Gumroad Revenue, Valuation & Funding (2024)

hello everyone my guest today is sahil lavinkia he is the founder and ceo of gumroad a service that helps creators get paid for their work they sent over 200 million dollars to creators before starting gumroad he was the second employee of pinterest all right so you ready to take us to the top yes let's do it so talk to you real first you've been very public online about kind of the ups and downs of gumroad and we'll get to that in a second but first uh i was recently on many of the cable networks uh defending lambda school as i think the future of higher education and um i also then through some research realized you guys basically switched spots you and austin you know he was in san fran with san francisco went to or utah went to san francisco you were in san francisco went to utah he sold his first book on gumroad and then built a vc back company lambda school you did the opposite which is kleiner asked to be or casey you know has to be bought out by a dollar you got all your kind of equity back so i guess my first question is the the what has allowed you to like from a financial perspective to kind of breadth all the ups and downs you've taken did you get a bit of a cash payout from pinterest that allowed you to like smooth out this ride or were you truly really stressed about food on the table i wish i left pinterest a few months before my cliff so i i had a that was a sort of financial decision uh that i should not have made but um no i basically had nothing so you left before the one year cliff not the four year full vest yeah the one year cliff yeah exactly so yeah i mean when you know gumred hit rock bottom i think the amount of probably the amount of money in the bank account on my end and on gumroad's end was you know less than uh you know 100 000 or something like that yeah so uh let's let's kind of talk about the story so you launched the company in what year in 2011. okay 2011 and then um you do something which i you kind of casually mentioned and mention your medium article where you kind of give the history of the company which was you got 52 000 essentially views very quickly after you built the product over a weekend via a hacker news post was that truly just an accident or did you do anything strategically with the hacker news post did you see it to like make sure it took off yeah i mean i tried to seed it so you know a few months before that i'd moved to to silicon valley and so every weekend um i was working my you know at pinterest monday through friday and then every weekend i would just network with people i had met from hacker news so i built sort of a group of people that i you know knew and so you know something that basically everybody does in the valleys when you put something on heck news you sort of ping all your friends right and you're like hey i just submitted this thing could you upload it and everyone everyone does that um or should be doing that because that's how you get to the top of the home page and then you know at after that point it's up to this sort of free market to decide if what you're doing is interesting enough but to get the first four or five ten people to upvote it yeah totally manual process it's something i still do today i mean when i wrote that post that sort of dictates the history of gumroad you know i had a friend who's a y combinator founder submitted to hacker news and then i pinged a bunch of people to upload it i did it got like 2 000 upvotes so i think it would have probably done okay without that initial boost but sort of just to secure the chances of that happening you know it just makes sense to spend five ten minutes uh safe seating yeah make sure yes that first post back on april 4th 2011 the title on hacker news was my weekend project gumroad and that was basically it you got 396 kind of upvotes 202 comments did that drive the majority of the 52 000 views back to the website that week yeah i mean that was probably 90 plus percent of the traffic was from hacker news interesting and then long tail today when you look at your google analytics what is hacker news drive pretty consistent on a daily basis when you're not launching a new article on it i mean almost nothing oh really so there was no flat line it went right down to zero spike in zero yeah total and pretty quickly too i mean you know at you know probably a month in it was probably driving you know maybe a few hundred people a day um so it drops you know things get cycled fast right so there's always a new hot sexy shiny new object that people want to talk about yeah um so you launched 2011 uh you build the company up to let's take us up to 2014 before kind of the changes happen so what was kind of what were your kind of key metrics going up to that point what were you focused on and how much had you raised yeah so we'd raised um at that point uh eight million bucks eight million dollars from kleiner perkins led the series a max leptin naval robocon a bunch of uh sort of silicon valley angels and vcs uh we had grown the team to 25 people at our peak including interns and we were processing around two and a half million dollars a month for creators growing roughly um 80 80 to 100 year-over-year yeah in terms of gmv kind of through the platform yeah exactly and then your revenue model how do you make money so we take uh before the layoffs we actually transitioned to a new model but before the layoffs we basically took a flat five percent uh so yeah that that was um so roughly i mean and uh with credit card processing fees etc around seven percent so if we were processing two and a half we were making around you know a little over a hundred thousand dollars a month yeah you'd use seven percent would be 175 and then if you keep in five percent like 125 or something like that a month um burning a ton you put your expenses all in the article and you were burning i think net burn like