What Ended Indie(medium.com)
medium.com
What Ended Indie
https://medium.com/@bryce/what-ended-indie-76575463934d
29 comments
Yes, it was an interesting read but my takeaway was that this was a very conventional failure as an investment vehicle.
Can anyone explain "as converted" IRR to me? I'm fairly familiar with finance concepts, but this was a new one to me, so seeing it being blamed in some way for the fund's closure confused me.
Can anyone explain "as converted" IRR to me? I'm fairly familiar with finance concepts, but this was a new one to me, so seeing it being blamed in some way for the fund's closure confused me.
Not a financial expert, but that section is talking about how they are forced to account for many of their investments at the price they paid, even if the underlying company has grown significantly in “likely” value, they haven’t triggered any action that would allow Indie to adjust the value of their investment on Indie’s books. So Indie’s reportable returns are muted in an accounting sense.
The “as converted” IRR seems roughly to mean “if we take our best guess as to our investments are really worth, our IRR is much higher”. (Now, what an illiquid investment is “really worth” is always dicey, which is why the GAAP accounting rule is in place, so the truth might be in the middle, but it’s pretty clearly not on the left edge.)
The “as converted” IRR seems roughly to mean “if we take our best guess as to our investments are really worth, our IRR is much higher”. (Now, what an illiquid investment is “really worth” is always dicey, which is why the GAAP accounting rule is in place, so the truth might be in the middle, but it’s pretty clearly not on the left edge.)
That's a pretty common issues in VC. I run a more traditional seed stage firm and we have to deal with similar issues. It's not uncommon for the IRR in the first few years to be artificially low given we have to hold investments at cost until they raise priced rounds. And when there's finally a wave of price marks your IRR will jump to a more accurate level it can usual maintain.
e.g. Our 2017 vintage fund was sitting around 45% IRR for years, and jumped to 93% almost instantly this year due to markups we could finally account for. We always knew the value was there, but couldn't reflect it in the numbers.
Likewise our 2019 vintage fund is currently showing 20% but we're fairly certain it'll jump to 40%+ in the not too distant future.
This dynamic makes it hard for emerging managers to show their performance relative to other fund managers with older vintages— even if you're excellent it'll be hard for LPs to recognize until 5+ years in, if that. It's just the nature of VC.
e.g. Our 2017 vintage fund was sitting around 45% IRR for years, and jumped to 93% almost instantly this year due to markups we could finally account for. We always knew the value was there, but couldn't reflect it in the numbers.
Likewise our 2019 vintage fund is currently showing 20% but we're fairly certain it'll jump to 40%+ in the not too distant future.
This dynamic makes it hard for emerging managers to show their performance relative to other fund managers with older vintages— even if you're excellent it'll be hard for LPs to recognize until 5+ years in, if that. It's just the nature of VC.
Ah, thank you. I would have called this the "net asset value" or perhaps the book value, or something like that.
So, in other words, Indie lacked in notable liquidity events so realized IRR was low while the perceived book value was somewhat higher. I'd imagine this happens all the time in VC.
So, in other words, Indie lacked in notable liquidity events so realized IRR was low while the perceived book value was somewhat higher. I'd imagine this happens all the time in VC.
You can't A/B test VC funding models or anything else in macroeconomics. By the time you get meaningful results, the ecosystem has already evolved.
Sure but you can at least try to test some hypotheses. Like they could have said we’ll keep the VC model but try different kinds of companies, or maybe try a bee model for funding classic SV firms, but it seems like what they actually did is a bunch of disparate and not necessarily related things that fit into their conceptual model of “indie”.
One that strikes me as especially confusing is giving the option to sell back their shares to the company at 3x value. Since VC is predicated on moonshot explosions of valuations that seems like a really questionable decision, maybe one you’d want to make in isolation and see if it attracts interest.
Another issue is liquidity. VC funds are famous for insisting on an exit in 10 years or less. That’s an imperfect solution to a real problem, which is that investors want the money back.
So, like what was Indie’s solution to that same problem? It seems like maybe the idea was to pretend that wasn’t a real problem rather than come up with a novel or innovative solution to that issue.
Again, maybe that’s a reasonable thing to do, but maybe you’d want to see if that model works. Perhaps you try a “long exit” model or some kind of dividend model.
What seems to have happened is they tried all these ideas and more at once.
One that strikes me as especially confusing is giving the option to sell back their shares to the company at 3x value. Since VC is predicated on moonshot explosions of valuations that seems like a really questionable decision, maybe one you’d want to make in isolation and see if it attracts interest.
