We’ve Raised $60M in New Funding
patreonhq.com
patreonhq.com
Investment rounds are similar in this way but tend to address the "plan to reach profitability" or "plan to exit" scenarios more directly than a loan might. Patreon's making money, but Patreon needs to stay ahead of current and potential competitors, continue to expand, and continue to grow their positive cash flow. Sure they could keep going without raising investments, but if they run the risk of being disrupted by competing implementations of the same business model (a very real risk), it'd be stupid not to raise money to accelerate their growth.
Probably by making more money, which this fundraise will help them do faster.
Here's a rough sketch of possible headcount. I'm making these numbers up, but maybe you can see how it does take a lot of work to make a business like this work.
- Engineering
- 5 - frontend dev/QA (web, tablet, responsive, A/B tests)
- 5 - backend dev/QA (app logic, video/content hosting, scaling up & out)
- 5 - payments dev/QA (payments is huge and complicated, probably a few payment processor partners)
- 5 - app dev/QA (iOS and Android)
- 5 - product owners (web, 2 apps, email, internal tools for agents etc)
- 5 - management (cto, engr manager, director etc)
- Business
- 5 - creator experience, patron experience, outreach, community
- 5 - marketing, advertising, lifecycle email and email campaigns
- 5 - partnerships, relations with big creators, collaborations
- 5 - fraud detection and remediation (fraud is huge, chargebacks are expensive, and the ability to charge $1 to test cards attracts fraudsters)
- Operations
- 20 - agents handling creator/patron requests/issues (more if 24/7 or multiple languages)
- 5 - ops/systems (keep everything running, downtime means less income)
- 5 - HR, recruiting, accounting, etc
+ Is it that Patreon is managed worse?
+ That the ecosystem has changed in the last few years?
+ Are they trying to do something substantively more intensive than Kickstarter?
Patreon has a slow and steady growth rate, while Kickstarter grew quite rapidly gaining a lot of press from big campaigns brining in huge amounts of money all at once(where Kickstarter got a huge influx of cash each time a 30-day campaign completed). For Patreon, people are more hesitant to sign-up for a subscription type expense. After a popular creator starts a Patreon and gets that initial boost, the growth rate for them is quite linear.
A large Patreon campaign of $60K/month nets Patreon $3,000 while a large Kickstarter campaign of $3M nets Kickstarter $150,000.
Also, in an unrelated point,
> I had been making YouTube videos with my band, Pomplamoose
Finally! I thought I was crazy for thinking it was the same guy. If you haven't listened to his band, you definitely should.
I don't know the details of Patreon, but profitable companies raise money all the time. Patreon is presumably a startup, and has growth in mind. It is likely that they want to grow faster than their current cash flow would allow - in fact, they may need to do this in order to survive in the long term. A more in-depth description of this from pg: http://www.paulgraham.com/growth.html
Do they really, though?
I can see that being too little if they're hiring a significant number of people. This is a nontrivial dilution so I assume that they need the money.
But if you look at the larger scheme of things: How many Podcasts have a Patreon? How many YouTube channels? Is it even on their radar? And the answer is of course -> fractions of a single digit percentage.
Even compared to some other "competitors" they are quite small - consider that there are individual Kickstarters that have raised more than Patreon's profits over the past year.
They need to massively ramp up user/influencer acquisition: sponsoring conferences, booths at tradeshows, paying people to use them, a big "success team", etc. etc.
What's your guesstimate of how many engineers it takes to run the company? Multiply that by $200k [+]. Quintuple [++] the result. Divide by your guesstimate of their margin. That's the sales number you need to not raise funding.
This math is brutal. You can build a very nice product that a lot of people like and still get run over by it.
[+] Total cash cost to the company (salary, benefits, taxes, etc). This corresponds to an offer of approximately $140k~$160k to the engineer.
[+] Judgement call required here; software startups generally spend 20%~35% or so on engineering. The other big bucks that are not COGS are marketing, sales, and G&A ("everything else that isn't COGS").
Accepting outside funding is a Faustian bargain because those investors want scale, scale, S C A L E!! So now I'm worried about this company and this fairly awesome concept they've implemented. I would focus this company on slower growth with attention to continuous profitability. And if there's something you can't do with 80 friggin people (which seems hard to imagine), then put that shit in the backlog and get to it when you get to it. The core idea is sound, focus on that. But nobody asked me! :)
I get what this post is saying about wanting to add new features, but I can't help but be a little apprehensive about what taking this amount of external funding means for Patreon's future.
