Summary List Placement
Sahil Lavingia is tired of the traditional way of raising venture capital. The last time the company he founded, the profitable e-commerce platform Gumroad, took any VC money was in 2012.
Instead, Lavingia wants to let Gumroad users — or anyone who believes in his company’s mission — invest in the company directly via crowdfunding.
“I believe the majority of people that could be a good investor just aren’t good fundraisers,” Lavingia said. “It’s not easy to get those relationships,” Lavingia explained, referring to the VC networks often closed to outsiders.
But before now, Gumroad, or any other small startup, could not crowdfund an amount of more than $1.07 million, in compliance with SEC regulations — an amount that made growth for early-stage companies difficult.
But Monday marked the SEC’s lifting of the crowdfunding maximum to a $5 million limit, meaning startups can raise up to $5 million via securities-based crowdfunding without having to register the transaction with the SEC, allowing new amounts of capital to be received directly to startups by unaccredited investors via crowdfunding.
With that new opening, Lavingia just announced a $6 million round for Gumroad, with $5 million of the total to come from anyone willing to invest at least $100.
The remaining $1 million is being funded by Naval Ravikant, the cofounder of AngelList, and Jason Fried, the cofounder and CEO of Basecamp.
The crowdfunding model is a next step from Lavingia’s venture capital rolling fund that he created last year on AngelList’s platform, which allows investors to “subscribe” to a VC fund, paying relatively low amounts into it on a quarterly basis.
“What I did for rolling funds is put it out there publicly as a shared playbook,” said Lavingia, who now wants to help teach other startup founders how to crowdfund directly from consumers. “Now I’m basically applying it to crowdfunding, and doing it in the open to give founders that ability.”
This new crowdfunding model also was influenced the Gamestop and Robinhood craze which sent Wall Street into a frenzy. The ability for anyone to invest in the public market is what Lavingia wants in the private market.
Investors in Gumroad will receive the same terms as prominent investors like Ravikant and Fried did, Lavingia says, and who will all be on the same investor calls. Gumroad’s financials and growth projections will all be transparent as well.
“I hope in six months it will be obvious to every startup that this is the best way to return churn,” Lavingia said. “It will take create a whole new wave of talks with founders as before very few people got access to early-stage startups.”
The new SEC regulation is now allowing startups to test the waters in the market before fundraising with VCs – the shift could change startup funding for the foreseeable future.
“I think the new regulation will spur a wave of founders that want to democratize funding relationships,” said Lavingia further, “it’s a direct-to-consumer model applied to VC.”
Gumroad said its $6 million funding round values the company at $100 million. Investments in the round for the first few days will be capped at $1,000 to allow a high number of participants, and later raised to $10,000.