Extra Crunch roundup: Influencer marketing, China’s tech clampdown, drafting growth teams

Before you hire a marketing consultant who doesn’t understand your products or commit to a CMO who has several years of experience — but none in your sector — consider influencer marketing.

If the phrase evokes images of celebrities hawking hard seltzer, think again: An influencer can be as humble as an enthusiastic Reddit user who manages your Telegram channel.

According to Uber growth marketing manager Jonathan Martinez:

“ … You don’t need to find influencers with millions of followers. Instead, lean toward microinfluencers for testing, which will bring cost efficiency and the ability to sponsor a diverse range of people.”

If your startup has a clear brand pitch, “an enticing offer” and “clear next steps,” you’re ready to reach out to influencers, he says.

In a guest post, Martinez explains how to structure offers that will maximize conversions and keep your representatives motivated to promote your products and services.


Full Extra Crunch articles are only available to members.
Use discount code ECFriday to save 20% off a one- or two-year subscription.


An illustration of Julian Shapiro

Image Credits: Julian Shapiro

This morning, we published an interview with growth expert Julian Shapiro, a founder and angel investor who also advises startups on the best way to present themselves.

Marketing is data-driven, but good storytelling is an art, says Shapiro.

To connect with consumers on an emotional level, “you need a mix of goodwill, what-we-stand-for ideology, social prestige and customer delight — among other affinity-building ingredients.”

Thanks very much for reading Extra Crunch this week!

Walter Thompson

Senior Editor, TechCrunch

@yourprotagonist

Everyone wants to fund the next Coinbase

“In celebration of Coinbase’s earnings report today, investors poured a mountain of cash into one of the company’s global competitors,” Alex Wilhelm writes in The Exchange.

Rolling up his sleeves, he dug into numbers from Coinbase, FalconX and FTX to give readers some perspective on the state of cryptocurrency exchanges.

How to hire and structure a growth team

colorful blocks with people icons over wooden table

Image Credits: tomertu (opens in a new window) / Getty Images

Companies that have reached $5 million to $10 million in annual revenue are more likely to assemble growth teams; it’s a smart investment for any startup that’s achieved product-market fit.

It can also be potentially disruptive: Early marketing and product managers may feel sidelined by new cross-functional teams that suddenly take a leadership role.

In a detailed walkthrough, senior director of growth at OpenView Sam Richard explains the core players needed to build a growth team and how to integrate them into the organization smoothly, and shares some useful experiments to run.

“Don’t expect a single hire to scratch the growth itch for you,” Richard warns.

“A brilliant hire is going to come up with ideas, but will absolutely need a team to support them, turn them into experiments and then make them a reality.”

Indiegogo’s CEO on how crowdfunding navigated the pandemic

Image Credits: Bryce Durbin

In an interview with Brian Heater, Indiegogo CEO Andy Yang spoke about how the pandemic has impacted the crowdfunding platform, the challenges of stepping into the role after the previous CEO departed, and how the company reached profitability.

The company wasn’t profitable when you joined?

We weren’t profitable. I joined and then we cut to profitability, or at least kind of a neutral state, and with any kind of change in leadership, some tenured folks opted out, and we basically became a new team overnight to kind of re-found the company, and we’ve been slowly adding people over the last couple years, but always with that eye on profitability and controlling our own destiny.

Kickstarter’s CEO on the future of crowdfunding

Image Credits: Bryce Durbin

Last week, Kickstarter announced that people have backed more than 200,000 projects with $6 billion in pledges since the company launched in 2009. Just 15 months ago, it crossed the $5 billion threshold.

Brian Heater spoke to CEO Aziz Hasan, who took over in 2019, about last year’s substantial of layoffs, the pandemic’s long-term impact on crowdfunding, and how he’s working to build a more resilient company:

I think for us some of the most important things are to really just understand how we’re operating the business, making sure that we are sufficient in the buffer that we have for the business to make sure that we’re operating in a way that we can feel confident that the team is going to have some stability, that they’re going to have this resilience.

Craft your pitch deck around ‘that one thing that can really hook an investor’

We frequently run articles with advice for founders who are working on pitch decks. It’s a fundamental step in every startup’s journey, and there are myriad ways to approach the task.

