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Why venture capital doesn’t work for everyone

On the latest Recode Media podcast, Indie.vc founder Bryce Roberts says it’s only for the 1 percent of the 1 percent.

The New York Stock Exchange building on Wall Street in New York City.
The New York Stock Exchange building.
Stephanie Keith/Getty Images

When we talk about entrepreneurship in Silicon Valley, the words “venture capital” are never far behind. But the reality, Indie.vc founder Bryce Roberts says, is that VC funding isn’t right for most entrepreneurs.

“In the same regards that VCs want to fund billion-dollar, monopoly-style businesses, they have themselves a monopoly on the language we use about entrepreneurship, the archetypes they highlight as the ideals for entrepreneurship,” Roberts said on the latest episode of Recode Media with Peter Kafka. “And, as a result, we’ve looked at anything that diverges from that narrative as less ambitious, less worthy.”

Rather than funding companies before they have products or revenue in the hope of a massive exit, Roberts’s group puts a modest amount of funding into a company that is already making money, helping the recipients focus on building a sustainable business rather than raising the next millions of dollars. Ninety-nine percent of the companies that raise venture capital funding never get to the fabled “unicorn” status of a billion-dollar valuation, but Indie’s thesis is that that doesn’t mean they can’t be good, profitable businesses.

“If we were starting a business to sell to consumers and it worked for less than 1 percent of the people who purchased it, you would have a real problem on your hands,” Roberts said. “In parlance of venture, you would have not very good product-market fit.”

You can listen to Recode Media wherever you get your podcasts — including Apple Podcasts, Spotify, Google Podcasts, Pocket Casts, and Overcast.

Below, we’ve shared a lightly edited full transcript of Peter’s conversation with Bryce.


Peter Kafka: This is Recode Media with Peter Kafka. That is me, speaking to you live on tape from New York City. Here with Bryce Roberts. He’s very tall. I think of him as a recovering venture capitalist. What’s your actual title now, Bryce?

Bryce Roberts: It’s somewhere in there. I’m just an investor.

You’re just an investor. You are head of the Indie.vc movement. Is that a thing?

“Movement’s” aggressive, but it’s moving in the right direction, yes.

Normally don’t have people who write checks come and talk on this podcast.

Hmm. Interesting.

Normally people who run businesses or opine about businesses. One, I want to branch out a little bit. Two, as we are learning ... We always knew this, but it’s been learning again recently, how you fund your company has a lot to do with the progression or not progression of your company. That’s been in the news with media companies recently. Lots of companies. So, I want to talk to you about what you do, generally, how that might apply to a media company. We’ll go from there. We’ll talk about Tommy Davidson at the end and your newfound celebrity.

Well, I’m glad. I think you point out, I think the conversation around how we fund our companies is a timely one, and I think it’s one that people have been either actively avoiding or actively ignoring for a long time. I think we’re starting to see the ramifications of how we not only fund, but all of the load that comes along that’s baked into that structure is really starting to come home to roost. We’re hoping that that’s not only a conversation that we can have and be a part of instigating, but that we can start to move that conversation out of the back rooms, where it’s been for a while, and start looking at alternatives to how we think about funding these businesses.

So, let’s give people a little bit of context. I said, “Recovering venture capitalist.” When I met you, I thought of you as a VC. You were an investor in Foursquare. I think that’s how I came to know you.

Yeah. That’s exactly how we got to know each other.

Fairly traditional, early-stage investor in the traditional VC model.

Well, I would push back on that just a little bit and say, what was different then, at least with Foursquare and stuff ... Foursquare’s coming up on 10 years now, so that is ... What are we looking at? 2009. When we got started, we were ... What we were trying to do was actually a little bit of what we’re trying to capture with Indie.vc. Seed investing wasn’t necessarily considered traditional investing, right? We had created funds and fund structures that were designed to function in a universe that VCs couldn’t operate in at that time.

So, we created small funds to fund companies that didn’t require much cash up front to be able to build something that was scalable, and then they could choose to raise money or ... If you remember back to 2005, 2006, that’s kind of the age of Flickr and Blogger.

Right.

So, there were these series of sub-hundred million dollar acquisitions that were kind of ...

First little spots of light after the dot-com crash.

Exactly. That’s exactly right. What you were also seeing, though, was that if you structured your fund in a certain way, and if you raised less capital for your fund versus more, you could unlock venture-level returns at that sub-hundred million dollar acquisition level. So, I think, why we look and sound like conventional, traditional VCs now is because seed, in many respects, has kind of been ... has essentially co-opted the traditional venture business model.

And a seed round used to be a couple hundred thousand dollars, and now seed rounds are millions of dollars, or at least have been recently.

Yeah. Average seed round of 2018 was two million, and it’s on a hockey stick.

