[HN Gopher] What Ended Indie
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What Ended Indie
Author : razin
Score : 81 points
Date : 2021-03-13 06:42 UTC (1 days ago)
(HTM) web link (medium.com)
(TXT) w3m dump (medium.com)
| __throwaway9 wrote:
| I thought it would be Indie Bands not a VC.
| EGreg wrote:
| Interesting result and in typical Bryce fashion full of
| information and disclosure. I appreciate reading the details. It
| seems whether you're a VC looking for LPs or an entrepreneur
| looking for VCs, you face the exact same dynamics of mostly
| rejection from gatekeepers of capital.
|
| What struck me was this sentence:
|
| _"Over the last 6 years I've talked to every flavor of LP under
| the sun, including family offices, to endowments, fund of funds,
| and foundations who publicly profess the need for alternative
| funding models but privately ghost those of us building them."_
|
| I realized this past year that VCs are basically hustling
| entrepreneurs like the rest of us. The fund is their product.
| They need to find product-market fit, and to do that they need to
| fit the sexiness narrative nearly everyone looks for.
|
| In case you're wondering, for attracting VC, it's two things:
| recurring revenues and hockey stick growth. You got em - almost
| any VC will like to fund you whose thesis even remotely resembles
| yours. You don't - you're fighting an uphill battle trying to
| convince them of a narrative outside their focus.
|
| I've had VCs approach me at events and tell me they _love_ our
| company and concept and give me their card to email them. When I
| did, they said they actually had a competing porfolio company and
| ghosted me. ( _I thought - don't you know your portfolio?_ ) But
| the reason doesn't matter.
|
| VCs publicly professing every day on twitter that the world needs
| community software, but who don't respond when you reach out?
| Sounds like Bryce's experience he describes with those
| foundations.
|
| It took me a long time to understand that's NORMAL. They are
| publicly signaling to attract a lot of interest and filter
| through quickly. You are in a world where people don't have time
| for nuance. They need to pattern-match you (recurring revenues
| and hockey sticks) OR you need to have a really good relationship
| so they'll take a meeting and throw something at it (like when
| Paris Hilton records her own CD). The VCs I appreciated the most
| openly told us exactly what they are looking for and to circle
| back when we have it (such as Right Side Capital).
|
| Otherwise you're going to really resent the bullshit rejection
| handling you receive. The person could be a really great and
| humble person themselves --- as Bryce is, I can say from what I
| have seen -- but the job forces you to act a certain way, like
| when you work as a car salesman. You have to raise money with one
| hand and try to allocate it to the best things you can on the
| other. There's a lot of downstream carnage along the way.
|
| We were rejected by Indie twice, despite thinking we fit the
| profile exactly (never took VC, grew year over year between
| applications, made over $300K gross last year, $200K profit, 50%
| year over year). I won't divulge the details, but I felt like
| Bryce had a ton of great applications and once you pattern-match
| into a no, there's no time to re-evaluate. To his credit, he
| wrote a specific reason, although frustratingly, the reason did
| not apply our company at all. I wrote back explaining this but
| never heard back. If Bryce is reading this, he'll remember we
| were the ones who wanted to "liberate people from digital
| feudalism". (https://qbix.com/blog/2021/01/15/open-source-
| communities/)
|
| Sadly, no matter how you slice it, appealing to capitalist
| gatekeepers (VCs, A&R departments at music labels etc) is only
| going to work for a small group of hustlers outside of the
| _obvious_ successes. The music industry selects for what worked
| before, simplification and dumbing down
| (https://www.mic.com/articles/107896/scientists-finally-prove...)
| and even built AI to do this pattern matching to find new artists
| (https://becominghuman.ai/how-big-data-and-ai-has-changed-the...)
|
| What we all need is crowdfunding and democratization of
| fundraising. That's what the crypto revolution was supposed to be
| all about -- demolishing the old boys clubs and elites making
| decisions about who will be funded. When it comes to the crowd,
| you just need to convince 0.1% of the people at first, and
| there's no algorithm that filters you out from even reaching all
| that capital. It's permissionless. Just like the Web democratized
| publishing in the 90s, crypto democratized funding. Just like you
| don't any longer need access to a publishing house, a magazine,
| newspaper, TV or radio station to get the word out, now you don't
| need to know guys at angel groups, VC, hedge funds, etc. to get
| money in for your venture. You were always able to pay people
| (under rule 701) in shares, but tokens have made it much easier
| to attract capital from around the world.
|
| Just my two cents.
| hieu229 wrote:
| > They are publicly signaling to attract a lot of interest and
| filter through quickly
|
| Nice one. I realized YC, or many other startup incubators do
| the same
| xrd wrote:
| This is one of the best summaries I've read on HN. I wish you
| would post extra reading as blog posts you've made, or write a
| book. I'll buy at least one copy!
| EGreg wrote:
| Thanks, I definitely appreciate the kudos.
|
| You can see a lot of the blog posts on https://qbix.com/blog
|
| But if you're interested in democratizing access to capital
| and increasing collaboration, I have two links for you:
|
| https://qbix.com/token
|
| https://worldaftercapital.com (written by VC and acquaintance
| of mine, Albert Wenger of Union Square Ventures).
| ampdepolymerase wrote:
| Tiny Seed seems to be doing quite well. What's the difference?
| dlg wrote:
| I'm an LP in TS. I'm not an expert (and certainly can't speak
| for them), but my sense is that it's about the LP base. I think
| that Tiny Seed raised all of its capital from individual
| entrepreneurs (or people otherwise active in the independent
| software world). Unlike big institutional LPs (or professional
| fund managers hired by family foundations), we don't care about
| markups and stuff like that on judging interim IRR. We get the
| model and are much more willing to wait for long-term results.