Michelle Davey of telehealth staffing and services company Wheel and Jordan Nof of Tusk Venture Partners appeared on Extra Crunch Live recently to analyze Wheel’s Series A pitch.

Nof said entrepreneurs should candidly explain to potential investors what they’ll need to believe to back their startup.

” … It takes a lot of guesswork out of the equation for the investor and it reorients them to focus on the right problem set that you’re solving,” he said.

“You get this one shot to kind of influence what they think they need to believe to get an investment here … if you don’t do that … we could get pretty off base.”

Online retailers: Stop trying to beat Amazon

Image of a shop owner taking a photograph of a pair of shoes before mailing to represent how small businesses can compete with Amazon.

Image Credits: TravelCouples (opens in a new window) / Getty Images

Going up against global e-commerce behemoth Amazon might seem futile, but smaller players can leverage value adds that give them a leg up when it comes to ensuring a loyal customer base, says Kenny Small, vice president SAP and Enterprise at Qualitest Group.

“The reality is that Amazon’s true unique selling proposition is its distribution network,” he writes in a guest post. “Online retailers will not be able to compete on this point because Amazon’s distribution network is so fast.

“Instead, it’s important to focus on areas where they can excel — without having to become a third-party seller on Amazon’s platform.”

The China tech crackdown continues

Edtech and fintech have been in the Chinese Communist Party crosshairs in recent weeks — now, chat apps and gaming are among the targets.

Beijing filed a civil suit against Tencent over claims that its WeChat Youth Mode flouts laws protecting minors, and state media criticized the gaming industry as the digital equivalent of passing out drugs to kids, Alex Wilhelm writes in The Exchange.

He writes that the “news appears to indicate that we should expect more of the same as we’ve seen in recent months from the Chinese government: More complaints about the impact of ‘excessive’ capital in its industries, more tumbling share prices and more held IPOs.”

5 ways AI can help mitigate the global shipping crisis

Robot arm holding a cardboard box

Image Credits: Yuichiro Chino (opens in a new window) / Getty Images

In an increasingly on-demand world, shipping delays and disruptions are a major roadblock to customer happiness.

AI can help, says Ahmer Inam, chief artificial intelligence officer at Pactera EDGE, who offers five strategies for using AI that can help startups understand supply chain disruptions and prepare for a Plan B.

“While AI won’t protect startups, manufacturers and retailers from these types of disruptions in the future, it can help them sense, anticipate, reroute and respond to them more effectively.”

Indiegogo’s CEO on how crowdfunding navigated the pandemic

Andy Yang joined Indiegogo at a turbulent time. As the crowdfunding platform’s then-CEO stepped aside for personal reasons, the service also reportedly grappled with layoffs. Coming on board after a stretch with Reddit, the new CEO would have less than a year at the helm before COVID-19 turned the globe upside down.

Now 13 years old, the San Francisco-based site matured alongside the world of online crowdfunding. And, certainly, Indiegogo had a front-row seat for all of the ups and downs. Indiegogo introduced several million-dollar campaigns, but the platform has often suffered from comparisons to Kickstarter, a service that has become synonymous with the category for many.

Yang sat down to discuss how Indiegogo has changed under his tenure, how crowdfunding has evolved and what both will look like in a post-pandemic world.

(This interview has been edited for length and clarity.)

What was your primary objective coming on as CEO?

I was at Reddit doing core product, and when Indiegogo’s board and founders reached out, it was really around, “Hey, we would love somebody with product experience, a background in community.” What was going on in Indiegogo was really an evaluation of, “What’s our core values?” When I took the saddle and the reigns, it was really focusing on that core of who we are, what segments do we want to go after, and where do we want to focus. Where do we want to focus our product?

“We’ve had our number of failures on our site, of campaigns that haven’t fulfilled or just, the campaigns have ghosted their backers, and we own up to that.”

From that perspective, we’ve been really heads-down for the last two years, just working on ourselves, internally, and focusing on the core — what we’re terming “bringing the crowd back in crowdfunding.” I think a lot of the platforms have been very transactional in nature, and so I think backers and consumers and users have been trained by Amazon to click a button and get things two hours later. The premise of crowdfunding is very different.

