What's up, everybody?
This is Cortland bringing you another episode of the Indie Hackers Podcast.
And today I'll be sitting down with Bryce Roberts, a venture capitalist and a partner
at NDVC.
And you might be thinking, Cortland, you run ndhackers.com where you talk to founders about
bootstrapping their businesses and about focusing on revenue from day one.
So why the hell are you talking to a venture capitalist?
Well NDVC is not your average venture capital firm.
In fact, they have a pretty revolutionary investment thesis that focuses on investing
in companies that have a focus on profitability ingrained into their DNA from early on.
And I'll let Bryce talk about it because he can explain it better than I can.
But you might recognize them from their posts on Hacker News, from their website, which
for the longest time featured a looping video of a burning unicorn head on the homepage.
So obviously we're not talking to someone who's a very stereotypical venture capitalist
in Silicon Valley.
I think by the end of this conversation, you'll have a much better understanding of how the
common VC narrative has become so popular and so dominant in Silicon Valley, and you'll
also understand more about the trade-offs that you make when you raise venture capital,
and why it makes sense in a lot of cases to go the Indie Hacker route and focus on revenue
from day one.
So I'm very excited to bring you this conversation that I have with Bryce, and I hope you guys
enjoy it as much as I did.
Before we get started, let me tell you about a group of guys that I got to know a couple
of months ago.
They reached out to me as fellow MIT alums, and I ended up interviewing them about one
of their profitable side projects on IndieHackers.com.
Dickson and Mo is a boutique digital agency.
They're technical designers with a focus on business and marketing, and they specialize
in helping bootstrapped founders grow their products.
They're based in San Francisco, and they work with founders from all over the world, and
they're big advocates of the Indie Hacker movement, both as participants, having made
several revenue-generating projects in-house, and as design and development consultants
who work with an array of founders and products.
For example, they help the founder of Wise Pops grow his revenue from $10,000 to $50,000
a month and quit his job at Amazon to go full-time on his side project.
They helped Alex from Groove HQ, who by the way has David Hauser as his loan investor,
to reposition his helpdesk software from a scrappy app for startups to a professional
tool used by companies big and small.
He's now making $500,000 a month.
Dickson and Mo are looking to take on two new projects this year and would love to see
where they can help.
You can chat with them over email or phone about any design, development, or marketing
problem that you're struggling with.
Reach out to Mo, that's M-O-E, at mo at dicksonandmo.com.
That's D-I-X-O-N and mo.com.
And make sure to tell them that Cortland from Indie Hackers sent you.
Hi everybody, this is Cortland Allen from Indie Hackers, and I'm sitting down today
with Bryce Roberts from NDVC.
How you doing Bryce?
I'm doing great.
Thanks for asking and thanks for having me on the podcast.
It's really good to actually be able to talk to you again because we first met back in
October.
I went down to your office in San Francisco and we talked for about an hour just about
investing, adventure capital, bootstrapping companies, Indie Hackers, and it's cool to
be able to do it on the air now and talk about some of the same things we talked about then.
Yeah, no, I mean we've been a huge fan of what you're trying to do with Indie Hackers
from the get-go.
I think, you know, as soon as you launched it was on our radar and we've just been the
content you're putting out, the conversations you're having, the stories you're telling,
we just think it's fantastic.
So we're happy to, I was glad we got a chance to meet and just, you know, free flow for
an hour or so.
I still remember it was a great conversation.
Yeah, and I'm a big fan of what you guys are doing at NDVC, too.
I think I first read about it on Hacker News about two years ago when you guys launched
and it was kind of like this cryptic, mysterious launch, but...
In fact, it was two years ago this month.
It was January 1, 2015.
It was exactly two years ago, wow.
And it was wild because I was flipping through my time hop and I remember, you know, this
year the screenshot of when we'd been, I mean, we stayed at the top of Hacker News for two
days and so I just kept kind of tripping out on that and I took a screenshot of and it
popped up this year on my time hop.
So it was, it's cool to see, one, the reaction we had and then just give you some time to
reflect on how far we've come, you know, since that super cryptic little landing page.
Yeah, it's really awesome and I plan to talk about a lot of that stuff, like the changes
you guys have experienced in the last two years and Hacker News, it's crazy how much
traffic Hacker News drives because when ND hackers launched, I was also at the top of
HN for two days.
But for people who may not have read that post or who may not know about NDVC, can you
talk about what NDVC is?
NDVC is an investment thesis we have developed over the years through our investment firm,
which is a firm called O'Reilly AlphaTech Ventures, OATV, is a fund that I started with
Tim O'Reilly and my other partner Mark Jacobson.
We started OATV back in 2005 when there was no real category of seed investing.
We kind of saw this potential opportunity where costs for starting and scaling businesses
were dropping and yet the check size of VC firms kind of stayed pretty consistent.
And so we thought there would be an opportunity for our companies to get further on less.
