Indie.vc: Unicorns Are Out, Profits Are In

In short: this author is endorsing a funding model focused on low initial investment and faster profitability. The benefits key benefits are that this funding model results in more women and minorities getting funding, as well as higher rate of companies surviving (10% vs. 44% [1]). The former is good, but probably isn&#x27;t sufficient to motivate most investors. The latter doesn&#x27;t necessarily translate into better returns on investment. Throughout this whole piece I was looking for a comparison on the net return on investment of the traditional VC model and this Indie.vc model. This comparison is never done. A high-risk high-reward investment model may still produce higher rates of returns than a low-risk low-return model.<p>Right now we&#x27;re seeing a trend of larger companies taking an ever larger piece of the market share, and the total number of firms decreasing. While encouraging founders to form smaller companies with shorter time to profitability undoubtedly results in more companies surviving 3, 5, and 7 years after founding, that&#x27;s not what we&#x27;re optimizing for. An investment strategy with high rates of failure, but producing larger companies with those few successes is still yields the potential for larger overall returns.<p>1. What does it mean by 10% vs. 44% of companies surviving? Presumably it means that 10% of traditionally funded companies exist X years after founding versus 44% of Indie.vc founded companies. But this is a strange metric to give without specifying how many years we&#x27;re talking about.

As a founder of a bootstrapped &amp; profitable company, I don&#x27;t really get what&#x27;s so attractive about this funding model.<p>It seems like it&#x27;s just a really, really, <i>really</i> expensive loan. They make it sound nice with their anti-VC, pro-founder marketing angle. But at the end of the day, they are charging you 3x what you&#x27;re borrowing.

Let’s see how long that lasts when follow-on financing doesn’t materialize and limited partners pull capital and give it to Unicorn.VC because their results are more “exciting”.<p>I say this as a founder that prioritized profitability and outlasted many VC backed competitors and was sick of VCs telling me to increase burn and growth and ignoring my warning of the long term perspectives and risks. We decided not to take VC and are smaller but killing it.<p>I am glad to see this perspective but it only lasts during a financial crisis then it’s right back to fetishized hyper growth.<p>As far as I am concerned go ahead and keep your hyper growth VC dollars, I’ll buy your bankrupt portfolio company in a few years with our profit.<p>As YC says, get to ramen profitability as early as possible and be a cockroach that will survive.

in my humble and unwarranted opinion (see also not having run a vc company or a company for that matter) profits should have been the idea from the get go: all of this effort to get large and then use economies of scale to defeat rivals and then start making a profit is just wrong

Oh really! I would like to see the day.<p>Our company, Qbix, is a poster child for the preaching of the Basecamp folks. We raised $107,000 from friends and family and then generated revenues, then another $135,000 and generated more revenues. We are up to almost $1MM in revenues now. Also we have attracted 8 million users and growing.<p>But many VCs have turned us down because they look for hockey stick growth and zero friction, and don’t like “the agency model” companies which make money. Actually, they’re just applying pattern-matching to reject the vast majority of startups unless they are hockey stick growing.

I remember this being a theme during the 2001 recession. I can&#x27;t find the link right now, but I remember more than a few articles about this trend back then. I was able to find VC capital investment. [1]<p>Clearly there was more silly money being throw around in the late 90s and into 2000, but by 2002 the mantra in was &quot;ROI, ROI, ROI!&quot;<p>[1] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Dot-com_bubble#&#x2F;media&#x2F;File:US_VC_funding.png" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Dot-com_bubble#&#x2F;media&#x2F;File:US_...</a>

