Episode #005

How the VC Business Model Co-Opts Entrepreneurs' Visions with Bryce Roberts of Indie.vc

Why is the VC narrative so dominant? Bryce Roberts, partner at Indie.vc, talks about why it's important to focus on generating revenue from the beginning. Brought to you by DixonAndMoe.com.


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Courtland Allen 0h 0m 8s

What's up everybody, this is Courtland, bringing you another episode of the Indie Hacker's podcast and today I'll be sitting down with Bryce Roberts, a venture capitalist and a partner at Indie.vc and you might be thinking, "Courtland you're on IndieHackers.com where you talk to founders about bootstrapping their businesses and about focusing on revenue from day one, so why the hell are you talking to a venture capitalist?" Well, Indie.vc is not your average venture capital firm. In fact, they have a pretty revolutionary investment thesis that focuses on investing in companies that have a focus on profitability ingrained into their DNA from early on and I'll let Bryce talk about it, because he can explain it better than I can, but you might recognize them from their posts on Hacker News, from their website, which for the longest time, featured a looping video of a burning unicorn head on the homepage, so obviously we're not talking to someone who's very stereotypical venture capitalist in Silicon Valley. I think by the end of this conversation, you'll have a much better understanding of how the common VC narrative has become so popular and so dominate in Silicon Valley and you'll also understand more about the trade-offs that you make when you raise venture capital and why it makes sense, in a lot of cases, to go the Indie Hacker route and focus on revenue from day one. So I'm very excited to bring you this conversation that I had with Bryce and I hope you guys enjoy it as much as I did. Before we get started, let me tell you about a group of guys that I got to know a couple of months ago. They reached out to me as fellow MIT alums and I ended up interviewing them about one of their profitable side projects on IndieHackers.com. Dixon & Moe is a boutique digital agency. They're technical designers with a focus on business and marketing and they specialize in helping bootstrap founder's grow their products. They're based in San Francisco and they work with founders from all over the world and they're big advocates of the Indie Hacker movement, both as participants, having made several revenue generating projects in-house and as design and development consultants who work with an array of founders and products. For example, they helped the founder of WisePops grow his revenue from 10 to 50 thousand dollars a month and quit his job at Amazon to go full time on his side project. They helped Alex from Groove HQ, who, by the way has David Hauser as his loan investor, to reposition his help-desk software from a scrappy app for start-ups to a professional tool used by companies big and small. He's now making $500,000 a month. Dixon & Moe are looking to take on two new projects this year and would love to see where they can help. You can chat with them over email or phone about any design, development or marketing problem that you're struggling with. Reach out to Moe, that's M-O-E, at moe@dixonandmoe.com. That's dixonandmoe.com. And make sure to tell them that Courtland from Indie Hackers sent you. Hi, everybody, this is Courtland from Indie Hackers and I'm sitting down today with Dave Hauser, the founder of Grasshopper and Chargify. How you doing, Dave?

Bryce Roberts 0h 2m 43s

I'm doing great. Thanks for asking and thanks for having me on the podcast.

Courtland Allen 0h 2m 47s

It's really good to actually be able to talk to you again because we first met back in October. I went down to your office in San Francisco and we talked for about an hour, just about, investing, adventure capital, bootstrapping companies, Indie Hackers and it's cool to be able to do it on the air now and talk about some of the same things we talked about then.

Bryce Roberts 0h 3m 3s

Yeah, I know. We've been a huge fan of what you're trying to do with Indie Hackers from the get go. I think, as soon as you launched it was on our radar and we've just been, the content you're putting out, the conversations you're having, the stories you're telling, we just think it's fantastic. So we're happy to, I was glad we got a chance to meet and just free flow for an hour or so. I still remember, it was a great conversation.

Courtland Allen 0h 3m 24s

Yeah and I'm a big fan of what you guys are doing at Indie.vc too. I think i first read about it on Hacker News about two years ago when you guys launched and it was kind of like this cryptic, mysterious launch.

Bryce Roberts 0h 3m 34s

In fact it was two years ago this month. It was January 1, 2015.

Courtland Allen 0h 3m 40s

It's exactly two years ago, wow.

Bryce Roberts 0h 3m 42s

And it was wlld because I was flipping through my Timehop and I remember this year, the screenshot of when we'd been, we stayed at the top of Hacker News for two days and so I just kept kind of tripping out on that and I took a screenshot of it and it popped up this year on my Timehop. So it's cool to see, one, the reaction we had and just giving it some time to reflect on how far we're come since that super-cryptic little landing page.

Courtland Allen 0h 4m 9s

Yeah, it's really awesome and I plan to talk about a lot of that stuff, like the changes you guys have experienced in the last two years and in Hacker News, it's crazy how much traffic Hacker News drives, 'cause when Indie Hackers launched, I was also at the top of HN for two days, but for people who may not have read that post or you may not know about Indie.vc, can you talk about what Indie.vc is?