And so that's kind of where we started with our business at least investing.
Probably five years into that, the promise initially of seed investing was there was
going to be not just this kind of arbitrage of picking these companies early on and kind
of bridging them to higher valuations and more rounds of financing to kind of get them
onto that venture track.
The idea with seed early on was that it was effectively a new model for venture scale
returns in a market that could potentially see those on smaller outcomes and different
types of companies and entrepreneurs.
So historically VCs have made all of their money in the industry as a whole has made
all their money off about 12 companies a year that reach a billion dollar valuation or more
and exit.
We thought with seed investing that there would be this opportunity to kind of create
a shadow market or a different type of market for early stage investing where entrepreneurs
and investors could be much more aligned about the kinds of exits we could each have that
really moved our needle.
And five years in to this kind of seed boom, we were really starting to feel the pull of
what had become really kind of an arbitrage business that seed investing wasn't necessarily
introducing optionality, it was really kind of bridging the gap to more funding rounds
and kind of getting people gussied up and prepared for raising another round of funding
versus just building a business.
And so within DVC, that opportunity that we saw was still there to help entrepreneurs
kind of build long term sustainable real businesses that didn't necessarily require massive amounts
of venture capital.
And with that, all that comes along with those funding rounds, right, which tends to be more
loss of control, more dilution, more oversight, and frankly, more expectation around the kind
of exit that's required in order to be successful for the investors.
So back in 2015, we had this idea that we wanted to test out, which was what if we created
an investment vehicle that just backed companies who wanted to raise one round of funding and
then just build their business and give those founders the control over how they grew, where
they grew, but give them that same layer of support without necessarily expectation that
they're going to raise that next round in the next 12 to 18 months, which is kind of
that implicit A round that goes along with the seed round these days.
That's what we started with in 2015, that landing page you mentioned that was on Hacker
News.
And the response to that was pretty immediate and pretty vocal.
And as a result, over those two years, the idea and the terms and the layer of services
we provide in the community that's coming together around it, we've just continued to
kind of iterate on that over the last two years.
And the results have been really encouraging both from the companies we funded, but also
just the response we're getting from entrepreneurs all over the world, excited about this idea
of kind of building their company on their terms versus having to fit a certain mold.
Yeah, there's certainly like a VC mold that exists and I noticed it a lot when I first
moved to Silicon Valley five or six years ago about I mean, I did Y Combinator and there's
kind of this ethos among my batch mates, among other people I talked to in the tech world
that like, you know, if you weren't going for this billion dollar unicorn company, then
you were just starting a nice lifestyle business.
And that was cute, you know, and you're never really going to be anything but you know,
kudos to you and it's crazy to me how everyone's kind of on this one page and it's the only
way almost.
It is the VC business model co-opting the entrepreneur's vision for what it is they're
trying to build.
And I think in the race to get that validation and support financially or otherwise from
VCs, entrepreneurs really have to sell this massive vision because it's only those companies
that are billion dollars that really drive returns for the industry as a whole.
And so you really have to shoehorn your business into it.
And I think that it forces entrepreneurs to do and be something that maybe they aren't.
And so, like you said, you had this kind of visceral reaction to these entrepreneurs and
how that mentality and mindset and culture really changed how they thought about their
business.
You know, we think especially in this day and age with the cost of starting and scaling
businesses only going lower, the funding round sizes keep increasing.
And I don't necessarily think that's coming out of need, it's coming out of something
else and we don't think it's necessarily ambition or anything else.
It's just the way that this business is really engineered and we're trying to give entrepreneurs
a bit more control over how they do it and how they measure success because for most
entrepreneurs who don't go and raise a ton of money and create all these expectations,
a hundred million dollar business is still a fantastic outcome for them.
It's a rounding error to most VCs.
Most of the massive billion dollar businesses that are out there, they didn't start out
saying that's what they were going to be.
They didn't plant a stake in the ground early on.
If you go back and you look at Uber's early idea for what it was going to be or Facebook
or Google or any of these things, they didn't set out for world domination.
They started small and they kind of let that ambition grow over time.
And I think so many entrepreneurs are handicapping themselves right now by saying, we have to
be this or we don't matter.
There's just this belief that there's these completely binary outcomes, that it has to
be Google or why bother.
I think that's just a shame because I think if you go back and you interviewed any of
those founders of the massive, near-monopolistic companies we have these days, if you would
have interviewed them in the first year or two, they weren't even sure they had a real
company.
What they were doing was actually feasible, certainly not at some predefined scale.
I think removing that expectation or at least recalibrating that from the beginning, hopefully
it gives entrepreneurs an opportunity to start, to get going, to be supported, and then let
that ambition grow over time and see where it takes them versus before speeding that
unicorn right out of the gate.
