GoFundMe Founders Sell a Majority Stake
blogs.wsj.com
blogs.wsj.com
If HN taught me anything, it's precisely that I am not an entrepreneur. That's not to be sneezed at... it's saved me a lot of pain and headache!
(While I'm happy where I am, I could be a pretty good "very early engineering" hire.)
I suppose this depends on the definition of luck. Unfair, no. Lebron James was born with talents ~nobody else has been born with. Was he lucky? Yes, in that he didn't have a say in the matter. Did he work hard? Yes.
You're asking a very complicated question, which as it turns out, is a very fun thought experiment.
The math is pretty clear that 75% of the time, you will fail.
> There is recent research by Harvard University’s Shikhar Ghosh that three out of every four venture-backed firms fail, which was newsworthy because the failure rate was higher than normally cited by the venture capital industry.
http://www.washingtonpost.com/blogs/fact-checker/wp/2014/01/...
The math is way worse than that: http://venturebeat.com/2014/04/19/heres-a-look-inside-a-typi...
If you manage to get VC funding, you're still going to fail three times out of four. But, that assumes you're one of the 8.3% of companies reviewed by a VC firm that gets funding.
What percentage of nascent companies don't even get so far as a warm intro to a VC?
> The good news: Because few meaningful statistics exist about small, privately held companies, the astronomical business-failure rates that we hear quoted so often tend to be misleading. For instance, a survey done by the U.S. Commerce Dept. says that of every 10 small businesses, 7 will survive their first year, 3 will still be going after 3 years, and only 2 will remain after 5 years.
> Most of us know through experience, however, that a lot of independent businesses do indeed close their doors quickly -- with certain industries more prone to see startups fold than others. Figures compiled by the National Restaurant Assn., for example, show that 80% of independently owned eateries fail within their first two years, for instance.
It doesn't seem to be much worse/different for non-VC. Just smaller scales.
Doing it just for money doesn't make sense. There are easier ways to get rich.
I just wonder why, in 2015, with all our technological progress and all the "innovation" in the payments space we're still tolerating really high transaction costs. /endrant
That's really what you're paying the 5% for. Not for collecting the money.
Venmo's situation is also different, since they use ACH to move money (very cheap). GoFundMe might accept credit cards, which means there are industry standard processing fees of roughly $0.30 + 2.9%. (It's in best interest for GoFundMe, Tilt, etc. to push users towards debit card payments since the associated fees are lower.)
Well that sounds scummy as hell.
and they have no qualms about publishing the fact that they just want to skim right off the top.
More direct funding for specific projects might not be perfect, but it may simplify the process of getting real things done.
walking in to work today to find out the people you have been following have taken a check and bounced out is never a fun way to start your day.
Since they were already cashflow positive, they were free to say "no deal!" to any offer.
However, it it ends up working out, I can see the model getting a lot of future consideration.
I couldn't find stats for GoFundme, but Kickstarter was able to raise $529 million in 2014. [0]
Personally, this buyout does not make sense.
Kickstarter's search volume is 2x-3x.
Because you get any money donated regardless of if you reach your goal, it's a bit different than KickStarter (?). Those same people are the people who I now write off as moochers, because it's always something to personally benefit them.
For example (and this is a sad one): someone was asking for donations to help her get her back fixed so she could live a normal life. Health insurance wasn't covering it. She claimed she was broke.
The last 6 months she's been going to every major music festival.
The more things change, the more they stay the same. :D
At very late stages, a company valuation is usually a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization). The valuation (which is different than market cap, but we'll conflate the two for sake of explanation) in very late stage, non-growing companies, during times of slow economic growth is around 5-7x. If a company is growing quickly at the later stages (read: exponential growth curve) its P/E ratio (price/earnings ratio) could be, we'll say, 100 on the public markets (100x). That's really high, and would rarely happen unless the economy has really low interest rates (meaning less good places to put your cash, and you need to invest it somewhere anyway).
So, in other words, we give the company the benefit of the doubt and say they'll be worth 30x EBITDA. That means they'd need to bring in about 20m in one year, which is about 400m in total donations. High for sure (the buyers must really believe in them), but not completely unreasonable. If, on the off chance, they start bringing in 1B in donations, and their take is 50m, the investors will earn a great multiple on their investment. That's probably what they're hoping for.
You are saying that the purchasers have broken even on the deal so long as they have not lost money on paper in the valuation since they can probably either borrow against it or sell it off.
It comes down to are you paying for current value, or potential growth in value. Frankly, in my opinion, markets that rely upon a greater fool to bail you out to make your money rather than just getting it back the old fashioned way by providing a good or service are way too frothy.
Counter-argument is that you are betting on growth, not a greater fool bail out. In this instance the only way to get that growth while still handling less than 12 billion in transactions is by increasing their take from 5% to something higher or adding on ancillary sales. I'd bet on ancillaries, but this isn't my space.
By the way for those reading who may not know, I was referencing Greater Fool Theory, not making a pejorative statement (heh, beyond what the theory itself may make). https://en.wikipedia.org/wiki/Greater_fool_theory
I actually found the numbers and Gofundme brought in $470M in 2014, which is actually a bit more than Kickstarter. So, $23.5M in revenue.
I don't know what the costs of operating a crowdfunding site are but I don't think that the valuation could have been less than 30X EBITDA.
But yeah, with $23.5M in revenue and with such a fast growing market, a $600M valuation doesn't seem as crazy as I thought. I personally don't think that the company will ever make $600M in profit, but hey, as log_n puts it, for now they can still look for a greater fool.