Bryce Roberts 0h 4m 29s

Indie.vc is a investment thesis we have developed over the years through our investment firm, which is a firm called O'Reilly AlphaTech Ventures, OATV, is a fun that I started with Tim O'Reilly and my other partner, Marc Jacobson. We started OATV back in 2005 when there was no real category of seed investing. We kind of saw this potential opportunity where costs for starting and scaling businesses were dropping, yet the check size of VC firms kind of stayed pretty consistent and so we thought there would be an opportunity for our companies to get further on less, so that's kind of where we started with our business, at least, investing, probably, five years into that, the promise initially of seed investing was that it was going to be, not just this kind of arbitrage of picking these companies early on and kind of bridging them to higher evaluations and more rounds of financing to kind of get them onto that venture track. The idea was seen early on was that it was this, it was effectively a new model for venture scale returns in a market that could potentially see those on smaller outcomes and different types of companies and entrepreneurs, so to start we VC's have made all of their money in the industry, as a whole, has made all of their money off about 12 companies a year that reach a billion dollar evaluation or more on exit. We thought with seed investing there would be this opportunity to kind of create a shadow market or a different type of market for early stage investing where entrepreneurs and investors could be much more aligned about the kinds of exits we could each have that really moved our needle and five years in to just kind of see, boom, we were really starting to feel the pull of what had become really, kind of an arbitrage business, that seed investing wasn't necessarily introducing optionality, it was really kind of bridging the gap to more funding rounds and kind of getting people gussied up and prepared for raising another round of funding versus just building a business and so, with Indie.vc, that opportunity that we saw was still there to help entrepreneurs to kind of build long-term sustainable real businesses that didn't necessarily require massive amounts of venture capital and with that, all that comes along with those funding rounds right, which tends to be more loss of control, more dilution, more oversight and frankly, more expectation around the kind of exit that's required in order to be successful for the investors. So back in 2015, we had this idea that we wanted to test out, which was what if we created an investment vehicle that just backed companies who wanted to raise one round of funding and this just build their business and give those founders the control over how they grew, where they grew, but give them that same layer of support without necessarily expectation that they're gonna raise that next round in the next 12-18 months, which is kind of that implicit A round that goes along with the seed round these days. That's what we started with in 2015, that landing page you mentioned that was on Hacker News and the response to that was pretty immediate and pretty vocal and as a result, over those two years, the idea and the terms and the layer of services we provide and the community that's coming together around it, we've just continued to kind of iterate on that over the last two years and the results have been really encouraging, both from the companies we've funded, but also just the response we're getting from entrepreneurs all over the world, excited about this idea of kind of building their company on their terms versus having to fit a certain mold.

Courtland Allen 0h 8m 16s

Yeah, there's certainly a VC mold that exists and I noticed it a lot when I first moved to Silicon Valley five or six years ago about. I did a Y Combinator and there's kind of this ethos among my batch mates, among the people I talk to in the tech world and if you weren't going for this billion dollar uniform company, then you were just starting a nice lifestyle business and that was cute, you know and you're never really gonna be anything, but kudos to you. It's crazy to me how everyone's kind of on this one page and it's the only way almost.

Bryce Roberts 0h 8m 48s

It is the VC business model co-opting the entrepreneurs vision for what it is they're trying to build and I think in the race to get that validation and support, financially or otherwise, from VC's, entrepreneurs really have to sell this massive vision because it's only those companies that are a billion dollars that really drive returns for the industry as a whole and so you really have to shoehorn your business into it and I think that it forces entrepreneurs to do and be something that maybe they aren't and so, like you said, you have this kind of visceral reaction to these entrepreneurs and how that mentality and mindset and culture really changed how they thought about their business. We think, especially in this day and age, with the cost of starting and scaling businesses only going lower, the funding round sizes keep increasing and I don't necessarily think that's coming out of need, it's coming out of something else and we don't think it's necessarily ambition or anything else, it's just the way that this business is really engineered and we're trying to give entrepreneurs a bit more control over how they do it and how they measure success because for most entrepreneurs who don't go and raise a ton of money and create all these expectations, a hundred million dollar business is still a fantastic outcome for them, it's a rounding error to most VC's. Most of the massive billion dollar businesses that are out there, they didn't start out saying that's what they were going to be, they didn't plant a stake in the ground early on. If you go back and you look at Uber's early idea for what it was going to be or Facebook or Google or any of these things, they didn't set out for world domination. They started small and kind of let that ambition grow over time and I think so many entrepreneurs are handicapping themselves right now by saying we have to be this or we don't matter, right? There's just this belief that there's these completely binary outcomes, right, that it has to be Google or why bother, right?

Courtland Allen 0h 10m 50s


Bryce Roberts 0h 10m 51s

I think that's just a shame 'cause I think if you go back and you interviewed any of those founders of the massive near monopolistic companies we have these days, if you would have interviewed them in the first year or two, they weren't even sure they had a real company. If what they were doing was actually feasible, certainly not at some predefined scale and so I think removing that expectation or at least recalibrating that from the beginning, hopefully gives entrepreneurs an opportunity to start, to get going, to be supported and then let that ambition grow over time and see where it takes them versus force feeding that unicorn right out of the gate.

