A little over a year ago, we invested in eight companies under the Indie.vc banner. At the time, we recognized that this might be a one time thing. We wanted to create a different funding instrument and a broader definition of what success could look like for a VC-style investment. We wanted to see what effect, if any, a group of founders focused solely on getting to profitability v. attracting more VC investment might have on their growth and survival rates. The eight companies we funded were selected from a pool of over 500 applicants.
“Before Indie.vc, I was focused on raising a million dollars. Now I’m focused on generating a million dollars in revenue” — Candace Mitchell, Founder of Myavana
The last year has brought a groundswell of support and interest from a wide range of founders. In conversation after conversation, it became clearer that Indie.vc might hint at a different path. One that values building a sustainable and profitable business over working towards the next fundable milestone. A path that recognizes a world of opportunity to generate attractive investment returns working with companies that sit squarely between lifestyle businesses and monopolies.
We assumed our target market would be bootstrapped founders looking for access to a little cash and a broader network. But focusing on business fundamentals has been resonating with both underrepresented founders as well as founders who’ve spent their time on the VC treadmill and are looking to build their company on their terms this time around.
Over the last year, we’ve seen some interesting results from the pilot group of Indie.vc companies. We’ve tested some of our original assumptions around what kinds of companies this style of investment, and group setting, works best for. A year later, three of the eight are solidly in the black and two more are within striking distance. All eight are still in business.
In an effort to continue iterating on the ideals and model of Indie.vc, we want to release v.2. Here’s what we’re experimenting with this year.
For v.1 we took a small pool of capital from one of our existing OATV funds. This year, and going forward, we’ve raised a dedicated pool of capital to fund and support Indie.vc style companies. This may be a small paragraph, but it is a meaningful shift in how we spend our time and where we see the investment opportunities for our firm for the foreseeable future.
Not a Batch
This year we’ll be investing in companies on a rolling basis. Batching companies in v.1 allowed us to create a sense of urgency and scarcity, but it also gave off the impression that Indie.vc was a type of accelerator. Within the first group of applicants we’d often hear founders say they were planning to apply to Indie.vc in addition to some of the top accelerator programs. Even though we were explicit in all of our communications that Indie.vc wasn’t an accelerator, the batch format comes with enough baggage that we’d like to shed it in v.2.
In v.1 we limited the size of our investment to $100,000. This felt like a comfortable amount to invest and take on given the experimental nature of the Indie.vc project. We’ve heard from many founders over the last year who were interested in being a part of Indie.vc but were far enough along that $100,000 really didn’t do much for their business. In v.2 we want to the test that idea a bit. To that end, we’ll be flexible on our initial investment amounts from $100,000 up to $500,000. We’re interested to see what this investment range does for the types and stages of companies we can work with, as well as the impact different investment levels has on the overall group dynamic of Indie.vc funded companies.
v.1 was set up to test a wide range of filters around which stages, sectors and geographies would work best under the Indie.vc style terms. Over the course of the last year, we’ve noted which companies have seen the most benefit from both the cash invested as well as the group dynamic. Responding to those learnings, v.2 will have a clearer set of filters around how much a company could have raised prior to taking an Indie.vc investment (no more than $500k), and how much revenue they should have before applying (no less than $10k/month). We have found that our software businesses have been outperforming those who make or move physical inventory, but we remain open to hardware, ecommerce and software businesses. We prefer companies that charge money for a product and are unlikely to fund businesses that track or mine their users data to sell to 3rd parties. We are open to non-US based companies.
Our aim is to make 15–20 Indie.vc investments in the next year. We’ll take our learnings from the coming year, pair it with our learnings from the last and roll out v.3 around this time in 2017 (with the possibility of a few dot releases between now and then).
Overall, the terms we laid out in v.1 have held together well. We’ve even seen a number of companies and investors adopt them. We’ll be making one change to the v.2 terms: if a company is able to hit their 5x cap on distributions within the first 4 years, the equity conversion amount will decrease by 50%. So, if at the time of investment we agree to an 8% equity conversion (equity conversion only happens in the event of an acquisition or further funding) AND the distribution cap is reached within 4 years, that equity conversion will decrease to 4%. Aside from this change, all other v.1 terms will remain the same. The updated terms are on GitHub.
It’s worth noting that under these terms, that the only time Indie.vc becomes a shareholder in your business is if you choose to raise follow on capital (and only briefly in the event of an acquisition). We can not hire or fire you. You do not work for us. You can choose to value and implement our advice or completely ignore it. We are not your boss; we’re your partners in servicing customers, shaping your culture, and building your team.
For the last year, we’ve organized quarterly retreats that include all Indie.vc companies. The last year took us to San Francisco, New York City, and Los Angeles. These quarterly sessions are a mix of hands on workshops lead by subject matter experts, fireside chats with relevant founders, and group reporting on company progress and challenges. These quarterly retreats will continue in v.2.
As with v.1 of Indie.vc, in v.2 we’re looking to invest in businesses that are, frankly, real businesses. Businesses that generate revenue, and eventually profit and positive cash flow. We think that independent businesses like these not only create more value for society, but also more long term value for investors. If you are looking for support and capital to build your company on your terms, we hope you’ll consider Indie.vc as an investment partner.
If this resonates with you and the company you’re building, we’d love to have you apply.