indievc
@indievc
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Founding a startup isn’t cool.
You know what’s cool?
Building a Real Business.
R- revenue
E- ebitda
A- actual business model
L- leverage in every conversation with investors and potential partners.
Fund me I’m a FOUNDER:
F - failed at my last thing
O - out of personal savings
U - unqualified to manage money
N - no actual business experience
D - dead set on my crappy idea
E - emotionally immature
R - running away from a real job
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Imagine an alternative startup universe where all the time and energy that currently goes into perfecting investor pitches went into talking to customers and growing revenue.
That’s it. That’s the alternative reality we’re trying to build.
And it’s working...
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Common theme:
VC backed founders tell us they want off the treadmill and will not raise institutional money again.
Bootstrapped founders tell us they’ve already learned the hard lessons from their lean years and will raise VC money the next time around.
🙃
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“”We started with $10,000 dollars. We didn’t go to investors. We just f—-ing did it.“
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* Create a landing page for this “great idea” with an option to buy. Spend $50 on adwords. See if anyone hits the buy button.
* Call 10 potential customers of this “great idea”. Pitch them the product. If half want to buy, start building.
* other ideas not involving funding?
It's 2018, you have a great idea for a software business but you need to spend 6-12 months of full-time to build, launch & get traction.
Your options to fund it are:
* VC 🚀🤯
* Life savings 💸😵
* Rich relatives 🤴👸🤑
* Credit Card Debt 💳😖
* Shark Tank 📺🙏🤷♂️
🤔👎
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“Warren Buffett likes to say “never ask a barber if you need a haircut.” This is why many VCs will tell you bootstrapping is bad, and many entrepreneurs who aren’t capable of raising money will tell you bootstrapping is good. Be careful who you listen to.”
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Sent privately from one of the most active angels in the game
“I’m so over the capital being pushed into so many companies with the expectation to build at a pace that will just kill them. It makes zero sense! Most of those investors don't even understand the actual business!”
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“Venture capital should never have become the standard way for us to fund new businesses.”
Great exploration of alternative funding models, and their underlying economics, by
@Anerbenami
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INDIE Fund I
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If only there were a funding option that sat between traditional VC and bootstrapping 🤔
If recent twitter threads are any indication, there may be a real opportunity to fill that gap...
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Raising venture capital for your business is not a bad thing. Raising venture capital as your business model is…
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Pilot members of our Scout Program- welcome! Trust that we’re every bit as excited to be working together as you.
If you’ve signed up to become Scouts know the pilot we’re doing now will help us scale the program to everyone in 2020.
Interested? 👀
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The greatest trick the devil ever pulled was convincing founders they were either building the next Google or they didn’t matter.
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The most radical, disruptive, non-consensus thing a founder can do today is start a profitable tech company.
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“Nobody talks about optimizing the cash-flow of your start-up. But if you really understand this and do get it right, you might not need any outside investment at all.”
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“Bootstrapping is not the meritocracy people think it is. Some people come to the table with more time, energy, and money than others.”
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Announcing Our v3 Companies
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We don’t lead Seed Rounds. Or A Rounds. Or B Rounds.
We lead Last Rounds.
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Anyone else think this is a good idea?
Who would you want to hear/learn from?
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Great minds discuss purpose.
Average minds discuss metrics.
Small minds discuss fundraising.
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“Huffington sold her company for $315m, but multiple VC funding rounds left her with a small ownership percentage- she walked away with ~$21m.
Arrington sold TechCrunch for ~$40m but since he didn’t raise external funding, his payday was around $25-30m”
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“Investors have won, and their dealings with the entrepreneur class look far more like the dealings between management and labor.
Those who are attracted to true entrepreneurship are figuring out new ways to work around the traditional investor class”
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It’s been a big week already for little ol’ us.
We’ve begun closing the first of our v3 investments. Should have them all closed by the end of next week.
A v1 company hit their cap on redemptions generating a 5x cash on cash return and a 50% IRR.
And it’s only Tuesday...
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$100M acquisition (w/ another $100M in milestone payments), $71M in revenue on $300k raised.
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Venture Capital is not a tool.
A hammer is a tool. It has no agency. It has no business model. It has no incentives.
To suggest that venture capital is “just a tool” is both intellectually dishonest and a diversion tactic.
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“Startups used to figure stuff out and then ask for money. Today, they ask for money to figure things out”
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“I feel that the Silicon Valley narrative of raising money, burning through it, raising more money, burning through it, getting to $100m in revenue as fast as you possibly can, selling or going public in seven years or less, is flawed. Deeply flawed”
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The greatest trick the devil ever pulled was convincing startup founders they could win a market by outspending their competitors.
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- We developed investments docs with one of Silicon Valley’s top law firms that anyone can download and execute without racking up any legal fees (👋🏻
@FenwickWest
):
- We don’t take board seats.