Courtland Allen 0h 11m 30s

It's nuts 'cause you can go back and like you were mentioned, you can read about the Google founders agonizing over whether or not to sell their company for like a few million dollars or a million dollars and now you have people going into like seed investors, talking about how they're going to be a 10 billion dollar company in five years and there's just so much pressure on people to spin that narrative and to raise more money and investors are expecting to be kind of like a stepping stone, okay, you'll raise money for me and then use that to move your product to this stage, at which point you'll raise more and more money and it's this treadmill that's not necessarily the only way and I think a lot of people have misunderstood kind of your purpose and your methods at Indie.vc. I was reading the old Hacker News threads and some of the earlier coverage you got from Pando Daily back in 2015 and there are a lot of people who thought okay, well, Indie.vc really doesn't care about ambitious companies, they just want to fund these nice, tiny companies with no ambition, when that's not really what your goal is, right? Like as you mentioned earlier, there's a lot of companies that have had amazing success and then ended up bootstrapping or raising not that much funding and making hundreds of millions, if not billions, so what is your philosophy and what does success look like for you?

Bryce Roberts 0h 12m 39s

Our philosophy is pretty straightforward and that is, we think companies that begin with the DNA of, from the very get-go, that they're really focused on designing, developing and delivering a product to customers. The customers pay for it, but they know how to drive revenue and create revenue from the get-go. Our fundamental belief is thus, over the long term, are gonna be much better businesses than the companies who spend their time focusing on raising and spending other people's money and so, that's a philosophy, it's a world view, but we also think that proves out in a bunch of cases. People love to point out how much revenue Facebook or how much money they raised in the early days and over the life of the company, but the reality was, Facebook from the get-go was a very profitable business. Counter Facebook with Twitter who has been losing money from day one and continues to lose money now and yet, they just can't get their act together around revenue, despite it growing like crazy. They looked at revenue as kind of a bolt-on feature. We can turn on revenue when we need to, we think that companies who focus on revenue, we think that that DNA can't be duplicated and that if you have that at your core from the very beginning that over the long term, those companies can outperform and I think we're in a window right now that really celebrates and emphasizes raising money and at what valuations and how much of it and we think that those companies, over the long term, won't perform as well as the companies who focus on revenue right up front. You get that as part of their culture and DNA and then scale accordingly. So that's the philosophy. It has nothing to do with people's ambition or what it is they think they want to build over the long term. We think, again, those ambitions grow over time and I think if you talk to any of the Indie.vc founders that we work with, I think all of them consider themselves prospects for building massive, massive businesses. All of them want to build something big and impactful. They're all ambitious, so they don't talk about their business's as lifestyle businesses. I don't think we'd want to be in business with someone who doesn't really wanna accelerate their growth in a meaningful way. I think there are plenty of companies out there that are great companies that don't make good investments, so we're trying to find that intersection of a great real business intersecting with a great investment and I think a lot of that's tied to the vision and ambition of the founder and we just don't measure that in how much money they're raising.

Courtland Allen 0h 15m 18s

I like what you said about kind of the effects that the current VC narrative has on how people run their businesses, 'cause it's not just a superficial thing. It seeps into the everyday culture of your business. You mentioned the culture of a loss of control, more expectations and more oversight, a little bit of loss of independence, versus a company that maybe raises one round of funding or is bootstrapped and they more of a focus on cashflow from day one and on sustainability. What other disadvantages do you see among companies that are funded by VCs that the companies in your portfolio might not have and might not be hindered by?

Bryce Roberts 0h 15m 57s

That's a good question. I think it's probably less disadvantages, but the thing we hear consistently from our founders and the bootstrap founders we work with is they have this overwhelming sense of freedom. They really aren't beholden to anybody. That they can build their company on their terms, that there's no playbook or archetype they have to fit into and I think there's a lot of freedom and flexibility that comes from that. I think companies as a canvas to express your values, to express who you are. I think we lose a lot of that in a world that values kind of conformity to a relatively narrow set of business metrics that Silicon Valley really embraces and encourages. It certainly comes with trade-offs, right, I mean, I think the, the thing we're recognizing is that it's kind of like, what pain do you want to feel? It is more painful at the beginning to get a business up and running and cashflow it, start to break it even, start to become profitable, start to grow, along those lines, but the reality is, it's just as hard, if not harder, to try to wean yourself off of spending other people's money, losing money, when you've got all of this overhead of employees and boards of directors and all of these expectations. It's just as hard if not harder to try to create a real company from that platform versus starting from the outset with that as the goal. We're trying to encourage and work with the company. Look, we think that venture model, it does work. It works for a handful of companies every year and we think that that is as reasonable a route as any other. If you look at the companies that actually succeed, right, if you look back at Aileen Lee's Unicorn Analysis, the initial one, it was .01% of company, or .07%, not even a full tenth of a point of companies that drive all of the returns for the venture business.