Right. So, if you get it traditionally right now, the standard model for a startup company is to go and try to raise money in the seed round. That’s a couple million dollars. And eventually, you plan on raising tens of millions of dollars, and eventually you want to become a unicorn, which means you’re valued at a billion dollars or more, and then you sell the company to Microsoft, Google, Facebook, or you take it public. That is the traditional ... the new new normal.

Yeah.

Theoretically.

Theoretically.

What you’re arguing is ... You’re advocating for a different model, which is getting some traction now. Describe what that is.

So, I think investors, the model is designed ... Obviously, they’re trying to build high-growth startups, and they’re trying to do that as quickly as possible, and the entrepreneurs who they’re funding want to do the same.

We want to go from zero to 100 very quickly.

Very, very quickly. What we’ve done is we’ve created proxies for that means to be ambitious and to be on that path, and the proxy we’ve chosen — at least over the last decade — has been funding. So, funding is the signal of A) your ambition, B) the size of your opportunity ...

When you say “we,” you mean the venture capital, broad tech ...

Meaning the startup community.

If you’re not serious ... This is what a serious person ...

This is what a serious entrepreneur does. So, I think, in the same regards that VCs want to fund billion-dollar, monopoly-style businesses, they have themselves a monopoly on the language we use about entrepreneurship, the archetypes they highlight as the ideals for entrepreneurship. And, as a result, we’ve looked at anything that diverges from that narrative as less ambitious, less worthy. I think part of what you’re seeing in that consolidation around seed investing is that we now think that the only thing we should be funding is something that a priori to product, to revenue, to any of that stuff, is the belief that it can become billion-dollar businesses.

It’s really ... They own the language around that. What we were trying to do with Indie.vc is to say, at the earliest stages, that we think there’s value in shifting your focus to that sequential fundraise of seed, series A, series B. Oftentimes, especially in the early stages, the goal of a round of funding is to set yourself up to be in a position to raise that next round.

Right.

Oftentimes, that next round still isn’t predicated on actual fundamentals, it’s predicated on your ability to keep telling a bigger and bigger story about what it is you’re trying to build.

Right. You want to get progressively bigger, tell a bigger story, and raise more money, and then, eventually, it ends when you succeed wildly.

Yes. So, the radical move that we’ve made with Indie.vc is we’ve said that model works for a few, and I think if you look at the numbers, the number of companies that actually achieve billion-plus dollar valuations on paper and liquidity, tends to be ... Over the last few decades, it tends to be in the 10 to 20 companies a year achieve that. So, what about all those other companies? You’re talking about not just all companies that get started, but 99 percent of the companies who actually raise venture capital don’t achieve that.

But can still be successful businesses.

But they can’t be considered a successful business when the only definition of success is a billion dollar exit, in that sense, right?

Right. So, the derisive term that people in the VC world, in that world, describe ... Basically, anything that’s not a billion-dollar company is a “lifestyle business.”

That’s right.

It’s meant to be an insult.

Yeah. It’s meant to be an insult, and I think what we ... One of the problems we were interested in at least experimenting with Indie.vc was to say, “Okay, what if we shifted our focus at the earliest stage from the next round of funding and making sure you have the right stories, the right people around the table, to hack that next-round algorithm in the minds of venture investors and how they make decisions, to revenues and profits.

If you took all that energy, if you took all of that expense, if you took all of that focus, and shifted it slightly ...

To running a business where you sell something and then make money from that sale of that thing.

That’s right. As radical as that sounds, in current dogma of the startup community that is a death sentence. If you walked into a venture fund and said that was your goal, they would have zero interest.

They would say, “I only want something that’s going to go 10X; I only want something that’s going to return my fund. I need to hope this is going to be a billion-dollar exit. If it’s a three to five X, which would be a great return for most people, it’s actually not a win for me.”

But interestingly, there’s also the nuance of the venture business model, especially the early stage, where the incentives for them are actually to make sure you get more funding, too, because with each of those subsequent rounds, ideally, they’re making their investment up. So, they can start ratcheting up what’s called an internal rate of return, or an IRR. With that, they’re able to look like geniuses and, ideally, go raise a next fund on the back of that.

So, like you said, there’s always been ... Venture capital has always been a niche way of funding a company. In the last 10 years or so, it’s become pretty commonplace for people to have some idea of what that is. But most companies are not raising money through VC. I assume most of them are out there getting loans from banks. What has been the other alternative to getting VC up until now?

I think you’re right. The reality is, most ... VCs will be the first to say it, right? I would be, too. Venture capital is the wrong product for most companies. Less than 1 percent of all companies that get started raise venture capital. So, by design, it’s designed to be a niche. I think our point is, even within that niche, even within the niche of people who raise venture capital, it’s still working for less than 1 percent.

