Raising capital as an indie maker

One of the most fundamental problems that makers face is the lack of money to get started on a project. Access to limited capital can prevent you from taking larger risks that could offer returns, and constrain your innovation during product development. While many products are easy to get started with and can be maintained solely on revenue, there are a few indie-built products that require fundraising in order to launch, or scale.

Recently, there has been a push for developing venture capital alternatives built specifically for makers, so they can raise the money they need to build their product or company. This model is a very difficult nut to crack considering investors need to balance risk and returns. And for indie makers who sometimes have little experience in building products, this risk is heightened.

Earnest Capital, Indie.vc, TinySeed and Lighter Capital are some of the major investors in bootstrappers and indie makers, providing them with access to the advice and capital that they need in order to succeed. Their investment is made on very founder-friendly terms with little legalese so that you can get started without having to consult an attorney and spend weeks negotiating a term sheet, like is present in the venture capital industry.

Financial security

Raising a round from an investor for indie makers is a great way for makers to get the finance they need to develop their project, without having to quit their full-time job. This capital can be used to fuel future growth, promote their work, amongst many other things, and can help indie makers take their small side-project to the next level, and maybe even scale their product up into a startup.

Raising capital also allows makers to focus on their product, as well as give them the opportunity to leave a full-time job in order to pursue their project, if that would help them build their project. Having some financial security through an investment should allow makers to be more innovative as they will have the capital they need to fund more ambitious projects.

In addition, an indie maker investor will not tie you to any unachievable valuations or have any large exit expectations, so you can scale your business sustainably without having to worry about achieving significant growth like traditional venture capital investments require. This aligns with the fact that most makers are interested in achieving financial independence, and indie maker investors can help you achieve that goal by giving you the money you need to succeed.

Mentorship

Starting as an indie maker can be very difficult as indie making is consistently evolving to keep up with new community trends. The hands-on and intensive mentorship that indie maker investors can provide is invaluable, and makes the transition into working as an indie maker smoother. Strong founder-investor mentorship-based relationships can help people get more actionable advice on how to grow and scale from investors who have supported other makers and can share best practices to help you stay on track.

Your investor will be able to provide you with advice in all key areas of business, and allow you to further understand the logistics of building a company, without having the aim of becoming a unicorn or scaling to become a large enterprise. Mentors will be available to discuss growth, sales, marketing, engineering, and anything else that you need assistance with — useful for the makers who have no prior business experience.

In addition, investors for indie makers can also help you get in touch with valuable resources in the maker community that may help you grow, from providing introductions, to articles to read. Investors may even be able to connect you with prospective customers and or employees in the future, which can help you further enter the maker market and scale in the process. This means that when your investor opens their network, you can connect with a community of experienced makers and mentors who are invested in your success, and available at all times to provide you with the support you need to thrive.

The mentorship that you will receive from your investors will also give you a strong sense of direction, and provide a place where you can talk in-depth about your experiences, and work with people who have been in the same position as you. Your investors will be with you celebrate your victories, help you build your company, and develop solutions to any problems that you are facing. Having someone to talk to as an indie maker is always beneficial, considering many maker relationships are only in communities, as opposed to one-on-one, and direct.

Transparency and accountability

The foundation of this new investment vehicle is transparency on both ends, to help investors mitigate the increased risk inherent when investing in very early-stage founders. Transparency should also help makers set more actionable and attainable goals which will help when developing a roadmap, and planning ahead for growth and product development. This will also encourage many makers to pursue “open startups”, sharing metrics in order to allow people to further understand platform engagement, and what value people derive from their product.

If you receive an investment as an indie maker, you will be required to send frequent progress updates that detail metrics, product development, or anything else that you have been working on. Your investors will become your accountability partners, and will be there to check-in and provide comprehensive support as you build your company. Having a strong accountability partner will help you frame the importance of your project and help you stay motivated throughout the product development process.

Flexibility

Another key feature of taking an investment from an indie maker investor is the flexibility in terms of work-life balance and other obligations. For indie makers, their business is often either a side-project, or a part-time position, as they have to work in order to pay their bills. Indie investors normally understand this feature, and also realize that founders have family obligations etc, and believe in caring for founders as being less stressed to meet certain benchmarks will help them work more efficiently.

There is also the fact that you do not have to move to Silicon Valley in order to build your business, and can instead work in the comfort of your home on your project. Imposing no location requirement means that there is no pressure to relocate or travel in order to meet with your investor and pitch, or submit progress updates, so you can focus on working on your startup, rather than traveling. Moreover, for nomad makers, these terms means that they can continue their way of life, whilst accepting an investment that can help accelerate their startup.

Founder-friendly terms

Traditional investors such as angels and venture capitalists normally use term sheets to make deals, which contain terms that do not integrate with the indie maker model, and are not suitable for most applications for indie maker. While investing in indie makers is a relatively new concept, there have already been strides made to provide reasonable terms to makers that allow them to build their business with an investment, without having to take on any liabilities.

For example, Earnest Capital has developed a “Shared Earnings Agreement” (SEA), which allows founders to receive an investment in exchange for a percentage of the company’s earnings, as opposed to the traditional VC model where equity will be taken. This capital is only taken after a founder has been paid, which allows founders to continue to make money that they can use to scale their business, without having to give away equity in their business.

To further on this point, the SEA developed by Earnest Capital is designed to align the incentives of both the founder and investor to build a healthy and profitable business that is capable of scaling, without pressurizing founders to raise another round. This is a major concern for early-stage founders who are raising money as VCs and angel investors often push founders to raise money in order to maximize their returns, even if it may not benefit the founders.

Alternatives

There are other alternatives available for indie makers who may not be ready to accept an investment. One of the most popular models right now is crowdsourced donations, where makers will create a donation page and ask for people to contribute so they can continue with their business. While this model is effective, donations are normally of a nominal amount and do not ordinarily contribute significantly to the income of an indie maker.

Another model that is on the rise is the contributor model (through platforms like Brew or Patreon), where makers will be able to facilitate monthly donations while developing more public interest in their product. This model also has the benefit of accountability that indie maker investors provide as you have to post frequent updates for your contributors. Additionally, your contributors will most likely become loyalists and ambassadors for your product, and the money that you raise will be consistent, so you can plan ahead for future growth. However, this model is not scalable and like regular donations, normally do not account for enough money to maintain some businesses.

Conclusion

In conclusion, raising capital as an indie maker can help makers take their products to the next level, with the support of a network of mentors and makers who are available to offer their support whenever they need it. This support can be invaluable for makers, especially those who are working on their first project, and allow them to experiment more with their projects, and give them the opportunity to commit to a project with some financial security available.

Traditional venture capital investments to not integrate well with the aims of makers, which has opened up the possibility for there to be a real change in the way we approach startup investing. Firms like Earnest Capital and Indie.vc are actively working on changing the way we perceive venture capital, and focusing on the people who are not interested in building a unicorn, but rather achieving financial independence. We will most likely see more investors try to approach this growing community of makers, and traditional investors may even decide to explore this area as it offers the potential to target a whole new set of entrepreneurs — makers.