Who:
Bootstrappers with ambitions that exceed their cash flow.
Creatives with side projects they’re funding through client work.
Founders that don’t want to sell out their users to attract investors or advertisers.
What:
A program, network and funding mechanism for founders looking to start and scale independent businesses with positive cash flow.
Program is structured to empower, educate and inspire founders on the ins and outs of company formation, customer acquisition, user testing, sales, product management, hiring and more. The program is private and its participants will not be publicized. There is no demo day.
Network will be designed to surround and provide founders access to top minds and mentors in their field in addition to collaboratively learning from their program peers.
Funding of $100,000 will be provided to the 8 participating companies. A unique aspect of the Indie.vc funding model includes the option of cash distributions to investors.
Traditionally, technology investors only get their money out when you sell out (another term for this is a “Liquidity Event”). An investment from Indie.vc doesn’t preclude you from selling, but in the event you stay independent, our investment will get paid out as distributions from cashflow over time.
The schedule for cash distributions will be based off the founders salary at the time of funding or, in the case of a founder paying themselves far below market, based on a market salary for founders in your area. Once the founders salary exceeds 150%, we will consider that excess distributions and begin to particpate in those distributions. Initially, we will get 80% of those distributions while the founders take 20% until our initial investment has been returned 2x. At 2x the model flips to 80% to founders, 20% to indie.vc until we’ve received 5x our investment. Distributions to Indie.vc are capped at 5x.
Only if and when you choose to raise more money from traditional investors or sell out do we become shareholders in your company.
In the event you choose to raise money, our initial investment would convert into pre-money preferred shares (assuming you’re issuing preferred shares to the new, lead investor) in your company and we’d have a pro rata right to participate in the round to preserve our pre-determined ownership level.
In the event you choose to sell out, we’d convert into common shares at the pre-determined ownership level just prior to the acquisition.
So, what is this pre-determined ownership level?
Given that this is an experiment, we thought it only fitting to push the experiment one step further by trying something new. Rather than having us specify a minimum ownership level, we’re going to let the founders determine what ownership percentage they’ll contribute.
If you make it to the final round of the application process, you’ll be given a termsheet with the equity amount intentionally left blank. You get to fill that in. Pay what you want might be a terrible idea, but we think it’s worth trying.
A simple summary of these terms can be found in the Google doc posted here.
When: May 2015 through May 2016.
Where:
The kickoff will be a week long session in San Francisco. Each successive quarter will involve a 3 day weekend to be held in various startup cities including Austin, LA, Portland, NYC, Salt Lake City, Chicago among others.
Why:
We want to try and experiment.
Despite sharply decreasing costs to start and scale technology based businesses, VCs continue to fund companies the same way they did 40 years ago.
And that way isn’t for everyone.
That way comes with a lot of expectations about the kind of company a founder wants to build. The kind of team a founder wants to recruit. The kind of exit a founder wants to see. And the kind of timelines a VC needs to see this all happen within.
There’s a mythology that entrepreneurs need to take VC money to hit the big time. While it’s true that some companies really do need outside capital, there are many examples of great companies that have reached revenues of hundreds of millions of dollars, or even gone public, without ever taking in capital, or taking it in only at a late stage, when they’d already created a high valuation by bootstrapping the company.
Some well-known companies that have taken that path include:
Atlassian
Automattic (WordPress)
Basecamp
Campaign Monitor
ESRI
Github
Mailchimp
O'Reilly Media
Qualtrics
Shutterstock
Smugmug
Sparkfun
SurveyMonkey
Like cement, the cultural foundation for new projects and companies sets early. Those who focus on raising outside capital and achieving fundable milestones have a very difficult time getting off that VC treadmill.Those who focus on creating value for customers and generating positive cash flow from the very beginning are able to make their own decisions independent of competing outside interests.
Can companies today who plan to stay independent and bootstrap their business be competitive in a world awash with Silicon Valley startups and Sand Hill Road cash? Can we build a new kind of startup community that values independence and a DIY work ethic?
This is the experiment we’d like to run with Indie.vc.
If you’re interested in joining us, you can apply here.
The application deadline was March 15th, 2015.
We’ve setup a Slack channel for asking specific questions. Email us for an invite.
Follow us on Twitter @indievc
Related Links: What is Indie.vc, An Update on Indie.vc, The Biggest Misunderstanding About Indie.vc, Why Indie.vc Might Be Good For Female Founders, How Indie.vc Cash Distributions Work, The Indie.vc Companies, Indie.vc Termsheets on Github