So, you and I are consumers of products. If we were starting a business to sell to consumers and it worked for less than 1 percent of the people who purchased it, you would have a real problem on your hands. In parlance of venture, you would have not very good product-market fit.

Yeah.

And yet, because when venture works it works so spectacularly well that we’ve now anchored on a handful of companies, and every entrepreneur believes and every investor believes that that’s what they have to build, and that the path they follow to do that is the one they have to follow. What we are saying is, yes, that product works for a very small number of companies. If you don’t fit that, even within the venture-funded startup tech landscape, we still only have one product to sell you.

What we stepped out and said four years ago is, let’s create a space where we can talk about and think about other playbooks than the split-scaling model.

You have a playbook. So, what is the basic offer that you’re suggesting instead?

What we are trying to do is create a community of entrepreneurs who are focused on profits and revenue early on. We’re trying to curate other entrepreneurs and stories that we can help cycle through the mainstream tech press around highlighting folks who’ve built businesses that VCs would love to have participated in, or who did participate later on in their lifecycle, but that wouldn’t exist, likely, if they’d raised a million or two million dollar seed rounds.

So, for instance, I live in Salt Lake City, Utah.

Wait, Bryce, I’m going to ... We’re 14 minutes into it. I just want to make sure people understand what it is ...

You’ve got me rolling.

Well, we’re going to roll for a while. But I just want people to understand what it is that you’re offering. I run an interesting company. I’m going to sell something and make a profit on it. What can you, Bryce/Indie.vc offer me?

So, what Indie.vc does is, we are a fund. We are investors. Technically, there’s a part of our URL that says “VC” in it, so let’s go with the idea that we’re VCs. But we invest money, so we write checks between a hundred thousand and a million dollars, into startups that are post-revenue. Rather than fund you with the intent that we’re going to help you raise your next round, we work closely with you to get to profitability and sustainability, and we plug you into a community of entrepreneurs, both our portfolio, in terms of our cohorts of companies, that are currently doing this, and a broader network of entrepreneurs who are at much bigger scale, that you can learn from.

What we’ve found is probably the advice your parents gave you growing up. You become who you hang around. You lie down with the dogs, you get fleas? We’re trying to create a space where they can be around others who think and build like they do.

I’m just going to force you into this real briefly. So, you’re going to write me a check, a hundred thousand to a million dollars. You’re not doing it as a gift.

I don’t know if I’m doing it to you.

Probably not. You run a business, so you want that money back and you want to make a return.

Of course.

How does that work? If the idea is, “We’re not trying to make a 10X business here, we’re trying to make a real business that’s going to grow at a slower rate, but it’s a real business.” How do you get your money out? How does that work?

See, I think that’s the misconception. I think there’s two pieces of what you said that I think are misunderstood. One of those is, we’re not looking for a 10X return. We believe that we can see 10X returns.

Okay, fine.

We’re seeing some of our companies as they’re growing into significance ...

But you’re not turning away companies that don’t have that hockey stick.

That’s right.

Next thing?

But, I think the other thing that you said that I think is misunderstood is that I think people have this idea that the venture model is built on the back of 10X returns, but it’s not. It’s actually built on the back of 1,000X returns. So, if you listen to Bill Gurley, he will say, “Venture is not in the home run business, we’re in the grand slam business.” If you look at the percentage of grand slams that happen in any given baseball season, it’s actually eerily the same number of unicorn companies that are made in a given year.

So, I think those are the two pieces that I would argue as one. I think people are buying into a venture model that they think has a return profile, that it actually doesn’t. And from our standpoint, we think we can get there, but we think that early focus on understanding the levers of your business will end up yielding similarly outsized returns.

I know you’re not evading my question, because it’s a basic question.

I know.

How do you get your money back?

Through returns. I mean, the same way we do. A company sells, we have ownership in that company, we get our percentage of that sale.

But you’re not waiting for that, right? Isn’t there a way for you to get a percentage of profits … ?

There is, so there’s ... We’ve created a new investment instrument that functions similarly to a standard convertible note, which, in venture world, it’s like a ... It’s an investment instrument that anticipates either a future round of funding that we would convert into and then have an ownership stake in that business, or if you sell the business, we convert in and have a percentage of that sale go through to us. Right?

What’s unique to what we do is we have a track that, if an entrepreneur decides they never want to raise money anymore and they want to grow their business on cash flow and they want to get rich off of profits, then we have the option of allowing them to repurchase our ownership stake through a revenue share. And so, after they’ve paid us out ... After they’ve repurchased our shares, the return on that investment for us, or the return on those, we cap at a 3X.

So, you lend me a hundred thousand dollars, eventually I pay you that back, and then your expectation is you’re going to get 3X above that as a share of my revenue for some period and then it’s going to stop once I’ve got to 3X?

