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From reading through this seems like the answer is basically the same as why any investment plan runs into trouble -- poor returns and liquidity issues. Which must have been especially problematic as a pitch for raising new capital when literally every other part of the market is skyrocketing.

The question of how valid the standard VC model is is an interesting discussion and I'm interested in it. But it's not totally clear to what extent this model was able to really do a valid A/B test of an alternate approach.

It seems like they threw a lot of ideas in at the same time (alternate business models, alternate financing terms, etc) and I wonder if they might have been better off taking the standard VC approach and just tweaking one big thing to have a better shot at making things work.




Yes, it was an interesting read but my takeaway was that this was a very conventional failure as an investment vehicle.

Can anyone explain "as converted" IRR to me? I'm fairly familiar with finance concepts, but this was a new one to me, so seeing it being blamed in some way for the fund's closure confused me.


Not a financial expert, but that section is talking about how they are forced to account for many of their investments at the price they paid, even if the underlying company has grown significantly in “likely” value, they haven’t triggered any action that would allow Indie to adjust the value of their investment on Indie’s books. So Indie’s reportable returns are muted in an accounting sense.

The “as converted” IRR seems roughly to mean “if we take our best guess as to our investments are really worth, our IRR is much higher”. (Now, what an illiquid investment is “really worth” is always dicey, which is why the GAAP accounting rule is in place, so the truth might be in the middle, but it’s pretty clearly not on the left edge.)


That's a pretty common issues in VC. I run a more traditional seed stage firm and we have to deal with similar issues. It's not uncommon for the IRR in the first few years to be artificially low given we have to hold investments at cost until they raise priced rounds. And when there's finally a wave of price marks your IRR will jump to a more accurate level it can usual maintain.

e.g. Our 2017 vintage fund was sitting around 45% IRR for years, and jumped to 93% almost instantly this year due to markups we could finally account for. We always knew the value was there, but couldn't reflect it in the numbers.

Likewise our 2019 vintage fund is currently showing 20% but we're fairly certain it'll jump to 40%+ in the not too distant future.

This dynamic makes it hard for emerging managers to show their performance relative to other fund managers with older vintages— even if you're excellent it'll be hard for LPs to recognize until 5+ years in, if that. It's just the nature of VC.


Ah, thank you. I would have called this the "net asset value" or perhaps the book value, or something like that.

So, in other words, Indie lacked in notable liquidity events so realized IRR was low while the perceived book value was somewhat higher. I'd imagine this happens all the time in VC.


You can't A/B test VC funding models or anything else in macroeconomics. By the time you get meaningful results, the ecosystem has already evolved.


Sure but you can at least try to test some hypotheses. Like they could have said we’ll keep the VC model but try different kinds of companies, or maybe try a bee model for funding classic SV firms, but it seems like what they actually did is a bunch of disparate and not necessarily related things that fit into their conceptual model of “indie”.

One that strikes me as especially confusing is giving the option to sell back their shares to the company at 3x value. Since VC is predicated on moonshot explosions of valuations that seems like a really questionable decision, maybe one you’d want to make in isolation and see if it attracts interest.

Another issue is liquidity. VC funds are famous for insisting on an exit in 10 years or less. That’s an imperfect solution to a real problem, which is that investors want the money back.

So, like what was Indie’s solution to that same problem? It seems like maybe the idea was to pretend that wasn’t a real problem rather than come up with a novel or innovative solution to that issue.

Again, maybe that’s a reasonable thing to do, but maybe you’d want to see if that model works. Perhaps you try a “long exit” model or some kind of dividend model.

What seems to have happened is they tried all these ideas and more at once.


The "you're playing a value hand in a growth game" line seemed to me to be the crucial killer.




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