You may or may not get this perk delivered in the time frame that you’re expecting, and to help educate backers and the community around that is really core to who we are. We’ve been through the last two years with COVID, but we’ve been profitable since I’ve joined, which is huge. We can control our own destiny and really take the time to do things right and invest in areas like trust and safety, like community, that we really wanted to.

The company wasn’t profitable when you joined?

We weren’t profitable. I enjoyed and then we cut to profitability, or at least kind of a neutral state, and with any kind of change in leadership, some tenured folks opted out, and we basically became a new team overnight to kind of re-found the company, and we’ve been slowly adding people over the last couple years, but always with that eye on profitability and controlling our own destiny.

Beyond people changing roles, what had to happen in order for the company to become profitable?

Really doubling down on making sure that we understood our sales pipeline and making sure that, from a supply perspective, that we had a number of campaigns from across a number of categories. Obviously, our bread and butter is what we call tech and innovation, consumer electronics hardware, but also seeing what other categories that we can lean into. We’re definitely strong in comics, travel, outdoors, and what can we do from expanding our wedge and our categories in different areas that we’re seeing growth. I think a trend that we’re currently seeing is a lot of green tech. Just trying to understand what categories are growing, where our brand resonates with entrepreneurs and backers.

That’s what needed to happen — just making sure that we had adequate supply on the platform, and also just from the backer side, we had not traditionally focused on the backer side. We had heavily focused on the supply side, but really starting to, again, return back to the crowd in crowdfunding, leaning on my Reddit experience, just making sure that we can engage the community in new and interesting ways.

Kickstarter’s CEO on the future of crowdfunding

Kickstarter announced on Wednesday that backers have pledged $6 billion to more than 200,000 projects over the course of the crowdfunding site’s history. The milestone comes a little over a year after the platform hit the $5 billion mark.

A matter of weeks before the company hit that last massive round number, however, it revealed starker news. Kickstarter reduced its staff by 39%, through a combination of layoffs and buyouts, as newly minted CEO Aziz Hasan noted a 35% drop in new projects. The company wasn’t alone, certainly, in suffering major setbacks in the face of a pandemic, but that likely didn’t cushion the blow of a downturn with “no clear sign of rebound,” according to the executive.

With another $1 billion pledge in the intervening 15 months, however, it’s probably safe to say that predictions of crowdfunding’s demise were somewhat premature. Like most of the rest of us, the pandemic has spurred a reprioritization and recentering, and the service that has long been synonymous with the category looked to new methods of engagement.

After a dozen years of being the face of crowdfunding, plenty of question marks still remain. The past decade has seen something of a hype bubble for the process, and for some, the shine has worn off a bit, courtesy of undelivered gifts and unfinished campaigns. What will the next decade hold for crowdfunding’s biggest name? And will the pandemic fundamentally transform how people back projects on the internet?

We sat down with Hasan to discuss the past year, the company’s big milestone and the future of crowdfunding.

(This interview has been edited for length and clarity.)

When you took the role of CEO in 2019, what changes did you feel like you needed to implement?

I’d really like to touch on the connection that I’ve always felt with Kickstarter. It, for me personally, is a place where I feel like both my personal passion and what we do on a day-to-day basis came together really well. At one of the first all-hands when I got hired, I said what’s beautiful about the job that I get to do is that every evening I go home and I illustrate. And so I get to feel the hard pain, a lot of the insecurity and the uncertainty that comes with being a creator.

“I see crowdfunding as probably one of the best mechanisms to go independently and create the thing that you want and to find the support that you need and the resources that you need.”

I come in every morning and I say, “OK, how am I going to fix that? What can I do to make that process better, make that easier?” And so that for me was just this underlying motivation. This is what gets me out of bed in the morning. The thought to me was, “What are the ways in which we have the greatest strength in helping creators find the funding that they need?”