For some companies, right. And I think, in that case, we allow them to repurchase up to 90 percent, so we still maintain 1 percent... We have a very technical term, it’s called shmuck Insurance, right? And so, we have a little bit of shmuck insurance ...

And you hope we decide to sell this for a billion dollars after all?

Of course, right, but in the meantime, if they end up going that more traditional route, if they decide to raise a round of financing, our return isn’t capped at 3X. We convert in just like any convertible note.

We got it. We got there.

Does that make sense?

Yeah, yeah. I got it, I just wanted to make sure you explained it clearly.

And one of the reasons you’re talking to me, in addition to the goodness of your heart, is you’re out here promoting. You want people to ... There’s a program you’re doing?

That’s right.

In March, people can sign up.

Yeah. Yeah, so we announced Indie.vc four years ago. Over those four years, we’ve done a couple different iterations. And so, with this year’s, starting January 1, we announce something we called V3, which was kind of our third iteration, new set of terms, a cohort of companies who are trying to batch our investments together. Applications are due March 1st.

Go to ...

Indie.vc.

Indie.vc, there’s a burning unicorn.

There should be, yeah.

It’s pretty scary there. I looked at it yesterday.

It’s terrifying.

Let me do the Devil’s Advocate portion of the podcast.

Please. You do that well.

Hey, you know what? VC is great. It inspires people to grow fast. Fast growth is a good thing. There’s nothing wrong with running a mom-and-pop business, but we do want people to be ambitious.

And by the way, even when people don’t hit grand slams, they still can have very successful businesses. Even if you only have a 2X exit or a 3X exit, that’s good for the entrepreneur ... can often be good for the entrepreneur. If that’s not good for the VC, well, that’s the VC’s problem. Everyone’s a grownup. Theoretically, everyone has their eyes open. What’s wrong with playing that game?

You’re stepping right into my briar patch.

Oh, man.

Which is like, you have bought into the same narrative that everybody else has, which is that there’s only one way to grow fast.

Uh-huh.

So, our Indie.vc companies on average are growing 100 percent in the first year and 300 percent after the second year of working with us. I wouldn’t say that’s terribly slow growth. It’s not 10Xing every year, but it’s healthy growth. I think we’re seeing companies ... We’ll probably get into some of them, but we’re seeing companies that started working with us doing tens of thousands a month in revenue. They’re now doing millions a month in revenue.

And so, I think that was part of the original experience, was to push back on that kind of conventional wisdom of startups, that the only way to grow fast and the only way to reflect your ambition is to jump into this funding cycle that somehow signals that you are on a path that only a world changer can be on. What we’re trying to say is, “There’s other ways to do it.”

But again ...

And what we’re trying to do ...

But there’s a way where you jump in there, but there’s ways for you to jump out, I mean, especially if you’re savvy about how much money you take on.

Sure, yeah.

That gives you optionality, as people in your old business and bankers say.

We say it. What we say is, “We’re hard coding that optionality.” The hard part is, today, you think you have it but you don’t know what you signed up for. When you raise...

The Gimlet guys just sold their company for $230 million.

I saw that. Awesome.

Eventually that price will be official, but that’s the price.

Who broke that story, by the way?

I broke that story, and I’ve talked to some ... And there was a lot of like ... In the podcasting world, people don’t spend a lot of time thinking about money. They think, “That’s a lot of money,” and I’ve been saying to them sort of off-mic, “The VCs won’t say this, but some of them aren’t going to be super psyched about that,” because, I think, if you invested in the last round, you’ve got a three-and-a-half X return. You can argue that over 19 months, that’s good, whatever, but it’s still not a huge number. Right? If the VCs were truly excited about it, Gimlet maybe wouldn’t have sold. But that’s still a good outcome for the Gimlet guys.

And so, if you’re a VC, you might be in ... If you were an investor in that, you might be disappointed that you didn’t get 10X or a 1,000X, but no harm, no foul, right? Everyone’s happy. Seems like a good outcome.

I would argue that they were in a position at each step of the way to optimize for that kind of outcome, right? One thing that they didn’t do that was probably not so obvious to people who weren’t paying attention, was they didn’t bring in a traditional VC on their last round of funding. Who they brought in were strategics, and they brought in more of a group that’s like a private equity partner.

You’re saying it’s no accident they didn’t have a traditional VC?

That’s exactly what I’m saying, which is his early-stage investors, the Betaworks, the Lowercase, they’re designed, their funds are designed to see a return sub 300, 250. And that returns maybe all of their fund, but likely a material portion of their fund.

By going with a private equity investor versus a traditional venture investor, those private equity investors are thrilled to have a 2 or 3X, right? And so, this is actually ... Alex and I know each other, this is something we talked a lot about when he was ...

