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Gumroad raises $5M from Crowd SAFE in first 24 hours

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Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#21

Post by luckylion »

andygcook wrote: post #15

The investment is being done on a SAFE with a $100M valuation cap, not a $100M valuation with equity grants. That means theoretically Gumroad could never have a qualifying event by selling, going public, or raising a properly priced round by accredited investors. And therefore, investors never get an ROI. Dividends also require actual equity, not promissory notes. I’d imagine even if all investors did convert, paying…

The $1000 maximum investment will probably mean that it won't be professional investors, but individuals who will likely not understand the risk and the potential for misuse. Nicely sized to fit into the stimulus check.

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#22

Post by ROARosen »

PragmaticPulp wrote: post #20
duxup wrote: post #18

Earlier quoted context omitted.

I like the idea that a startup that fails to be a unicorn can still be something. The alternative are these companies vanish because they're not worth an enormous amount in a short time.. I'd argue the first issue is not being more direct / everyone understanding what it means to be an employee at a start up as it is equity wise. I'm not sure some token Grumroad tidbits thrown old employees way really would change mu…

> I like the idea that a startup that fails to be a unicorn can still be something. The problem isn’t that the company failed to be a unicorn. The problem is that the company was declared to be worthless and was given away to the founder (but not employees who built it), but it obviously wasn’t worthless as it’s currently valued at $100 million. Early employee equity was wiped out in the process. The point is that yo…

The alternative was to close down the company completely, I'm not sure how that would help the employees equity.

Besides, options are by nature expiratory unless certain milestones are reached, which obviously wasn't the case. And if the employees did have real equity there is no way the founder could have gotten that without their consent.

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#23

Post by jasode »

PragmaticPulp wrote: post #16

Gumroad is an interesting cautionary tale for employee equity compensation. The company was declared to have failed several years ago. Employees were laid off and the investors released the IP (built by the early employees) to the founder as a token of goodwill. Presumably, they thought he might use it to start a new company. Story here: https://www.businessinsider.com/startup-failure-gumroad-why-... However, he cont…

>, he continued running the company with new part-time employees,

I think he continued with part-time contractors instead of employees if I read his blog post correctly: https://sahillavingia.com/work

> Instead, I found an Indian firm called BigBinary and hired a few engineers as contractors.

>These contractors saved the company. They fixed bugs and maintained the site while I answered support tickets, designed features, and wrote about new initatives.

[I'll delete this post if it's inaccurate]

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#24

Post by PragmaticPulp »

andygcook wrote: post #15

The investment is being done on a SAFE with a $100M valuation cap, not a $100M valuation with equity grants. That means theoretically Gumroad could never have a qualifying event by selling, going public, or raising a properly priced round by accredited investors. And therefore, investors never get an ROI. Dividends also require actual equity, not promissory notes. I’d imagine even if all investors did convert, paying…

> Using a SEAL or the Indie.VC V3 terms seems more inline with how they want to run the company because it includes an instrument for investors to get an ROI with a payback clause if you choose never to sell.

My thoughts as well, though apparently it was unnecessary as they filled the round in 24 hours despite the relatively unfavorable terms for investors.

> I’d imagine there will be almost no pressure to sell because to my knowledge, no past employees or current contractors have equity, nor do they have outside institutional investors that want a return for LPs

They did wipe out early employee equity, but this funding round does have $1mm of institutional VC investment leading it. That’s a curiously small number given the high valuation (effectively 1%) so I wonder if the VCs were more interested in leading the first big public startup investing round than the company itself. This raise is all over headlines today.

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#25

Post by virgilp »

PragmaticPulp wrote: post #20
duxup wrote: post #18

Earlier quoted context omitted.