Another issue is liquidity. VC funds are famous for insisting on an exit in 10 years or less. That’s an imperfect solution to a real problem, which is that investors want the money back.
So, like what was Indie’s solution to that same problem? It seems like maybe the idea was to pretend that wasn’t a real problem rather than come up with a novel or innovative solution to that issue.
Again, maybe that’s a reasonable thing to do, but maybe you’d want to see if that model works. Perhaps you try a “long exit” model or some kind of dividend model.
What seems to have happened is they tried all these ideas and more at once.
The "you're playing a value hand in a growth game" line seemed to me to be the crucial killer.
Interesting result and in typical Bryce fashion full of information and disclosure. I appreciate reading the details. It seems whether you’re a VC looking for LPs or an entrepreneur looking for VCs, you face the exact same dynamics of mostly rejection from gatekeepers of capital.
What struck me was this sentence:
“Over the last 6 years I’ve talked to every flavor of LP under the sun, including family offices, to endowments, fund of funds, and foundations who publicly profess the need for alternative funding models but privately ghost those of us building them.”
I realized this past year that VCs are basically hustling entrepreneurs like the rest of us. The fund is their product. They need to find product-market fit, and to do that they need to fit the sexiness narrative nearly everyone looks for.
In case you’re wondering, for attracting VC, it’s two things: recurring revenues and hockey stick growth. You got em - almost any VC will like to fund you whose thesis even remotely resembles yours. You don’t - you’re fighting an uphill battle trying to convince them of a narrative outside their focus.
I’ve had VCs approach me at events and tell me they love our company and concept and give me their card to email them. When I did, they said they actually had a competing porfolio company and ghosted me. (I thought - don’t you know your portfolio?) But the reason doesn’t matter.
VCs publicly professing every day on twitter that the world needs community software, but who don’t respond when you reach out? Sounds like Bryce’s experience he describes with those foundations.
It took me a long time to understand that’s NORMAL. They are publicly signaling to attract a lot of interest and filter through quickly. You are in a world where people don’t have time for nuance. They need to pattern-match you (recurring revenues and hockey sticks) OR you need to have a really good relationship so they’ll take a meeting and throw something at it (like when Paris Hilton records her own CD). The VCs I appreciated the most openly told us exactly what they are looking for and to circle back when we have it (such as Right Side Capital).
Otherwise you’re going to really resent the bullshit rejection handling you receive. The person could be a really great and humble person themselves —- as Bryce is, I can say from what I have seen -- but the job forces you to act a certain way, like when you work as a car salesman. You have to raise money with one hand and try to allocate it to the best things you can on the other. There’s a lot of downstream carnage along the way.
We were rejected by Indie twice, despite thinking we fit the profile exactly (never took VC, grew year over year between applications, made over $300K gross last year, $200K profit, 50% year over year). I won’t divulge the details, but I felt like Bryce had a ton of great applications and once you pattern-match into a no, there’s no time to re-evaluate. To his credit, he wrote a specific reason, although frustratingly, the reason did not apply our company at all. I wrote back explaining this but never heard back. If Bryce is reading this, he’ll remember we were the ones who wanted to “liberate people from digital feudalism”. (https://qbix.com/blog/2021/01/15/open-source-communities/)
Sadly, no matter how you slice it, appealing to capitalist gatekeepers (VCs, A&R departments at music labels etc) is only going to work for a small group of hustlers outside of the obvious successes. The music industry selects for what worked before, simplification and dumbing down (https://www.mic.com/articles/107896/scientists-finally-prove...) and even built AI to do this pattern matching to find new artists (https://becominghuman.ai/how-big-data-and-ai-has-changed-the...)
What we all need is crowdfunding and democratization of fundraising. That’s what the crypto revolution was supposed to be all about — demolishing the old boys clubs and elites making decisions about who will be funded. When it comes to the crowd, you just need to convince 0.1% of the people at first, and there’s no algorithm that filters you out from even reaching all that capital. It’s permissionless. Just like the Web democratized publishing in the 90s, crypto democratized funding. Just like you don’t any longer need access to a publishing house, a magazine, newspaper, TV or radio station to get the word out, now you don’t need to know guys at angel groups, VC, hedge funds, etc. to get money in for your venture. You were always able to pay people (under rule 701) in shares, but tokens have made it much easier to attract capital from around the world.
Just my two cents.
What struck me was this sentence:
“Over the last 6 years I’ve talked to every flavor of LP under the sun, including family offices, to endowments, fund of funds, and foundations who publicly profess the need for alternative funding models but privately ghost those of us building them.”