This is Alex Blumberg.

Yeah, Alex Blumberg and I talked a lot about when he was looking at his funding options, because he was someone who was at least far enough up the learning curve to know what going on with a Sand Hill Road firm, or nowadays a South Park firm ... what that meant to his cap table and what it meant to his optionality.

And so, yes, it wasn’t a billion-dollar outcome, but I’ll tell you what, because of the way they structured it, all of those investors are likely happy. They were able to have a life-changing outcome that, had they gone the conventional route, they probably would have had to fight tooth and nail to make happy.

I have written stories about it, or I know entrepreneurs have sold their company, they’ve made a bunch of money, they’ve made a life-changing amount of money. The VCs who backed them complain about it, loudly enough that I hear about it. I think, “Boy, something’s screwed up there.”

Right.

I’m making your case for you.

Thank you. This is turning into an infomercial.

Here’s the media critique we’ve heard the last few months. Vice, BuzzFeed, this company, have all had layoffs of some sort, we’re all VC-backed, to varying degrees. You could argue that maybe less VC than more strategic, whatever.

Sure.

The popular narrative is, “Those greedy VCs demand to get their money back, or they want bigger returns, and thus, they’ve had to have cuts.” I should actually get around to writing this, but that’s not true. Right? They definitely wanted big returns, but they’re not trying to get BuzzFeed to cut their budget by X amount because they want to squeeze out more.

What’s happening is BuzzFeed and Vice, and probably Vox Media, aren’t able to raise any more money, certainly not at valuations they’d like to see. And so, they’ve got to actually run a company, but it’s not because the greedy VCs are making them do it. What probably has happened, realistically, is the people who were funding them have no longer any interest in funding them, which is a nuanced thing, but it’s different.

Again, that seems not terrible. I think that the discussion to have is, “Should they ever have taken that hyper growth and all that investment to begin with?”

Yeah, I think that’s a great question. I hope that more people are ...

Maybe I’ll have Jim Bankoff on, we’ll talk about it.

I think that’d be a really interesting one to riff on. I think too few people are dissecting it, because they’re ... You can appreciate, there’s two side to each of that, right? There’s the model of the investor that says, “We want to invest. We want to invest a lot, and we want to invest only in the biggest and baddest companies.” Right?

But then you also have the entrepreneur, who says, “Well, I only want to build the biggest and baddest company. If we’re in this together, we’re aligned on building the biggest and baddest company, then let’s start sprinting right now.” Right?

And so, when the money’s easy, it’s easy to sprint. When it’s hard to raise — which we can get into that a little bit too, of how the investment climate is shifting — they have to figure out how to run a real business. In the interim, they just have to get as big as they can as fast as they can. That’s true in media, but I think it’s also true across all of our startups.

Yeah, but the anomaly was that media ever attracted a lot of funding. For a long time, traditional investors wanted nothing to do with it because you couldn’t tell a story about this thing growing 10X. It was anomalous. People tied it to Facebook, and all of a sudden BuzzFeed was a tech company and Vox Media was a tech company. That was, I think, the way you justified getting a VC to invest in you. Traditionally, they wouldn’t invest in media at all.

I think that’s hard, right? I do think there, because we don’t have any other models to fund high-growth startups, what ends up happening is everybody kind of shoehorns themself into what it is VCs think they’re looking for. You get a media company that’s a great content business, but you know what you hear? It’s likely the podcasting companies are hearing this now, because I’m almost certain all of these, BuzzFeed and Vox, has heard it too, which was, “We don’t do content companies. They’re not scalable.” Right?

Yeah.

So, what do you do rather than say, “Okay, well, we’re not a fit for venture. Well, if we’re not a fit for venture, who are we a fit for? What does that signal if we can’t raise it?” Instead, you start to kind of contort yourself and you start to say, “Well, maybe we’re a content management company, and maybe we build this really clever CMS that allows us to spin up lots of verticals. Maybe there are ways that we can license that.”

And so, you end up kind of doing unnatural things. I think, ultimately, it’s the lesson that media companies have learned over and over again is there’s kind of a natural state that there’s investor appetite to a point. I think what shifted recently was that the appetite for acquisitions, or the likely acquirers, they’ve all been buying each other and they don’t have interest or cash to go buy more to add to those platforms.

Yeah, that story, like the guys ... NBC put $200 million into Vox, where I work, hello, $400 million into BuzzFeed. They bought $500 million worth of Snapchat.

At the time, they were really proud of this, they put out a press release announcing how much money they’d invested in digital. Now, they sort of pretend that didn’t happen, or what they really say is, internally, “That was a worthwhile experiment, and now we’ve moved on. We’re no longer interested in that kind of business.”

