TinySeed raises $25 million to back more bootstrapped startups

TinySeed, which runs an accelerator program for very early-stage business software startups that are largely bootstrapped, has raised $25 million for its second fund, the company tells Axios exclusively.

Why it matters: The news comes at the heels of the recent shuttering of Indie.vc, an experiment from O'Reilly AlphaTech Ventures in backing revenue-generating startups not seeing heaps of venture funding.

The big picture: While buzzy multibillion dollar acquisitions and IPOs tend to hog all the headlines, tons of software companies quietly sell for around $100 million—and generate healthy returns for shareholders, explains TinySeed co-founder Einar Vollset.

• TinySeed's focus on business-to-business software companies means that the startups it backs are capital efficient, and can quickly get on a path of growing revenue thanks to the accelerator program.
• Its investors include Bloomberg Beta, Eric Ries, Patrick McKenzie, Steli Efti, and Rand Fishkin.

Behind the scenes: While Indie VC failed to attract the necessary interest of limited partners who back traditional venture funds, TinySeed mostly struggled with another problem: a regulatory limit of 99 investors for a fund larger than $10 million, Vollset says.

• To go along with its larger fund size and investor limit, TinySeed had to raise its minimum investment. Its first fund was only $5 million.

• But this meant that a number of its existing investors, who are largely software entrepreneurs and executives, could not afford to participate in this new fund.
• On the other end of the spectrum, institutional investors who do back micro-VC funds, were uncomfortable with TinySeed's index-like investing strategy. They prefer to back small, concentrated portfolios, they told the firm.

The bottom line: Alternatives to traditional venture capital want to exist, but they're still facing various challenges when it comes to assembling the necessary capital.

Go deeper: Venture capital platform Indie.vc is shutting down