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If they take 5% of every campaign,it means that in order for the investors to make back their money, Gofundme will have to raise $12.000 million in its lifetime

by josu 11y ago

If they take 5% of every campaign,it means that in order for the investors to make back their money, Gofundme will have to raise $12.000 million in its lifetime, assuming that their costs are 0. 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. [0] https://www.kickstarter.com/year/2014/data https://www.kickstarter.com/year/2014/data

josu 11y ago
Just to add a bit more perspective check out Google Trends: https://www.google.com/trends/explore#q=kickstarter%2C%20gofundme&cmpt=q&tz=Etc%2FGMT%2B5 https://www.google.com/trends/explore#q=kickstarter%2C%20gof... Kickstarter's search volume is 2x-3x.
segmondy 11y ago
You assume the new buyers will want to take only 5% in the future.
- josu 11y ago
  I do, and if there were to be a price/fee war between the different crowdfunding platforms I expect that price to go even lower. Indiegogo just lowered their 9% fee for campaigns not fully funded to 5%.
joshmn 11y ago
I see lots of people on my Facebook feed asking for donations via GoFundMe. I think that might be their target market. 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.
- rjbwork 11y ago
  Oh, so she's a neo-hippie. Instead of begging on the streets for money to follow Grateful Dead around, she's doing it on the internet to follow jam bands and electronic artists around. The more things change, the more they stay the same. :D
austenallred 11y ago
That's not how company valuations work. A company doesn't have to bring in $1 million in profit for investors who valued the company at $1 million to break even. 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.
- log_n 11y ago
  I think Josu was actually correct and you two are talking about two different things. Josu is saying that if the purchasers cannot find another (greater?) fool to flip the company to then they will have to manage 12 billion dollars in transactions with 0 costs if they are only charging 5% in order to break even. That's just simple math, 5% of 12 billion = the 600 million dollar buy-out price. That's if nothing changes in terms of what percentage they keep and if they have 0 costs. If the purchasers are going to buy and hold they will need to handle 12 billion dollars in transactions at 0 expenses to get their buying power back to buy another company, unless they can flip the company or borrow against it. 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 https://en.wikipedia.org/wiki/Greater_fool_theory
shalmanese 11y ago
Assuming this is their only business model into perpetuity. If they find a way to build a strong defensive moat around their business, they can start charging monopoly rents. The 5% seems like the minimum they can charge to stay in business while they're figuring out what their real business model is.

by josu 11y ago

josu 11y ago

Just to add a bit more perspective check out Google Trends: https://www.google.com/trends/explore#q=kickstarter%2C%20gofundme&cmpt=q&tz=Etc%2FGMT%2B5 https://www.google.com/trends/explore#q=kickstarter%2C%20gof... Kickstarter's search volume is 2x-3x.

segmondy 11y ago

You assume the new buyers will want to take only 5% in the future.

josu 11y ago
I do, and if there were to be a price/fee war between the different crowdfunding platforms I expect that price to go even lower. Indiegogo just lowered their 9% fee for campaigns not fully funded to 5%.

joshmn 11y ago

I see lots of people on my Facebook feed asking for donations via GoFundMe. I think that might be their target market. 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.

rjbwork 11y ago
Oh, so she's a neo-hippie. Instead of begging on the streets for money to follow Grateful Dead around, she's doing it on the internet to follow jam bands and electronic artists around. The more things change, the more they stay the same. :D

austenallred 11y ago

That's not how company valuations work. A company doesn't have to bring in $1 million in profit for investors who valued the company at $1 million to break even. 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.

log_n 11y ago
I think Josu was actually correct and you two are talking about two different things. Josu is saying that if the purchasers cannot find another (greater?) fool to flip the company to then they will have to manage 12 billion dollars in transactions with 0 costs if they are only charging 5% in order to break even. That's just simple math, 5% of 12 billion = the 600 million dollar buy-out price. That's if nothing changes in terms of what percentage they keep and if they have 0 costs. If the purchasers are going to buy and hold they will need to handle 12 billion dollars in transactions at 0 expenses to get their buying power back to buy another company, unless they can flip the company or borrow against it. 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 https://en.wikipedia.org/wiki/Greater_fool_theory

shalmanese 11y ago

Assuming this is their only business model into perpetuity. If they find a way to build a strong defensive moat around their business, they can start charging monopoly rents. The 5% seems like the minimum they can charge to stay in business while they're figuring out what their real business model is.