It's nuts because you can go back and like you were mentioning, you can read about the
Google founders agonizing over whether or not to sell their company for like a few million
dollars or a million dollars, and now you have people going into seed investors talking
about how they're going to be a $10 billion company in five years.
There's just so much pressure on people to spin that narrative and to raise more money.
Investors are expecting to be kind of like a stepping stone.
You'll raise money for me and then they'll use that to move your product to this stage
at which point you'll raise more and more money.
It's this treadmill that's not necessarily the only way.
I think a lot of people have misunderstood kind of your purpose and your methods at NDVC.
I was reading the old Hacker News threads and some of the earlier coverage you got from
Pando Daily back in 2015.
There are a lot of people who thought, okay, well, NDVC really doesn't care about ambitious
companies.
They just want to fund like these nice, tiny companies with no ambition, and that's not
really what your goal is.
Like, as you mentioned earlier, there's a lot of companies that had amazing success
and that it ended up bootstrapping or raising not that much funding and making hundreds
of millions, if not billions.
What is your philosophy and what does success look like for you?
Our philosophy is pretty straightforward, and that is we think companies that begin
with the DNA from the very get-go, that they're really focused on designing, developing, and
delivering a product to customers that customers pay for, that they know how to drive revenue
and create revenue from the get-go.
Our fundamental belief is those over the long term are going to be much better businesses
than the companies who spend their time focusing on raising and spending other people's money.
That's a philosophy.
It's a worldview, but we also think that proves out in a bunch of cases.
People love to point out how much revenue Facebook or how much money they raised in
the early days and over the life of the company, but the reality was Facebook from the get-go
was a very profitable business.
Counter Facebook with Twitter who has been losing money from day one and continues to
lose money now, and yet they just can't get their act together around revenue despite
it growing like crazy.
They looked at revenue as kind of a bolt-on feature.
We can turn on revenue when we need to.
We think that companies who focus on revenue, we think that that DNA can't be duplicated
and that if you have that at your core from the very beginning, over the long term, those
companies can outperform.
I think we're in a window right now that really celebrates and emphasizes raising money and
at what valuations and how much of it, and we think that those companies over the long
term won't perform as well as the companies who focus on revenue right up front get that
as part of their culture and DNA and then scale accordingly.
That's the philosophy.
It has nothing to do with people's ambition or what it is they think they want to build
over the long term.
We think, again, that those ambitions grow over time.
I think if you talk to any of the NEVC founders that we work with, I think all of them consider
themselves prospects for building massive, massive businesses.
All of them want to build something big and impactful.
They're all ambitious, so they don't talk about their businesses as lifestyle businesses.
I don't think we'd want to be in business with someone who doesn't really want to accelerate
their growth in a meaningful way.
I think there are plenty of companies out there that are great companies that don't
make good investments, so we're trying to find that intersection of a great real business
intersecting with a great investment.
I think a lot of that's tied to the vision and ambition of the founder, and we just don't
measure that and how much money they're raising.
I like what you said about the effects that the current VC narrative has on how people
run their businesses, because it's not just a superficial thing.
It seeps into the everyday culture of your business.
You mentioned the culture of a loss of control, having more expectations and more oversight,
a little bit of loss of independence versus a company that maybe raises one round of funding
or is bootstrapped, and they have more of a focus on cash flow from day one and on sustainability.
What other disadvantages do you see among companies that are funded by VCs that the
companies in your portfolio might not have and might not be hindered by?
That's a good question.
I think it's probably less disadvantages, but the thing we hear consistently from our
founders and the bootstrap founders we work with is they have this overwhelming sense
of freedom that they really aren't beholden to anybody, that they can build their company
on their terms, that there's no playbook or archetype that they have to fit into.
I think there's a lot of freedom and flexibility that comes from that.
I think companies as a canvas to express your values, to express who you are, I think we
lose a lot of that in a world that values conformity to a relatively narrow set of business
metrics that Silicon Valley really embraces and encourages.
It certainly comes with trade-offs.
I think the thing we're recognizing is that it's like what pain do you want to feel.
It is more painful at the beginning to get a business up and running and cash flow it,
start to break it even, start to become profitable, start to grow along those lines, but the reality
is it's just as hard if not harder to try to wean yourself off of spending other people's
money, losing money.
When you've got all of this overhead of employees and boards of directors and all of these expectations,
it's just as hard if not harder to try to create a real company from that platform versus
starting from the outset with that as the goal.
We're trying to encourage and work with the company.
We think that venture model, it does work.
It works for a handful of companies every year and we think that that is as reasonable
a route as any other.
If you look at the companies that actually succeed, if you look back at Aileen Lee's
unicorn analysis, the initial one, it was 0.01% of company or 0.07%, not even a full
tenth of a point of companies that drive all of the returns for the venture business.
It's just such a tiny sliver of the universe of potential companies.
I wrote a post a while ago about whether we're reaching the limits of the Silicon Valley
venture model because long before I came into the business and currently the worldview is
there's these 12 to 15 companies a year that drive all of the returns for the business.