I like the idea that a startup that fails to be a unicorn can still be something. The alternative are these companies vanish because they're not worth an enormous amount in a short time.. I'd argue the first issue is not being more direct / everyone understanding what it means to be an employee at a start up as it is equity wise. I'm not sure some token Grumroad tidbits thrown old employees way really would change mu…

> I like the idea that a startup that fails to be a unicorn can still be something. The problem isn’t that the company failed to be a unicorn. The problem is that the company was declared to be worthless and was given away to the founder (but not employees who built it), but it obviously wasn’t worthless as it’s currently valued at $100 million. Early employee equity was wiped out in the process. The point is that yo…

> but it obviously wasn’t worthless

I disagree, there's nothing obvious about it. On the contrary, I argue that it WAS worthless (in the same vein that "ideas are worthless" - not that they lack anything of value, but that without sustained effort & dedication to extract said value, they're really not worth much).

Also, it's entirely possible that the value of the company was actually _negative_ for the investors. Happens with other stuff too - sometimes you throw out junk that others recondition & sell for large sums of money. Were you tricked by those who resold your junk?

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#26

Post by PragmaticPulp »

ROARosen wrote: post #22
PragmaticPulp wrote: post #20

Earlier quoted context omitted.

> I like the idea that a startup that fails to be a unicorn can still be something. The problem isn’t that the company failed to be a unicorn. The problem is that the company was declared to be worthless and was given away to the founder (but not employees who built it), but it obviously wasn’t worthless as it’s currently valued at $100 million. Early employee equity was wiped out in the process. The point is that yo…

The alternative was to close down the company completely, I'm not sure how that would help the employees equity. Besides, options are by nature expiratory unless certain milestones are reached, which obviously wasn't the case. And if the employees did have real equity there is no way the founder could have gotten that without their consent.

> The alternative was to close down the company completely

No, the alternative was to give the IP and equity ownership proportionally to the employees, not 100% to the founder.

Instead, they gave it all to the founder and none to the employees who built the IP (as far as I can tell from public documents).

Employees were told they received nothing because their work was useless. Apparently it wasn’t so useless.

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#27

Post by gadders »

duxup wrote: post #12
gadders wrote: post #7

Earlier quoted context omitted.

I think Nathan has put a slightly negative spin on what happened to Gumroad- maybe implying that it was intended all along - but he does have a bit of a point.

>he does have a bit of a point Whats the point? Really though, I'm having trouble figuring it out.

That Gumroad states it is "for creators" but the original Gumroad creators will not benefit from the new funding round.

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#28

Post by rollover »

This company is a disaster. They are even too stupid to understand the concept of account deletion. "How to delete your Gumroad account: From your Advanced Settings page, scroll to the bottom of the page, then click Delete your Gumroad account? After you've deleted your account, if you try to log back in, Gumroad will make your account "live" once again. Therefore, if you really want to delete your account, click Delete your Gumroad account? and don't log in again. Just... just go." WTF? That's not DELETION, that's SCAM and a GDPR violation. https://help.gumroad.com/article/37-how-to-delete-your-gumro...

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#29

Post by thecleaner »

rollover wrote: post #28

This company is a disaster. They are even too stupid to understand the concept of account deletion. "How to delete your Gumroad account: From your Advanced Settings page, scroll to the bottom of the page, then click Delete your Gumroad account? After you've deleted your account, if you try to log back in, Gumroad will make your account "live" once again. Therefore, if you really want to delete your account, click Del…

How is this stupid ? Facebook does the same thing.

Re: Gumroad raises $5M from Crowd SAFE in first 24 hours

#30

Post by elnygren »

PragmaticPulp wrote: post #16

Gumroad is an interesting cautionary tale for employee equity compensation. The company was declared to have failed several years ago. Employees were laid off and the investors released the IP (built by the early employees) to the founder as a token of goodwill. Presumably, they thought he might use it to start a new company. Story here: https://www.businessinsider.com/startup-failure-gumroad-why-... However, he cont…

This is why you want stock/equity instead. Everything else is just toilet paper until it becomes stock/equity.

Usually countries have lots of laws and regulations protecting small shareholders, but not really anything to protect people who might become shareholders one day.

I wish companies had easy ways to give out real stock instead of options... it's up to regulators to make this smoother, easier, cheaper.

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