The news of Indie.vc shutting down keeps popping up in my news feeds, social media feeds, and email newsletters. All of them talk about how it didn’t work out, but the right question to be asked (and answered) is actually: What is venture capital — and when does a company deserve it? 

If you don’t know about Indie, here is the skinny. 

In 2015, Bryce Roberts, formerly of O’Reilly Alphatech Ventures (OATV), started a fund that wanted to finance sustainable businesses that were not looking to scale-up fast. It was thought of as a game-changer. As he wrote about his initial launch:

….the post kicked off an extended conversation about how, who, and what gets funded by traditional venture capital and the need for funding options that sit between bank loans and blitzscaling. Being part of that conversation has been incredibly rewarding. But it has come at a cost.

It prompted venture capital’s chronicler-in-chief, Dan Primack, to quip:

“Venture capital, despite being the money of innovation, is rarely innovative itself. Indie.vc was an effort to break out of the tedium, so its failure is de facto disappointing.”

Not quite. 

It was the market accurately speaking the language of risk-reward from the lens of growth. 

Limited Partners — entities that give fund managers money to invest — look for ways to grow their capital by investing in many different types of assets. Each asset class has its investor profile with its own set of expectations of return on investments. Real estate funds, for example, are expected to generate different returns versus debt-focused funds. So, the LPs think differently about each asset class. 

Investors who tend to back venture capital managers expect them to invest in exponential growth companies. There is a reason why there is a stampede for unicorns. Anyone deviating from that idea of rapid growth does not and should not qualify as a venture capital investment. 

Venture capital is all about growth. No growth, no capital. A phase of early experimentation, followed by fast-paced growth and increasing margins, allows companies to access capital from those people who are traditional venture investors. As growth starts to mature, the investor profile starts to evolve.

In a startup, equity is usually exchanged for de-risking parts of the business. The value of equity increases with decreasing risk and higher growth. In comparison, debt can be used to help bolster the fundamentals. It is a crucial distinction that many startups fail to understand. As a result, many end up raising venture debt at the wrong time or using equity when debt makes more sense. 

There exist firms, for example, that provide capital against App Store earnings. It is not classic debt, but a different kind of instrument. There are firms, like Lighter Capital, that help fund growth for companies that are already on a good trajectory but don’t subscribe to the venture capital parameters. 

Over the past decade, it has become fashionable to think that VC should do everything. Even some VCs believe that.  So, it is no surprise that we see some investors backing businesses that don’t fit into the Venn diagram of venture capital. This “everything is venture capital” mindset has caused quite a confusion. 

Just because an entrepreneur starts a new company and is enabled by technology or is building a new kind of technology, it doesn’t automatically turn it into a VC-worthy business. It could easily be bootstrapped and raise debt to finance its growth after finding market traction. 

Or there could be an alternative financial instrument with a different set of expectations and a different LP investor profile. Private equity funds, Different calculations are made, for example, when dealing with private equity funds. 

From the outside looking in, Indie was funding companies that, in their early stages, looked like regular linear-scalable businesses. There is nothing wrong with it. But they just don’t fit the asset class profile called “venture capital.” 

Indie.vc was — and remains — an exciting idea. But applying the VC label doomed their prospects, because it created false expectations. It would have been better off with a relatively straightforward moniker like, say, “Indie Investments” or “Indie Fund.”

What’s in a name? Sometimes everything.