
GoFundMe Founders Sell a Majority Stake - prostoalex
http://blogs.wsj.com/digits/2015/06/24/gofundme-founders-to-reap-a-fortune-in-buyout/
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joshbaptiste
Heh.. every time I read one of these 30 somethings founders (as I am) striking
it rich on some buy out deal etc.. I think to myself, why the f%$k am I still
cranking behind this desk? Then I return to work the next day oblivious and
pretty much content _sigh_...

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bdcravens
These articles don't tell you about the 30-somethings that burned their life
savings chasing an idea and not getting the same result. Ultimately, the
narrative that success is directly the result of hustle isn't necessarily
true.

~~~
fweespeech
Yep, pretty much this.

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/...](http://www.washingtonpost.com/blogs/fact-
checker/wp/2014/01/27/do-9-out-of-10-new-businesses-fail-as-rand-paul-claims/)

~~~
aaronbrethorst
> The math is pretty clear that 75% of the time, you will fail.

The math is way worse than that: [http://venturebeat.com/2014/04/19/heres-a-
look-inside-a-typi...](http://venturebeat.com/2014/04/19/heres-a-look-inside-
a-typical-vcs-pipeline-a-must-read-for-entrepreneurs/)

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?

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fweespeech
[http://www.bloomberg.com/bw/stories/2002-03-03/the-bottom-
li...](http://www.bloomberg.com/bw/stories/2002-03-03/the-bottom-line-on-
startup-failures)

> 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.

~~~
cubix
I wonder if the numbers have improved any in the 13 years since that was
written.

~~~
fweespeech
Doubt it, its been pretty much around there for a very long time.

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yid
It would seem that the founders have "won" their own GoFundMe campaign. But
kudos to them for realizing that the company's growth had exceeded their
personal threshold for interest/time/size, and handing over the reins early.

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chermanowicz
I'm happy for these guys but is it just me or is a 5% transaction fee nuts? I
know, I know, Kickstarter, Indiegogo, you name are all roughly the same, and
yes, there is value in the "platform", publicity, etc. -- but you're basically
just sending money from one person to another. Venmo (which is basically free)
could roll out a platform like this in no time and charge 1 or 2%.

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

~~~
AnimalMuppet
Because 5% may be way more efficient than what we have now? (If it's not,
there's no point in doing this.) But then, in a year or two, Venmo or whoever
can charge 1 or 2% and eat their lunch.

~~~
eli
Did cheap auction sites eat eBay's lunch? I'm not sure a couple of percent is
as important as the other features like ease of use, sharing, and promotion.

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serge2k
> In North America alone, nonprofits are a $300 billion-a-year industry.
> There’s a lot of fat in there. If we do our jobs well, we can remove
> friction as it relates to giving

Well that sounds scummy as hell.

~~~
npkarnik
I think the point is that people give to charities as a proxy for "helping
people." Massive research oriented charities probably won't be displaced by
something like GoFundMe, but the idea is that average people can directly fund
the needy on a case by case basis (i.e. instead of paying for the
administrative fees of a charity that helps sponsor scholarships, you can
directly fund the recipient?)

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serge2k
No, I got it.

and they have no qualms about publishing the fact that they just want to skim
right off the top.

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devhead
can't help but wonder how the employees fared in all this?

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.

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not_that_noob
They never took capital and now they exited to an investor syndicate led by
VCs. Wow - how times have changed. Founders (of hot companies) hold all the
cards. No wonder valuations are sky high.

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fsk
That's one advantage of bootstrapping. When you do decide to raise money, you
can make sure you cash out some of your own shares as part of the deal.

Since they were already cashflow positive, they were free to say "no deal!" to
any offer.

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kposehn
I met the founders once at a StartUp-SD event hosted by Brant Cooper, back
when I lived in the area. Great guys from my experience then and I'm really
happy to see them get this outcome.

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pbreit
TCV and Accel are smart investors but this on its face sounds like a terrible
idea. Outsiders are typically clueless about why something is working.

However, it it ends up working out, I can see the model getting a lot of
future consideration.

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josu
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)

~~~
austenallred
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
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)

~~~
josu
Thanks, you put it much better than I did. And yes, that was exactly my point.

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giarc
Anyone know what size stake they had? It says they had refused to take capital
earlier, does that mean they still held 100% between them?

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eonw
i think they saw the writing on the wall for the crowdfunding space.

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650REDHAIR
Interesting that it's a guy from Groupon that will take over. Even more
interesting is that he wants to have an office in SF with the market this
crazy...

