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Comment by karamazov | Hacker News Reader

I'm curious to know how they plan to compensate for the failure rate of startups.

If half of the portfolio fails (a good outcome), the cashout option would need to be 2x the original investment for them to break even. More if failing companies are likely to use up the entire line-of-credit and successful companies are not.

Setting the payout to be a percent of revenue might work, but could also kill a company with thin margins. Setting it to be a percent of profit will encourage companies to post zero profits. I'm not sure what the other options are.

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I think you might be missing how a traditional company works.

Nobody sets an arbitrary percentage of anything and forces dividends.

When the companies directors think that there is enough spare money in the bank account, generated from profits, they distribute those profits to the people who own the company.

The founders and investors of the company get the actual profits that the company generates. A strange concept I know!

The problem is that for small companies, it's too easy for management (aka founders) to funnel funds out without giving shareholders anything. That's why VC is not interested because even if the company is a success, there is no guarantee they will ever see a penny.

If you are talking about that kind of fraud then can't you do that regardless of if you are trying to make a profitable company or one which you intend to sell?

If you're doing a build-and-flip, the incentive would be to limit the payouts in order to decrease the cash flow and improve the margins.

First, this sidesteps the question. The writeup implies owners will be able to buy out indie.vc, rather than feed them a perpetual stream of dividends. Regardless of how they do this, what is the buy-out amount? It will have to be an integer multiple of the money invested to reach breakeven.

Second, many companies, especially tech companies, do not pay dividends.

In particular, a growing company would be foolish to distribute dividends; dividends are for companies that have reached a steady-state. Waiting for a company to hit steady-state from inception can take a very long time.

> Second, many companies, especially tech companies, do not pay dividends.

My interpretation is that indie.vc is trying to change that from being status quo. There is a largely forgotten type of business that is not covered in tech media, which is highly profitable and pays dividends.

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