I realized this past year that VCs are basically hustling entrepreneurs like the rest of us. The fund is their product. They need to find product-market fit, and to do that they need to fit the sexiness narrative nearly everyone looks for.
In case you’re wondering, for attracting VC, it’s two things: recurring revenues and hockey stick growth. You got em - almost any VC will like to fund you whose thesis even remotely resembles yours. You don’t - you’re fighting an uphill battle trying to convince them of a narrative outside their focus.
I’ve had VCs approach me at events and tell me they love our company and concept and give me their card to email them. When I did, they said they actually had a competing porfolio company and ghosted me. (I thought - don’t you know your portfolio?) But the reason doesn’t matter.
VCs publicly professing every day on twitter that the world needs community software, but who don’t respond when you reach out? Sounds like Bryce’s experience he describes with those foundations.
It took me a long time to understand that’s NORMAL. They are publicly signaling to attract a lot of interest and filter through quickly. You are in a world where people don’t have time for nuance. They need to pattern-match you (recurring revenues and hockey sticks) OR you need to have a really good relationship so they’ll take a meeting and throw something at it (like when Paris Hilton records her own CD). The VCs I appreciated the most openly told us exactly what they are looking for and to circle back when we have it (such as Right Side Capital).
Otherwise you’re going to really resent the bullshit rejection handling you receive. The person could be a really great and humble person themselves —- as Bryce is, I can say from what I have seen -- but the job forces you to act a certain way, like when you work as a car salesman. You have to raise money with one hand and try to allocate it to the best things you can on the other. There’s a lot of downstream carnage along the way.
We were rejected by Indie twice, despite thinking we fit the profile exactly (never took VC, grew year over year between applications, made over $300K gross last year, $200K profit, 50% year over year). I won’t divulge the details, but I felt like Bryce had a ton of great applications and once you pattern-match into a no, there’s no time to re-evaluate. To his credit, he wrote a specific reason, although frustratingly, the reason did not apply our company at all. I wrote back explaining this but never heard back. If Bryce is reading this, he’ll remember we were the ones who wanted to “liberate people from digital feudalism”. (https://qbix.com/blog/2021/01/15/open-source-communities/)
Sadly, no matter how you slice it, appealing to capitalist gatekeepers (VCs, A&R departments at music labels etc) is only going to work for a small group of hustlers outside of the obvious successes. The music industry selects for what worked before, simplification and dumbing down (https://www.mic.com/articles/107896/scientists-finally-prove...) and even built AI to do this pattern matching to find new artists (https://becominghuman.ai/how-big-data-and-ai-has-changed-the...)
What we all need is crowdfunding and democratization of fundraising. That’s what the crypto revolution was supposed to be all about — demolishing the old boys clubs and elites making decisions about who will be funded. When it comes to the crowd, you just need to convince 0.1% of the people at first, and there’s no algorithm that filters you out from even reaching all that capital. It’s permissionless. Just like the Web democratized publishing in the 90s, crypto democratized funding. Just like you don’t any longer need access to a publishing house, a magazine, newspaper, TV or radio station to get the word out, now you don’t need to know guys at angel groups, VC, hedge funds, etc. to get money in for your venture. You were always able to pay people (under rule 701) in shares, but tokens have made it much easier to attract capital from around the world.
Just my two cents.
> They are publicly signaling to attract a lot of interest and filter through quickly
Nice one. I realized YC, or many other startup incubators do the same
Nice one. I realized YC, or many other startup incubators do the same
This is one of the best summaries I've read on HN. I wish you would post extra reading as blog posts you've made, or write a book. I'll buy at least one copy!
Thanks, I definitely appreciate the kudos.
You can see a lot of the blog posts on https://qbix.com/blog
But if you’re interested in democratizing access to capital and increasing collaboration, I have two links for you:
https://qbix.com/token
https://worldaftercapital.com (written by VC and acquaintance of mine, Albert Wenger of Union Square Ventures).
You can see a lot of the blog posts on https://qbix.com/blog
But if you’re interested in democratizing access to capital and increasing collaboration, I have two links for you:
https://qbix.com/token
https://worldaftercapital.com (written by VC and acquaintance of mine, Albert Wenger of Union Square Ventures).
>“an alternative financing program that was aimed at slow-growth, bootstrapped founders”
I have always understood 'bootstrapped' to mean self-financed by savings/profits. I.e. pulling yourself up by your own bootstraps. Have VCs started co-opting that term as well now?
I have always understood 'bootstrapped' to mean self-financed by savings/profits. I.e. pulling yourself up by your own bootstraps. Have VCs started co-opting that term as well now?
