Shutting down without trying to spook their investors or current portfolio companies. Couching it as taking a break seems clever but I’m guessing any seasoned investors will read between the lines and see that this isn’t working.
The problem with thinking everyone else is wrong (ie how VCs operate) is that usually it turns out they are not. I’m guessing it wasn’t the story telling prowess of lack of deep connections (the common scapegoat for failing) but rather an unappealing offer for investors. Huge risks need huge returns. Bootstrapped companies may be slightly less risky but definitely less upside for investors. If there is no huge payday then investors know that capital will be used better elsewhere.
Im not hating on the thesis. Personally I like bootstrapped businesses much better but there is a reason they don’t attract investors.
FWIW: I'm an investor in all of Calm's funds (I think I was one of the earliest investors in Fund 1), and have been quite happy with the funds themselves. They've done great — outperforming my own expectations.
As indie.vc also found, it's just hard to make these styles of funds work on the business side.
> The problem with thinking everyone else is wrong is that usually it turns out they are not.
I don't know that this is objectively true. The more accurate thing to say is that sometimes it's better to be wrong in the same way as everyone else. VC investing seems to be mostly based on chasing trends and "pattern matching", so trying to do anything heterodox is going to be an uphill battle.
A perspective I've found helpful is to think about a fund as a business, which it is.
Let's assume a hypothetical case of running a $100 million tech investment fund. The first 10-11% of return should go straight to investors (not the manager), for the simple reason that 7-8% is available in the stock market, and unlike the public markets, tech funds are illiquid--unlike investing in SPY, you can't wake up one day and trade out of your interest in a fund like this. You're locked in. That shifts the return expectation upward.
So assuming the manager's cost of equity (what investors demand) is around 10-11%, maybe a great manager can get the return number to 15-16%. That's a pretty good return on the fund but it's only $5 million in absolute gross returns (10->15% on $100 million). Considering the manager might get only 10-20% of this (the rest goes to investors), it's just a lot of work to earn $1 million in performance-based comp, over 2-3 years of active work and perhaps a decade of full fund life. These things are also typically run by teams (several partners) so the returns are split.
The point is that $100 million funds just aren't making their managers rich. The two outcomes of this, which you see over and over, are (1) for managers to try to manage much bigger funds ($500+ million) or (2) big management fees of 2%/year or more, which significantly erode returns.
The net result being, VC is a very hard business that almost always delivers substandard returns to its investors, after long lock-ins with very little liquidity. It's very tough and I'm not surprised to see these guys shutting down.
> The thesis, developed five years ago, is to invest at the early stage in founders aiming to build capital-efficient profit-focused calm companies. Although this might sound like common sense, it was basically heresy among professional investors five years ago and still remains a deeply non-consensus approach to investing.
Indie.vc is as started as a fund in O’Reilly Alpha Tech Ventures, a traditional VC fund.
VC funds typically run on their 2% management fee. Have $10m in assets under management, and get $200k a year to run the fund on (including paying GPs and employees). To increase this operating budget, you raise more money from LPs.
When indie.vc had trouble raising more money, it returned to traditional VC. When Calm Company Fund had trouble raising more money, it started conferences and a low-code agency - ostensibly to get more operating budget.
Now that the markets care about profitable businesses, indie.vc has reopened. But, Calm Company Fund has had to deal with fallout from their non-investing activities - and I’m sure they have to disclose the lawsuit to all potential investors which probably scares them away.
So, there’s a lesson here about how VC funds should invest in businesses, not try to create additional revenue lines.
I have utmost respect for Tyler and what he’s been trying to build. He’s excellent at brand building.
(Disclosure: I have a small stake in Calm Company Fund).
TL;DR: They were trying to run annual Founder Summit destination events with a partner fund. They cancelled the joint agreement with the partners and expressed their intent to run them alone. Partners are suing for, as I understand it, trying to "cancel" a joint business venture that was co-developed and but continue to run the co-developed venture as if the partnership never existed.
To be honest, I never understood why the Calm Company Fund was trying to run annual destination Founder Summits at all. It seemed so antithetical to their thesis of funding calm, profit-focused founders.
I'm an LP in both Calm and the fund, SureSwift, that's suing them, so I suspect I know as much as anyone external. Weirdly, the only information I've been able to glean is from Calm, but I did participate in the events personally that are part of the litigation.
The other fund, SureSwift, had some drama (founding GP left, replaced with a hired CEO who seems entirely competent), and SureSwift shortly after sued Calm and the former GP. I never got a good picture what happened internally, but there certainly was a falling out.
