The Inevitabilities of Indie

I have one more post about Indie in me and then I’ll take a break. Not a break from Indie itself but a break from writing about it. The truth of the matter is that there’s no break from Indie for me because Indie is a part of me now.

In many respects, it’s the truest part of me.

The part of me that I was trying to translate into my work and the work I have the privilege of being a part of. Make no mistake, funding founders trying to bring their ideas into the world through business truly is a privilege of a lifetime. We need more models that empower founders to bring their whole selves to the companies they start, not just the bits that fit nicely into the boxes that backers like to fund. Permissionless Entrepreneurship was one way to establish that degree of freedom and independence.

What we started with Indie doesn’t end because of a blog post or a stubbornness on my part to refuse running it sub-scale. It’s in my DNA. And as such, it’s just a matter of time before it finds ways to express itself again and again in the work that I do.

In the last two posts, I tried to unpack some of the challenges of scaling Indie.vc from an experiment to an institutional-grade investment strategy. TLDR: I got a lot of stuff wrong.

But, there are a few things I feel we got really right. Not only right, but things that I believe will be part of the inevitable future of startup investing over the next decade. Some we are more obvious- open applications (duh) and diversity of founders we funded (double duh), but some were more subtle or nuanced.

Below is a non-comprehensive list of a few of those subtle, yet inevitable ideas that we were expressing at Indie. Feel free to modify, adapt or outright steal. YMMV.

Ephemeral Funds

One common response to ending Indie was- what happens to OATV? To which many responded “What’s OATV?” or “I thought Indie was OATV!”. This was a feature not a bug.

Indie was always one strategy among several we deployed through OATV. There is no Indie LLC or Indie Management Company. It was always a strategy, investment structure and marketing message designed as a honeypot to attract a certain kind of entrepreneur. That Indie, the brand, quickly overshadowed that of OATV, the firm, in such a short time was telling.

Much weight has been put into the idea of firms as something to be nurtured, stewarded and passed on to the next generation of managers. But, what if that was ending?

Case in point- the firm behind one of the best performing funds of all time doesn’t exist anymore. Lowercase Capital was stood up at a time when Web 2.0 was in the air and mobile/social was on the lips. When that strategy became less compelling it was wound down. Years later, when a new strategy captured Chris’ imagination, a new outfit was spun up.

Whether it’s Indie, Elad, Chris or Josh you’ll increasingly see dynamic adaptable structures spun up and down around individuals and strategies to meet the ever changing needs and immediate opportunities in front of founders and investors. Larger and larger pools of capital will be committed to nimble allocators in a wider and wider variety of configurations that don’t fit neatly into the legacy firms of our VC forefathers.

In the inevitable future, ephemerally adapting to opportunity will eat legacy’s lunch.

Multi-Stage ->Multi-Product

Multi-stage is all the rage today, with large firms deploying capital from Seed to SPAC. Their ability to scale across this spectrum is largely based on their position at the headwaters of LP capital. I don’t see that as a nefarious land grab for fees, but more a practical reality of their performance having a compounding effect on the investor relationships they’ve established.

But stages are not infinite and the number of companies that can compound that capital at the promised rate of returns are still measured by decimal points.

So, what is a firm with access to near unlimited capital to do?

Clearly, our answer was to begin developing new products and form factors of capital. From our Indie.vc terms, which blended equity and cashflow redemptions, to our INTRO product we were intent on exploring the capital stack that sits between bank loans and blitzscaling.

As growth capital commodifies, firms that can help founders optimize ownership and optionality beyond offering increasingly higher valuations will be advantaged. As a founder, working with one flexibile financial partner to optimize a “capital stack” to meet your companies unique goals and objectives will be an increasingly compelling value proposition.

From crypto tokens to credit lines, the firms with financial literacy and capability to execute across stages AND products, will have a distinct advantage among informed founders.