If that playbook, if that model works for 12 to 15 companies a year, what happens if
we could develop a different playbook?
Maybe we could create one more of those a year and if you could be the firm that was
the primary investor in another one of those or you could be an instigator for bringing
more of those companies to creation or being a part of those, that's potentially a very
good business to be in.
So that's how we look at it as we recognize, look, the model works and it works for a set
number of folks and candidly there's a certain archetype of entrepreneur that's embraced
by that model.
What happens to all those other companies that could succeed if they had a little bit
of access, a little bit of cash, a little bit more network?
We think there's a real opportunity to bring companies and support companies that wouldn't
have had it otherwise but they could scale up hugely.
If you look at our first group of companies that we did back in 2005, the company that
has grown insanely fast and faster than anybody else in the group, we're talking 10, 20x growth
over the last year, it's a black female founder.
She comes from a super rough background.
She would never have gotten the attention or support of VCs but she's got more cash sitting
in her bank account now after we put $100,000 in as part of our initial NDVC investment.
One, she never spent it and two, she's got what equates to a larger than average seed
round sitting in her bank account now because of the cash she's been able to generate over
the last year and a half.
She would have never caught the attention of VCs and now because of the rate she's
going, because of the attention she's been able to get, she has them knocking on her
door and she's just so committed to doing it her way that she's able to confidently
turn away that type of investor interest because she's standing on her own two feet.
We think that's not only really empowering but it's also, we think it's a harbinger of
entrepreneurs who don't fit that prototype, don't fit that archetype but that who have
something massive to offer and who just need a little bit of help or support.
We want to be able to provide that for them but we don't want to feed them back into
the machine that is looking for something they're not, if that makes sense.
Yeah, exactly.
I remember reading one of your early posts about a month after you launched and you guys
hosted these meetups or these events in different cities and people were kind of coming to you
and despite reading the explanation of NDVC, they're coming and they wanted to use you
as a stepping stone to raising more and more money and it seems to clash with what your
philosophy was.
And that was hard because it's like how do you just not end up with a bunch of VC rejects,
right?
Right.
People who really want to keep raising money but they can't and so they're just looking
for kind of that next step up to get them closer to being able to raise a proper A round
or whatever it is and those aren't the companies we're interested in working with and so we
– we've gotten better at finding and filtering out those companies versus the kinds of companies
who genuinely want to do it on their own terms.
What's been interesting to me around the ND hackers is people ask me, you know, do
you hate venture capitalists or do you hate raising money?
I don't, right?
And there's a time and a place for that and it's not for everybody all the time
and yet there's this narrative that it's kind of the only path and it's fascinating
to me how dominant and popular this narrative was.
I remember going to Y Combinator startup school in 2009 and it was like interestingly enough
like my first exposure to like the alternative way of looking at things because Jason Fried
from Basecamp was one of the speakers and he got up there and I don't remember exactly
what he said but more or less like trashed what a lot of the other speakers were saying
and said like hey everyone's feeding you this idea this is the only path that you could
possibly take but there's other options, right?
You can charge money like every other business in the history of the world is done and you
browse TechCrunch and you see only one type of business, one type of story.
Why is the VC narrative so dominant and why haven't, you know, the kind of companies and
business models that we've seen for let's say brick and mortar businesses taken hold
sooner in Silicon Valley?
You know, you bring up a couple really interesting points, I mean, I think why is that the case?
Because you know big check sizes and valuations and those magazine covers are all really sexy
and it's very rare that you get that without something artificial.
People in general want, you know, it's kind of like why is the self-help world so big?
Why is the dieting industry so big?
It's like people just want a pill that you take and that's what helps you be successful
and in many respects, you know, getting a big check from investors looks like, you know,
looks like that.
I think that's part of the culture though.
I mean, you know, venture capital got started in Silicon Valley in a meaningful way.
I think it's just so ingrained that people take it for granted that that's the only way
to do it and I think that's really what we celebrate.
I mean, you know, that's really what catches the headlines and I think that's what frustrates
as you probably are finding as you interview the indie hackers is like it's frustrating
to see yourselves creating something valuable that you have customers paying for that you
know is working.
You get a venture-funded competitor who gets the headline for, you know, a press release
around their funding round and you just shake your head, right?
Like that's a pretty common refrain we hear a lot from folks like why are they getting
all the attention?
Well, there are some things you can solve with money and there are some things you can,
right?
And I think, you know, in so many of these cases, you know, the best competitive advantage
is not going out of business, right?
And so if you don't have to ask permission from an investor to stay in business, there's
a much higher likelihood that you'll be around long after that press release is old news,
right?
Exactly.
And it's funny to me because in a way, the fact that the tech press will only really
tend to focus on one type of story is what makes my website possible because I would
browse happeners and see all these business stories from people who are making real amounts
of money.
