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.

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.

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.

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. :)

our assumption is that we'd need to wave our rights to distributions should an equity financing come together.

Remainder converts to equity somehow then?

we convert at the pre-determined equity amount.

That's all part of the experiment.

Given the only forcing function for distributions is tied to founder salary, there is no reason founders couldn't simply keep investing in, and growing their business, for years without ever making a distribution. And we'd be thrilled for that as an outcome.

Can you give more details on how distributions are tied to founder salary? If salary is above X distributions to indie.vc need to be Y.

Let's try this an example.

Say at the time of funding founders are paying themselves $100k salaries each. They can pay themselves up to $150k each (150% salary at time of funding or a market salary we establish with them at the time of funding if they're paying themselves way below market).

If they chose to start taking out more cash than $150k, that would be considered a distribution and the 80/20 would kick in until 2x our investment is returned. Then it flips to 20/80 until 5x is returned. Once 5x is returned there are no further distributions.

That said, they can continue to draw their $150k salary and reinvest in the business as long as they'd like without ever paying out a distribution.

Bryce, This seems very interesting. I have been working on a Neural Network SaaS startup for awhile now, and I think my plans could align with this program. I just wanted to say thanks to you and OATV for trying this experiment. I think traditional VC's miss out on lots of opportunities where there is some consulting revenue early on in the company lifecycle to help build the business. I have high hopes that INDIC.vc and programs like it could help those sorts of businesses get going.

thanks for the encouraging words.

It certainly isn't for everyone. Perhaps it can grow to larger companies over time, but we wanted constraints on the initial experiment.

People who are applying seem to be equally split between those looking for cash and those looking to be part of the peer group and programming we have planned for the year.

There is no timeframe on repayment of the loan. If founders want to keep reinvesting in the business that is fantastic. If they want to start taking more out for themselves, that's when the distributions kick in. We hope that helps keep our incentives aligned.

I think a misconception I am seeing people have, please correct me if I'm wrong, is with the understanding of distributions. You could re-invest 100% of what isn't going to founder salaries into the business, however if $100k is going towards founders then they receive $20k and Indie.vc receives $80k. Is that correct?

I see, thank you for clarifying. Somehow, I think the word "cash flow" gave me the impression that this was based on revenues, not distributions.

Can you clarify what distributions means? So if the founders pay themselves a salary, that counts as distributions?

Only if the founder salary has increased by more than 50% since the start. See this response from Bryce with more detail: https://news.ycombinator.com/item?id=9139507

Hopefully the application and interview process will help us weed out the scammers.

hey all- thanks for taking an interest in the post, I've really enjoyed reading your feedback.

the impetus for this one was a series of conversations with entrepreneurs who said they were glad we hadn't funded them when they initially approached us. In retrospect, they felt that funding the wrong direction for them would have validated their bad idea and reenforced their belief that it was worth pursing. The push back ended up forcing them to really think about where to spend their time and limited resources.

The other conversations have been with entrepreneurs and founders expressing concern that its too easy to raise seed funding right now. That there's a growing sense of entitlement and arrogance particularly in the bay area. That half baked ideas aren't getting push back; rather, they're getting validated and compounding the entitlement problem.

No one knows how all of this is going to play out over the long aul. Just trying to lend a little perspective to those going through their own fundraising process.

Great post Paul. One thing to highlight is that traditional VCs, historically, don't make "venture level" returns in efficient markets.

Your examples highlight the cash efficiencies of early stage software/web based businesses from which VCs have been making a fairly vocal move away from for years. Similarly scaled efficiencies aren't yet being recognized in clean tech, new materials, networking hardware, semiconductors, pharmaceuticals and many many categories.

As for web and software, I think the lesson many firms are beginning to apply from this last wave is that there's an inflection point a company hits where its been sufficiently derisked and is poised to scale at which time the VC is more than happy to dip into their large funds and "pay up" in terms of valuations. Its what they did with Google and Facebook (among others). I think it will create a more bifurcated web/software venture environment than we have today but I don't see that as the death knell for the broader venture industry. Certainly a great opportunity for seed funds like yours and ours...bryce@oatv