negative 390 grand or something uh on those months right yeah 351 000 a month yeah okay so what happened here's what surprised me about what you put out online in terms of your story line you kind of put this to your team when you still had what many would believe is a long runway left 18 months most people wait until like four or like one month and they're like uh we don't have payroll tomorrow why did you what gave you the instinct at 18 months to basically say hey team we're in trouble go all in or leave the company now for security everyone obviously stayed and hustled but why 18 months yeah i mean i think people say you know uh the sort of the traditional time frame in silicon valley is when you have 18 months left of runway you need to go start raising money and to do that um i just could not i honestly i still don't really understand how founders and i have plenty of founder friends that say raise money in private like don't tell the team because if things don't go well you don't want them to start freaking out and i just don't i just don't know how to do that honestly because i don't understand how you can be out of the office um for such long periods of time right you know raising money is not not an easy thing to do it requires a lot of in-person meetings and follow-ups and um and so i just i just i don't think i i for me it was i don't think i could have done it strategically in any other way where i had to tell the team i had to sort of get everybody on the same page on where we're at as a company because it would be such a difference from how we communicated uh within the company on on every other thing that we did yeah so 2014 um you end up laying off 79 your workforce down to caught four or five people and then you know a year later uh you end up basically flipping the company to burning 350 thousand dollars in cash to essentially like 120-ish top line all the way down to the point where you are essentially cash so positive to to about 10 grand a month um what was the hardest part of that transition was it or actually the most unexpected part letting the team goes obviously hard but what was the most unexpected part yeah i mean i think that the when you really sort of come face to face with is this thing that you've built valuable to people because so much of a venture back company is is is spending money to grow right and so when that goes away when you're when you have some software product out in the world you're doing no sales no marketing no advertising i really frankly very little support even to sustain the product it was just me you know once a week going through our support backlog and fixing bugs uh and fighting fires when when they came up you you just look at the numbers and you're like this is the value of this thing like if it's gonna grow it's because people are using it finding value in it telling their friends etc and it did i mean it it definitely was not growing nearly as fast as it was you know prior we were you know we were doubling every year that year after the layoffs we were basically grew ten five to ten percent but then the year after that fifteen percent the year after that twenty five percent and this year so far we're up over forty percent year over year and so i think really what i saw i think was was a return to normalcy into like if we had never raised money this is roughly how we would have grown a very sort of slow compound compound growth rate certainly nothing to complain about with 40 year-over-year but that's eight years into uh building this uh sas product most people do not have the luxury of an investor sending them i imagine a cold email right after the partner who led the round leaves saying we want to buy you out for a dollar now founders can actually engineer this if they understand how vc firms think by helping them essentially giving them losses which helps them with their lp base right so so tell that story in terms of if founders want to intentionally make that happen and convince their vcs to essentially take their position out for like a dollar exactly yeah so so basically to take a loss is to is you know you have a fund you have a bunch of different investments in and at the end of the year you let's say you've made 100 million bucks um you have all of these um these these investments that are that are technically still going right there there they could be wins they could be losses and so you can basically go to a venture fund that you that has had a really great year and say hey look like we're we're basically dead you know we might return you 30 of your investment three or four years from now or you can you can just write off this investment today put it on your on your on your on your on your taxes as a loss and then also clean up the books you don't have to think about it ever again no board seat no dino insurance no risk yeah exactly yeah you can you can you can save money in a lot of these different facets and i think that was the other thing about kleiner specifically is they were going through an internal reorg and so it was it was a way for them to sort of just like i think clean house in general and so if you can really know where your vcs are in terms of when they invest in your company is it getting close to the end of the fund are they having a great year or not um are they having internal um drama that they're that they're going through and and just know you know it's just like knowing your customer right if if you have a relationship with somebody um and you can give them an out um i think they might they might take it so how much did kleiner put in of the 8 million they put in seven so they put in seven so for them it's essentially it's a seven million dollar write-off on you know the hundreds of millions they potentially earn that year right it juices their irr for their lps a little bit you then though i imagine there was what was liquidation preference on the