The Indie Era of Startups | Bryce Roberts

Thank you, thank you Brent. What a, what a great intro and what a great friend he's been over the years. It's funny, I was texting my wife last night because I kind of really didn't know what I was signing up for when I agreed to do this. And so I thought, ah, I'm going to Missouri.

She's like, what are you doing out there? Ah, my friend, he's doing this thing. And then I showed up and this is like, this is legit. This is really, really legit. And it's so freaking impressive and [00:01:00] also terrifying all at the same time. Um, so thanks, thanks to Brent for putting this all together and thanks to you all for giving me the opportunity to share some, oh, they changed up my slide a little bit, but we're going to roll with it.

So despite the fairly self serving title of this for a guy who runs a firm called Indy, um, this presentation is really more about, um, kind of level setting for entrepreneurs who are trying to understand particularly in, in startups, but I think it applies broadly. to, you know, a wide range of entrepreneurs.

Kind of what's happening in the startup landscape, how things have been shifting and hopefully maybe a little insight into how to be thinking about building your business going forward into a new reality. As Brent pointed out, there's a lot more gray hair that I have than the last time he saw me. And certainly the last time that I, um, that I came into the venture business.

So, um, I just turned 50 last week. Um, [00:02:00] and in putting this talk together, I was like, holy crap, I have literally spent half, not my professional life, half of my life in venture capital at this point. And so, I don't know, um, Um, just really quickly, uh, by show of hands, I don't want to take for granted that people know exactly what my world is, so, um, by show of hands, who knows what venture capital is?

Okay, we got a pretty good cut. Even the drummer knows what venture capital is. Okay, so we're, we've We're pretty well covered there. Okay, who has raised venture capital for the company you're running or has worked for a venture backed startup before? A lot fewer hands. Okay, this is great. Um, who, uh, is venture curious and potentially thinking about raising venture money for their, their startup currently or in the future?

Okay, now this, this is gonna be interesting. Who doesn't want VCs anywhere near their company? You want them as far from you as [00:03:00] possible. Okay, you're my people. This is what we're gonna be talking about today. So, I'm old enough to remember what this sock puppet is. Does anybody else remember what the sock puppet is?

This was the, became kind of the, um, poster child of the dot com excess and crash. This was the, um, This was the, the, the, um, the, the, whatever. Character for Pets. com. That's when I came into the business. So I joined a venture firm in 2001. We were just coming off the heady. com days, and I was dealing with, at the time, what they called triaging their portfolio, which was, you know, basically looking at what they had, which wasn't a lot, and figuring out what we could do with it to try to preserve some value for their investors.

So that's where I started in 2005. I started a firm that ultimately became one of the first institutional seed funds. So these were, back in the day, it was not an obvious decision to start writing 250K to 1 million checks into startups. Not a lot of people were doing that. We, we started [00:04:00] doing that. And in 2008, We had the great financial crisis, the global financial crisis.

And I don't know if any of you got to go to Zuccotti Park at all during those days in New York, but it was flooded with these Guy Fawkes masks. There was this real backlash against the establishment and against the financial institutions. So these are kind of the eras of venture and startups that I've lived through over the last, over my career.

And the last one was a fun one to try to pick because it could have gone any way. Over the last couple of weeks because we have so many faces of the excess of this last 10 years of startup funding. I went with this guy, um, who is in the news again today, uh, this was WeWork. Now, I want to give you just a sense of the difference between the dot com crash and that era and this era that we're coming out of right now.

Any guesses as to how much venture capital Pets. com raised before they went public? 50 million. They [00:05:00] raised 50 million bucks. And in their IPO, they raised another 50 million. And this was the poster child of the.com crash. We call that a, a series A for a, for a stealth mode AI startup. Now, , anybody know how much WeWork raised before they declare, before they went public and ultimately declared bankruptcy?

Over 20 billion. So this is the order of magnitude we're talking about in terms of the shift that's been happening in the startup world. So if you're relatively new to starting a business, if you're new to this kind of private equity and venture capital world, and today it feels really unsettled and You aren't quite sure what's going on and how to proceed.

You're not alone because we're in relatively unprecedented times, even for somebody who's lived through multiple of these cycles. So I'm a big fan of movements. These movements we have, and we have them across all kinds of industries, across all kinds of art. We [00:06:00] have it in music. We have it in paintings.

We have it in every possible medium. And for another act of creativity, which I believe entrepreneurship is, we have movements here as well. And each of these movements tend to have a few, um, recognizable and repeatable catalyst that kind of propel them forward and bring them into the mainstream. These tend to be economic changes or constraints that are introduced.

