Werd I/O

When IndieVC arrived six years ago, it represented an exciting alternative to traditional venture investments. While revenue-based investing wasn't new, Indie made it mainstream, and started an important conversation: VC isn't appropriate for every business, so what's available for revenue-first, independent businesses that want to shoot for profitability instead of unicorn growth?

I was gutted today to read about its demise:

We’ve not been shy in sharing the challenges of departing from the well-known narratives of startups and VCs. 4 years ago, it cost us 80% of our LP base. Unfortunately, as we’ve sought to lean more aggressively into scaling our investments and ideas behind an “Indie Economy” we’ve not found that same level of enthusiasm from the institutional LP market.

Fundamentally, this shines an important light on a discrepancy in venture capital. Every VC fund depends on Limited Partners: typically institutional funds and the family offices of high net worth individuals that dedicate a portion of their investments to riskier, potentially high-yield businesses. While VC funds themselves claim to want to invest in the future, the investment managers in charge of LP money tend as a rule to be more risk averse. At the very least, in the same way that money from wealthy philanthropists is more opinionated than public funds, it is deployed according to the values of fund owners. Alternative models are met with reticence.

Radical changes in venture capital depend on radical changes in limited partner attitudes. So what does funding these kinds of sustainability-oriented businesses look like in light of this?

I suspect it looks like this: no funding. Instead, I wonder if we need to be building ecosystems like IndieHackers, which operates as a community of solo entrepreneurs focused on making their side projects profitable. Instead of funding, members promote each other and offer skill shares and examples from their own experiences. Product Hunt has evolved into a similar kind of space: one where individuals and funded companies alike share new things they've released, get feedback, and build community.

The idea of no funding is problematic, because only a certain kind of person can get something off the ground with only their own resources. Those people are usually wealthier, and wealthier people tend to come from a very narrow demographic. On the other hand, venture capital disproportionately (and problematically) already goes to people from that narrow demographic. So, screw it. Maybe the counterculture has better answers.

I link a lot to the Zebra movement; its upcoming co-op and crowdfunding partnerships make a lot of sense to me. I'm warming up more and more to the idea of exit to community as an exit strategy, which allows companies to shift ownership to their ecosystems and maximize their distribution of equity. But these approaches are most effective when a business has been established (although co-operatives and community collaboration can certainly help). I think there needs to be more support for the first step: getting a business zygote off the ground.

VC funding has the effect of allowing founders to focus on product for an artificially long time. In contrast, aiming from profitability from the get-go forces you to build a business from day one. (A third option, building a product and running it for the love of it outside of a business context, is a radically different thing, and not really interchangeable with the first two.) The result is two radically different kinds of ventures with different roadmaps, mindsets, and approaches. One is shorter on profitability; the second is shorter on product innovation.

Venture investors, at their best, are like co-founders; being a part of a portfolio creates a kind of network effect that maximizes value. You get introductions and advice you might not receive otherwise. This could potentially be substituted with small communities of practice. But another way VC founders win is by sharing equity: it's common for early-stage founders to swap a little ownership with each other to spread the risk. If one startup succeeds, all the founders in the network see some upside. I can imagine a world where indie founders do something similar, in a revenue-bound way: an equity spread that is paid down as a percentage of profits. If one company becomes wildly popular, every founder who's struggling to do the same gets a boost.

The bottom line is this: we need an established, alternative route for starting businesses on the internet. For some companies, VC is the right thing - but it's not the right thing for every company. For the others, rather than hoping for positive iterations of VC, the best bet may simply be to create community with each other, co-operate where possible, and make money on their own terms. To aim to be the million they never made. It's not about riches; it's about sustainability.

I'm sad to see Indie VC go. But I do have hope for the future.

#startups #indievc #funding

This morning I was asked why I like startups, as opposed to co-operatives or any other kind of organization that builds software or technology. It's a fair question: I'm hardly a free market capitalist (in that I care very much about providing a social safety net and have no interest in small government), and much of my work has been a poor fit for venture capital.

First, some clarifications:

Being a startup and being a co-operative aren't mutually exclusive. The definition of a startup is an organization that is still trying to figure out what it will be - whether that's a Delaware C-Corporation with a board or an anarchist collective is up for grabs. For it to be venture investable, it would probably need to be the C-Corp, because that's what venture capitalists expect; if it's finding sustainability on its own terms, it could be anything.

