VC-funded startups are dying. Are we witnessing the rise of the indie hacker?
Smart people with big datasets are predicting a dot-com-like crash in the startup economy in late 2023.
I gathered a group of experts to answer an important question: How will this affect indie hackers?
So what's going on?
Rob Walling of MicroConf and TinySeed:
With every boom comes a bust and we are experiencing a reckoning that comes from pumping hundreds of billions into startups, many of which did not warrant that kind of investment.
If you thought that kind of cash injection would not result in an eventual fall back to earth in terms of valuations, you were kidding yourself.
Igor Debatur of venture-backed Uploadcare:
The market is healing itself: If you don't have a valid unit economy and can't become break-even, you're going to struggle and no vanity metrics will help.
Channing Allen of Indie Hackers:
Venture capital is like lifting weights on steroids.
Except it’s possible for financial steroids to suddenly evaporate from your system while you’re in the middle of doing a heavy squat. And that’s what’s currently happening and will continue to happen in the startup landscape.
Are we actually seeing an "extinction event" as they say?
Igor Debatur:
The current situation is good for the market overall. Extinction would mean that all of the startups go extinct. And they aren't: Only the ones that weren't fit to survive in the beginning.
If we compare this to Darwin's theory, during 2021-2022 all the species were getting unlimited free meals and mating partners. This was killing the whole idea of "survival of the fittest".
Channing Allen:
The companies that were lucky enough to have taken on smaller amounts of funding and/or still have a lot of cash on hand will be able to survive if they hunker down internally and become very fiscally responsible.
Since most indie hackers aren't VC-backed, what does that mean for us?
Channing Allen:
Economic downturns don’t tend to have a very noticeable effect on indie hackers except, in time, to swell their ranks with former venture-backed founders and laid-off employees.
The economic conditions that make things inhospitable for venture-backed startups are also bad for indie hackers. But the difference is that it’s much more rare for indie hackers to find themselves out over their skis with their spending. That is, if you’re bootstrapped, you tend to only spend what you have, so it’s relatively rare for you to overspend like a high-growth startup.
Rob Walling:
The good news for independent makers is we are not dependent on raising another round funding every 12-18 months. We build real businesses for real customers who pay us real money. While an economic slowdown might cause your growth to falter, it is unlikely to mean the end of your company.
Emmanuel Straschnov of venture-backed Bubble:
It's undoubtedly a tough environment for startups in imminent need of VC capital. VC is great for founders who plan to scale their company to an exit event as quickly as possible, but many indie hackers and people who build products to serve a niche market are happier with slower, more controlled growth that they can bootstrap themselves, and those folks are scrappy and resilient.
Andrew Gazdecki of venture-backed Acquire.com:
Let's state the obvious: If your startup is profitable you're in great shape. On the other hand though if you're a venture-backed startup losing money right now it's time to do everything you can to become profitable and stay in business.
What are the opportunities?
Channing Allen:
The two themes I keep coming across are hiring and AI.
With all the tech layoffs, tech worker salaries are decreasing. That means it’s becoming a lot easier for cash-strapped indie hackers to afford employees.
And AI speaks for itself. The indie founders who are experimenting, moving fast, and adopting early are finding all sorts of ways to scale their processes and outputs through AI automation.
Rob Walling:
[From what] I’m seeing with some of my TinySeed portfolio companies, now is a good time to make strategic acquisitions of competitors and complementary software products. Assets, including startups, are cheaper than they have been in years.
Igor Debatur:
While it takes more time to fundraise and valuations are lower than before, there are always options: To bootstrap until the market goes back to normal or to fundraise and hire the better talent that has just become available. And time is of the essence. You can still get funding and be two steps ahead before people who try to [wait this out].
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This will also change the founders perspective towards customer. In a VC backed, cash rich environment, it was possible to continue with customer acquisition and even retention simply by making products/services cheaper but if those incentives are not there, startups will need much better value proposition to get customer. I believe this will help improve overall customer care, design , efficiency and experience
That's a really interesting point — thanks for weighing in!
I would argue 2021 was exceptional. Crypto slowly started to crumble (yuhuuu)
2022 called for correction due to the effect of covid on the real economy and slowly moved into tech
2023 the correction is still happening in tech.
I bet by the end of the year we will reach 2020 levels.
VCs are conservative on investing but they are sitting on a lot of cash at the moment and their investors want to see that money work or else they will take it out.
So I would argue with a solid idea, bootstrapped background, and solid unit economics, now it would be a good time to get VC money with less strings attached
Remember that VC money has a cliff (1 year) and a vesting period (often 4 years).
That is true, but it is also a contract between two parties, and like every contract it can be negotiated. If you as a founder are in a power position (a product that user love, bootstrapped, profitable, etc.). Then you can influence strongly the terms. The investors want obviously make money and the less risky it is for them, the better it is for you to get what you want.
So this is the time for indie hackers to get funded — interesting opportunity, particularly for anyone with plateaued growth.
Venture capital likes high-growth companies.
These companies can be unprofitable or even have no income, as long as they can maintain high growth.
But in the current economic downturn, there are very few high-growth companies, and these venture capital-backed companies have to go to product revenue or even profitability to continue financing, and this is what independent hackers are good at, because they have it on the first day. Income and even profit!