Speaking personally, the lawsuit seems like a giant waste of time and I haven't heard anything that makes me think Calm actually did anything wrong. I've asked, and got very confusing empty responses from SureSwift. I wish I knew more, since I love this space (calm companies, micro PE, etc) and am personally invested on both sides.
I skimmed the suit itself [1] - apparently Calm put on some events together with a PE fund in a joint venture, then a guy left the PE fund... and Calm and the exited person continued to put on events under the same name while preventing the PE from participating. The PE then sued them since they feel entitled since they co-created the event.
I'm sure there's more to the story, this is just from the suit itself (so obviously from the POV of the plaintiff).
But ya, the impact of a PE lawsuit on a very small startup fund that's already trying something new/risky is going to be disastrous for their morale and future plans.
No VC fund wants to be sued, I imagine, but for the one that has a razor-thin business model and no expectations of a big exit for 10+ years I imagine the suit is a high-probability death-blow regardless of right and wrong.
> but for the one that has a razor-thin business model and no expectations of a big exit for 10+ years
This is the confusing part for me. Why were they trying to run an annual event like this to begin with? It's a lot of work, and they admitted it was even running at a loss.
I never understood how they squared that with their "calm" thesis.
I've always thought that the Calm Company Fund should have been a Equity Crowdfunding Platform instead of an investment fund. They should have created a platform to connect investors who want to invest in Calm Companies with founders looking to found (or grow) Calm Companies.
Its been fun following them, I think they had a lot of good ideas. Too bad they were unable to execute on their vision.
I've followed Calm closely when I was in the startup game and I think they deserve recognition for trying to find a different way. One that benefits founders (primarily bootstrappers) and investors alike.
Seems like the third party in the mix has taken the hit in this constellation.
> Imagine trying to run a startup where you knew you were going to be stuck at a low-six-figure revenue for 10+ years, meanwhile your customer base, feature requests and support tickets just kept growing every year. That’s what running Calm Fund on the fixed management fees of our fund sizes looks like. You can operate a business for a few years like this, but you need a pathway to growing out of it and right now I don’t see that.
It seems as if the Calm Fund could not be run calmly at the scale it was.
Something like Calm Company Fund would presumably offer lower risk and lower returns (per company) than a typical VC fund targeting high-risk high-growth. But with the advent of high interest rates, the fund is now competing with a lot of low risk alternatives.
I was a fan of Calm Company Fund's thesis from the start, but I've been puzzled by some of their choices.
Their thesis is to invest in capital-efficient, profit-focused companies. Contrast that with the Calm Company Fund itself, which appeared to have invested a lot of time and money into putting on destination Founder Summits - https://calmfund.com/writing/how-we-built-founder-summit
Running annual summits is a lot of work, and I couldn't reconcile the contrast between asking founders to be profit-focused and "calm" while also running destination events that founders were supposed to travel internationally to attend. They posted a lot of fun photos and had a lot of branding around it, but it felt like quite a distraction for a small fund and team to be operating.
Calm posted something about the events being a small net loss, but the real tragedy was the ensuing litigation with their partner for the events. You can find Calm Fund's full story on Twitter ( https://x.com/tylertringas/status/1716592486460629132 ), but the TLDR is that they partnered with a PE fund for the events, then later cancelled the partnership with the intention of running the events on their own. The other fund is now suing them for trying to take over running the events.
This is mentioned in the blog post:
> Compounding the difficulty through this period is the fact that a private equity firm, SureSwift Capital, that we co-hosted the successful Founder Summit events with, has persisted in litigation against us. That process has been an eye-opening realization that someone who is committed to wasting their own money in a pointless legal process can force you to do the same and it has been a massive drain on our already strained bandwidth and budget.
From the outside, running the Summits felt like a distraction from the start. When it spiraled into legal battles with ongoing costs, it only got worse. I wonder how they would have done if they hadn't tried to run vacation-style events every year and instead just focused on being a "calm" VC fund that focused on being profitable itself.
The letter somewhat acknowledges this contrast. However, their excuse makes it feel even stranger that they thought being "un-calm" was the key to success as the Calm fund.
> The irony is not lost on me how “un-calm” these past five years have been. I told myself that “we are doing the un-calm things to help 1,000s of founders build actually calm companies.” The jury is still out on whether that was a good plan.
The problem with thinking everyone else is wrong (ie how VCs operate) is that usually it turns out they are not. I’m guessing it wasn’t the story telling prowess of lack of deep connections (the common scapegoat for failing) but rather an unappealing offer for investors. Huge risks need huge returns. Bootstrapped companies may be slightly less risky but definitely less upside for investors. If there is no huge payday then investors know that capital will be used better elsewhere.
Im not hating on the thesis. Personally I like bootstrapped businesses much better but there is a reason they don’t attract investors.