I think the hard part of all of that is everybody wants to point a finger, as you said. Everybody wants to say, “Evil VCs.” Everybody wants to say, “Crazy entrepreneur got really greedy.” I think you can only look at it in the context of the market that they were in, right? Does Jonah Peretti at BuzzFeed really believe that he was going to be bigger than the New York Times? I have no doubt in my mind he believed that, and so wanted to surround himself with partners who believe the same thing.

I think the difference comes in the fact that there still remains laws of gravity, right? There’s still physics that apply to business and the world. Sometimes you’re able to defy those, but when you stop defying those, you have to come back to reality. When I read his post about the layoffs they did a couple of weeks ago, I was really heartened to see ... When the funny math wears off and when the easy money’s gone, people have to build real businesses. The hard part now that he has, that we’re trying to solve for with the work we’re doing, is it’s much easier to do that when you’ve already built up the institutional muscle memory around that. It’s much easier to scale from that than it is to retract from hyper scale into a real business and a real profitable business.

Do you have people coming to you who said, “I have this great idea for a company. I thought the VCs would want it, they don’t. Can you help me out?” But they’re in the paper napkin idea stage.

We have, yeah. No, we definitely do ...

Do you say, “Go away,” or ...?

I think we’ve made a conscious decision to work with companies who are post-revenue.

So, you need to have an operating company that is actually generating money.

Yeah, but we don’t need them to be generating profits and we don’t have a minimum target. What we do want to see is that we aren’t taking venture risk, in the fact that there’s no product, there’s no revenue, which is what venture’s designed to support, and getting a debt return on that.

So, if there’s an outcome where we only get 3X and we’ve taken venture risk, then that equation just doesn’t work. But if someone comes in ... You and I have talked about one of our media companies that we’ve worked with that’s called the Shade Room ...

Angie, yeah.

Yeah. Yeah, so Angie, you’ve had her onstage at your conferences. Angie’s an entrepreneur who we met through ... Jenna Wortham wrote a piece about her in the New York Times years and years ago.

That’s the second Jenna Wortham reference in a month on this podcast.

I think Jenna always has the pulse of interesting things. And so, when she was writing about tech, I think folks who paid attention benefited from that. She introduced me to Angie. We started working with Angie when she was doing less than 10K a month in revenue, and last ...

This is an Instagram-based sort of gossip social site.

Yeah, it’s the media company that we hear from people who are in the Voxes ... It’s the media company they all wish they would have built, because now, they’re locked into a given platform, right? She built this, what I think our friend Andy Weissman would call a no-stack startup. She doesn’t build the technology, but she leverages all of the different platforms to build her audience and monetize her audience on.

And so, she has ... What is it? She’s probably pushing 15 million Instagram followers. Her Instagram account has more than BuzzFeed, Vice, basically every media company on Instagram. She has more followers than all of them combined. And so, incredible reach, but she was a media company.

She didn’t even know what venture capital was when we started talking to her. She’d never heard of Y Combinator or any of this startup ecosystem stuff. She was doing less than 10K, she had less than 500,000 followers. Now, this last year, she did millions in revenue and millions in profit.

Does not have VC backing.

Does not have VC backing.

What would her life look like if she had taken VC money, do you think?

That is a story that’s still being written. She turned down two term sheets this last year from really strong, reputable funds. We don’t know, we might yet see what that looks like.

I mean, I do think that, given my experience with venture, what that likely would have meant is that she would have built out a big newsroom, she would have built out ... She would have started to look and act like a mainstream media company, when the magic in what’s she doing is that it makes a lot of people uncomfortable and she’s doing things that people who haven’t locked into some predefined scale model have to do to be appealing to the outside world.

Angie is a woman, she’s an African-American, woman of color. Is it an accident that your model appeals to her? Is there something about what you’re doing that is more appealing to people who don’t look like Mark Zuckerberg or didn’t put a year in at Harvard or Stanford?

Yeah. I mean, I think that’s one of the interesting aspects of what we’ve been trying to do that may get lost on people in the mainstream tech world, right? So stepping back and looking at the numbers of venture capital and where the dollars are getting allocated and we often joke that unicorns ate seed investing because what unicorns reward is pattern-matching.

And so, when you look for something that looks like it can be a billion dollars, no one gets fired for funding a kid who dropped out of Harvard, who dropped out of Stanford, and so what you get is, over the last few years, it’s become more and more understood that the archetypes of investing are 98 percent of venture dollars go to men, 80 percent of venture dollars go to three states, less than 1 percent of venture dollars go to people of color.

And so here’s a woman ... so, she’s in the tiniest of Venn diagrams.

So how does that work for your portfolio? What does your portfolio look like, roughly?

Yeah, I mean, we’re 50-50. So we’re half male founder, half female founder.

So right away you’re anomalous.