It doesn't strike me as a business that's likely to experience "hockey stick" growth, so there's a worry that they'll need to extract more money from existing creators to show the return on investment that their external investors are likely to seek...
I would think about the Patreon opportunity as such -
1/ Patreon has built a platform that has proven to be the best way for artisans and creatives to create a direct connection to their fans
2/ Since the inception of the company, they have seen very strong improvements in artist growth, patron growth, and retention in both.
3/ The total addressable market is huge. Every creative is a potential user. Their platform may even be growing the market by allowing people to quit their normal jobs to pursue creative ideas.
4/ They want to raise the money to build new functionality to continue to drive growth by addressing new segments of creatives and improving the product to drive retention.
In summary, I think Patreon has a compelling story for raising money. They need to spend money to grow but not like Snapchat because the consistency of their cash flow is a major reason to continue to invest in retention.
I wonder if we'll have to read notes such as "how patreon was once great" ... before a sell-out to some other company will happen.
However had, that being said, I applaude the guys who actually bootstrapped the whole thing. The 60 million is of course great, but I think that their INITIAL idea worked in practice, is much, much cooler than the 60 million they got.
https://gratipay.com/Gratipay/
But they're only getting enough to pay for like, 1/10th of a developer...
https://salt.bountysource.com/teams/bountysource
What amuses me is how software projects prefer Patreon instead of Bounstysource
I have no idea; just stating that I noticed it when watching some twitch events.
That's because total volume is so low. Back when it mattered we were seeing 5% of volume as income to Gratipay, comparable to Patreon, etc.
Is there any way of browsing these creators? How many creators make money at the rate of $40k per year? Also, is there a typical curve that earnings follow over time?
Some creators have their earnings private.
If they ever move to boot adult creators, that will be the day Patreon dies. If they ever get bought by Google or some other tech titan, it will be that day instead.
And if Google makes a big to buy Patreon, I REALLY hope Patreon would refuse it no matter how large it would be, but I can't imagine anyone walking away from 'never have to work again' money. Google buying Patreon would cause me to wear black and mourn for at least a month. They would move aggressively to remove all creators who do anything not deemed 'advertiser-friendly' (really anything that wasn't mainstream in the early 2000s when Google came about, which is where Schmidt wishes to petrify human culture) and then progressively move to make it less and less possible for people to make a living doing things which members of the public wished to support. Such a model does not lend itself to what Schmidt sees as the proper structuring of society, with centralization of wealth into a ruling minority class establishing the 'pillars' of society, any widespread movement looks to people of his perspective like rats chewing through those pillars. He made a smart move publishing his book where he puts forward the idea that Google should use its position and power to actively 'guide' human culture for the good of the peons not as wise as he. If he'd published it online, people would read it.
YouTube doesn't have to worry about major competitors because of the network effect. If it bans people from YouTube, where are they going to go? To a competitor video site no one uses? Sure, they could, but they're not going to have much success considering how unlikely it is that their entire audience will go through the hassle of signing up for the competitor's service and then remaining active on it (while likely still using YouTube) just to watch one person's content.
But with Patreon there isn't a similar network effect at play. You just log in and subscribe as a Patreon. There's no real need to log in every day, or week. There is no additional benefit you get from it being the largest service of it's kind either. So if Google did buy Patreon and they did start banning people, I don't see much reason why someone couldn't just create a successful clone. Creators would even have a reason to use the new service over Patreon given they'd be less likely to loss their revenue stream by simply linking their audience to the new competitor site instead. Sam Harris recently started pointing his audience to his own donation service instead of Patreon for this reason, there really is no real cost to either the creator or subscriber doing this, I'd guess Sam probably even takes a larger cut of the donation money.
Unfortunately money changes the way how companies work - and often not to the better.
It is not "begging" so to speak; if anything, it's a win-win.
begging implies some kind of charity. Patreon is enabling one exchange of value for another. Very different IMO.
It's interesting that we might view Patreon as "begging", rather than selling your work to more people, for a smaller amount.
I support a number of artists on patreon, and I don't think of it as giving a handout or see them as begging - I'm paying them for the content that I consume, and I'm paying them to give them incentive (edit: and means) to continue producing that content. Sure, there's no formal contract, but I consider it a form of "work for pay" all the same.