I think one of the greatest opportunities that I really see is that the backers are such an incredible part of this puzzle, and for us, for the longest time we really focused on the creator tools and really making sure that the creators have a way to share their project. What we’ve seen is that backers are such a tremendous part of this process and their ability to discover the joy, the fun, the curiosity that they feel through that process is such an important part of the experience as well. And so here’s a place where we can actually put some focus and some time and attention on what the backer experience looks like. And so that really has been a big mantra for me as we’ve been moving forward.

What does it mean to impact the backer experience? In the past two years, how has the backer experience changed?

One is just making it simpler and easier for backers to find projects that they would care about. And I think us being just a space where this stuff exists, I think just putting it out there as it is on a home page or through the creator that you know isn’t enough. And so there are a lot of channels that we’ve been using, particularly thinking about our emails and newsletters and these points of connection that we have with the backer over the course of their journey and actually introducing projects that they might like through that process. So we have a recommendation engine that we’ve been developing over the last few years that’s meant to help connect, make better connections based on either affinity, which you might like, or the way that you backed in the past or projects that you might’ve watched.

Early last year, Kickstarter went through a fairly large round of layoffs — 40%, according to reports. How did the company navigate the earliest days of the pandemic and what do you feel you’ve done to help right that ship?

What we saw in our platform was that creators just kind of off the bat had the same level of uncertainty everybody else was feeling. We saw a slowdown of projects and what we saw was about 40% of our pledge volume dipping. And as a result, there’s a lot of projects that fell off as a result of that. There were some very, very concerning times. The big thing that we thought about was, we need to make sure that our business is resilient for the future, make sure that we’re actually just set up operationally in a way that we can withstand uncertainty as it comes. Through that really tough time and then, kind of peeking out toward the end of 2020, the backers didn’t change their pattern of behavior. Even though creators were launching fewer projects during that really difficult time, what we saw was that the backers remained extremely eager to keep pushing forward and supporting creative work.

So things like our pledge rates and success rates remained quite high and that’s especially if you think about the games community, comics, publishing a number of these spaces where we’ve always seen strong engagement. That engagement actually continued through. About four or five months after that initial dip, we slowly started to see some of the creators come back online, because I think they also started to recognize that the backers are there. They haven’t changed their backing patterns. And so what that did for us is that started to give us a bit of understanding here that we should start to connect back to the creators and let them know that the backers are here.

Pro tips from the team behind Kickstarter’s most funded app

Here at memoryOS, we have a saying we repeat often: “Most of the Kickstarter happens before the actual Kickstarter.”

Preparation is the key. But even if you understand that most of the work is done in advance, you should still prepare yourself for some sleepless nights after the launch date. The usual startup mantra will apply to your crowdfunding campaign just as well: Measure, analyze and adjust along the way.

As you may know, crowdfunding fits some B2C products better than it does others. So to give you our product context here, memoryOS is a gamified app that teaches memorization skills with the help of virtual mind palaces and interactive microlessons taught by our co-founder, two-time World Memory Champion, Jonas von Essen.

Before becoming the most funded app on Kickstarter and getting it 6,400% funded (and carrying it further to the Indiegogo platform right after), we spent countless hours researching down the rabbit hole of crowdfunding tips and tricks. We also had calls with several top-tier crowdfunding project creators who were kind enough to answer our questions and share bits of knowledge from their experience.

We’re sharing our approach (and secrets) to building a successful crowdfunding campaign because we know just how tough it can be to launch your own product. So here is a complete 10-step guide:

Find a unique idea

You should have a unique idea for a product that would solve at least one problem for your target audience. The proven approach is to set two major hypotheses right at the start and then work on getting them tested:

  1. Does your product work and solve the problem as intended, and is it better than what’s out there? This is usually referred to as the “proof of concept” stage.
  2. Are there enough people who are willing to pay for your product for you to build a sustainable business?

You will need to build a base prototype to test the first hypothesis and, if it works, you can then work on turning it into an MVP or a short demo version for your future commercial product. You can then get people to test it for free and prepay for the full version.

Getting people to actually back their interest with their wallet means you already have customers, not merely enthusiasts, and it significantly increases the chances of a successful project.