We’re anomalous. We have 20 percent of our founders are black founders. And I think what’s been interesting is we’ve been able to give people who wouldn’t have had, traditionally, venture support, we’ve been able to give them investment and a network that they might not have been able to plug into otherwise.

And what we’re seeing, particularly in the case of Angie, who was going from barely hanging on to throwing off cash. And I don’t think we can take much credit for that, but she would probably give us more credit than we deserve around what her involvement with us has meant to her business. And so when I look at why we might appeal, it’s that the best position someone who doesn’t raise or hasn’t historically raised venture capital in the past — women, people of color, underrepresented people — the most appealing you can be to investors is being in a position to say no. And we’re seeing that play out ...

Like most things in life, right?

Of course! But we’re seeing that play out every single day in our portfolio, whether they’re underrepresented or whether they’re mainstream entrepreneurs who maybe have raised venture before, but didn’t want to go back down that track again right up front, is that the more we can put them in a position to say no, the more enthusiasm there is from investors to get them to say yes.

Are there media companies you’ve invested in? Obviously, you do a range of stuff.

I don’t think so.

Okay, Shade Room’s your anomalous...

Anomalous media company. I mean, and we’re in the middle of our application process right now so I hope we’ll see more of them, because I think there are ... if you look at the winds of change that are happening in the media company, you’re probably paying attention to Ben Thompson. You’re paying attention to independent writers kinda spinning up their own ...

There’s that, there’s all the subscription services.

All the subscription services now, most of those don’t look like what you’d historically consider venture scale. But, put on the right path and given the right set of resources, there might be some of those that end up looking more like platforms over time as they evolve. And we think that’s an interesting space to be.

I think in general, you’re watching it play out in media, but I’ve been watching it play out across all kinds of different investment themes over the last 15 years and that is, VCs and venture gets really excited about a category and so everybody goes deep, and everybody needs a media company, and then they get really, really cold on us.

I was at a VC conference last week — I’ll give Mark Suster a shoutout — at Upfront Ventures. And I talked to a VC there who is confidently explaining to me that they wouldn’t do media unless it’s attached to a piece of hardware, because now everyone wants to do Peloton. And leaving aside the merits of Peloton, I think it’s just hilarious that that’s now the new model, is sell an expensive piece of hardware and then get someone to pay 30 bucks, because maybe it’ll work for Peloton but there’s not gonna be 100 of ‘em, or 10 of ‘em.

Yep. No, or interested in a media company but only if it has its own physical products that it’s selling and it’s ... you know, it’s like a merchandising, it’s basically a catalog of some sort for a lifestyle that they want to ... yeah.

The winds of change are always shifting, right? And so if you were raising money for VR two years ago, it might have been easy. It’s much, much harder to get anybody to even take a meeting these days. And so I think one of the things that that informs around how we invest is, if you’re in a category that’s directionally correct but it’s out of favor, that’s a pretty interesting place to be. If we can help put you on a path to not needing investors when sentiment for your category starts to heat up again, you’ll be in a position to pick and choose who you wanna work with or whether you want to work with anybody.

Speaking of other VCs, you mentioned this off-air that someone’s come up to you in your face and said, “What’re you doing here?” That’s half-bullshit, right? Like VCs aren’t truly threatened by you. You’re out there in Utah, you’re writing small checks, they’re...

No, I know. Look, I think that my quote in the New York Times piece or one of ...

Yeah, there’s a big New York Times piece about you.

Yeah, so Erin Griffith wrote a piece about this movement, or at least this subculture of entrepreneurs and investors who are actively looking to build paths away from traditional venture. And I had a quote in there that said I was surprised at how thin-skinned my peers in venture would be when someone starts to poke at the model a little bit. Partly because these are the conversations we have in coffee shops and in conference rooms all the time because everybody’s questioning why this isn’t working at the scale that it should be working and they’re questioning whether or not this is the right model to be funding every company that comes through the door.

But I think the other part of that is that, you mentioned it, I actually have ... there are people who don’t reply to my emails anymore and there are people who’ve confronted me at different events who don’t like what it is that I’ve been saying.

Because to be clear, right, you have a nice resonant voice and you’re tall, but you’re not out there with a pitchfork threatening to burn down the ...

No, and I mean ... but I think that’s the thing that seems to be lost on people, right? Like everyone wants to say you’re either bootstrapping and starving or else you’re going the venture route and you’re foie gras-ing yourself into like, just stuffing yourself full of cash. And what we’re trying to say is that there are grades in between there. That there are lots of different ways to be thinking about this.

And your suggestion is that for these hyperconfident masters of the universe who are VCs, explaining to everyone how they’re gonna get to 10x and escape velocity. Your presence alone, even your internet presence is enough to unnerve them and upset them.