They're a rejection of a status quo in the way things have been done in the past. And there's an availability of new resources and techniques that kind of open up a lane for something new and different to emerge. We've even seen these in Silicon Valley. I mean, you know, we, we laugh at how, um, flighty entrepreneurs and VCs can be in terms of kind of chasing the hot next new thing.

But each of these had a very real. Um, driver behind them in terms of change, um, that opened up a lane for something new [00:07:00] to emerge. I think that there's a new movement that's hitting Silicon Valley, and it's hitting it very hard. And you're seeing it every day. I think it will probably reshape Silicon Valley in a way that will make it unrecognizable from the last.

10 years of how it's operated, and to some, that'll be scary. To me, it's incredibly exciting. There's a lot of different names as people are trying to kind of come up with this term for wrestling with their relationship to these high growth venture backed startups and the ambition that's bundled with that, and this new reality of just how little of that is available to fuel those ambitions.

Some people go through troughs of resentment. There's all kinds of, you know, I have all kinds of interesting conversations with people who feel ultimately betrayed by the system that has been enacted over the last 10 years and how we've encouraged and coach entrepreneurs to build. Um, but we think of this as an opportunity for companies to be independent, independent minded, build independently, to not have to ask [00:08:00] people for permission to exist, to not have to follow anybody's playbook.

And this is a, Pretty exciting time for us, despite the uncertainty that comes along with it. So a few of the things that are kind of driving this, how many of you, um, have a family member yourself or someone close to you that's been affected by this recent round of layoffs in technology? That's a lot of hands.

Me, personally, I've had siblings, I've had dear friends, and I've even had my own kids who are now going into the job market, deeply impacted by job cuts across the board, as people try to normalize what's going on. The people that are getting let go aren't necessarily getting let go because they're underperformers, that they aren't equipped.

In fact, I would argue it's quite the opposite. These are some of the most capable and talented people we've seen. They've been trained. In how to build high growth, ambitious companies, and yet there's really nowhere for them to go. There are no for [00:09:00] no one's hiring to me. That's encouraging because that's the raw material we need to start this next wave of startup companies that can ultimately reshape the world.

So when I hear about it, when I watch it, when I when I console my friends, family members who are going through it. There's always that part of me that despite the pain that people are going through right now, ultimately, I think we're about to see the largest explosion of entrepreneurship and startup activity I've ever seen in my career, and that's incredibly encouraging.

In the past, these people would have gone straight to the VCs with their newest idea. Um, they would have pitched them. They would have known exactly what to say. They would have known the playbooks to get that money out of those VCs. They would have known the right trends to play. But, something in Venture has changed significantly as well.

I don't know how well everybody can see this, but I'm gonna just walk through some of the kind of numbers behind what we've been seeing in venture that's starting to reshape what [00:10:00] access to capital looks like in terms of access to risk capital for these kind of early stage ideas. So top row 2013 venture capital raises amount raised into venture funds.

So in 2013, we had 22 billion that went into venture capital funds. In 2022, we had eight times that amount of capital that went into venture funds. So when you heard about people with all this dry powder and all this capital flowing in the streets, this is what they were talking about. Seven times the amount of available capital.

You would think and you would hope that what that means is that we would see this kind of massive explosion of new company formation and venture funding. What we ended up with was Going from five and a half thousand startups funded to We didn't even double. So seven times the amount of capital available, we didn't even double the number of companies that were getting started in that time or getting funded in [00:11:00] that time.

And I think that's an important point because VCs aren't in the business necessarily of funding new things. They're in the business of funding the same things with more money. Um, and that ultimately is a real challenge because there are so many ideas. That could be attracting venture that aren't because people don't even bother to start them Because they don't think a vc would be interested in them And I think that from a from just a pure humanity standpoint is a massive miss For all of us when people aren't bringing What they have to offer their perspective into the world through, you know, the power of entrepreneurship.

So what ends up happening, companies go from raising $4 million total in 2013 to 21 million. So again, you're talking a seven x increase, not in the number of companies, but in the number and the amount of capital each of these companies are raising. Does anybody [00:12:00] know what F GRA is? Anybody know how foie gras is made?

Basically, you stuff ducks until you get this really lovely, fatty, tiny little piece. And ultimately, that's kind of what we saw with venture over the last few years. We got a tiny few real breakout companies. Um, from all this excess capital. But what it also did is it gave venture funds an opportunity to really fill up the coffers.

And so if you look at how capital has been allocated over the last few years, you went from a relatively cottage industry with relatively uh, you Um, modest fund sizes to a world of mega funds, where 80 percent of the capital that was flowing into venture capital was flowing into funds that were 500 million or above and often much, much more than that.