| einarvollset wrote:
| Thank you ;)
| hermitcrab wrote:
| >"an alternative financing program that was aimed at slow-growth,
| bootstrapped founders"
|
| I have always understood 'bootstrapped' to mean self-financed by
| savings/profits. I.e. pulling yourself up by your _own_
| bootstraps. Have VCs started co-opting that term as well now?
| EGreg wrote:
| No, Indie really meant it. I think. Wanted to fund the founders
| who were bootstrapped _until that point_.
|
| However, do not be surprised about co-opting. Co-opting by
| venture capitalists is normal. Many industries co-opt things as
| well, and redefine them to be mean something more "efficient".
|
| Example: The terms _friend_ and _like_ were co-opted by
| Facebook. Now people say friend me and "please like my stuff"
| as a throwaway statement. These terms used to _mean_ something
| deep and genuine up to 15 years ago. That's what capitalism
| does - cheapens things and commoditizes them. Often, that is
| useful but sometimes it cheapens things you used to value
| highly.
| fractionalhare wrote:
| Eh...Facebook's use the word "friend" as a verb has not
| eroded my deep and meaningful sense of the word as a noun.
| It's just another use which has been added to our cultural
| context. It's up to you to let it change your perspective on
| friendship.
| EGreg wrote:
| And what of _liking_ things?
| mst wrote:
| For me, functions dual use, though grammatically both are
| similar enough that it operates significantly via
| context.
| sharkweek wrote:
| I believe the point here is they didn't want to fund companies
| that had taken any VC money yet, not necessarily that they
| wouldn't ever.
| Ensorceled wrote:
| Yes, but the author is using "bootstrapped" in the past tense.
| i.e. a founder who was bootstrapped but might be willing to
| take money that didn't have a ton of strings and a set of
| "okay, now roll the dice on rocket growth with a do or die
| deadline" marching orders attached.
| ZephyrBlu wrote:
| > "okay, now roll the dice on rocket growth with a do or die
| deadline"
|
| From what I've seen this this is not the attitude most
| boostrappers have.
|
| Sure, sometimes you have bootstrapped companies that turn
| into VC-backed hypergrowth companies but there seems to be a
| shift away from "grow or die" for bootstrapped companies
| taking funding.
| CPLX wrote:
| From reading through this seems like the answer is basically the
| same as why any investment plan runs into trouble -- poor returns
| and liquidity issues. Which must have been especially problematic
| as a pitch for raising new capital when literally every other
| part of the market is skyrocketing.
|
| The question of how valid the standard VC model is is an
| interesting discussion and I'm interested in it. But it's not
| totally clear to what extent this model was able to really do a
| valid A/B test of an alternate approach.
|
| It seems like they threw a lot of ideas in at the same time
| (alternate business models, alternate financing terms, etc) and I
| wonder if they might have been better off taking the standard VC
| approach and just tweaking one big thing to have a better shot at
| making things work.
| thomas wrote:
| Yes, it was an interesting read but my takeaway was that this
| was a very conventional failure as an investment vehicle.
|
| Can anyone explain "as converted" IRR to me? I'm fairly
| familiar with finance concepts, but this was a new one to me,
| so seeing it being blamed in some way for the fund's closure
| confused me.
| sokoloff wrote:
| Not a financial expert, but that section is talking about how
| they are forced to account for many of their investments at
| the price they paid, even if the underlying company has grown
| significantly in "likely" value, they haven't triggered any
| action that would allow Indie to adjust the value of their
| investment on Indie's books. So Indie's reportable returns
| are muted in an accounting sense.
|
| The "as converted" IRR seems roughly to mean "if we take our
| best guess as to our investments are _really_ worth, our IRR
| is much higher". (Now, what an illiquid investment is "really
| worth" is always dicey, which is why the GAAP accounting rule
| is in place, so the truth might be in the middle, but it's
| pretty clearly not on the left edge.)
| thomas wrote:
| Ah, thank you. I would have called this the "net asset
| value" or perhaps the book value, or something like that.
|
| So, in other words, Indie lacked in notable liquidity
| events so realized IRR was low while the perceived book
| value was somewhat higher. I'd imagine this happens all the
| time in VC.
| mst wrote:
| The "you're playing a value hand in a growth game" line seemed
| to me to be the crucial killer.
| dasil003 wrote:
| You can't A/B test VC funding models or anything else in
| macroeconomics. By the time you get meaningful results, the
| ecosystem has already evolved.
| CPLX wrote:
| Sure but you can at least _try_ to test some hypotheses. Like
| they could have said we'll keep the VC model but try
| different kinds of companies, or maybe try a bee model for
| funding classic SV firms, but it seems like what they
| actually did is a bunch of disparate and not necessarily
| related things that fit into their conceptual model of
| "indie".
|
| One that strikes me as especially confusing is giving the
| option to sell back their shares to the company at 3x value.
| Since VC is predicated on moonshot explosions of valuations
| that seems like a really questionable decision, maybe one
| you'd want to make in isolation and see if it attracts
| interest.
|
| Another issue is liquidity. VC funds are famous for insisting
| on an exit in 10 years or less. That's an imperfect solution
| to a real problem, which is that investors want the money
| back.
|
| So, like what was Indie's solution to that same problem? It
| seems like maybe the idea was to pretend that wasn't a real
| problem rather than come up with a novel or innovative
| solution to that issue.
|
| Again, maybe that's a reasonable thing to do, but maybe you'd
| want to see if that model works. Perhaps you try a "long
| exit" model or some kind of dividend model.
|
| What seems to have happened is they tried all these ideas and
| more at once.
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