Courtland Allen 0h 18m 3s

That's tiny.

Bryce Roberts 0h 18m 4s

It's just such a tiny sliver of the universe of potential companies. I read a post a while ago about whether we're reaching the ends, the kind of limits of the Silicon Valley venture model because long before I came into the business and currently, the world view is there's these kind of 12 to 15 companies a year that drive all of the returns for the business and so, if that playbook, if that model works for 12 to 15 companies a year, what happens if we could develop a different playbook? Maybe we could create one more of those a year and if you could be the firm that was the primary investor in another one of those or you could be an instigator for bringing more of those companies to creation or being a part of those, that's potentially a very good business to be in, so that's how we look at it, is we recognize look, the model works and it works for a set number of folks and there's, candidly there's a certain archetype of entrepreneur that's embraced by that model, right? What happens to all those other companies that could succeed if they had a little bit of access, a little bit of cash, a little bit more network. We think there's a real opportunity to bring companies and support companies that wouldn't have had it otherwise, but they could scale up hugely. If you look at our first group of companies that we did back in 2005, the company that has grown insanely fast and faster than anybody else in the group, I mean, we're talking 10, 20x growth over the last year, it's a black female founder. She comes from super rough background. She would never have gotten the attention or support of VC's, but she's got more cash sitting in her bank account now after we put $100,000 in as part of our initial Indie.vc investment, one, she never spent it and two she's got what equates to a larger than average seed round sitting in her bank account now because of the cash she's been able to generate over the last year and half. She would have never caught the attention of VCs, and now, because of the rate she's growing, because of the attention she's been able to get, she has them knocking on her door and she's just so committed to doing it her way that she's able to confidently turn away that type of investor interest because she's standing on her own two feet. We think that's not only really empowering, but it's also, we think it's a harbinger of entrepreneurs who don't fit that prototype, don't fit that archetype, but that who have something massive to offer who just need a little bit of help or support and we wanna be able to provide that for them, but we don't want to feed them back into the machine that is looking for something they're not, if that makes sense.

Courtland Allen 0h 21m 0s

Yeah, exactly. I remember reading one of your early posts about a month after you launched and you guys hosted these meet-ups at these events in different cities and people were kind of coming to you and despite reading with the explanation of Indie.vc, they're coming and they wanted to use you as a stepping stone to raising more and more money and it seems to clash with what your philosophy was.

Bryce Roberts 0h 21m 19s

And that was hard because it's like, how do you just not end up with a bunch of VC rejects, people who really wanna keep raising money, but they can't and so they're just looking for kinda that step up to get them closer to being able to raise a proper A round or whatever it is and those aren't the companies we're interested in working with and so we've gotten better at finding and filtering out those companies versus the kinds of companies who genuinely want to do it on their own terms.

Courtland Allen 0h 21m 48s

What's been interesting to me, running Indie Hackers, is people will ask me, you know, do you hate venture capitalists, do you hate raising money and I don't and there's a time and place for that and it's not for everybody all the time and yet there's this narrative that it's kind of the only path and it's fascinating to me how dominate and popular this narrative was. I remember going to Y Combinator Startup School in 2009 and there was like, interestingly enough, my first exposure to the alternative way of looking at things because Jason Fried from Basecamp was one of the speakers and he got up there and I don't remember exactly what he said, but more or less, like trashed what a lot of the other speakers were saying and said, hey, everyone's feeding you this idea this is the only path you could possibly take but, there's other options. You can charge money like every other business in the history of the world has done and you browse TechCrunch and you see only type of business, one type of story, why is the VC narrative so dominate and why haven't the kind of companies and business models we've seen for, let's say, brick and mortar businesses taken ahold sooner in Silicon Valley?

Bryce Roberts 0h 22m 53s

You bring up a couple of really interesting points. I think why is that the case, because big check sizes and valuations and those magazine covers are all really sexy and it's very rare that you get that without something artificial. People in general want, it's kind of like why is the self-help world so big? Why is the dieting industry so big? People just wanna pill that you take and that's what helps you be successful and in many respects, getting a big check from investors looks like that. I think that's part of the culture though. Venture capital got started in Silicon Valley in a meaningful way. I think it's just so ingrained that people take it for granted that that's the only way to do it and I think that's really what we celebrate. I mean, that's really what catches the headlines and I think that's what frustrates, as you probably are finding as you interview the Indie Hackers is like, it's frustrating to see yourselves creating something valuable that you have customers paying for, that you know is working, you got a venture funded competitor who gets the headline for a press release around their funding round and you just shake your head, right?