So I'm doing millions of revenue a year and they couldn't get any press, right?
And so I created any hackers to feature these stories and people who are interested in them
can come to any hackers and read about them.
But it's almost impossible for them to get press anywhere and any hackers itself has
gotten zero press from it from any of the tech businesses, despite hundreds of thousands
of developers in Silicon Valley visiting the website every month says, you know, Jason,
you know, the Jason Frieda at startup school, right?
I mean, he he makes more every year in cash distributions out of his business than most
founders will ever make out of a VC funded startup.
I mean, you know, if that company just mints money, even more importantly, it really creates
this amazing platform for Jason and DHH and the people who work with them to express worldviews
to highlight cultural differences, to experiment on company culture in ways that you could
never get away with at a venture funded startup.
I was talking to a friend recently who bootstrapped his business to about 75, 80 million a year
in revenue.
And he was telling me about all the decisions they've made, these kind of counterintuitive
that bets they'd made, you know, throughout the years.
And as he's walking me through this stuff, I'm just shaking my head.
And I'm thinking, man, if I were on your board as a VC, I would literally have to veto every
single one of these.
You're talking about and yet these are the things that really made their business work.
These are the things that really built their company and culture and that their customers
love.
And yet it was stuff that from if you had to get that by a board of directors, like there's
no way.
There's no way it's happening.
That's so nuts.
Yeah, I think Jason's point, I think your point and Jason's point is a good one, which
is like, unfortunately, the challenge and opportunity for indie hackers and for indie VC.
And the people who are really trying to get these stories out there is that the knowledge
transfer that happens so frequently and so clearly in the venture world is actually not
very applicable to a lot of these types of businesses.
In fact, most of them, if they took the advice they're reading on TechCrunch or most of the
blogs that are out there, they'd be out of business.
Yeah, I talked to people on the indie hackers forum all the time.
And there's a guy on there a week or two ago, I'm not sure exactly what it was.
He was kind of frustrated.
And he was saying, you know, aren't I supposed to solve this huge, you know, unsolved problem
that no one else has ever solved?
And I was like, that's not what you need to do, you know, and that's he got that by taking
advice directly from VCs who wanted him to build a billion dollar company and anything
else is just not worth it.
Well, that's where we kind of had to cordon off, you know, indie VC from the other types
of investing we do, because we realized like, there's something really special and different
about that, that the other companies could benefit from.
But that focus on revenue customers, it doesn't necessarily like those two worlds don't necessarily
mesh very well.
And so, you know, as we did any VC as a kind of experiment within one of our funds, one
of the big realizations we had was that it couldn't really co mingle, it really needed
its own space.
These entrepreneurs just need a very different kind of support and community.
I mean, one of our core beliefs around any VC is you become who you hang around.
You know, if you're hanging around entrepreneurs who are consistently on that VC funded treadmill,
the advice you tend to get is really engineered towards what it's going to take you to get
that next round.
We did a retreat in Chicago a month or so ago, we actually did it at base camp, Jason
gave us some space there and the cards against humanity folks there who were also bootstrapped
gave us some space.
But the takeaway from our entrepreneurs who came there was like, they couldn't believe
that we didn't spend any time talking about fundraising, we didn't spend any time polishing
pitch decks, it was all focused on what was happening with revenue, what was happening
with customers, all of it was revolving around growth, revenue, sustainability, not across
all of these retreats we've done at any VC, we've never once done a workshop on how to
pitch investors.
You know, that's just so different from the traditional world of venture and seed investing
that I came from that, you know, with our newest fund that we raised, we raised it almost
entirely with the story of NDVC at the front.
And so all of the investing we'll be doing going forward will be, you know, in the spirit
of NDVC.
That's huge.
It is huge.
It was a big, scary change to our business after over a decade of doing kind of mainstream
seed investing.
And you're hitting on like almost all the questions that I wanted to ask, because one
of the biggest things that I noticed going through by Combinator and talking to friends
who raised VC after that is that so much of the coaching and the help that you get is
literally just how do you raise more money, right?
Here's how to pitch, here's how to edit your slide deck, and it's like 50%, how do you
run your business 50%, how do you raise more money, because that's just such a huge part
of it.
Whereas the people that I'm talking to with NDHackers, like no one's asking each other
for tips on how to raise money, they're asking like, how do I get customers, you know, how
do I handle the sales process and how do I build a product or a service that's useful
for people and can grow.
Well, there were a few like touchstone moments for me.
I mean, NDVC, even though we posted it two years ago, it was something that was probably
five years in my head.
And if you go back, you'll find like an old talk I did in Berlin probably four years ago
or five years ago, you're like, it's been kind of coming out and it's been a topic of
conversation within my partnership and, you know, with my advisors for probably five to
seven years.
