The story
Members of the Indie Game organization have identified difficulties for indie developers to be able to fund their projects. Ron Carmel noted that there are typically two ways that this funding can occur: either through the developers providing their own money to initiate the project, or by signing deals with publishers for funding in exchange for part of the game's revenues being given back to the publisher. Neither of these choices were considered optimal for an aspiring developer, according to Carmel.
In 2008, several self-published indie games, including Audiosurf, Braid, Castle Crashers, and World of Goo were released to both strong critical reception and large sales. All of these games were initially funded by their respective studios, and demonstrated that investment in independent games could be profitable. With the following years also providing more commercially successful games, the Indie Fund group decided to create the fund, using the profits from these games, as to aid the next iteration of indie games.
From Wikipedia’s article on Indie Fund, shared under CC BY-SA 4.0.4