Fundraising · Venture capital

Would you do an "Indie" startup if it could get funding?

Anonymous

June 5th, 2015

The launch of http://indie.vc/ has me thinking a lot about "Independent" startups (http://bryce.vc/post/116925485725/drafting-a-declaration-of-independents http://avc.com/2015/04/lifestyle-businesses/), and all the ideas I've had to set aside because their business model or growth curve wouldn't fit into the "VC fundable" box.

Does anyone else have a similar missed-opportunities list?  Are you aware of other capital sources like indie.vc that are open to investment returns that don't come through "an exit?"  If there were (more) angels or other investment sources willing to receive their returns as cash-over-time, would you take advantage of that?

John Sechrest

June 5th, 2015

In David Rose's book: Angel Investing, he has an example of a revenue based redeption agreement. I think there are appropriate times for that type of agreement. In Seattle, we have the Fledge Accelerator focused on socially conscious companies, which uses a related revenue redemption model and have something like 39 companies that have run thru the model. We also have an Angel Investor who has lead several deals with this structure.

If the context is right and the company has the right structure, then a revenue redemption can be the right type of deal. And more interestingly ,  if  the process is right, it can take a company to stability and there may be no need for follow on funding, which can save Angel Investors a bit of grief.  So for sure, there are good times to look at other forms than the traditional equity play. 

John Seiffer Business Advisor to growing companies

June 5th, 2015

The vast majority of companies don't fit the VC Fundable box - and many that think they do are misguided (even if they can convince even investors otherwise).

VC's fund about 3,000  companies a year (not all are startups) Angels fund maybe 50 or 60 thousand. But some 500,000 companies are stared in the US every year. So most of them scrape together funds and then get paying customers.

If you are considering an indie startup, I would focus on how quickly you can get money from customers (there have been cases where customers pay to help a company get launched) rather than investors.

I really like the Indie.vc experiment. I know that payback out of revenue is working for some funders but they mostly fund companies with existing cash flow who need money for growth. The failure risk of startups is so high, it's hard for investors to get a commensurate return. 

Karl Schulmeisters CTO ClearRoadmap

June 6th, 2015

For me the explosion of "incubators" and "indie acellerators"  and "non VC VCs"   suggests to me a market that is getting frothy

Christopher Hughes at Standard Chartered

June 6th, 2015

I completely agree with the frothy market statement above. I really like the indievc idea as well and think that as startups become a bit more educated about choosing their funding sources there will be more deals structured as pay over time. I personally would consider it in the right situation. 

Roger Mortimer Scriptank, Inc. Founder & CEO

June 8th, 2015

I just launched and Indiegogo campaign for Scriptank.com. Although,  I have been holding off on pursuing vc investments to this point, I have someone who is eager to buy in if the Indiegogo thing doesn't do what I want.  In fact, I recently turned down a vc and a university professor with a doctorates degree in business who offered me several million dollars to buy my business plan outright.  I have designed in so that it has five sections and the first section is the only one that needs to be launched with minimal funding.  Then it will fund the next section to be launched and so on.  But, with more than 25 revenue streams built into the social/business networking website for profitability, it's no wonder investors are chomping at the bit to be on board.

I would also agree with John Seiffer that I have already started collecting revenue from customers (scriptwriters) for a discount from their first years upload fee. 

http://igg.me/at/xrRof0c-6VY/x/10784974

 

Craig Conlee

June 6th, 2015

Wasn't Minecraft a indie startup?

EM

June 6th, 2015

if it's really an indie model (i.e. with the goal of the company not taking equity investors), it's a pretty expensive hard-money loan. if you repay in 1 year, the cost of capital is 400%. if you repay in 5 years, the cost of capital could be as low as 38% but is more likely to be 50%+. if the business is going to fail, then the money is free -- which is a positive for you, in some respects. 

if this is really just pre-seed or pseudo-seed, the best scenario is that you get to a first funding event (seed investment or series a) at a meaningful pre-money valuation (>$5 milliion??), in which case that $100,000 is pretty cheap money.