Yes, it’s important that you get people to pay a minimum reservation deposit at this point and receive their commitment to pay the remaining amount for the full product later on. Getting people to actually back their interest with their wallet means you already have customers, not merely enthusiasts, and it significantly increases the chances of a successful project.

Get user feedback

As soon as you have something to test, conduct short surveys to better understand your customers by gathering and analyzing the reasons why and for what purpose(s) they would want your product.

Here at memoryOS, we called the first couple thousand of our leads and had many insightful conversations to help us connect to our audience on a more personal and emotional level.

Once you have a demo or prototype for the users to test, make sure to add a feedback form right at the end of their experience (or gather feedback using Google Forms for surveys, or via email inquiries).

5 innovative fundraising methods for emerging VCs and PEs

Approaching institutions to raise capital for your venture capital or private equity fund is relatively transparent, but what if you’re targeting family offices and high-net-worth individuals? I see five innovative new methods for raising capital that emerging managers such as Versatile VC are using, which I’ve ranked in roughly descending order of popularity:

  1. Join online communities and virtual conferences where investors participate.
  2. Use a platform that helps other investors access your fund.
  3. Generally solicit under the 506(c) designation.
  4. Launch a rolling fund.
  5. Crowdfund from retail investors into your general partnership.

Will Stringer, CEO of Chisos, feels most family offices won’t respond to cold outreach. “You need to build a true relationship with family office investors or other general partners that can make warm intros to family office decision-makers,” he says. “Family offices, more than any other allocator, rely on trust. [It’s] not always the case (and always changing), but today it’s still the majority.”

When you’re raising capital for a fund, you’re fundamentally selling a luxury good, which is seen as more valuable because it’s scarce. That’s part of the secret of the hedge fund industry’s success in gathering assets.

The obvious solution therefore is to get in touch with your friends who have earlier raised or pitched to the family offices. You may also find professional intermediaries who are willing to make an introduction to family offices.

That said, the five methods I outline below may be faster and more efficient.

Join online communities and virtual conferences where investors participate

To meet other VCs (some of which may become LPs), among your options are Confluence, Gen Z Mafia, InnovatorsRoom (European focus) and TechAviv (Israeli focus). To find others, see: How to find the right online communities. I maintain a proprietary database of the communities I’ve found most valuable, which I share with other members of the Versatile team.

These venues allow you to efficiently get in front of many pre-qualified investors and follow up with those who seem like a tight fit. Unsurprisingly, the best online communities are limited strictly to LPs. Ideally, you’d partner with an anchor/friendly LP who can pass the word on your fund to other potential investors.

In general, at virtual conferences, I recommend first fill out your online profile with all possible keywords and your photo. Side-channeling is powerful and is the equivalent of going into a corner at a conference and talking privately. Look up the profiles of all the people attending a conference or in an online community and send the relevant folks a customized message introducing yourself.

This is one of the primary advantages of virtual events versus traditional face-to-face conferences, where people do not conveniently wear a hat with their LinkedIn profile visible.

Chinese hardware makers turn to crowdfunding as they look to go global

China’s tech giants have had a rough time in Western markets over the last few years. Huawei and DJI have been hit by trade restrictions, while TikTok and WeChat are threatened with their apps being banned in the U.S. Overall, Chinese companies with an overseas footprint are increasingly wary of rising geopolitical tensions.

But at an event hosted by California-based crowdfunding platform Indiegogo for Chinese consumer product makers in Shenzhen, businesses from sizes ranging from a startup making portable power stations to 53-year-old home appliances behemoth Midea, listened attentively as Indiegogo’s China managers shed light on how to court Western consumers.

“The first stage is to let ourselves be heard by the world. We have done that,” Li Yongqin, general manager of Indiegogo China, exhorted a room of entrepreneurs. “Next, we will bravely ride the tide and accept the challenge of coming the brands loved by users around the world.”

For Midea, “crowdfunding gives us a very direct way to understand consumers,” said Chen Zhenrui, who oversees the group’s overseas e-commerce initiative. Platforms like Indiegogo and Kickstarter are ways for individuals and organizations to raise capital from a large number of people to fund a project. In most cases, backers get perks or rewards from the project they fund.

