I've seen a number of VCs and other pundits recently say things of the form "there's a reason why for decades, there were only bank loans and VC and not much in-between". Eg Jerry Neumann (a NY based solo investor) has a nice twitter rant about it here: https://twitter.com/ganeumann/status/1093961051425697794
If I follow the math in his linked blog posts well (eg [0]), he's basically putting down the hypothesis that there's 3 categories of companies (determined by the alpha value of the power-law distribution they're in):
1. Companies where the risk and the upside potential are small. This is where bank loans are focused.
2. Companies where the risk is enormous but the upside potential is "meh".
3. Companies where the risk is enormous but the upside potential is also enormous. This is where VC is focused, and it's why they're all about finding those few big hits because this covers all the losses (or mediocre performance) of the rest.
Neumann appears pretty confident about this hypothesis; not because he can explain the underlying phenomenon, but simply because until now he's not seen much successful funding for companies that's neither VC nor bank loans. And if his hypothesis is right, then you're targeting companies of type 2: investments with enormous risk (comparable to that of a high-growth startup) but at the same time you're hard-capping your upside at 5x. That seems madness.
I don't think you're mad, however, so you must believe that his hypothesis is wrong. If so, why now? What changed in the world, or in the investment landscape, or in technology, that suddenly multiple people (you, indie.vc, etc etc) believe that a low-capped profit sharing scheme for startup investments is a good idea, when nobody did before? Did the risk go down? How did it? Why? Why now and not 10 years ago?
Super interested in any insights you might have on this. Great job, hope you succeed (i.e. I hope to be proven wrong)
[0] http://reactionwheel.net/2019/01/why-do-vcs-insist-on-only-i...
* disclaimer: I'm a founder, not an investor and I don't spend a lot of time thinking about this stuff. Ergo I probably misinterpreted a lot of what Neumann is saying. If someone (or Jerry himself) reads this and thinks they know better, I'll be happy to stand corrected.