Courtland Allen 0h 24m 9s


Bryce Roberts 0h 24m 10s

It's a pretty common refrain we hear a lot from folks. It's like, why are they getting all the attention? Well, there's some things you can solve with money and there's some things you can't, right? I think, in so many of these cases, the best competitive advantage is not going out of business, and so if you don't ask permission from an investor to stay in business, there's much higher likelihood that you'll be around long after that press release is old news.

Courtland Allen 0h 24m 35s

Exactly and it's funny to me because, in a way, the fact that the tech press will only really tend to focus on one type of stories is what makes my website possible because I would browse Hacker News and see all these business stories from people who are making real amounts of money, some doing millions of revenue a year and they couldn't get any press and so I created Indie Hackers to feature these stories and people who are interested in them can come to Indie Hackers and read about them but, it's almost impossible for them to get press anywhere and Indie Hackers itself has gotten zero press from any of the tech businesses despite hundreds of thousands of developers in Silicon Valley visiting the website every month.

Bryce Roberts 0h 25m 13s

Jason Fried at Startup School, right, he makes more every year in cash distributions out of his business than most founders will ever make out of a VC funded start-up. That company just mints money. Even more importantly, it really creates this amazing platform for Jason and DHH and the people who work with them to express world views, to highlight cultural differences, to experiment on company culture in ways that you could never get away with at a venture-funded start-up. I was talking to friend recently who bootstrapped his business to about 75-80 million a year in revenue and he was telling me about all the decisions they'd made, these kind of counter-intuitive bets they'd made throughout the years and as he's walking me through this stuff, I'm just shaking my head and I'm thinking, man, if I were on your board as a VC, I would literally have to veto every single one of these crap ideas that you're talking about and yet these are the things that really made their business work, these are the things that really built their company and culture and that their customers love and yet it was stuff that from, if you had to get that by a board of directors, there's no way. There's no way it's happening.

Courtland Allen 0h 26m 31s

That's so nuts.

Bryce Roberts 0h 26m 32s

I think Jason's point, I think your point and Jason's point is a good one, which is, unfortunately, the challenge and opportunity for Indie Hackers and for Indie.vc and the people who are really trying to get these stories out there is that the knowledge transfer that happens so frequently and so clearly in the venture world is actually not very applicable to a lot of these types of businesses. In fact, most of them, if they took the advice they're reading on TechCrunch or most of the blogs that are out there, they'd be out of business.

Courtland Allen 0h 27m 3s

Yeah, I talk to people on the Indie Hackers forum all the time and there's a guy on there a week or two ago, I'm not sure exactly what it was, he was kind of frustrated and he was saying, "Aren't I supposed to solve this huge unsolved problem that no one else has ever solved?" And I was like, that's not what you need to do. He got that by taking advice directly from VCs who want him to build a billion dollar company and anything else is just not worth it.

Bryce Roberts 0h 27m 28s

Well, once when we kinda had to cordon off Indie.vc from the other types of investing we do because we realized there's something really special and different about that that the other companies could benefit from but that focus on revenue, customers, it doesn't necessarily like, like those two worlds don't necessarily mesh very well and so, as we did Indie.vc as a kind of experiment within one of our funds, one of the big realizations we had was that it couldn't really co-mingle. It really needed it's own space. These entrepreneurs just need a very different kind of support and community. One of our core beliefs around Indie.vc is you become who you hang around. If you're hanging around entrepreneurs who are consistently on that VC funded treadmill, the advice you tend to get is really engineered toward what it's gonna take you to get that next round. We did a retreat in Chicago a month or so ago. We actually did it at Basecamp, Jason gave us some space there and the Cards Against Humanity folks there who are also bootstrapped, gave us some space, but the takeaway from our entrepreneurs who came there was like, they couldn't believe that we didn't spend any time talking about fundraising. We didn't spend any time polishing pitch decks. It was all focused on what was happening with revenue, what was happening with customers, all of it was revolving around growth, revenue, sustainability, across all of these retreats we've done at Indie.vc, we're never once done a workshop on how to pitch investors. That's just so different from the traditional world of venture and seed investing that I came from, with our newest fund that we raised, we raised it almost entirely with the story of Indie.vc at the front, and so, all of the investing we'll be doing going forward will be in the spirit of Indie.vc.

Courtland Allen 0h 29m 25s

That's huge.

Bryce Roberts 0h 29m 26s

It is huge. It was a big, scary change to our business after over a decade of doing mainstream seed investing.

Courtland Allen 0h 29m 35s

You're hitting on almost all the questions that I wanted to ask because one of the biggest things that I notice going through Y Combinator and talking to friends who raised VC after that is so much of the coaching and the help that you get is literally just how do you raise more money. You just gotta pitch, you just gotta edit your slide deck and it's like, 50% how do you run your business, 50% how do you raise more money because that's just such a huge part of it, whereas the people I'm talking to with Indie Hackers, no one's asking each other for tips on how to raise money, they're asking how do I get customers? How do I handle the sales process and how do I build a product or a service that's useful for people and can grow?

