Bryce Roberts was tired of hearing the same pitch over and over again: An entrepreneur would come calling with a bold idea and empty pockets, ready to build the future but for the lack of $2 million and a business model. The money, hopefully, would come from Roberts--he was a venture capitalist, after all, one who had long specialized in seed-stage companies. The business model would follow.
But these days, Roberts has an unsettling answer: "That's the situation I've been trying
to get out of for two years."
Two years ago, you see, Roberts, who pioneered seed investing at OATV, a VC firm he co-founded in San Francisco in 2005 with tech guru Tim O'Reilly, charted a different course to create Indie.vc--a new investment firm (and OATV project) that demands the business model upfront. Although Indie.vc could still be among the first in a long line of capital investors in some deals, being last is better.
Roberts believes that investors--and investment capital--can distract founders at best, and can send them off course at worst. The ideal Indie.vc company will make its money the old-fashioned way: by earning it. "Profitability," he says, "is a milestone that doesn't move."
The differences don't end there. Indie.vc, unlike most VC firms, isn't hunting for potential unicorns--startups with some prospect of a billion-dollar valuation--that are well positioned for an exit, be it by means of an M&A deal or an IPO. Instead, the firm invests in what Roberts calls "real businesses," largely tech-driven enterprises that focus 1) on their companies, not their exits; 2) on sustainable profit, not unsustainable growth; and 3) on their customers, not their investors.
In exchange for its investment, Indie.vc doesn't want a board seat; rather, it takes a cut of profits after three years. So far, Indie.vc has funded 15 companies. It's still early, but of the first class of eight investments made two years ago, all are still in business; six of them are profitable (and five of the eight are run by women).
This sort of thing is heresy in Silicon Valley, where profit-first companies are often dismissed as "lifestyle businesses" incapable of generating big returns. Roberts waves off that slight. "Look," he says, "they all have been taught from the school of blitzscaling"--LinkedIn founder Reid Hoffman's notion of high-velocity, massive growth. "That's one way to build a company, but not the only way. We're seeing companies growing every bit as fast if not faster."
The Indie.vc template points to blockbusters like Spanx and Shutterstock, MailChimp and GitHub, and--going back a way--Microsoft and Bloomberg. These companies started with limited capital, forcing them to prioritize early revenue and profit.
The model resonates with me deeply. A couple of years ago, I was dancing for dollars up and down Sand Hill Road, trying to raise another round of venture capital for my startup. As the months went on, fundraising became the main objective, and the road to revenue (let alone profit) drifted further and further away. At last, we changed course and pursued a merger--the best thing we ever could've done. And I thank our stars that we didn't wind up back on the VC treadmill.
If Indie.vc offers a different kind of investing, it likewise looks for a different kind of entrepreneur. Indie.vc founders will have to forgo vanity press releases pegged to new funding rounds. They'll have to skip coffee in Palo Alto or SoMa with investors who have their names on buildings. They'll have to stop seeking hockey-stick growth charts and draft more disciplined spreadsheets that reflect less sexy metrics, such as long-term value and Ebitda. And they'll have to be in it for the long haul, not the exit.
What they'll get in return is less dilution and more ownership, fewer distractions and more freedom. And a better shot at a company built to last.