@channingallen We started our business back in 2010. And since then, we've learned a lot of valuable lessons along the way. And what you've written is one of them.
"The companies that were lucky enough to have taken on smaller amounts of funding and/or still have a lot of cash on hand will be able to survive if they hunker down internally and become very fiscally responsible."
Thanks @IndieJames for sharing your perspective on things. It's a great summary of where things are currently. Another lesson we've learned is that founders will always find a way to survive. Problem-solving in difficult conditions is what we're all good at. The other would be resilience and optimism. We keep pushing through despite the hurdles.
It is a challenging time, few see opportunities.
Business economics hasn't changed.
Those who made it in the past, will still make it even now.
Those who raised money and let it sink, will not be able to raise money. They will still sink.
There's definitely a cyclical component to this that will likely wear off once economies are on the right foot again.
But also COVID has been a big factor in this, working from home gave people time back.
Time they spent hacking. It gave them time to build THAT project. And some of those projects will have done really well.
From that point on the 'public in public' trend just snowballs that up until your getting success stories driving more people to get into it.
So I do think it is partly cyclical but there will be a lasting effect in that we'll see more microsass in the mix.
Venture Capital is a capital market.
Like all markets, it has ups and downs. Right now, it's experiencing a downturn.
VC-math is based on valuation growth. Right now that has stalled because public valuations are down. Once the stock markets starts going up for tech companies, then the private capital market will also naturally pick up and investors will start cutting more checks to early stage startups.
When will that happen? No one can predict when the future but this is 100% gonna happen. It will rebound. Maybe not as strongly as it was 2022 but certainly back to 2018 levels.
I have seen how loosely some VCs spend money. I've been a part of (employee) at multiple Software companies, and through 6 rounds of funding at almost all stages. One over a billion dollar valuation. After witnessing these I personally don't have faith in the accuracy of return from some VCs.
I agree we could see a boom in investment in boot-strappers. Especially as no-code tooling spikes, the cost of development lowers, and time to market shortens.
But it will change how those VCs spend that money. They are going to get conservative with placing their investments. Less 'spray and pray' with the wallet. Couple that with SVB crash and other financial uncertainty, and I'd imaging the opportunity to invest in bootstrappers is pretty appealing to VCs at least from a initial cost/investment perspective.
Very interesting discussion points 👍
I have seen many VC-backed startups forced to reduce their team size & it is a good time for Indie hackers to work with them
Interesting read. It's particularly great to see accomplished CEOs who share my sentiment. There's just no way the series funding bubble won't burst. It's unsustainable and it is enabling the precarious growth of startups that lack a grasp on fiscal fundamentals. I wrote an article on the funding bubble and ways to mitigate it within the context of the African tech ecosystem.
You can read it here.
https://blog.thecontentadvocates.com/how-to-build-a-sustainable-future-for-african-startups
Stay heads down and keep building and by the time you know it, it'll be the boom times and your bootstrapped startup is thriving and juicy
As a copilot in startup growth, finances and exit ($M+) for our solo-founders, we see the sunny side of being a solo-founder without outside funding while growing businesses, cashflow and wealth, all away from the public eyes.
As an investor & mentor in the startup ecosystem, I've also seen and supported those founders raising fund while doing amazing work, generating growth and revenue at scale.
So not all VC-funded startups are dying, just those that got funding during the boom time and now investors need to focus their cash on the follow up rounds to make sure the good ones are going even more stronger than before.
In addition, we have investor-buyers looking to buy growing businesses generating more than $3M+ EBITDA. This will not be a lifesytel exit. This will be a wealth building exit.
Becuase of the social media, some startup founders may get the idea that it's common to get funding from just an idea or sell a startup for millions with less than a few hundrew MRR. I've only seen those on YouTube or in movies.
It's ok to be a small fish making big money. It's also great if you can get funded and go to the moon if it doesn't ruin your wealth or health.
Oh interesting.
Thank you for reading my comment and found it interesting. How's your building journey so far?
Going pretty well thanks! Hoping to have MVP complete on a ~3 week horizon. Code Security SaaS.
The market space has been significantly impacted by the availability of AI models. Previously, startups had to create from scratch, but now, with easy access to Generative AI, many people are entering the field with innovative ideas using AI models. It has become a highly competitive space for everyone.
Agree with this article. VCs has become very conservative in this environment and I see their focus has shifted to AI companies. In general, AI has been extremely helpful to individuals starting their own thing.
Yes they are
I don't think it's healthy for us to see the situation as "VC funds" VS "indiehackers".
VC funded startups are not actually all bad, not all startups burn millions without profits.
It depends on the business models as well, there are business models that need high sums of money to kick off, to break in the market, to innovate.
For sure, VC funding is totally a viable route and they aren't mutually exclusive.
Indeed, it's not about VC-backed startups vs indie hackers, but resource management, be it time, money, or human talent. Also, teams leveraging AI successfully, regardless of funding, stand out. Maybe it's time for 3-person unicorns)
I totally agree.
Well said :)
I think VC-funded startups are not dying, but they are certainly facing more challenges than ever before.
Agreed, most established startups aren't going anywhere. Though I think the overall number of new VC-funded is startups decreasing.
I completely agreee..
I guess this is the time to more customer-centric
🙌
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