Equity 2.0

Banks are broken and VC isn’t available for most founders and works for even fewer who raise it. We know this, but what are we doing about it?

Our attempt at Indie was to marry the potential upside of equity with the reality that most venture funded companies don’t achieve venture scale returns.

By creating an instrument that captured equity-like upside without the presumption of blitzscaling or bust, we found our Indie companies exhibit fairly different dynamics than most startups we’d funded in the past. For example, our Indie companies had a far lower mortality rate (roughly 12% of Indie funded companies have gone out of business entirely) vs. their classically venture funded peers. We also found that 20–30% of Indie companies broke out into more venture-like profiles growing revenue 2x to 10x for consecutive years post-funding. The structure and focus of the funding seems to have a very real impact on likelihood of successful outcomes for the companies we’ve backed.

Indie was but one small stab at the massive opportunity to create new form factors of capital that sit on the debt to equity spectrum. We will see hundreds, if not thousands, more attempts at creating versions of Equity 2.0 that will unlock access to capital and networks for a wider range of founders and more diverse set of successful outcomes.

Economies > Communities

Much has been written over the past decade on the value of communnity. I believe the next ten years will be defined by communities evolving into economies.

In November 2019, we launched a Scout program to explore some of these ideas. Unlike other Scout programs that focus primarily on sourcing dealflow for the sponsoring fund, ours had a different agenda. From our announcement:

As you might imagine, our Scout program will be a bit…different. Unlike other programs, it will be cash-based and will have a laser focus on educating and training our Scouts on how to develop their own track records as Indie.vc aligned investors.

The goal of our program is to activate all of our supporters currently on the sidelines and accelerate the expansion of an Indie.vc economy. If we can put our Scouts in a position to become potential co-investors, at best, or to start developing track records as sources for quality dealflow, at least, the promise of Indie.vc will become the reality of Indie.vc that much faster.

The following month we launched our pilot with 120 participants. Given our desire to create a program that reflected the experiences, demographics and geographies we wanted to model for an Indie Economy, we came out of the gate with an incredible cast of founders and executives from some of the top startups, BigCos, funds and non-profits in the world.

And their impact was immediately felt.

A full 75% of companies who applied to participate in the following cohort were referred by Scouts and 80% of the companies we funded came through the Scouts in our pilot program.

But the referrals were always the thin edge to the Indie Economy wedge. The goal was always a more robust set of engagement modes and educational opportunities. At the heart our education efforts was a Scout Handbook which helped to bring the Indie-curious up the learning curve of a frameworks to evaluate investments and explore the growing Indie ecosystem.

We soon layered on our Verified Scout™️ program in which Scouts could source and lead their own investments with compensation as full carry, instead referral fees. We then created an advisor directory where Indie portfolio companies could search through Scout profiles to find those with experiences that fit their needs. We also created custom INTRO referal links for our Scouts so they could seamlessly send companies they advise to a comprehensive aggregator of non-dilutive funding options and recieve any success fees those referals generated.

Post-pilot we expanded the program to 400+ Scouts with nearly 4,000 on the waiting list. We’ve paid out INTRO referal fees and put Scouts on cap tables of Indie companies as both adviosrs and angels.

The Indie Economy was really starting to hum. And I believe many other funds would be well advised to follow suit.

Venture firms and strategies are the perfect vehicles to create economies around. With cash from fees, equity from investments, and the emerging ecosystems around crypto, there’s a mirade of ways to activate the energy and experience of their communities that go far beyond Slack channels and sponsored dinners.

Our Scout program completely rewired my brain around how to activate and incentivize a community. It is/was one of the crown jewels of Indie.vc. I bet we’ll see some variations, or outright copies, of our program across most funds in the inevitable future.

There’s never been a more dynamic time to rethink and reshape the future of funding.

And to be clear, these aren’t our only inevitable ideas; rather, these were a few of them we were working to manifest with Indie.

You’ll have to wait for what’s next to see some of the others…