Yes, but the author is using "bootstrapped" in the past tense. i.e. a founder who was bootstrapped but might be willing to take money that didn't have a ton of strings and a set of "okay, now roll the dice on rocket growth with a do or die deadline" marching orders attached.
> "okay, now roll the dice on rocket growth with a do or die deadline"
From what I've seen this this is not the attitude most boostrappers have.
Sure, sometimes you have bootstrapped companies that turn into VC-backed hypergrowth companies but there seems to be a shift away from "grow or die" for bootstrapped companies taking funding.
From what I've seen this this is not the attitude most boostrappers have.
Sure, sometimes you have bootstrapped companies that turn into VC-backed hypergrowth companies but there seems to be a shift away from "grow or die" for bootstrapped companies taking funding.
I believe the point here is they didn’t want to fund companies that had taken any VC money yet, not necessarily that they wouldn’t ever.
No, Indie really meant it. I think. Wanted to fund the founders who were bootstrapped until that point.
However, do not be surprised about co-opting. Co-opting by venture capitalists is normal. Many industries co-opt things as well, and redefine them to be mean something more “efficient”.
Example: The terms friend and like were co-opted by Facebook. Now people say friend me and “please like my stuff” as a throwaway statement. These terms used to mean something deep and genuine up to 15 years ago. That’s what capitalism does - cheapens things and commoditizes them. Often, that is useful but sometimes it cheapens things you used to value highly.
However, do not be surprised about co-opting. Co-opting by venture capitalists is normal. Many industries co-opt things as well, and redefine them to be mean something more “efficient”.
Example: The terms friend and like were co-opted by Facebook. Now people say friend me and “please like my stuff” as a throwaway statement. These terms used to mean something deep and genuine up to 15 years ago. That’s what capitalism does - cheapens things and commoditizes them. Often, that is useful but sometimes it cheapens things you used to value highly.
Eh...Facebook's use the word "friend" as a verb has not eroded my deep and meaningful sense of the word as a noun. It's just another use which has been added to our cultural context. It's up to you to let it change your perspective on friendship.
And what of liking things?
For me, functions dual use, though grammatically both are similar enough that it operates significantly via context.
I don't know...what of it? I still like people, I still like things. Thumb and heart icons on social media haven't changed how or what I like.
Semantically, I generally understand a person who says they "liked" a thing to mean the social media verb. Context also makes it pretty clear.
Semantically, I generally understand a person who says they "liked" a thing to mean the social media verb. Context also makes it pretty clear.
Tiny Seed seems to be doing quite well. What's the difference?
I'm an LP in TS. I'm not an expert (and certainly can't speak for them), but my sense is that it's about the LP base. I think that Tiny Seed raised all of its capital from individual entrepreneurs (or people otherwise active in the independent software world). Unlike big institutional LPs (or professional fund managers hired by family foundations), we don't care about markups and stuff like that on judging interim IRR. We get the model and are much more willing to wait for long-term results.
Yup. Ditto here. I'm a "Zebra" style founder (as in Zebras not Unicorns) and love what TinySeed's doing. My wife and I are LPs in TinySeed, too.
Really sad that Indie.vc's LPs weren't willing to even wait the usual judging period that venture funds get (often 5-7yrs, sometimes more) before determining that they "didn't want to exposure to those types of assets."
Really sad that Indie.vc's LPs weren't willing to even wait the usual judging period that venture funds get (often 5-7yrs, sometimes more) before determining that they "didn't want to exposure to those types of assets."
TS does not fight the math of venture capital the same way Indie.VC did. My understanding from Einar (and the reason I made an LP commitment) is that the same extreme power law of returns that characterizes traditional early-stage venture is at play in Micro-SaaS: the exits are an order of magnitude smaller but you also buy in at prices that are an order of magnitude smaller.
It may be telling that, in response to my "Seed investments follow an alpha < 2 power law" paper, Bryce (whom I have never met) posted something dismissive on twitter whereas Einar reached out to me to discuss how he could validate a similar hypothesis for his own investing.
It may be telling that, in response to my "Seed investments follow an alpha < 2 power law" paper, Bryce (whom I have never met) posted something dismissive on twitter whereas Einar reached out to me to discuss how he could validate a similar hypothesis for his own investing.
Thank you ;)
The question of how valid the standard VC model is is an interesting discussion and I'm interested in it. But it's not totally clear to what extent this model was able to really do a valid A/B test of an alternate approach.
It seems like they threw a lot of ideas in at the same time (alternate business models, alternate financing terms, etc) and I wonder if they might have been better off taking the standard VC approach and just tweaking one big thing to have a better shot at making things work.