I'm not great at math, but I know when you start to get into those kinds of numbers, you really start to see the impact it's going to have on Returns for a fund. [00:13:00] And so just some napkin math on that kind of new exaggerated fund size for a billion dollar fund. You need to own 15 percent of 21 billion companies just to return a three X, which is kind of like a base, you know, kind of base case in the venture world.

To put that in context, there are 22 public software companies with a 10 billion market cap. We have over 200 private companies with valuations above 10 billion. So that's how decoupled this all has gotten over the years. We are, we've been funding these companies at unsustainable valuations, at an unsustainable velocity, and that Is starting to come home just quickly with a slide again.

The kind of pronounces the difference that we've been seeing over the years. An average seed round in 2014 was 800 K. I can tell you when we wrote our [00:14:00] first seed check in 2005. It was a 250, 000 check, and we got 25 percent of the business. For that check a 25 K check right now is a rounding error on most seed fund seed companies cap tables So that increased to three point seven again across the board You're just seeing a massive inflation of round sizes for these companies that are taking on more capital But what's happened over the last few years is that or over the last year and a half has been that?

Venture funding is down 50 percent and total capital raised by these companies Is down 80 percent according to Carta. What does that look like? Visually looks like a lot of these high growth SAS stocks. We were all investing in those stock charts that we've all been watching over the years. This is what's happening in venture right now.

This is what an 80 percent decline in funding looks like. What kind of impact do you think that's having on entrepreneurs right now? There's a lot quietly happening, but I would say daily in the kind of [00:15:00] mainstream venture world, you're seeing high flying companies that are often raising, have raised hundreds of millions of dollars winding down and closing with no notice other than a press release.

So this is happening at an increasing velocity because that capital is gone. It's not coming back and many of those entrepreneurs have been holding out waiting for this kind of window to pass that this was just a phase we were going through all this capital has been allocated to venture. It's going to come back.

Well, you can see what's happening in terms of what's being allocated to venture now. In 2021, you had almost 1500 new venture funds get raised. Today, in 2023, as of now, we've got 327. That number will likely get incrementally more, but again, incrementally. Um, and I would imagine next year, and I know there's an LP panel later in the day, but I'd love to get their perspective on whether we can take bets on whether that number goes up or it goes [00:16:00] down next year.

Two years ago, we were totally oversaturated. Any startup, any wildlife idea could walk out and get funding. Or that's what people thought could happen today for this new class of emerging entrepreneurs, there is no capital available to them. Effectively, these markets are shut. There's some activity in SEED.

There's incremental activity at A. There's very little anywhere else in the system right now. The funding just isn't there. But I think one, one really interesting and encouraging development that's been happening is that a lot of entrepreneurs have kind of woken up to this game about what was being played on the field and what they really felt in their heart about how to be building their businesses.

And they're ultimately choosing not to raise venture capital at all. This comes as people kind of recognize what a toll having all that expectation, having all that capital takes on their business. Why? Because it introduces a just a tremendous amount of risk to what's otherwise a pretty [00:17:00] straightforward company to build.

These are software style businesses. They have relatively high margin and uncapped scale for many of them. But because of the venture returns that are needed for these massively outsized funds, these, these entrepreneurs are caught swinging for the fences, um, At a time when they could be building a business that could ultimately change their lives, but not be a fund returner.

And today, that risk just isn't worth it. The idea that you're going to raise your seed round and then nine months to 12 months later, you're going to turn around and raise your A round is, that world doesn't exist. It just doesn't exist. And so, the risk of, of maybe that not happening before was high, now it's almost It's certainly going to be happening, and honestly, that's why I'm so encouraged to be here with you all, because I think there is this moment where the Main Street mindset and the Silicon Valley ambition are colliding increasingly.

To many of you, this seems like such a [00:18:00] ridiculous statement in the black is a new black. Like, what are you talking about? How else do you operate? And yet, for Silicon Valley and startups, this is a revelation and cash cows are the new unicorns. People understand the value of cash flow. They're understanding the value of building a real business, a durable business.

One that isn't having to ask permission to exist every nine months to a year. They value what they're doing that much more. In fact, it's now becoming somewhat of a badge of honor. How many of you have heard of MidJourney? So there's this massive wave of AI innovations going on right now, and the headlines tend to be the open AIs and all these big tech companies, startups that are raising billions of dollars.

Well, one of the most interesting and fastest growing is this little company called MidJourney, which is doing hundreds of millions of dollars. It will do hundreds of millions of dollars this year with fewer than 50 employees. It is throwing off so much cash and this founder [00:19:00] wants nothing to do with venture capital.

