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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

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 dividends would be a non-starter given their company size and the number of investors. 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. 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. I’d be curious to hear what the board structure is for oversight as well around important topics like salary comp, potential acquisitions, etc. There isn’t much stopping the founder or a group of people from pulling out all the profits for themselves or just paying outsized salaries. Anyways, not dunking on it and just stating how some of the structures work from what I understand. The Gumroad story is an interesting one and I appreciate how they publicly share the experiments about how they’re running too. Will be interesting to follow over the years. [edit: grammar]

luckylion 6y ago
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.
- duxup 6y ago
  I'm concerned about the risk there as well, but I feel like you can spin that both ways. There's a weird intersection with opening investment to anyone and concerns about folks making ill informed choices.
  - luckylion 6y ago
    That's true, but I think something like SAFE is very different from crowdfunding for equity (and much more risky and misnamed, it can be neither simple nor safe). That intersection you mention will be an interesting place in the time to come. I don't think we've found the sweet spot between "only professionals can invest", "the retail investors take on huge risks and aren't aware because of wild models with strange names" and "the company can't raise medium amounts because the regulation surrounding the process would cost much more than they would get", but I'm sure somebody is working on it.
  - nrmitchi 6y ago
    I think there's a difference between "open investing for equity", and "open investing for a thing that one day may turn in to equity given a certain set of events". The majority of people will assume that "start up investing" or "equity crowdfunding" (or whatever you want to call it) is like the stock market, but on a smaller scale. You invest money, and you get shares in the company. I don't think the concern is around folks making ill informed choices (Robinhood has shown us that that can happen in the public markets as well), but more around start-up companies taking advantage of the lack of sophistication by the every-day investor in order to push horrendous terms.
    - duxup 6y ago
      I wonder how it would be possible to ... make someone know enough to make an informed choice and still allow more opportunities to invest. I like the idea of opening things up more like this but worry that actual scams could be a problem. It's not investing but similar to kickstarter and etc problems.
      - nrmitchi 6y ago
        Probably by keeping the crowdfunding part, but with reglation around the terms that have to be offered, and actions you're allowed to take after equity crowdfunding. But it's a pretty complex problem.
PragmaticPulp 6y ago
> 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.
- nrmitchi 6y ago
  > despite the relatively unfavorable terms for investors This is a concern that I have around equity crowdfunding in general, and I hope this situation doesn't go poorly and ruin it for everyone. The terms as described here are eerily reminiscent of the Toptal story, where at the time many defending Toptal saying "VCs should have known better". Does that same defense apply to a group of individual investors who were (apparently) limited to a maximum 1k check size? There was a lot of hype around this investment, which convinced a ton of people to try to get in on it, but I'm legitimately worried that the masses don't understand the actual terms of the round

luckylion 6y ago

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.

duxup 6y ago
I'm concerned about the risk there as well, but I feel like you can spin that both ways. There's a weird intersection with opening investment to anyone and concerns about folks making ill informed choices.
- luckylion 6y ago
  That's true, but I think something like SAFE is very different from crowdfunding for equity (and much more risky and misnamed, it can be neither simple nor safe). That intersection you mention will be an interesting place in the time to come. I don't think we've found the sweet spot between "only professionals can invest", "the retail investors take on huge risks and aren't aware because of wild models with strange names" and "the company can't raise medium amounts because the regulation surrounding the process would cost much more than they would get", but I'm sure somebody is working on it.
- nrmitchi 6y ago
  I think there's a difference between "open investing for equity", and "open investing for a thing that one day may turn in to equity given a certain set of events". The majority of people will assume that "start up investing" or "equity crowdfunding" (or whatever you want to call it) is like the stock market, but on a smaller scale. You invest money, and you get shares in the company. I don't think the concern is around folks making ill informed choices (Robinhood has shown us that that can happen in the public markets as well), but more around start-up companies taking advantage of the lack of sophistication by the every-day investor in order to push horrendous terms.
  - duxup 6y ago
    I wonder how it would be possible to ... make someone know enough to make an informed choice and still allow more opportunities to invest. I like the idea of opening things up more like this but worry that actual scams could be a problem. It's not investing but similar to kickstarter and etc problems.
    - nrmitchi 6y ago
      Probably by keeping the crowdfunding part, but with reglation around the terms that have to be offered, and actions you're allowed to take after equity crowdfunding. But it's a pretty complex problem.

PragmaticPulp 6y ago

> 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.

nrmitchi 6y ago
> despite the relatively unfavorable terms for investors This is a concern that I have around equity crowdfunding in general, and I hope this situation doesn't go poorly and ruin it for everyone. The terms as described here are eerily reminiscent of the Toptal story, where at the time many defending Toptal saying "VCs should have known better". Does that same defense apply to a group of individual investors who were (apparently) limited to a maximum 1k check size? There was a lot of hype around this investment, which convinced a ton of people to try to get in on it, but I'm legitimately worried that the masses don't understand the actual terms of the round