Bryce Roberts and Tim O’Reilly: VCs that help startups raise revenues, not rounds



New Revivalists is a series from ImpactAlpha and Village Capital profiling the people, places and policies reviving entrepreneurship — and the American Dream.

New Revivalists: Bryce Roberts and Tim O’Reilly, co-founders, Indie.vc.
Place: San Francisco Bay Area
The approach: “It’s not how fast you grow, but can you grow sustainably. This focus on operating businesses that make early revenue is a really fresh idea in Silicon Valley. But it’s a really old idea in the real world.”
Follow: @bryce and @timoreilly

In an age of bloated venture capital funds and startups that are long on valuations and short on profit models, investor Bryce Roberts and media entrepreneur Tim O’Reilly are getting back to basics.

Through an approach they dubbed Indie.vc, Roberts and O’Reilly are surrounding founders with the resources and networks that other VCs offer, but without the baggage and sky-high expectations. The team has backed 16 firms with investments of between $100,000 and $500,000, with a focus on customers, cash flow and sustainability rather than future mega-funding rounds.

The investments are executed through O’Reilly AlphaTech Ventures (OATV), the pair’s venture capital firm, which is applying the Indie.vc approach in its fourth fund. ImpactAlpha caught up with Roberts and O’Reilly to talk about their unconventional approach to investing in and building companies, and why they burned that unicorn head.

Bryce Roberts and Tim O’Reilly
ImpactAlpha: What is indie.vc?
Roberts: We think of it as a style of investing, versus a fund. It’s similar to when we started OATV back in 2005 to do very early-stage investing. Seed investing wasn’t a term, but we gave it meaning. Indie.vc is a way and a strategy of funding companies, rather than an entity. We invest out of OATV Fund IV, but indie.vc is the style of investing.
With our first pilot, we wanted to try out the type of investing and messaging. In 2015, we made eight investments of $100,000 each [out of Fund III]. Given the response to the initial experiment, in terms of interest from companies as well as results, we decided to shift all of our focus to doing indie.vc investments in Fund IV.
ImpactAlpha: What’s the idea behind the indie.vc style?
O’Reilly: We have to refocus the entrepreneur on something that has been lost on so many Silicon Valley businesses: you are trying to build an operating business. There’s only one type of company that Silicon Valley has been funding — swing for the fences, we’re going to get big or go home. That means a huge number of really interesting companies don’t get funded.
Roberts: There are so many entrepreneurs who enjoy playing the game of entrepreneurship. This is a way to reward people who are building real things.
O’Reilly: Right. There are a lot of people for whom raising money is their business. That’s wrong. What’s so beautiful about what Bryce is doing is, he’s teaching them, it’s not about how much you raise, it’s about how little. It’s not how fast you grow, but can you grow sustainably. This focus on operating businesses that make early revenue is a really fresh idea in Silicon Valley. But it’s a really old idea in the real world.
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ImpactAlpha: What types of companies do you look for? Is there a typical profile?
Roberts: The most concrete factors are post-revenue; an aversion to or a chip on their shoulder about VC in general; and in a market where there is real leverage from technology. We’ve invested in everything from hardware to entertainment to media to consumer companies.
Interestingly, six of the eight companies from our original pilot group were founded by female entrepreneurs, two of whom are black. Of the 16 companies we’ve now funded through our Indie.vc program, over 50% are led by female founders. This isn’t something we anticipated, but there’s something about our model that resonates with underrepresented founders who’ve not found support or funding from traditional VC sources.
ImpactAlpha: What is a successful outcome for you? What kind of ‘exits’ do you look for?
Roberts: We’re structured to recognize success in an investment in the same way an entrepreneur should recognize success in their companies. They can get rich off of cash flow and become profitable. We’re also set up to be able to make money if they sell or go public. If they haven’t raised money or sold the business by the end of three years, we do a revenue share, anywhere from 1% to 5% of revenue. We keep that optionality in alignment with entrepreneurs.
ImpactAlpha: What opportunity do you see that other investors don’t?
Roberts: By nature, VCs move in herds. They tend to pile into a category, overfund it, wait for the winner to appear to be in a position to take-all and move on to the new next thing. But if you look at some of those categories that become overfunded or suddenly fall out of favor, like on-demand services, there’s still a lot of learning going on in the second and third generation of companies.
O’Reilly: Fohr Card is a good example. A social media agency is not a typical Silicon Valley candidate. But Fohr Card [a portfolio company] is a great operating company. They were doing a couple hundred thousand (dollars in revenue) when we started working with them two years ago. Two years later, they finished 2017 with $7 million in revenue. The Shade Room, another portfolio company, was doing less than $10,000 a month when we began working with them. They now have a substantial “seed rounds” worth of cash in the bank that they generated from their own profits.
ImpactAlpha: What’s with the burning unicorn head?
Roberts: That used to be the entirety of our web site! We did it with tongue firmly in cheek. But it’s become somewhat of a mascot for founders forging companies on their own terms. Entrepreneurs need to recognize that there are other paths available for building something of impact than the blitzscaling model of Silicon Valley VCs.
Sometimes, the worst things can happen when you are trying to grow so fast, when you worship at the altar of scale. Look at Uber, SoFi, and a number of others this unicorn culture has created. It’s really hard to create something in that unicorn mold that is not rotting a little bit. The burning unicorn head is a way of saying we want to embody values other than the growth-at-any-cost model and show that there’s a different way to build a real business.

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