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Indie.vc: Unicorns Are Out, Profits Are In

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Re: Indie.vc: Unicorns Are Out, Profits Are In

#91

Post by nicholascamera »

Hongwei wrote: post #30
adamgravitis wrote: post #27

Earlier quoted context omitted.

"In short: this author is endorsing a funding model focused on low initial investment and faster profitability." -> so basically, Canadian "venture" capital. They don't even want to talk to you unless profitability is there or within a few months. So, basically, it distills to a barely riskier than usual bank loan, except you pay the loan with equity.

A cause or symptom (I'm not sure about causality here) is that the Business Development Bank of Canada (BDC) directly funds most private Canadian VCs. VCs now have public money as part of their LP base, with some strings attached. Most of these strings (eg. don't waste taxpayer money doing anything unethical or overly negligent) will nudge VCs to be more conservative. Plus, the VCs are guaranteed 20%+ of their 2% car…

I live in Montreal and intend to do a consumer oriented software startup. I would like to better understand what I would be getting into starting up here, vs. applying to YC. Can you suggest resources for understanding Canadian startup landscape, funding etc.?

Perceived Pros:

- Many STEM grads

- Gaming and AI industry, 2+ top AI schools

- Relatively little competition for engineering talent compared to SV

- Many engineers who are barred entry to US based on country of origin

- Easier work visas (to be confirmed)

- Free healthcare and other social services, and less violence

Perceived Cons:

- Cultural lack of ambition, entrepreneurial dreaming.

- Excessive reliance on government subsidy (the government is the customer)

- Risk averse VC

- Shallow bench of experienced operators to mentor, invest, and manage

- Brain drain to SV of best talent

- Higher taxes

Re: Indie.vc: Unicorns Are Out, Profits Are In

#92

Post by WalterBright »

markdown wrote: post #89
WalterBright wrote: post #82

Earlier quoted context omitted.

> public funds that get funneled into unproductive firms If they were productive firms, they wouldn't need government money. This is why free markets work better, because free markets allocate resources to the most productive uses.

> productive uses. You misspelled profitable.

The role of government in a free market is to make profitable and productive congruent.

Re: Indie.vc: Unicorns Are Out, Profits Are In

#93

Post by gnicholas »

toomuchtodo wrote: post #14
burtonator wrote: post #4

@Indie.vc ... you spent a ton of time writing this post only to have it paywalled by medium. I can't read it... Ditch medium as they aren't compatible with your business model :-P

Yeah! Substack > Medium.

The question is: will Substack continue to be better than Medium, or are they just temporarily better than Medium because they haven't been around long enough to have to face some of the medium-run (no pun intended) challenges that made Medium what it is today?

Re: Indie.vc: Unicorns Are Out, Profits Are In

#94

Post by randaouser »

nickff wrote: post #78
airstrike wrote: post #74

Earlier quoted context omitted.

Can you share more on how this applies to Ballard Power? It's a name that just came up on my radar this weekend and I was planning on doing research on them, so thought I'd ask in case you have something specific to share

Ballard's been getting government grants and subsidies for over 20 years, and produced very little in terms of saleable product on the other end. They make fuel cells and related products, but their business model seems to be mostly taking government and investor money, and using it to produce units which they 'sell' at below-cost to companies trying to look green by 'testing' alternative fuels.

One of the worse offenders is North which is previously thalmic labs; Not a single product has reached the market with any revenue to show but remains a poster child for a successful organization.

Re: Indie.vc: Unicorns Are Out, Profits Are In

#95

Post by gnicholas »

> 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.

Seems like you'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.

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's $50k or so, and it's never a bank loan.

I'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's featured in this article).

1: https://www.crunchbase.com/organization/retracehealth#sectio...

Re: Indie.vc: Unicorns Are Out, Profits Are In

#96

Post by molsongolden »

grumple wrote: post #72
teej wrote: post #64

Earlier quoted context omitted.

There’s tons of existing finance infrastructure for this already, it just doesn’t reach tech. Small business loans, traditional banks, franchisors, local business investor groups, etc all facilitate these sorts of businesses today. They just don’t do tech. This is because their risk models are built on 30+ years of priors and the financing is very often business sector specific. Tech is too much of an unknown for thi…

Are you saying banks won't provide loans to small tech businesses, but they will to things like restaurants?

Differentiating between "small tech businesses" and VC-style startup tech might be useful here.

There are many tech businesses that can and do qualify for traditional financing/funding. The difference is that banks aren't interested in funding high-risk moonshots.