term sheet one or two x so on the so so with kleiner actually we raised nine total because we did this seven which was at a one x um and then and then um we raised another two million dollar bridge round and that was at a 4x jesus holy crap okay so basically when you look at what you'd have to sell for just to get past the investors before the waterfall hits the common holders or early employees you're having to sell for at least 16 million dollars four times two plus seven exactly yeah and then there were a little there was a little bit more money in the bridge so it ended up being around yeah 17 and a half million dollars or something like that so once kleiner is out those liquidation preferences disappear and now you could sell the company at what two or three million and have a pretty good darn good outcome for most people correct yeah i think our preference is at this point we've we've also uh bought back a few other folks um and so now our preferences are a little under two million so yeah we could sell the company for two and a half and you know i could make a million bucks so how much of the original nine in the company is still in investors who didn't sell it's around 1.9 million dollars okay about about two-ish million so it's mostly the seed investors that were you know the the 1.1 and then around 800 thousand dollars worth of pro rata that they put into the into the series a 800 pro rata to keep their percentages they're right kind of central ratchet clause yeah yeah exactly um okay interesting so you do that um all through this time how are you generating revenue for yourself i mean you austin said you invested in lambda school so you had some play money how did you you know build wealth while your company was essentially struggling yeah i mean i honestly wish i would have done it differently i wish i would have done things like investing in companies like lambda school a lot more but i basically paid myself um at the beginning of the company i paid myself 60 000 a year which in san francisco was basically making you know no money um and then uh i increased my salary basically the way i thought about it was i'm going my salary is going to be the salary the lowest person in the company so at some point it was 95 000 a year and now it's 120 000 a year so it's basically moving to provo making 120 000 a year gives me a little bit of runway and then the other thing that is is the reason i was able to invest in lambda um is is that i i invested in a company called hello sign that ended up selling the dropbox for 230 and uh i made it around a 16 or 17x joseph right yeah joseph uh uh awesome guy what was your turn on that sorry it was around 17x okay that's pretty good so um so that gave me i mean honestly that that single investment was you know has given me more cash in the bank than gumroad that's interesting okay so fast forward now to today you change first off how did you change your business model how do you make money now today after the 2014 pivot so what we did was we added a premium tier where you can either we sort of forked our five percent we said you can either pay us 10 bucks a month or more and uh the transaction fee is gonna be three and a half which is closer to what you pay a credit card company or it's still the same model but you pay eight and a half percent um and then there's no there's no fixed fee and the way the reason we did that was basically we were having these incredibly spiky months where when you know when you're taking five percent if your creator's having a phenomenal month someone launches a product and makes two million bucks it's great for you but often that doesn't happen you're super seasonal etc and we needed to make sure that when we were you know sort of post layoffs that we had a base of revenue every single month regardless of that and so that's why we launched the the premium sas offering yep okay so if you look at last month how many creators are paying you 10 bucks a month around 3 800. okay 3 800. so there's essentially you know 38 000 right there and kind of pure sas revenue um and add back on then on top of that so if i guess maybe the right question is how much transaction volume did you process last month yeah so last month we processed a little under six million dollars okay and when you look at the weighted average between the 3.5 up to the eight percent what was the effective weighted average that you took on the six million it it was around the math i can do the math right now yeah take your time it was uh seven percent okay so basically on the six million process you took essentially 420 000 out of that now you have credit card processing fees and things like that so what was total recurring revenue last month transaction in flat fees it was 150 000 in gross profit 150. okay so again 38 of that is a flat 10 fee the rest called 110 grand is really coming from that seven percent on the six million is this the right model are you going to change again and then next month or you feel like this is the right one um i think it's the right one for now mostly because it works um well enough and and revisiting pricing is always a little bit scary and you have no idea who you're gonna piss off um but almost definitely at some point we will uh revisit it um and mostly just simplified i think people get confused i have to explain the three and a half to eight and a half and so if we can uh simplify that um we will yep so just to round out your numbers uh you're so transparent on twitter i encourage everyone you go follow us i heal it's at shl but in 2019 he put up volume process 5.8 million revenue 404k gross profit 152 000 uh more importantly again your mission it sounds like is really for creators so i'll let you share these numbers right how many creators made over 10 grand yeah 81 creators made over 10 000 uh 789 creators made over a thousand bucks and then a little under 10 000 creators made