Bryce Roberts 0h 30m 9s

Well, there were a few touchstone moments for me. Indie.vc, even though we posted it two years ago, it was something that was probably five years in my head and if you go back, you'll find an old talk I did in Berlin probably four years ago or five years ago. It's been kind of coming out and it's been a topic of conversation within my partnership and with my advisors for probably five to seven years and there's these kind of touchstones along the way. I remember one of our companies that we are investors in had closed a, they just closed a double digit round of funding, significant, huge round of funding. The very first board meeting after this round of funding, there was a large portion of that board meeting that was spent around what fundable milestones do we need to hit to get the next round and who should we start talking to right now to start getting the company prepared to raise again. This is a company who literally raised money, enough money to probably be in business 10 years, but the expectation was just so immediate that they would be raising again within the next three to six months because they were hot and they could and all this other stuff and that that would give us all kind of a nice bump in our IRR, it was like, it was that moment where I'm just stepping back and thinking, this is not the kind of business I wanna be in and these aren't necessarily the kinds of businesses I want to work with and like your said, it's not that you dislike VC. We get the anti-VC thing all the time, when in reality, we are still VCs, we still have the potential VC-style outcomes, but we think that playbook, it really is best reserved for only a handful of companies that are willing to play by those same rules and that most other people are gonna be better suited finding a partner that will be happy with an outcome that they'll be happy with and that's not necessarily saying to be less ambitious, that's saying, don't force yourself into somebody else's model too early.

Courtland Allen 0h 32m 20s

Exactly and I think a lot of times people force themselves into these models blind. They aren't aware of the trade-offs they're making and they're not aware of the other options that they even have.

Bryce Roberts 0h 32m 30s

You're right, I think, entrepreneurs will be really real with you from the outset, like what they really want in a seed round or even a Series A is an ability to pay their salary. I wanna take a little bit of pain and risk out of the equation and instead what you end up with is a box and so instead of starting a business to be your own boss and chart your own course, you've taken on a boss from the get go, you've taken on all these expectations. You've taken on this notion of kind of the implicit A that after you raise your seed round, you're gonna need to raise again in the next 12 to 18 months so that everybody gets their nice IRR bump. Most people just don't think that long term, they just know that, you know, they either don't have the savings to be able to do it or they just want that early validation from someone who believes in them and instead they kind of end up biting off more than they chew or a different bite than they thought they were gonna get.

Courtland Allen 0h 33m 23s

Right and I talk to so many people at Indie Hackers who are in situations where it's like you described, I might talk to a developer who is a brilliant developer and has a great business that he's working on and he's working on it literally on the side of his full time job and here she might go home from work, code on the weekends and at night and come back and it's like, all that person wants is enough money to be able to safely quit their job and work on what they're doing and they don't necessarily need a seed round or a series a or anything like that, but I'm curious about, because you guys have completely switched, maybe not completely switched, but you guys have shifted a lot of focus to Indie.vc, which is this new investment thesis and I'm curious what you think the future of Silicon Valley is, the future of bootstrapping, the future of companies that aren't raising these successive VC round after VC round after VC round. From my interviews, I've seen this common theme of people kind of going into niches, so in the real world you might have a restaurant that serves the local community, which is hard to do on the web obviously because it has a global scale and anybody can use what you build, but people are targeting ever smaller niches, which is kind of similar. For example, I've seen analytics for Stripe accounts, analytics for Intercom, analytics for non-profits, these are all profitable companies. I've interviewed people doing productivity tools and this of course is Asana and Basecamp and Trello and hundreds of businesses in a productivity space because it's not just one big winner-take-all market. Do you think that this is something that we're going to see more and more developers and founders shift into doing?

Bryce Roberts 0h 34m 53s

I think it all comes out in the wash. I wrote a post a while ago that I called the peace dividend of the seed surge, which we basically co-opted the idea of Chris Anderson's notion that all of the explosion in new consumer electronics we're seeing is the peace dividend of the cellphone wars, but effectively, there is this wave of founders who seven times more founders have raised a million dollars or more over the last 10 years than at any other point in history. I do believe that there are just more entrepreneurs who are educated, who've been experienced, who've seen both sides of the fence, if you will. They've gone and raised venture, they've built, now they don't want to do that again or they're gonna go into it more cautiously the next time around. I do think that people are just gonna be getting smarter about how and where they apply venture capital to a problem versus using it as kind of the universal duct tape of start-up solutions. I do think that people will see themselves going deeper into niches because, as you can probably appreciate, the bigger the web gets, the more mobile devices get into people's hands, the bigger these historical niches end up becoming. I do think there's going to be a lot of things we're gonna be surprised by that felt really small that all of a sudden see kind of massive, massive audiences. That's not new, I just think we're gonna start to see it in new and different ways than we've been seeing it in the past. I think most of the big hits we've seen over the years have come at it from a very small niche-y approach and that ends up being what works really well for them and let's them get entrenched and create some competitive barriers. I think we're gonna see that more, but in very unique and different ways.

