Venture Capital and Its Discontents • Hacker News Board

Re: Venture Capital and Its Discontents

#21

Post by achow » Tue, May 31, 2016, 7:21 PM UTC

winslow wrote: post #10

cdvonstinkpot wrote: post #2

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

Access it via Google and there is no paywall. (It's stupid) https://www.google.com/#safe=off&q=Venture+Capital+and+Its+D...

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

Re: Venture Capital and Its Discontents

#22

Post by projectramo » Tue, May 31, 2016, 7:41 PM UTC

taylorwc wrote: post #13

projectramo wrote: post #7

Earlier quoted context omitted.

Wouldn't that be a version of venture debt?

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.

But in this case, it sounds like indie.vc gets the equity kicker as well at a liquidity event.

The covenants could be a big difference. Surprised that Indie.vc doesn't have any.

Re: Venture Capital and Its Discontents

#23

Post by projectramo » Tue, May 31, 2016, 7:43 PM UTC

mrkurt wrote: post #11

projectramo wrote: post #7

Earlier quoted context omitted.

Wouldn't that be a version of venture debt?

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.

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.

Re: Venture Capital and Its Discontents

#24

Post by genericresponse » Tue, May 31, 2016, 8:06 PM UTC

ryporter wrote: post #15

“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.

I believe that's why that particular figure of speech is called an analogy...

Re: Venture Capital and Its Discontents

#25

Post by bryc3 » Tue, May 31, 2016, 8:24 PM UTC

projectramo wrote: post #22

taylorwc wrote: post #13

Earlier quoted context omitted.

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.

But in this case, it sounds like indie.vc gets the equity kicker as well at a liquidity event. The covenants could be a big difference. Surprised that Indie.vc doesn't have any.

The instruments is essentially a modified SAFE with a clause for distributions (which keys off a multiple of the founder's salary) and no expiration date. The intent was to keep it simple, clear and relatively toothless.

Re: Venture Capital and Its Discontents

#26

Post by hodgesrm » Tue, May 31, 2016, 8:36 PM UTC

taylorwc wrote: post #13

projectramo wrote: post #7

Earlier quoted context omitted.

Wouldn't that be a version of venture debt?

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.

I have had a couple of runs at venture financing and the terms in Silicon Valley can be pretty onerous, especially if you don't have a lot of cash and revenues less than $10M per annum. Silicon Valley Bank for example effectively won't loan you money you don't already have in your balance with them.

This can be a disillusioning experience but if you flip it around the bankers providing the financing don't get anywhere near as much upside as a traditional VC. Their caution is understandable.

Re: Venture Capital and Its Discontents

#27

Post by nickpsecurity » Tue, May 31, 2016, 9:48 PM UTC

bryc3 wrote: post #18

btown wrote: post #4

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 ... Not that this pattern is bad per say, but caveat emptor.

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.

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.

Re: Venture Capital and Its Discontents

#28

Post by bradhe » Wed, Jun 01, 2016, 6:39 AM UTC

> 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!

Re: Venture Capital and Its Discontents

#29

Post by hodgesrm » Wed, Jun 01, 2016, 5:49 PM UTC

nickpsecurity wrote: post #27

bryc3 wrote: post #18

Earlier quoted context omitted.

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.

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.

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. :)

Re: Venture Capital and Its Discontents

#30

Post by hugs » Thu, Jun 02, 2016, 6:18 PM UTC

ryporter wrote: post #14

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.

"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.