something it made at least one dollar i love that so you have since you have 3800 paying that flat fee of 10 some portion of them are essentially not active what kinds of things are you building put on your ux hat for a second what kind of thing are you are you building into the product life cycle emails etc to get those kind of dormant paying customers reactivated so they can start making money doing their passion or their hobbies yeah so i think one of the big things that we realized um is we were so launch heavy and that's that's great for the people that make over ten thousand dollars a month they're really thinking about this like a business but there are a lot of sort of hobbyists i guess that sign up to gumroad and then they launch a product um and then they just never do anything again they don't think about things like lifecycle emails etc and one of the interesting things about gumroad is everything we do kind of mirrors what we want creators to do too so if we're doing lifecycle emails we should probably be training our creators to do life cycle emails for their own customers and so that's kind of a nice meta thing that happens but basically what we realize is there's a big opportunity in terms of discovery where if you put your stuff on government once people what they want is they want adsense they want to create a website and then basically for the rest of their life they get some money it doesn't really matter how large or small it is because if they get some money in the bank they're happy they don't have to do anything for that and so that's that's one of the big investments that we've started to make this year we've doubled already from a hundred thousand dollars a month in discovery new volume to creators to 200 000 a month and we we hope to get to a million in the next couple years a month um and then we take a higher transaction fee of that so we'll wait hold on aren't you at six million already monthly yeah so that's two hundred thousand dollars a month of gmv extra extra margin uh extra volume sorry i thought you i thought you're already processing about six million a month isn't that all going to creators yes yeah it is so this is just from that one feature of discovery like recommendation got it yeah so it's an extra three three to four percent of new volume got it that's coming from this new set of features yeah it's essentially a marketplace it's like your own etsy exactly it's our own etsy and the hope there is that long term you can put your stuff on gumroad and continuously make long tail revenue uh for the basically for the rest of your life if we can continue to build demand on the consumer side which is something we've never done before we've always been a tool for creators to monetize their existing audience um but we think there's a big opportunity in hey you made a hundred thousand dollars if we can give you an extra five thousand dollars an extra ten thousand dollars because of recommendations because of emails that we automate for you because of cross selling etc uh we think that can be uh a pretty great opportunity it sounds like you and you and nathan barry need to get together and and and merge or something you guys talk the exact same way oh yeah i'm dewey that's good yeah how you connected with him yeah yeah he was one of our first really big success uh stories actually he's like austin i mean he launched his whole business he launched convertkit off selling ebooks exactly what your business model should have been take two percent of every business all right zero percent transaction fee if we get five percent here there you go all right so let's wrap up with the famous five number one what's your favorite business book um i really love thinking fast and slow yep number two is there a ceo you're following or studying austin from lambda is amazing i think the way that he thinks about social media and twitter to sort of build a business um almost single-handedly it feels like is pretty pretty stellar number three what's your favorite online tool for building your company uh i've really been uh investing in notion uh that's been where we've been moving all of our product management all our wikis all our roadmap stuff is all notion now number four how many hours of sleep to get every night seven and a half and that's the thing i will never never uh compromise never change yeah never compromise you know what's your situation married single kids um i have a fiance we're getting married in december oh exciting okay so no kids no kids and how old are you i'm 26. 26 today great take us back to your 20 year old self what do you wish he knew honestly i think i wish i just focused on i think i i did the right things honestly i just think i've spent so much time second guessing myself and i wish i had just been more committed to to the vision instead of constantly uh you know being like am i doing the right thing um it turns out i think if you if you care about what you're building and the customer base that you're building for like you're probably good you're probably not embezzling money on the side guys gumroad.com has paid over 200 million dollars out to creators and launched many big brands we know today like lambda school and convert kit but it was all very shaky in 2014 when they were net burn was over 300 000 per month he had to lay off essentially 75 of his staff down back down to four or five people bought out investors now today the company is growing nicely processing six million dollars in revenue all to creators uh every single month and they essentially take anywhere between three and eight percent on that and then some folks about thirty eight hundred creators pay a flat fee on addition to three and a half percent about ten dollars per month so gross revenue today about 152 000 per month as he looks to continue to scale so hill thank you for taking us to the top you're very welcome thanks for having me