Courtland Allen 0h 36m 44s

Yeah, I like what you said about the niches getting bigger as more and more people get onto the web because I've interviewed so many people who are like, the niche that they're targeting, like 10, 15, 20 years ago, definitely didn't exist online and now it's big enough for them to be making multiple, tens or hundreds of thousand of dollars a month, just for targeting this niche and they're just getting started. So it's really interesting to me to see what kinds of businesses people can build by focusing narrow first, like you were saying earlier, focusing narrow first doesn't mean that you can't become a billion dollar business, if that's ultimately something that you wanna do or something that you kinda fall into, right?

Bryce Roberts 0h 37m 19s

Right, what we really wanna encourage and what we wanna see people doing is like, I think that the Silicon Valley culture right now says if it's not a billion dollar idea, it's not worth doing and so there's a lot of people who are sitting on the sideline not shipping because it's not a billion dollar thing or because they don't think they can raise money for it or something like that. We just wanna see people building things. We wanna see people shipping things and then scale figure itself out. The realities of running a billion dollar business is that they are not for most people. Most people really just want to have an extra 10 grand a month or a year or whatever, they want to supplement an income or wanna be able to work full time on something that's theirs and that's okay, or want to have a company where it's just their friends they get to work with. There's a lot of reasons people start and scale businesses that don't have anything to do with binary outcomes.

Courtland Allen 0h 38m 17s

Exactly. I want to talk a little bit about your investment model because I think the way in which an investor puts money into a business and the terms that they ask for and the instrument that they use, play such a huge role in shaping the founder's motivations, like what they do to run their business, why they're trying to reach profitability or raise the next round, et cetera, so can you tell us about that, how the Indie.vc investment model works and how it's changed over the past couple of years?

Bryce Roberts 0h 38m 43s

Yeah, the idea with Indie.vc was that we wanted to create an instrument that didn't anticipate any future funding and so, if you never raise any more funding, if you take an investment from Indie.vc, the expectation is that you don't raise any more money and then we can get paid out in distributions over time. So rather than having, forcing you to sell or raise another round of money to get our mark-up in valuation, if you want to just grow your business on revenue, we wanna be aligned with you in that way and so, as the business grows and as you take more money out of the business through your salary, then we are able to take a percentage of that out as a distribution, a cash distribution to us and rather than kind of be this perpetual thing where we become an albatross around an entrepreneur's neck where they have to pay us out in perpetuity, we try to cap our return at something that feels reasonable, so right now that's at a 5x on our distributions. Now, the way our instruments also set up is that if you do raise money, we'll convert in as a part of that round at a predefined percentage that we work with the entrepreneur or if you sell the business then we convert into common shares that are predefined percentage as well and go through as part of that transaction on the cap table.

Courtland Allen 0h 40m 5s

And to me that sounds super attractive. The idea that I could take investment and get money that helps me fuel growth without having the pressure of raising money again and knowing that I could pay it out in a dividend that doesn't kick in until I start paying myself a certain amount. It's awesome and I'm sure a lot of people listening right now who are Indie Hackers or probably strongly considering applying to Indie.vc right about now.

Bryce Roberts 0h 40m 26s

Yeah, at every possible turn, we're trying to give more control over it to the entrepreneur. We, as investors, are gonna be best served if our entrepreneur is able to operate on their own terms and so we wanna be there as a support, as an advisor, as a mentor, as a network and connector, but we don't wanna be your boss. We don't wanna seat on our board of directors. We don't want a different class of shares. We don't want any unnatural control over your business and we wanna give you the flexibility to grow it as you want it and hopefully our terms are structured in such a way that we're aligned with you in doing that.

Courtland Allen 0h 41m 2s

Perfect and to close out, I'd really love to talk about, just kind of your portfolio companies, and this is continuing with the theme of listeners wanting to apply to Indie.vc in version one of Indie.vc, as you call it, you had eight companies and in version two, you're looking for between 15 and 20. Where do these companies come from and what do they look like? What are you looking for in companies that apply?