I'm certainly interested in the mechanics of how an organization that builds technology can find its way to sustainability. Sometimes you can get something off the ground without taking anyone else's money, but there are some ideas that require expensive development, and people come with different financial contexts. Particularly in the US, where commercial necessities like health insurance push the cost of living higher than places like Europe, some investment is often required to give you the time and space to do a project justice. Venture capital is the version of this that has the highest profile in the popular imagination, but it's far from the only way. Revenue-sharing continues to grow in popularity. The Zebra movement is inspiring. And for some mission-driven projects, grants are available. You can have non-profit startups. It's all valid.

So, understanding that startups don't have to be venture funded C-Corporations, why am I into them?

The short answer is: because they're exciting.

I'm not excited by the financial fundamentals of the venture treadmill (make your stock progressively worth more so that people who bought in earlier can make a profit). I'm also not excited by building something to get rich. But like I said, that's not actually core to the definition of a startup, and there's something fundamentally appealing about people coming together to figure out the nature of the problem they're trying to solve, and then finding creative ways to solve it, all the while testing to see if they've got it right.

In the same vein, I'm not excited by coding for its own sake. I'm just not. I'm excited about solving human problems with technology, scrappily, with a mixture of every interdisciplinary skillset you can bring to bear. For me, technology is only really interesting when it finds its way into someone's hands, and the core mission of a true startup is to make something as useful as possible while also ensuring you can keep making it.

If I can work on that kind of mission full time? Make it not just a hobby, but a full-time job where I get to make something that I devised that becomes useful to more and more people? That sounds like heaven to me.

It's not about hockey-stick growth. It's not about finding an exit. It's not about being a financial vehicle. It's about building something meaningful, using all the skill and creativity you can muster, and getting to keep doing it. That's why I like startups.

#startups

One often-seen trope in tech industry commentary is: "the geeks will inherit the earth".

It's a nice idea, which appeals to a lot of people in this ecosystem; there's even a lovely symmetry to the idea that the people who were probably bullied and ostracized in school, at least to some extent, are the same people who go on to change the world in meaningful ways. And in a lot of ways, it's true.

It's not because geeks are in any way better, or more intelligent, people. Instead, my theory is that it relates to being an outsider. People who don't change themselves to fit in are, almost by definition, more likely to think independently. If an effective leader is one who creates stand-out strategies and is able to creatively and intelligently react to circumstances, it makes sense that independent thinkers would fit the role more readily. The popular kids at school are much more suited to be followers - they've essentially taught themselves how to follow fashions rather than create them.

MBAs are not traditionally good at startups for similar reasons. They've been taught cookie cutter business methods, which make much more sense as management tactics in larger businesses than in the do-what-you-have-to context of getting something off the ground. Here in San Francisco, arguably tech startup central, besuited MBAs are often thought of as not bringing much to the table.

But geeks have their own popular kids now. Startup culture has created its own norms; brogrammers swarm San Francisco and cities like it, following the fashions dictated by outlets like TechCrunch and PandoDaily. Not a single one is likely to change the marketplace, let alone the world - and with them comes a pervasive culture of entitlement and even bigotry that isn't a million miles away from the cool kids.

Outliers are always going to be the people who bring about real change: people who can't easily be described, and whose actions can't easily be pattern-matched to an archetype. Often, these are people who don't take direction well. They might come across as weird, or antisocial. But their ideas are like nothing you've ever heard, and given the tools, they will create things you've never thought of.

Someone once said to me, in reference to someone who they thought was weird, "one way of looking at it is that they don't think mainstream culture is good enough for them." Damn straight. Being mainstream shouldn't be good enough for any of us. There's nothing to be gained by trying to be like everybody else, or by fitting yourself into a pre-defined pigeonhole.

Me? I like weird people, and I like working with them. I wish I was weirder myself: it's a sign of creativity, independence, and intelligence. San Francisco has a name for people who follow; they're called "normals" - or, sometimes, "consumers". It's not a label to aspire to.

In fact, none of us need to be normals or consumers. Once upon a time, we were needfully forced into demographic categories, so that products and media could be created that would broadly appeal to us. The Internet has created a world where anyone can connect to anyone else, whether it's to talk, to inform, or to sell. Fashions of all kinds are meaningless in a world where products can be viably created for an audience of one. They're an artifact of the age of broadcasting; one that's long since gone. We're in a post-demographic age, and if you're still trying to follow the crowd, you're a decade behind.

#startups #outliers