Sahil Lavingia on Gumroad’s Groundbreaking Equity Crowdfunding and More on This Week in Startups with Jason Calacanis

Check out the Episode Page and Show Notes

Key Takeaways

  • Equity crowd fundraising democratizes the ability to invest in early-stage startups
  • It allows everyday people to invest for as little as $100, not just VCs and private equity firms
  • Founders have it tough in comparison to VC’s because they’re all in, usually their whole net worth
  • A rolling fund is a type of venture capital fund structure that allows fund managers to create new funds on a quarterly subscription basis
  • Rolling funds allow people to shortcut the process by turning their social capital (reputation) into investing capital
  • The new Rule 506(c) gives businesses greater flexibility in raising capital by permitting businesses to publicly advertise via social media so long as the business does not commit fraud and limits investors to “accredited investors”

Intro

Sahil Lavingia (t: @shl) is the founder and CEO of Gumroad, a web platform where creators can sell products directly to consumers. 

The Power of Equity Crowd Fundraising

  • Equity crowd fundraising lets startups and private businesses raise capital from “the crowd”
  • It allows everyday people to invest for as little as $100, not just VCs and private equity firms
  • You don’t need to raise money from VCs when you’re crowd fundraising
  • It democratizes the ability to invest in early startups
  • Starting March 15th, companies are able to raise more money via equity crowdfunding – up to $5M – more money than they were previously able to
  • “It’s like a Kickstarter campaign only with auditors” – Sahil Lavingia
  • Sahil launched the fund on March 15 – and raised $5 million in 12 hours
  • “I wanted crowd-funding to be a thing. Many of the investors were creators. I had a $1,000 check size maximum and got 7600 new investors to the cap table.” – Sahil Lavingia

What Do You Appreciate Now that You are Both a Founder and a VC?

  • VC’s have less empathy than founders
  • Founders have it tough in comparison to VC’s because they’re all in, usually their whole net worth
  • It’s a bad idea to put money into a company before product-market fit occurs because you’re committed for the next five years
  • A better alternative is to let the founder get to the point of product-market fit and then give them more money

Lessons From Sahil’s Start-up Journey

  • Sahil got his first round of VC funding of $8 million at the age of 19
  • An A round of funding from Kleiner Perkins led to many other VC meetings and a B round of funding
  • By age 23, Sahil’s company was running out of money
  • He got a bridge round from Kleiner Perkins – $2 million – but eventually had to start laying off employees
  • Sahil moved to Utah where he tried to put things in perspective and started oil painting

Gumroad History

  • Gumroad is an online platform that facilitates the sale of products by creators directly to consumers
  • Sahil Lavingia founded the company in 2011; it almost died out but he didn’t shut down
  • The company grew 15% in 2017, 40% in 2019, and 87% in 2020 to $180 million annually
  • Gumroad competed on price and won on volume
  • Kleiner Perkins sold back Gumroad’s shares to Sahil for $1 a share as a tax write-off
  • Sahil thought, “Creators should own this”

Insights on Rolling Venture Funds

  • A rolling fund is a new type of venture capital fund structure that allows fund managers to create new funds on a quarterly subscription basis
  • It starts at $0 and raises money on a quarterly basis and deploys capital out of a quarterly fund
  • A rolling fund is similar to a regular fund (506B) because it’s a blind pool of capital, but it’s an ongoing quarterly subscription
  • Rolling funds allow people to shortcut the process by turning their social capital (reputation) into investing capital
  • Sahil started a rolling fund through a tweet that he wanted to invest in black investors

The Power of a 506c

  • The new Rule 506(c) gives businesses greater flexibility in raising capital by permitting businesses to publicly advertise via social media so long as the business does not commit fraud and limits investors to “accredited investors”
  • Another advantage is that you can up your investment amount slowly
  • Sahil communicates with his investors through quarterly emails and a Zoom call detailing what companies he’s invested in

What Sahil Wished He Knew When He Started

  • You don’t have to have it all figured out by 21
  • Stay in the game
  • Have fun!
  • Start a blog -build an audience
  • Believe in yourself and work hard
  • The most important thing to understand is the value of something – people need to care about it

This Week in Startups with Jason Calacanis : , , , , ,
Notes By EWerbitsky

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