And, you know, there's these kind of touchstones along the way where like, you know, I remember
one of our companies that we're investors in had closed a, they just closed like a double
digit round of funding, you know, significant, like, you know, huge round of funding, the
very first board meeting after this round of funding, there was a large portion of that
board meeting that was spent around what fundable milestones do we need to hit to get the next
round and who should we start talking to right now to start kind of getting the company prepared
to raise again.
This is a company who literally raised money, enough money to probably be in business 10
years.
But the expectation was just so immediate and I, you know, that they would be raising
again within the next three to six months because they were hot and they could and all
this other stuff, you know, and that that would give us all kind of a nice bump in our
IRR.
It was like, it was that moment where I'm just stepping back and thinking like, this
is not, this is not the kind of business I want to be in.
And these aren't necessarily the kinds of businesses I want to work with.
And like you said, it's not that you dislike VC, you know, we get the, you know, we get
the your anti, you know, we get the anti VC thing all the time.
When in reality, we are still VCs, we still have the potential of VC style outcomes.
But we think that playbook, it really is best reserved for, you know, only a handful of
companies that are willing to play by those same rules and that most other people are
going to be better suited finding a partner that will be happy with an outcome that they'll
be happy with.
And that's not necessarily saying to be less ambitious, that's saying like, don't force
yourself into somebody else's model too early.
Exactly.
And I think a lot of times people force themselves into these models blind, like they aren't
aware of the trade offs they're making, and they're not aware of the other options that
they even have.
You're right.
I mean, I think, you know, if you entrepreneurs will be really real with you from the outset,
like what they really want in a seed round or even a series A is an ability to pay their
salary.
They want to take a little bit of pain and risk out of the equation.
And instead, what you end up with is a boss, right?
And so instead of starting a business to be your own boss and chart your own course, you've
taken on a boss from the get go, you've taken on all these expectations, you know, you've
taken on this notion of kind of the implicit A that after you raise your seed round, you're
going to need to raise again in the next 12 to 18 months, so that everybody gets their
nice IRR bump.
Most people just don't think that long term, they just know that, you know, they either
don't have the savings to be able to do it, or they just want that kind of early validation
from someone who believes in them.
And instead, they kind of end up biting off more than they chew or, you know, a different
bite than they thought they were going to get.
Right.
And I talked to so many people in any hackers who are in situations where it's like you
described, like I might talk to a developer who is a brilliant developer and has a great
business that he's working on and he's working on it, like literally on the side of his full
time job.
And he or she might go home from work, could on the weekends or at night and then come
back and it's like, all that person wants is enough money to be able to quit, like safely
quit their job and work on what they're doing.
Right.
And they don't necessarily need some seed round or a series A or anything like that.
But I'm curious about because you guys have completely switched or maybe not completely
switched but you guys have shifted a lot of focus to NDVC, which is this new investment
thesis.
And I'm curious what you think the future of Silicon Valley is, the future of bootstrapping
or the future of companies that aren't raising the successive VC round after VC round after
VC round.
For my interviews, I've seen this common theme of people kind of going into niches.
So in the real world, you might have a restaurant that serves a local community, which is hard
to do on the web, obviously, because it has a global scale and anybody can use what you
build.
So people are targeting ever smaller niches, which is kind of similar.
For example, I've seen analytics for Stripe accounts, analytics for intercom, analytics
for nonprofits.
And these are all profitable companies.
I've interviewed people doing productivity tools, right?
And there's of course, there's Asana and Basecamp and Trello and hundreds of businesses in the
productivity space because it's not this one big winner take all market.
Do you think that this is something that we're going to see more and more developers and
founders shift into doing?
I think it all comes out in the wash.
You know, I wrote a post a while ago that I called the peace dividend of the seed surge,
which we basically co-opted the idea of Chris Anderson's notion that all of the kind of
explosion in new consumer electronics we're seeing is the peace dividend of the cell phone
wars.
But effectively that there is this wave of founders who seven times more founders have
raised a million dollars or more over the last 10 years than at any other point in history.
I do believe that there are just more entrepreneurs who are educated, who've been experienced,
who've kind of seen both sides of the fence, if you will, like they've gone and raised
venture, they built another, they don't want to do that again, or they're going to go into
it more cautiously the next time around.
I do think that people are just going to be getting smarter about how and where they apply
venture capital to a problem versus using it as kind of the universal duct tape of startup
solutions.
I do think that people will see themselves going deeper into niches because as you can
probably appreciate, the bigger the web gets, the more mobile devices get into people's
hands, the bigger these historical niches end up becoming, right?
Right.
You know, I do think there's going to be a lot of things we're going to be surprised
by that felt really small, that all of a sudden see, you know, kind of massive, massive audiences.
That's not new.
I just think we're going to start to see it in new and different ways than we've been
seeing it in the past.
I mean, I think most of the big hits we've seen over the years have come at it from a
very small, niche approach, and that ends up being what works really well for them and
lets them get entrenched and create some competitive barriers.
