
Venture Capital and Its Discontents - hodgesrm
http://www.wsj.com/articles/venture-capital-and-its-discontents-1464667261
======
projectramo
*Just type the title into google and click on it to read the article.

Anyway, the article talks about how this company didn't take VC money, but
took money from Indie.vc (backed by traditional VC money).

And then describes the economics which is almost identical to the economics of
taking money from a VC firm.

The big difference is the apparent lack of pressure, but that pressure is
internal. Its not like the VC forces you to spend money a certain way.

To put it another way, if the advantage of indie.vc is that they don't
pressure you, its a difference in management style, not a difference in deal
structure.

~~~
hugs
But there is a difference in deal structure. If you want to, you can pay back
the investment via profit sharing, which is unheard of in traditional
seed/early stage VC deals.

(Disclosure: My current company, Tapster Robotics, is one of the first
Indie.vc investments. I would have happily remained self-funded/bootstrapped
if it wasn't for Indie's alternative deal structure.)

~~~
projectramo
Wouldn't that be a version of venture debt?

~~~
taylorwc
There are two pretty big differences. The first is that venture debt is
usually only available to very established companies, as far as startups go,
and have restrictive covenants (regarding cash balance, profitability, other
indebtedness, etc). The second is that most venture debt comes with warrant
coverage, so the lender ends up taking equity as well.

~~~
projectramo
But in this case, it sounds like indie.vc gets the equity kicker as well at a
liquidity event.

The covenants could be a big difference. Surprised that Indie.vc doesn't have
any.

~~~
bryc3
The instruments is essentially a modified SAFE with a clause for distributions
(which keys off a multiple of the founder's salary) and no expiration date.
The intent was to keep it simple, clear and relatively toothless.

------
bradhe
> A recent report from the Kauffman Foundation found that less than 5% of all
> startup funding comes from venture capitalists, and only 6.5% of high-growth
> startups take venture funding. However, 37% of companies that had IPOs
> between 1980 and 2005 had VC funding.

Wow, if that's true I'm very shocked by those numbers! To be fair I haven't
ever considered the macros of the industry, but perhaps this points out just
how much of a bubble (perhaps echo chamber?) I live within!

------
ryporter
“Venture capital can be like a mortgage you can’t afford,” says Atlassian co-
founder Scott Farquhar. “It sounds great at the time, but you regret it when
your mortgage payments overwhelm you and you realize you didn’t really need a
big house in the first place.”

No, venture capital is not at all like a mortgage. There are no payments due,
unlike a small business loan, which is very much like a mortgage.

~~~
achow
I guess Scott Farquhar perhaps meant that 'payments due' are the growth
numbers that one has to meet periodically (monthly, quarterly, annually) - to
which one had agreed on during the VC funding.

------
ryporter
This is similar to revenue sharing agreements that many investors enter into
with startups. Many angels at least bake this option into their Seed Stage
investment if they fear that the company could turn into a "lifestyle"
business.

~~~
hugs
"many angels" Can you name a few? The difference with Indie is that paying
back via cash distributions is not something to fear and is not considered a
failure.

------
btown
Whenever I see an article about a single company that only quotes its
leadership and customers, I'm always reminded of
[http://paulgraham.com/submarine.html](http://paulgraham.com/submarine.html)
... Not that this pattern is bad per say, but caveat emptor.

~~~
bryc3
Candidly, I thought the piece was going to be a broader look at VC
alternatives. I was as surprised as anyone to see that Indie.vc WAS the story.

~~~
nickpsecurity
Me too. I figured I was about to see problems with and alternatives to current
VC models. Instead, the site is an advertisement for an unusual VC. Title
should probably reflect that.

~~~
hodgesrm
You have a good point. I was following the submission guidelines on the title.

Anyway, it's sometimes hard to figure out an a propos title until after
reading all the insightful HN commentary. :)

------
cdvonstinkpot
Blocked by a paywall when I try to read the article. :-(

~~~
winslow
Access it via Google and there is no paywall. (It's stupid)
[https://www.google.com/#safe=off&q=Venture+Capital+and+Its+D...](https://www.google.com/#safe=off&q=Venture+Capital+and+Its+Discontents)

~~~
achow
The reason:

 _First click free: We 've worked with subscription-based news services to
arrange that the very first article seen by a Google News user (identifiable
by referrer) doesn't require a subscription. Although this first article can
be seen without subscribing, any further clicks on the article page will
prompt the user to log-in or subscribe to the news site._
[https://support.google.com/news/publisher/answer/40543](https://support.google.com/news/publisher/answer/40543)

------
cirm
Small Business Financing, Black People and Venture Capital
[https://youtu.be/gXGBEUoxHHs](https://youtu.be/gXGBEUoxHHs)

