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While other VCs seek Unicorns, Indie.vc is all about cashflow

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Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#11

Post by DevX101 »

claar wrote: post #5

I own a bootstrapped start-up that seems to fit their profile, but their numbers seem way off to me. They take 80% of all distributions until they're paid back 2X, then 20% until they're paid back 5X. They're offering $100k to 8 start-ups; in order to hire a few employees with decent runway, $500k seems like the minimum useful raise. I guess we're just too late-stage for this, which is funny, because from my research…

If you're making more than $200k in revenue check out revenue financing: http://www.lightercapital.com/

Seems like it might be a better deal than this.

But I'm a big fan of alternative models of financing than defaulting to VC or bootstrap everytime. There's room in the middle somewhere.

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#12

Post by bryc3 »

auganov wrote: post #8

To be honest I thought it was going to be a joke. It's actually interesting as an experiment, but they need bigger N to find out if it can possibly work. 50-100 would be more reasonable. Tho maybe it's good to start with 8, it might be impossible to even find 8 reasonable people willing to take this deal. Anyways I doubt it's going to work. They're competing with banks at this point. But their per-company [management…

Hopefully the application and interview process will help us weed out the scammers.

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#13

Post by bryc3 »

solve wrote: post #10
adrianh wrote: post #9

It's worth reading indie.vc's response to this article: http://bryce.vc/post/111385165695/the-biggest-misunderstandi...

[edit: seems they're not doing revenue based financing.] "Nowhere in anything we’ve written publicly or discussed privately about indie.vc have we said we’re only interested in modest, cashflow businesses." If they're not aiming for modest wins, then why wouldn't the startups be reinvesting as much revenue as possible back into further growth, instead of using it to immediately repay this loan? Eating up 80% of reven…

There is no timeframe on repayment of the loan. If founders want to keep reinvesting in the business that is fantastic. If they want to start taking more out for themselves, that's when the distributions kick in. We hope that helps keep our incentives aligned.

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#14

Post by bryc3 »

claar wrote: post #5

I own a bootstrapped start-up that seems to fit their profile, but their numbers seem way off to me. They take 80% of all distributions until they're paid back 2X, then 20% until they're paid back 5X. They're offering $100k to 8 start-ups; in order to hire a few employees with decent runway, $500k seems like the minimum useful raise. I guess we're just too late-stage for this, which is funny, because from my research…

It certainly isn't for everyone. Perhaps it can grow to larger companies over time, but we wanted constraints on the initial experiment.

People who are applying seem to be equally split between those looking for cash and those looking to be part of the peer group and programming we have planned for the year.

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#15

Post by bryc3 »

nissimk wrote: post #4

The interesting thing about new financial instruments is to try to figure out the risks for all parties involved. What I'm not really getting here is that from the perspective of the company, this is like a loan with a really high interest rate and other harsh terms like the equity conversion, in exchange for no recourse. If a company had growing cashflow couldn't they just use debt financing at much better terms? An…

That's all part of the experiment.

Given the only forcing function for distributions is tied to founder salary, there is no reason founders couldn't simply keep investing in, and growing their business, for years without ever making a distribution. And we'd be thrilled for that as an outcome.

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#16

Post by pdecker »

manishsharan wrote: post #6

I wonder what model you would use to evaluate a startup with varying cash flow like negative cash flow for some quarters or growing cashflow for others. I understand how to model utilities or infrastructure projects using cashflows but those models are based on having very predictable cashflow.

I'm just curious, but how do you "model utilities or infrastructure projects using cashflows". I would love a detailed explanation. Thanks!

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#17

Post by itbeho »

adrianh wrote: post #9

It's worth reading indie.vc's response to this article: http://bryce.vc/post/111385165695/the-biggest-misunderstandi...

Thanks, that was a good read. I found this part interesting:

"It is no coincidence that much of the new money flooding into the startup world is coming from the same banks, hedge funds and financial institutions who flooded into the housing market last decade.

With their capital and this dangerous narrative, we’re not unicorn hunting; rather, we’re becoming the subprime lenders of the internet economy funding digital McMansions built on increasingly questionable foundations."

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#18

Post by loceng »

claar wrote: post #5

I own a bootstrapped start-up that seems to fit their profile, but their numbers seem way off to me. They take 80% of all distributions until they're paid back 2X, then 20% until they're paid back 5X. They're offering $100k to 8 start-ups; in order to hire a few employees with decent runway, $500k seems like the minimum useful raise. I guess we're just too late-stage for this, which is funny, because from my research…

I'd be happier if there was a way to pay back early, say to reduce end cost to 3x return, in the case that you bring in investment.

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#19

Post by loceng »

bryc3 wrote: post #13
solve wrote: post #10

Earlier quoted context omitted.

[edit: seems they're not doing revenue based financing.] "Nowhere in anything we’ve written publicly or discussed privately about indie.vc have we said we’re only interested in modest, cashflow businesses." If they're not aiming for modest wins, then why wouldn't the startups be reinvesting as much revenue as possible back into further growth, instead of using it to immediately repay this loan? Eating up 80% of reven…

There is no timeframe on repayment of the loan. If founders want to keep reinvesting in the business that is fantastic. If they want to start taking more out for themselves, that's when the distributions kick in. We hope that helps keep our incentives aligned.

I think a misconception I am seeing people have, please correct me if I'm wrong, is with the understanding of distributions. You could re-invest 100% of what isn't going to founder salaries into the business, however if $100k is going towards founders then they receive $20k and Indie.vc receives $80k. Is that correct?

Re: While other VCs seek Unicorns, Indie.vc is all about cashflow

#20

Post by bryc3 »

loceng wrote: post #18
claar wrote: post #5

I own a bootstrapped start-up that seems to fit their profile, but their numbers seem way off to me. They take 80% of all distributions until they're paid back 2X, then 20% until they're paid back 5X. They're offering $100k to 8 start-ups; in order to hire a few employees with decent runway, $500k seems like the minimum useful raise. I guess we're just too late-stage for this, which is funny, because from my research…

I'd be happier if there was a way to pay back early, say to reduce end cost to 3x return, in the case that you bring in investment.

our assumption is that we'd need to wave our rights to distributions should an equity financing come together.
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