Problems solved ;-)
VC’s still charge portfolio companies for their legal fees and board meeting travel.
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VC funded companies tend to wildly over index on networking while bootstrapped companies tend to wildly under index on building out and leveraging their networks.
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“Profits are key. And yet we don’t seem to value them in the tech/VC/startup world very much. Maybe we should.”
@fredwilson
If you’re tired of hearing it from us, maybe you’d like to hear it from one of the best to ever do it...
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The biggest threat to a successfully bootstrapped company isn't a better funded competitor, it's complacency.
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“Profitability is something [I've] always been focused on as a female founder. I haven't been given the permission or privilege to lose a billion every quarter”
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"My idea: a site that sell $100 bills for $95. The losses are manageable- and think of the revenue! By the end of the first month revenue will probably be in the tens of billions. Then, I will raise the price a bit to $96 and tout my earnings improvement- losses narrowed by 20%!"
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We've been overwhelmed by your support and stories shared about how Indie has impacted many of you.
Yesterday's post was intended to be a simple announcement. We plan to share far more detail on what we got right, what we got wrong and what we hope people will steal.
Stay tuned
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Announcing Our v4 Investments!
(and sharing some notes from the process)
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The greatest trick the devil ever pulled was convincing founders that they can’t grow fast AND be profitable
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Thank you to everyone who flagged a series of tweets from a participant in the pilot of our Scout program that were in violation of our Code of Conduct.
That person has been notified and removed from the Scout program.
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August 1st- one of our companies generates more money in a single day than they did the entire year prior to our investment.
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The greatest trick the devil ever pulled was convincing startups that more money and higher valuations are “founder friendly“.
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At 5% revenue share, a company who raises $500k needs to generate $30M in revenue to hit a 3x cap. Raising $1M? That'll be $60M to 3x.
Wonder how many people are really doing this math 🤔
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One recurring thought while going through applications yesterday:
It’s amazing how much some are able to accomplish with so little.
And.
How little some are able to accomplish with so much.
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Mailchimp is either a beacon for future founders to follow or the last gasp of a dying breed of bootstrappers.
In the funding fueled startup world, is this piece just a voyeuristic view into a bygone era of entrepreneurship?
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It’s far too simple and seductive to convince yourself the only thing holding back your business is more money.
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“We raised $39M and I wished we’d never raised a cent of it. Every single problem I had at the company was a result of our having raised money.” -
@tristanwalker
(around the 45 min mark)
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Our 2020 application is now online!
If you’re interested in VC-like investment and support w/o the VC treadmill, we’d encourage you to apply:
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You do not need a deck, let alone a $40k deck, to apply for funding from us:
Founder friend just told me that SF deck designers have quoted him between $20K to $40K + the right to invest up to $250K...my mind is officially blown
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Over 500 submissions in the first 4 days of announcing our open scout program 😳
The energy and support of this community never ceases to amaze us.
More details on process and rollout timeline in the next two weeks.
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VC Rule
#1
: Only invest in companies that have the potential to return the whole fund.
VC Rule
#2
: because Rule
#1
is so restrictive, there can’t be any other rules-
@peterthiel
in Zero to One
How many founders deeply internalize this when choosing which investors to work with?
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Same true for founders.
First timers fall for the “smaller piece of a bigger pie” line every time.
Second timers understand, value and protect their ownership.
Evolution of an investor:
- get into any good ones
- get into several good ones
- get comfy writing larger checks
- get comfy co-leading
- get comfy writing the biggest check
then
- ownership
- ownership
- ownership
then the new crop starts the cycle again
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Excited to share a next step in the evolution of our Scout program we're developing in collaboration with the
@KauffmanFDN
and
@RockefellerFdn
foundations: Cub Scouts
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“Within 2 mo. we went from burning $250k a mo. to making $100k a mo. and ended the year at $8m in revenue, $1m in profit. With the pressure of fundraising off of our backs we had time to take stock of what we had built and figure out the next step forward”
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At our most radical our terms are reinventing venture capital.
At our most mundane our terms are a convertible note with a release valve.
It’s in the hard coding of optionality into our terms and the community of customer focused founders where you’ll find the real magic.
The thing most people are missing about
@indievc
is that they ARE providing venture capital to businesses, just with the option to be different capital if it turns out the founders learn something along the way that leads them to believe they don't fit the venture path
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What Ended Indie (an exploration of some headwinds we’ve faced getting Indie to cross over from experiment to an institutional-grade investment strategy)
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If you can't outspend
outwork
outcare
outgive
outsmart
outlisten
outplan
outrisk
outhustle
outpraise
outpromise
outrespect
— mod'ing Godin
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Our fundamental belief is that an early focus on revenue and profits will simply yield better long term results for founders and investors.
