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Comment by hugs | Hacker News Reader

But there is a difference in deal structure. If you want to, you can pay back the investment via profit sharing, which is unheard of in traditional seed/early stage VC deals.

(Disclosure: My current company, Tapster Robotics, is one of the first Indie.vc investments. I would have happily remained self-funded/bootstrapped if it wasn't for Indie's alternative deal structure.)

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Wouldn't that be a version of venture debt?

Venture debt is really just a loan you can get from a bank that is "backed" by the reputation of a VC you've already raised money from. Normally the bank gets some warrants as well, but it's just a loan. And it's not accessible to companies with the $10k/mo in revenue that indie.vc looks for.

That's true, but it doesn't sound too different. Are you saying that this money is not "just a loan," that can be paid off at liquidity or through monthly cash.

$10k/mo is very small for a loan. Does that mean that indie.vc has some other way of doing diligence? That's the main reason the bank won't lend to such a small company.

There are two pretty big differences. The first is that venture debt is usually only available to very established companies, as far as startups go, and have restrictive covenants (regarding cash balance, profitability, other indebtedness, etc). The second is that most venture debt comes with warrant coverage, so the lender ends up taking equity as well.

But in this case, it sounds like indie.vc gets the equity kicker as well at a liquidity event.

The covenants could be a big difference. Surprised that Indie.vc doesn't have any.

The instruments is essentially a modified SAFE with a clause for distributions (which keys off a multiple of the founder's salary) and no expiration date. The intent was to keep it simple, clear and relatively toothless.

I have had a couple of runs at venture financing and the terms in Silicon Valley can be pretty onerous, especially if you don't have a lot of cash and revenues less than $10M per annum. Silicon Valley Bank for example effectively won't loan you money you don't already have in your balance with them.

This can be a disillusioning experience but if you flip it around the bankers providing the financing don't get anywhere near as much upside as a traditional VC. Their caution is understandable.

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