Bryce Roberts 0h 41m 25s

So where do they come from is they come from all over the US so far. We haven't made any international investments at this point, but our geographic footprint is all over the country, so we've got New York, we've got Chicago, we've got Atlanta, we've got Austin, we have a couple in the Bay Area, LA, Pittsburgh, one of our underlying philosophies is that people should bloom where they're planted, that there's an opportunity in a bunch of different geographies that have unique reasons for people to be there, whether it's lifestyle, access to talent, whatever it is, we're not making people pick up and move across the country to get closer to us. What we want to try to do is bring our networks and resources to them where they might be, again, so they can bloom where they're planted. The first group of companies, it was kind of all over the map in terms of the profile. We were figuring out kind of what the sweet spot is for companies to get the most out of this kind of support and network. We had everything from standing start ideas to side projects to companies that had been in business for a couple of year doing hundreds of thousands of dollars in revenue. I think where we kind of came out after that first group is the company's who tended to do best were not the ones who were just getting started, so companies who had some amount of revenue coming in every month, even if it was a nominal, like 10K a month, it's pretty clear that the company's who passed a certain threshold of revenue were the ones who were really, really getting the most out of, not only our investment, but also our investment of time and resources and networks and all that stuff and so, as we look for things, we're looking for things with 10K plus a month in revenue, we're looking for tech and tech enabled types of companies where our networks are coming from the technology world and so, they're best served and I think our companies are best served who can benefit from access to those types of relationships and then it's people who are looking for a 100K up to 500K, not people who are looking for multiple millions of dollar in investment or looking for a more traditional Series A round or something like that. We're also very open to new archetypes of founders, like I mentioned in the first group, the company that's just far and away growing faster than anybody else is a black female founder who's just really taken our involvement to heart and has just grown leaps and bounds. Our first group of companies, we did eight companies and of those, six of the eight were female-led companies and we think that particularly those non-traditional founders, the ones that maybe didn't go to Stanford, the ones who aren't a GSB, the ones who aren't Googlers and Facebookers and all of that stuff, people who come from less conventional backgrounds, we think Indie.vc serves really well, particularly since we're gonna focus on their business and not kind of gussying them up and getting them ready to raise the next round of funding, when they don't look like what Sand Hill Road funds, if that makes sense.

Courtland Allen 0h 44m 40s

It makes a lot of sense, that's awesome. I had no idea you had so many female founders, which, it's funny enough, it's something that I've struggled with in Indie Hackers in trying to find more female founders and founders from more non-traditional backgrounds to interview and it's hard, so that's super-impressive what you've done at Indie.vc.

Bryce Roberts 0h 44m 58s

I mean, we really had no idea. We didn't set out with that as an objective initially but the response from female entrepreneurs, the response from underrepresented minorities, it was just so loud that we couldn't really ignore it. These were people who clearly had been overlooked and don't necessarily fit into the traditional venture system as it works today but man, given a little bit of resources, a little bit of belief, a little bit of support, it's been amazing to watch some of these entrepreneurs and how quickly they've been able to progress with a little bit of cash and a lot of belief from us and our networks.

Courtland Allen 0h 45m 38s

That's awesome and I hope you guys continue to grow and find more companies. You find that a lot more people are applying in V2 than were in V1?

Bryce Roberts 0h 45m 46s

Yeah, we've definitely seen a pretty healthy steady state, the one thing we have going for us in V1 was that we had a deadline and so, now we have it kind of open ended, and so there's a consistent cadence of entrepreneurs who apply every week, which is great, but it's definitely a different cadence than we had when we said, hey, you have to be submitted by March whatever it was, that was truly like a mad dash.

Courtland Allen 0h 46m 13s

Yeah, exactly.

Bryce Roberts 0h 46m 15s

Of entrepreneurs, so no forcing function, I think it's also giving us a higher quality. I think a lot of people just kind of threw their hat in in round, I think now, hopefully we're getting better at telling our story and being more explicit about what it is we're looking for and so, the caliber and quality of companies is certainly going up as we tell more of our story.

Courtland Allen 0h 46m 34s

One of the fears that I had when I first started Indie Hackers was that I wouldn't be able to find enough people to interview who were doing the non-traditional, let's try making money from day one type thing and this is obviously more a testament to the fact that Indie Hackers is pretty new, rather than a testament to this becoming more and more popular, but in the beginning, I was getting one or two submissions a week and now I'm getting 15-20 people submitting interviews every week and it's only been growing.

Bryce Roberts 0h 46m 59s

That is awesome. I think that's a harbinger, right. I think that's more signal that there are a group of entrepreneurs who really want to do it differently and I think you telling their stories is a huge, huge boon to any of those folks who want to get their message out and want to feel like they're part of a community.

Courtland Allen 0h 47m 16s

So can you tell the listeners where to go to find you and learn more about you and Indie.vc on the web?

Bryce Roberts 0h 47m 21s

You can always go look at our burning unicorn on Indie.vc, that's the URL for Indie.vc, you'll find out everything there is to know about us, for the most part there and the links are to a bunch of the things we've been writing. If you want to get in touch, I'm bryce@oatv.com. I write infrequently, but I try to at least be consistently infrequent on Bryce.bc, I'm @bryce on Twitter and Indie.vc has a pretty active Twitter account as well @Indievc.

Courtland Allen 0h 47m 54s

Awesome, thanks so much for coming on the show, Bryce.

Bryce Roberts 0h 47m 56s

Happy to do it, anytime.

Courtland Allen 0h 47m 58s

Bye. Hey everybody, thanks for listening. If you enjoyed this conversation and you've got questions for Bryce or for me, head over to the Indie Hackers forum where we'll be discussing this episode. That's www.indiehackers.com/forum. Thanks and I'll see you guys next time.

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