don’t count on it!)
- zkhalique 12y agoThis is run by Bryce.vc, right? O'Reilly Media?
- dmor 12y agoThis is great for niche SaaS that can get recurring revenue going within 6 months but might have market size challenges that would make it difficult to get venture backing. But if all you need to do that is $100K, there are a lot of ways to get that (like saving money for a couple years).
- liquimoon 12y agoThis is called "loyalty capital". See this Clayton Christensen interview video for more detail https://www.youtube.com/watch?v=KYVdf5xyD8I https://www.youtube.com/watch?v=KYVdf5xyD8I (starts around 23:40)
- fudged71 12y agoThis is the only reference to the term "Loyalty Capital" that I can find online. Strange.