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Following most of today’s startup advice will either run you into the ground or into the arms of investors
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If we could get founders to internalize one thing central to our model it is this- there is magic that lies within the constraints of adopting an early revenue/profit mindset that the traditional VC path actively seeks to avoid.
“At Pardot, we never had institutional investors. From day one, we had to be scrappy — there was no other way. Every dollar we saved was a dollar to invest and grow the business.”
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A look at the growing trend of bootstrapped, profitable SaaS businesses This trend is much bigger than just SaaS…
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We should start a pitch competition except instead of pitching VCs founders pitch potential customers.
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We specialize in Series F U ;-)
OH: "hitting break-even as a startup is like having F U money as an individual."
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Average VC backed founding team owns 15% at the time of IPO.
Qualtrics founders owned 45% (after having taken hundreds of millions in secondary prior to the SAP deal)
As
@RyanQualtrics
says “the cap table is the culture”.
If you can bootstrap to product/market fit and even revenue, you will have many more options of who take money from in the future — not to mention better terms.
If the market is competitive, however, the person who raises the most money often wins.
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“What important truth do very few people agree with you on?” - Thiel
🏴☠️ Early focus on customers, revenue and profits are a super power for scaling NOT a death sentence for startups.
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“More companies die of indigestion than starvation.”- David Packard
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more employees and more dollars raised is a better indicator of inefficiencies than success.
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“There is this popular notion that if you build a tech business, it’s either VC-backed or it’s a lifestyle business. We don’t subscribe to that. We are building a real business as ambitious as a typical VC-backed company.”
Go team
@WhimsicalPowers
💪🏻
At Whimsical, we choose to bootstrap our business. Here's why
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“By building an exceptional capital efficient business and only raising money when the company was already very valuable, Wayfair co-founders made nearly 10X as much as the (founder of Zappos).”
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Ask not whether you are a fit for venture- ask whether venture is a fit for you.
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Timely reminder that the VCs aren’t even in the home run business.
They’re in the grand slam business.
Interestingly, odds of hitting a grand slam (.07%) are uncannily similar to odds of backing a unicorn (.07% of VC backed startups)
3/ Potential to be be successful, or even really successful, isn’t good enough for top investors. Founders need to show that you have a truly huge opportunity.
Investors look within the following 3 buckets when evaluating a startup’s potential:
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"Tell me a company in the Valley that listed with a $5 billion market cap and where the two founders own 75 percent? They didn’t need Silicon Valley.”
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A few v3 numbers you might find interesting so far:
Number of applicants: 452
Avg TTM of applicants: $714,000
Avg Investment Ask: $560,000
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So much “smart money” encouraging founders to avoid or limit fundraising lately. Wonder why 🤔
99% of entrepreneurs shouldn’t raise venture capital.
- It limits exit opportunities
- It puts a timeline on the business
- It requires a 5x greater exit to make the same founder money
- Most markets aren’t winner take all
Time spent raising money is better spent with customers
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Food for thought:
How many Qualtrics or Github sized outcomes are we missing out on in this current fundraising focused environment?
There’s value to understanding what levers drive your business that can only be learned through maniacal focus on revenue and profits.
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.1% of funded startups drive 95% of returns for the entire industry.
How’s that for product/market fit?
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Welcome! to all our new followers today courtesy of
@jasonfried
and
@dhh
.
If you’re curious about who we are:
If you’re curious about our plans for 2020:
If you’re curious about our Scout Program:
🔥🦄🔥
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"I've never met a founder who regretted bootstrapping. I can't say the same for founders who chased VC funding" thoughtful rant
@natekontny
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For the curious...
We have capacity to make another 25-40 investments out of our current fund.
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“This is the story of what we did to go from burning $2.4m a month to being free cash flow positive in 7 months.”
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We don’t take board seats but we do carve out a week every month to do in-depth 1 on 1 meetings with the founders we back.
This is that week!
We’re inspired by the progress we’re seeing across the portfolio companies and the personal growth of the founders leading them.
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It is never not surprising how defensive VCs become at the idea that there should be more alternatives for funding ambitious founders than their “one size fits all” model.
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“I think it’s cool to be profitable again. When I joined Notion I would tell VCs or investors ‘Oh, we’re profitable,’ and they would be like ‘Oh, so you’re building a lifestyle company.”
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“There's a ? I don't think entrepreneurs ask themselves enough: 'Should I raise money?'
The math speaks for itself: If you own 10% of a $100M company, it's the same as owning 100% of a $10M company, and sometimes the latter can be much easier to achieve”
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The greatest trick the devil ever pulled was convincing founders they were aligned with their VCs business model…
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“Qualtrics has always steered clear of Silicon Valley norms. The company didn't raise VC funding for its first decade in business.
@RyanQualtrics
wrote "Working with limited resources compels focus and fine-tunes problem solving."
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