And for us these days, it's easier to bootstrap and scale a kind of venture scale business than ever before. We, as we step back and we look at these kind of catalysts for movements of the past, kind of giving you a few of the ingredients that are feeding this one that I'm calling the Indy era, there's been this massive economic contraction.

There's a rejection of the status quo from entrepreneurs who've been informed and understand what the trade offs are in building such high growth. High risk businesses and with these new this new wave of AI and software tools and hosted infrastructure and and marketing channels The cost of doing this stuff is becoming obvious and clear for anybody who's on Twitter or X one of the very first thing Elon did was say he's gonna try to run this thing with like What, a hundred people?

I mean, the guy whacked the entire org, and yet he's moving at a velocity we've never seen, and that's inspiring a tremendous amount of entrepreneurship, [00:20:00] but it's also a big revelation to entrepreneurs who can see just how much leverage they can get out of the tools and technology that are available today.

Okay, so this is this is true. You know, this is this is what I think is going to be definitive for this in the era that we're entering into where capital is scarce, but innovation accelerates is we're about to see the biggest class of Silicon Valley educated founders. They'll build independent, innovative businesses that will change the world, and these founders will look for more flexible ways to fund and scale their businesses.

I think that for this crowd, whether it's through your holding companies, whether it's through your funds, they're Whether it's through the businesses you're building, I think this is going to be a hallmark for this next wave of founders. I think venture always has to wrestle with this idea of how big something can get.

Obviously with these fund sizes and everything else, that's how what entrepreneurs tend to wrestle with more than anything. But given the kind of DNA of these folks, You know, we think there's an opportunity to build some massive outsized business, some of which will [00:21:00] maybe even be on these stages later this week with Wade from Zapier.

But, you know, I'm, I'm from Salt Lake City, Utah. And part of what's been informing this over the years is watching so many of the local founders who haven't even thought about venture capital. There wasn't at the time that they started a very robust venture capital ecosystem in Salt Lake. They just did it.

They just built it. They built these real businesses and one of which is I think we've made it up here. Qualtrics. So my friend Ryan Smith, um, built a business that he sold to SAP a few years ago for 8 billion. Bought it, took it public and then resold it again for 12 billion recently. And here's a person who has access to more, access to more resources than anyone could have ever imagined.

He had VCs throwing money at him nonstop and yet he chose not to because in doing that he would have lost the discipline around how he builds his business. So he said, you [00:22:00] see signals of opportunity when you're completely resource constrained. I think we've lost that in the startup world. We've tended now.

To anchor ourselves and our ambition and what it is we're trying to build in terms of what's worthwhile based on What valuation we got and how much money we raised? I think that is now starting to shift to how little we end up raising and how much revenue we're bringing in how much profitability we're generating And what kind of impact we're having through the business.

I know this quote came at the tail end of a much longer conversation where I was talking with Ryan, who said, um, something that kind of surprised me coming from a seed investor, he said, raising a seed round would have been the worst possible thing he could have done. And I was just kind of set me on my heels.

It didn't make any sense. And he said, if I would have had that seed round, I would have then had to think like a venture back startup. I would have had to be going into markets. I wasn't ready to go into because I needed to show what I needed to show in terms of how big [00:23:00] our market was. By not doing that, he was able to stay close to his customers.

He was able to listen. He was able to focus on the real long term drivers of the business and only raise capital on his terms when it made sense. And I think that's a story we're going to see play out over and over and over again as new and informed entrepreneurs start to move down this path. Whether by default, disposition, or desperation, the Indy era of startups is here.

A lot of people have hung their, um, I, you know, I occasionally joke that like VC is daddy issues with a business model. Um,

that's terrible. That is really terrible. Um, a lot of people have held off building what they know they want to build. Building the company that's deep inside of them. But when they look and see, they don't see something that's venture backable. They don't see [00:24:00] something that investors are wanting to be a part of.

They don't see something big enough to be a swing that the broader market can accept and celebrate. I'm telling you today, that broader market is effectively gone. That validation that people are looking for, that are hoping for. Is on the sidelines and will be for quite some time. The venture industry is not going to come back the way it was over the last 10 years.

So I think the thing to me that's liberating about that is you can now remove that as your primary filter or even the top five filters of what it is you want to go build and just freaking go build it. Don't worry about what these investors want. In fact, the, you know, the last folks that were up here said the same thing.

I'm going to be a broken record. Build the thing that's in you. Build the thing that you care deeply about. Build the thing that you're uniquely, you're uniquely positioned to build and build it in a way that's personal and unique to you. I think that [00:25:00] to me is the most exciting part of this Indy era is I think we're going to see businesses that transform everything from an individual person's world to the world at large.

And so. With that, thanks so much.

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