After Going The VC Route, Gumroad Takes A Different Path In New Fundraising

Creator marketplace developer Gumroad is hoping to take advantage of new Securities and Exchange Commission regulations on crowdfunding that start today as the company looks to bring in as much as $6 million.

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The San Francisco-based company has raised $1 million from individual investors including Naval Ravikant, co-founder and former CEO of AngelList, and Jason Fried, co-founder and CEO of Basecamp, at a $100 million valuation as part of what the company is calling a Series C.

The company is hoping to crowdfund the remaining $5 million from regular individuals looking to invest anywhere between $100 and $1,000 at the same $100 million valuation. Starting today, companies can raise as much as $5 million through crowdfunding, up from the previous $1.07 million mark per SEC regulations.

“What we are hoping for is to have thousands of angel investors,” said founder and CEO Sahil Lavingia. “The general public can invest at the same terms as our other investors.”

Rebuilding

Lavingia started Gumroad in 2011 and successfully raised a seed and $7 million Series A round in the company’s first couple years. However, when he wanted to push growth even more and raise a Series B in 2015, the interest was not there.

“We basically failed to raise and had to lay off almost everyone,” he said.

The company instead raised a small $2 million round, laid off 15 of its 20-person staff at the time and Lavingia started to rebuild the company — which helps creators sell anything from new Twitter icons to music to educational and self-help ebooks.

Since then, the company has grown, and in 2020 the 26-person company saw its best year, with approximately $9.2 million of revenue and more than $1 million in profit. In 2019, the company saw about half that revenue — approximately $4.6 million — and was just barely profitable.

Fried was one who took note of the company’s progress and decided to invest.

“I’ve long admired Sahil for his practical — and experimental — approach to building a business his way, rather than what’s expected within the industry,” Fried said. “He’s been to the other side and back, which gives him a perspective few have.”

The creator economy

The company’s creator platform competes with the likes of Patreon, Teachable and other startups, Lavingia said. In January, about  20,000 creators on Gumroad made a sale, and the company’s platform has more than half a million customers, he added.

Some of the growth could be attributable to the increased interest in education and learning during the pandemic, as people were stuck at home with little to do, acknowledged Lavingia, adding that about 50 percent of things sold on the platform now are related to teaching and education.

Nevertheless, the company hopes to ride its growth to a new $6 million Series C. If the company does not close the round by Wednesday, it likely will increase the maximum check size an individual writes to $10,000, but Lavingia acknowledged he would like to see the money come from regular individuals and not accredited investors.

“I really think we are writing a new playbook,” he said.

Illustration: Li-Anne Dias.