By Jean-Pierre Buntinx
The Downside of Venture Capital Funding
Getting a venture capitalist on board is a big deal for any startup, as they bring much-needed funding to the table. But in the long run, the guidance and insights provided by a VC are much more important for any business. Unfortunately, there are some downsides to this concept as well. Startups are facing pressure, expectations, and have to ensure investors achieve an ROI yesterday rather than tomorrow.
This is where Indie.vc comes into the picture, as they do things in a less traditional way. Albeit this company is dedicated to helping startups and entrepreneurs, their business model is very different from what one would come to expect. Bryce Roberts is heading this new business, which is backed by Fred Wilson and Pierre Omidyar, just to name a few.
Indie.vc is Not Your Average VC Provider
One thing that immediately sets Indie.vc apart from other venture capital options is how they do not take a stake in funded companies. However, they do retain an option to convert their initial investment into an ownership at a later stage. This would occur when the startup is sold, or goes public, for example.
If this would not be the case, Indie.vc will try to recoup its investment by taking a cut out of founders’ salaries after a certain point in time. But there is more, as companies can indefinitely remain private as well. Doing so, however, will require them to pay back up to a fivefold of the original investment amount.
Fohr Card Co-founder James Nord explained it as follows:
“I think people fetishize fundraising. In the startup community, fundraising is seen as a validation of your idea; it’s seen as a success. Traditional venture capital often becomes a “funding drip”, causing founders to go on a spending spree. The founders look around three years in, and they have 45 people and no real business model and own 4.5% of their business and are asking themselves what happened.”
It is important to note that Indie.vc was not created to dissuade companies from acquiring venture capital. Most of the bigger firms will continue down that path regardless of alternative solutions. With over $72bn USD of VC funding in the US alone last year, there are still plenty of financing options for startups and entrepreneurs.
At the same time, Indie.vc’s Bryce Roberts feels the traditional venture capital model is not working well for the majority of startups. Acquiring such funding is a tough balancing act between becoming a so-called unicorn, or finding oneself in a hole. Funds will eventually run out, and if there is nothing to show for it, investors will pull the plug very quickly.
Worth Trying for Bitcoin Companies?
It’s hard to say which type of funding works best for the majority of Bitcoin startups. In most cases, the options are somewhat limited, as not every person with venture capital wants to get involved in the Bitcoin world. However, some entrepreneurs might welcome the option of not having to run around to raise funds all the time.
In this day and age of financial innovation, it is rather surprising to note venture capital funding has not changed much in the past fifty years. Indie.vc wants to let companies grow at their own pace, whereas traditional VC’s expect results quickly. Companies can be successful without being a unicorn, and either venture capital solution provides an opportunity for a significant payday.