I think we're going to see that more, but in very unique and different ways.
Yeah, I like what you said about the niches getting bigger as more and more people get
onto the web because I've interviewed so many people who are like, the niche that they're
targeting like 10, 15, 20 years ago, definitely didn't exist online.
And now it's big enough for them to be making multiple tens or hundreds of thousands of
dollars a month just from targeting this niche and they're just getting started.
So it's really interesting to me to see, you know, what kinds of businesses people can
build by focusing kind of narrow at first.
And like you were saying earlier, focusing narrow at first doesn't mean that you can't
become a billion dollar business if that's ultimately something that you want to do or
something that you kind of fall into, right?
Right.
You know, what we really want to encourage and what we want to see people doing is like,
I think that the Silicon Valley culture right now says if it's not a billion dollar idea,
it's not worth doing.
And so there's a lot of people who are sitting on the sidelines not shipping because it's
not a billion dollar thing, right?
Or because they can't, they don't think they can raise money for it or something like that.
But I think we just want to see people building things.
We want to see people shipping things and then let scale figure itself out.
The realities of running a billion dollar business is that they are not for most people.
Like most people really just want to have an extra 10 grand a month or a year or whatever,
right?
Like they want to supplement an income or they want to be able to work full time on
something that's theirs like, you know, and that's that's okay.
Or want to have, you know, a company where it's just their friends they get to work with.
I mean, there's a lot of reasons people start and scale businesses that don't have anything
to do with binary outcomes.
Exactly.
I want to talk a little bit about your investment model because I think the way in which an
investor puts money into a business and the terms that they ask for and the instrument
that they use play such a huge role and shaping the founders motivations, right?
Like what they do to run their business with their why they're trying to reach profitability
or raise the next round, etc.
So can you tell us about how the NDVC investment model works and how it's changed over the
past couple years?
Yeah.
So, you know, the idea with NDVC was that we wanted to create an instrument that didn't
anticipate any future funding.
And so if you never raise any more funding, if you, you know, if you take an investment
from NDVC, the expectation is that you don't raise any more money.
And then, you know, we can get paid out in distributions over time.
So rather than having, you know, forcing you to sell or raise another round of money to
get our markup in valuation, if you want to just grow your business on revenue, we want
to be aligned with you in that way.
And so as as the business grows and as you take more money out of the business through
your salary, then we are able to take a percentage of that out as a distribution, a cash distribution
to us.
And rather than kind of be this perpetual thing where we become an albatross around
an entrepreneur's neck, where they have to pay us out in perpetuity, you know, we try
to cap our return at something that feels reasonable.
So right now that's at a 5x on our distributions.
Now the way our instruments also set up is that if you do raise money, we'll convert
in as a part of that round of predefined percentage that we work out, you know, with the entrepreneur.
Or if you sell the business, then we convert into common shares that are predefined percentage
as well and go through as part of that transaction on the cap table.
To me, that sounds super attractive, right?
The idea that I could take investment and get money that helps me fuel growth without
having the pressure of raising money again and knowing that I could pay it out in a dividend
that doesn't kick in until I start paying myself a certain amount is awesome.
And I'm sure a lot of people listening right now who are ND hackers are probably strongly
considering applying to NDVC right about now.
At every possible turn, we're trying to give more control over it to the entrepreneur.
We as investors are going to be best served if an entrepreneur is able to operate on their
own terms.
And so we want to be there as a support, as an advisor, as a mentor, as a network and
connector.
But we don't want to be your boss, you know, we don't want to sit on your board of directors.
We don't want a different class of shares.
We don't want any unnatural control over your business.
And we want to give you the flexibility to grow as you want, and hopefully, you know,
our terms are structured in such a way that we're aligned with you in doing that.
Perfect.
And to close out, I'd really love to talk about just kind of your portfolio companies.
And this is just continuing with the theme of listeners wanting to apply to NDVC.
And version one of NDVC, as you call it, you had eight companies and in version two, you're
looking for between 15 and 20.
Where do these companies come from?
What do they look like?
What are you looking for in companies that apply?
So where do they come from is they come from all over the US so far.
We haven't made any international investments at this point.
But you know, our geographic footprint is all over the country, right?
So we've got New York, we've got Chicago, we've got Atlanta, we've got Austin, we have a couple
in the Bay Area, LA, Pittsburgh, one of our underlying philosophies is that people should
bloom where they're planted, right, that there's an opportunity in a bunch of different geographies
that have unique reasons for people to be there, whether it's lifestyle, access to talent,
whatever it is, you know, we're not making people pick up and move across the country
to get closer to us.
What we want to try to do is bring our networks and resources to them wherever they might
be, again, so they can bloom where they're planted.
The first group of companies, it was kind of all over the map in terms of the profile,
we were figuring out kind of what the sweet spot is for companies to get the most out
of this kind of support network.