I think that they don’t seem to take kindly to people suggesting that they shouldn’t take their money right now. I think that’s the tweak that I’d make to Erin’s title of her New York Times piece. She said, “There’s a whole wave of entrepreneurs who are telling VCs to get lost,” and I think my appendage to that would be “for now.”

And so I think there’s a lot of folks who interpret anything that departs from the accepted narrative as a threat or critique to what it is venture does, and my hope would be that they would listen to us and they’d hear what we’re actually saying. That we aren’t critiquing venture, that we’re saying venture works for some companies. It works really well for some of those companies and there’s a reason it does. But there’s a lot of people who it doesn’t work really well for and there’s a lot of incentives that people don’t ...

It always funny when hyperconfident people turn out to be less confident.

Yes. It’s rare.

It happens more often than you think. Last question: Tavi Gevinson.

Oh my gosh. How did that happen?

Rookie founder. Just basically closed up shop, wrote a long essay about it. References a VC named Bryce, which I’m pretty sure is you, you’re pretty sure it was you, I connected the two of you so that’s why we’re reasonably confident to think.

So Tavi wrote a long thing about why she couldn’t continue running the business at some point prior to this, couple years ago I think she’d said, “I’m looking for maybe investors and what they would look like,” and I thought “Bryce’s model might work for you.” So walk me through that discussion you had with her and why you ended up not investing in her, or why she ended up not taking your money.

Let’s see. I remember the conversation really well, and I remember feeling like ... you know, there’s a point in a business where it’s hard to pull out of what feels like a tailspin. And especially for first-time entrepreneurs, it’s hard to recognize when you’re in that. With Tavi, what I heard and felt was this was a woman who cared deeply about this product that she’d built, but in many respects she was kinda trapped by a product she built when she was 16 years old, and she was now ...

Literally 16?

Literally 16. And so I think there was a part of her that felt this longing to maintain this business and people that she cared deeply about, but there was also a sense of like permission to become something that she hadn’t necessarily experienced yet.

Because she was only, what, 23 when you talked to her?

Something like that. But you know, in seven years, for someone to be heads-down on a business ... and so I became in her story, I think ... I don’t know how many VCs there are named Bryce or what, but I became the masthead for a VC who’s gonna ask kinda hard questions that maybe she was having a hard time answering.

And when you work with an investor, if those questions make you uncomfortable, then I think more entrepreneurs should be asking themselves not whether they are a fit for venture capital, which is clearly the question she was coming to me to ask, but more so, is venture capital right for me? And I think the default today is I need to be asking myself if I’m a fit for venture. And then I have to make myself look like I’m a fit for venture instead of really being thoughtful about like, “Is venture right for me? Because it doesn’t feel right.”

She clearly wasn’t gonna be someone who wanted to do venture. I think the fundamental question for her — and I think that’s a really candid post. I mean, she’s essentially saying she didn’t want to run this business that is 100 percent attached to her and her persona and her name, and she wanted it to be in good hands but she didn’t want to run it full-time. And I think any investor, whether it’s you or a VC or a bank, would say, “A person who’s built around it doesn’t want to do it, then we need to figure ...” And also that limits what she can do with the sale and I think that’s why it shut down.

And remember, when that post came out it got lumped in with whatever round of media layoffs we were having, but that’s a different thing. That’s a company attached to a person who doesn’t want to do that company anymore. And you can’t solve that with a funding model.

That’s right, you can’t solve that with a funding model. But what I appreciate about what she did and what I feel like we’re missing out on in this kind of rush to fit into the traditional venture model, is I feel like we’re missing out on companies and company cultures that could be really special. That could be even experimental and go on to be massive, but because as an entrepreneur, now we’re conditioning them to think, “Well, I’m not even gonna start if it’s not clearly a billion-dollar idea.” I think we’re missing out on really special kinds of companies, really special entrepreneurs who look at that model and say, “That’s not me, but if it’s not me, I got nowhere to go.”

And a lot of what makes especially these bootstrapped companies that I’ve gotten to know over the years, almost to the one, the companies that are most interesting and scale the largest, I will universally tell them, everything you’ve done to make your business work and to stand apart and to make it special are things that if I were your board member, I would’ve had to drop the hammer on. You can’t do those things because that doesn’t fit what the next set of investors is going to look for. And I think we miss out on some really special world-changing companies because everybody’s rushing so quickly to look and be like what investors are looking for.

Bryce, this is great.

Thanks.

I should either have more investors come on, because it turns out this is really good conversation, or just have you come back.

We’ll let the audience decide.

We’ll figure that out. Thanks for your time again. People know how to Google you, they can go to Indie.vc.

Okay.

They got till March to apply, but I’m sure you can figure out something if they don’t apply, of course.

This article originally appeared on Recode.net.