in a recession it&#x27;s better to be a cockroach than a unicorn

&gt; <i>Just four months after closing a $7 million funding round for his first startup RetraceHealth in 2016, Aderinkomi was pushed out of the startup by the new board. This was after he had spent three years and taken on $1 million of his own personal debt to build the company.</i><p>Seems like you&#x27;re doing something wrong if you raise seed and A rounds[1] and have given away enough board seats that they can push you out 4 months later.<p>Also, why would anyone take out a million dollar personal loan to fund a startup? I have heard of founders spending their own money to get things off the ground, but usually it&#x27;s $50k or so, and it&#x27;s never a bank loan.<p>I&#x27;d agree that this guy is rightly wary of going back to VCs, but his experience seems like an edge case (which is perhaps why it&#x27;s featured in this article).<p>1: <a href="https:&#x2F;&#x2F;www.crunchbase.com&#x2F;organization&#x2F;retracehealth#section-overview" rel="nofollow">https:&#x2F;&#x2F;www.crunchbase.com&#x2F;organization&#x2F;retracehealth#sectio...</a>

Does anyone know a VC similar to Indie however that doesn&#x27;t convert to equity if more funding occurs from another party? Give me $100k and sure I&#x27;ll pay you back $300k, however let me use that $100k to see how much more valuable I can make my company and therefore leverage its new metrics including revenues.<p>These current models don&#x27;t only want the icing (their returns on initial investment) but they want to eat their cake too; they&#x27;re currently doing this because they can get away with it because their current competition, traditional VCs, is far worse - but once a new competitor comes in that only wants the icing but not the cake from the transaction, they&#x27;ll lose out on potentially a lot of this deal flow.

So VC&#x27;s are out, bootstrapping is in?

&gt; <i>the companies that receive Indie.vc funding seem to be much more robust than their peers, especially in a challenging economic climate. On average, they’re growing 100% in the first year, and 300% the second year, says Roberts.</i><p>Is this measuring revenue, users, profits, or something else? If it&#x27;s revenue or users, I would guess that most VC-backed startups grow faster than this. If they&#x27;re looking at profits, then probably the VCs do worse.<p>&gt; <i>Plus, the fund’s mortality rate is 10% — compared to about 44% with traditional VC-backed companies.</i><p>Are they looking at the same time period? If Indie.vc&#x27;s portfolio is younger, then they would obviously have fewer deaths than traditional VCs.<p>Basically, it looks like the author wanted to put down impressive-looking numbers without the context that would make clear if the underlying facts are actually impressive or not.

What I take away from this is that soon it may make sense to invest in unicorns! Initially investing in money losing companies was a contrarian investment strategy. Then everyone piled in, making it an even better investment strategy as assets became overpriced. Think Uber. And authentic opportunities became scarce, think Zume.<p>The Indie.vc model is contrarian and probably doing well. It will continue to do well as it becomes imitated. And then the cycle will repeat. So keep your eye on unpopular unicorns!

Let&#x27;s say the model is to get 3X return in 5-7 years - 10% mortality. Sounds like a great instrument to me.<p>It also sounds like it could work, if there&#x27;s enough demand = enough obvious good apples, which are willing for the deal because of not enough supply in financing instruments.<p>I can understand that investing in unicorns can also work. As many unicorns fail after their initial hype, investing in these normal companies sounds less like gambling on hype than investing in unicorns.

Alternate: <a href="https:&#x2F;&#x2F;docdro.id&#x2F;ueWWcKf" rel="nofollow">https:&#x2F;&#x2F;docdro.id&#x2F;ueWWcKf</a>

@Indie.vc ... you spent a ton of time writing this post only to have it paywalled by medium. I can&#x27;t read it... Ditch medium as they aren&#x27;t compatible with your business model :-P

Poor independent founder who spent $1M out of pocket on his first startup. Let’s hear his story.

TLDR: Advocating for fundraising that at its core is a less risky bank loan except here you part with equity.

Paywalled.

This is probably silly but I have often wondered why you don&#x27;t get straightforward loans in Software. If I were to open a restaurant I would hardly go for a VC.<p>Do banks have something against software businesses ? Are there software companies that have bootstrapped themselves with loans (not friend&#x2F;family loans) as opposed to VC ?

So this is initial seed&#x2F;angel venture capital without huge ROI expectations? Is that the idea?<p>If so, how is it different from what VCs are doing now?