Simplified examples:

Tech Biz #1: Founder identified a niche, has a few customers, and has been working on making the consultant -> product jump. They're paying the bills but see an opportunity to offer their product to many more customers and would like to work on the business instead of working in the business. They want to hire a programmer and invest in marketing but need to borrow money to make it happen.

Tech Biz #2: Founder wants to build X for Y and change the way people do Z. It's going to take many programmer-months to build the product and a sales and marketing team to change consumer behavior. There's no guarantee that they'll find product-market fit but, if they do, the business has the opportunity to scale rapidly with strong margins.

Re: Indie.vc: Unicorns Are Out, Profits Are In

#97

Post by gnicholas »

> 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.

Is this measuring revenue, users, profits, or something else? If it's revenue or users, I would guess that most VC-backed startups grow faster than this. If they're looking at profits, then probably the VCs do worse.

> Plus, the fund’s mortality rate is 10% — compared to about 44% with traditional VC-backed companies.

Are they looking at the same time period? If Indie.vc's portfolio is younger, then they would obviously have fewer deaths than traditional VCs.

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.

Re: Indie.vc: Unicorns Are Out, Profits Are In

#98

Post by tick_tock_tick »

epicureanideal wrote: post #61
leesalminen wrote: post #32

Earlier quoted context omitted.

I think both worlds can exist. You can have the "traditional" VCs going for the high-risk, high-reward model. And you can also have "new" VCs going for low-risk, medium-reward. As an anecdote, in 2014 we looked for ~$250k investment. We had a business model that realistically took us to ~$5mm/year revenue in 5 years. We pitched various "traditional" VCs. The overwhelming feedback we got was that nobody doubted our te…

Is there any existing term for "funding for business that will never be a unicorn but can clearly become profitable and provide good returns"? Is there an equivalent of VC for "lifestyle businesses"? If not, if someone can establish a term it'll be easier to talk about this.

You can get a loan from a normal bank.

Re: Indie.vc: Unicorns Are Out, Profits Are In

#99

Post by molsongolden »

leesalminen wrote: post #32
manfredo wrote: post #15

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't sufficient to motivate most investors. The latter doesn't necessarily translate into better retur…

I think both worlds can exist. You can have the "traditional" VCs going for the high-risk, high-reward model. And you can also have "new" VCs going for low-risk, medium-reward. As an anecdote, in 2014 we looked for ~$250k investment. We had a business model that realistically took us to ~$5mm/year revenue in 5 years. We pitched various "traditional" VCs. The overwhelming feedback we got was that nobody doubted our te…

> We pitched various "traditional" VCs. The overwhelming feedback we got was that nobody doubted our team, the product, or the model. The problem was that the returns weren't big enough.

Sahil @ Gumroad has talked about this in good detail. The VC idea that "yes, your business/idea is/will be profitable but you shouldn't waste your time making money when you could be working on changing the world"

The "changing the world" business will also hopefully be profitable and make money down the road but they are looking for outsized returns from a market disrupting unicorn.

--

Regarding the "new VCs" concept. Alex Danco and others have discussed this and the funding model ceases to be VC when it is low-risk, medium-reward.

It's possible that many areas of tech are maturing to a point where VC will no longer be the optimal funding model, outside of high innovation specialties. As the industry matures, there are many businesses that might provide stable returns and have a risk profile that is different from that of the unicorn VC-startup. These businesses might be better served by debt funding and a debt-based investment vehicle/product might attract more investors and allow for greater de-centralization of tech funding.

Linking Alex's blog post below instead of rambling in this comment.

https://alexdanco.com/2020/02/07/debt-is-coming/

Re: Indie.vc: Unicorns Are Out, Profits Are In

#100

Post by bryanmgreen »

a13n wrote: post #37

As a founder of a bootstrapped & profitable company, I don't really get what's so attractive about this funding model. It seems like it's just a really, really, really 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're borrowing.

Seriously!

Why pay for a loan with equity when you can pay cash? The interest rate on equity payment is exponentially higher than it is for cash.

Plus, if you already have attractive traction, why do you need the "premium features" a VC offers versus a bank which are extra experience, some networking effects, and maybe some insider info on acquisition opportunities? So you can be forced into expedited aggressive growth and turn into WeWork or make less money if the company is acquired? No thanks, the business is already proven and working!

Traction for VC money makes no sense to me.

...Unless you secretly have ZERO intention of ever selling and just want to pocket some play money for the business.

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