You know, we had everything from like standing start ideas to side projects to companies
that have been in business for a couple of years, doing hundreds of thousands of dollars
in revenue.
I think where we kind of came out after that first group was the companies who tended to
do best were not the ones who were just getting started.
So companies who had some amount of revenue coming in every month, even if it was a nominal
like 10K a month, you know, it's pretty clear that the companies who passed a certain threshold
of revenue were the ones who were really, really getting the most out of not only our
investment but also our investment of time and resources and networks and all that stuff.
And so, you know, as we look for things, we're looking for things with 10K plus a month in
revenue, we're looking for tech and tech enabled types of companies where, you know, our networks
are coming from the technology world and so, you know, they're best served and I think
our companies are best served who can benefit from access to those types of relationships.
And then, you know, it's people who are looking for, you know, 100K up to 500K, not people
who are looking for multiple millions of dollars in investment and looking for a more traditional
Series A round or something like that.
We're also very open to new archetypes of founders.
Like I mentioned in the first group, you know, the company that's just far and away growing
faster than anybody else is a black female founder, you know, who's just really taken
our involvement heart and has just grown leaps and bounds.
Our first group of companies, we did eight companies and of those six of the eight were
female led companies and we think that particularly those non-traditional founders, the ones that
maybe didn't go to Stanford, the ones who aren't at GSB, the ones who aren't Googlers
and Facebookers and all of that stuff, like people who come from less conventional backgrounds,
we think any VC serves really well, particularly since, you know, we're going to focus on their
business and not kind of gussing them up and getting them ready to raise the next round
of funding when they don't look like, you know, what Sanjo Road funds.
Right.
That makes sense.
Right.
It makes a lot of sense.
That's awesome.
I had no idea that you had so many female founders, which is, it's funny enough, it's something
that I've like struggled with in Indie Hackers.
I'm trying to find more female founders and founders who are non-traditional backgrounds
to interview and it's hard.
So that's super impressive what you've done at any VC.
I mean, we really had no idea we didn't set out with that as an objective initially, but
the response from female entrepreneurs, the response from underrepresented minorities,
it was just so loud that we couldn't really ignore it.
I mean, these were people who clearly had been overlooked and don't necessarily fit
into the traditional kind of venture system as it works today.
But man, given a little bit of resources, a little bit of belief, a little bit of support,
like it's been amazing to watch some of these entrepreneurs and how quickly they've been
able to progress with a little bit of cash and a lot of belief from us and our networks.
That's awesome.
And I hope you guys continue to grow and find more companies.
You finding that a lot more people are applying in V2 than we're in V1?
Yeah, no, we've definitely seen a pretty healthy steady state.
The one thing we had going for us in V1 was that we had a deadline.
And so now we have it kind of open-ended.
And so there's a consistent cadence of entrepreneurs who apply every week, which is great.
But it's definitely a different cadence than we had when we said, hey, you have to be submitted
by March, whatever it was, that was truly like a mad dash for entrepreneurs.
So no forcing function.
I think it also is giving us a higher quality.
I mean, I think a lot of people just kind of threw their hat in and around.
I think now we've, you know, hopefully we're getting better at telling our story and being
more explicit about what it is we're looking for.
And so, you know, the caliber and quality of companies is certainly going up as we tell
more of our story.
One of the fears that I had when I first started at Indie Hackers was that I wouldn't be able
to find enough people to interview who were doing the non-traditional, let's try making
money from day one type thing.
And this is obviously more a testament to the fact that Indie Hackers is pretty new
rather than a testament to like, you know, this becoming more and more popular.
But in the beginning, I was getting, you know, one or two submissions a week and now I'm
getting 15, 20 people submitting interviews every week and it's only been growing.
So that is awesome.
I think that's a harbinger, right?
I mean, I think that's more signal that there are a group of entrepreneurs who really want
to do it differently.
And I think, you know, you telling their stories is a huge, huge boon to any of those folks
who want to get their message out and want to feel like they're a part of a community.
So can you tell listeners where to go to find you and learn more about you and NDVC on the
web?
You can always go look at our burning unicorn on Indie.VC.
That's the URL for NDVC.
You'll find out everything there is to know about us for the most part there and it links
out to a bunch of the things we've been writing.
If you want to get in touch, I'm Bryce B-R-Y-C-E at OATV.com.
I write infrequently, but I try to at least be consistently infrequent on Bryce.VC.
I am at Bryce on Twitter and NDVC has a pretty active Twitter account as well at NDVC.
Awesome.
Thanks so much for coming on the show, Bryce.
Happy to do it.
Anytime.
Bye.
Hey, everybody.
Thanks for listening.
If you enjoyed this conversation and you've got questions for Bryce or for me, head over
to the ND Hackers Forum where we'll be discussing this episode, that's www.ndhackers.com slash
forum.
Thanks and I'll see you guys next time.