Midea raised $1.5 million last year for a new air conditioner unit launched on Indiegogo, an almost negligible amount compared to the 280 billion yuan ($42 billion) annual revenue it generated in 2019. But the support from its 3,600 backers on Indiegogo was more a proof of concept.

Within a few weeks, Midea learned that a compact air conditioner that saddles snugly on the window sill, blocks out noise and saves energy could entice many American consumers. Like other established Chinese home appliances makers, Midea had been exporting for several decades.

But “in the past, much of our overseas business was in the traditional, B2B export realm. I think we are still far from being a world-class brand,” said Chen.

When Midea first launched on Indiegogo, a user left comments on its campaign page calling the project a scam: How could a Fortune Global 500 company be on Indiegogo?

“Through rounds of communication, we got to know each other. That user gave us a big push,” Chen recalled, adding that Midea used a dozen of suggestions from Indiegogo backers to improve its product.

Li Yongqin, general manager of Indiegogo China, exhorted a room of entrepreneurs to develop brands loved by global users. Photo: TechCrunch

More and more traditional manufacturers from China are giving crowdfunding a shot. Padmate, based in the southern coastal city of Xiamen, built a new earbud brand called Pamu from its foundation as a white-label maker of sound systems.

Edison Shen, a director at Padmate, said that traditional export was getting harder as old-school distributors became squeezed by new retail channels like e-commerce. By creating their own brands and reaching consumers directly, factories could also improve profit margins. Padmate went on Indiegogo in 2018 and raised over $6.6 million in one of its wireless headphone campaigns.

Most of the projects on Indiegogo will go beyond the 9-million-backer crowdfunding site onto mainstream platforms, listing on Amazon as well as advertising on Google and Facebook. Though the core services of these American Big Tech firms aren’t available in China, they have all set up some form of operational presence in China, whether it’s stationing staff in the country like Amazon or working through local ad resellers like Facebook.

Indiegogo itself opened its China office in Shenzhen five years ago and has since seen China-based projects raise over $300 million through its platform, according to Lu Li, general manager for Indiegogo’s global strategy. China is now the company’s fastest-growing market and accounted for over 40% of the campaigns that raised over $1 million in 2020.

Kickstarter, a rival to Indiegogo, also saw a surge in projects from China, which reached a record $60.5 million in funding in 2020. The Brooklyn-based company recently began looking for a contractor in Shenzhen or the adjacent city Hong Kong to help it research the Chinese market.

“In recent years, more Chinese companies are getting the hang of crowdfunding and taking their brand global, so ‘blockbuster’ campaigns [from China] are also on the rise,” observed Li.

Equity crowdfunding is making the private markets public

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.

For this week’s deep dive, the Equity team brought on Gumroad CEO Sahil Lavingia and Hustle Fund General Partner Elizabeth Yin to talk about equity crowdfunding. It’s been about a week since the SEC increased the equity crowdfunding cap from $1.07 million to $5 million, creating the perfect opportunity to go beyond the dollar amount and understand how the change impacts founders, venture capitalists, retail investors, and future fund managers.

Here’s a brief rundown of the show:

  • We talk about the basics of this new SEC regulation, and understand which platforms might be leading the pack for these bootstrapped campaigns. Indiegogo’s founder wrote an op-ed grading the new regulations on the site.
  • Some banter on Gumroad’s 12-hour campaign that led to a successfully crowdsourced $5 million for the company. Lavingia talks about his decision to crowdfund a round in his company, why it made sense for the company, and what it will take to make this raise mainstream.
  • Of course, Yin shared a ton of helpful nuggets around crowdfunding, providing a venture capital perspective that was still bullish on growing the amount of check-writers in the ecosystem. Some recent equity crowdfunding campaigns have shown that there are thousands of individuals willing to fund the enterprises they want to see succeed. Juked.gg is one such example.
  • There are also notes on the Testing the Waters dynamic that could usher some wiggle room to early-stage founders thinking about this.
  • Will equity crowdfunding supplant venture capital, or will it merely augment it? Our discussion leads us to ponder both possibilities. What seems clear is that equity crowdfunding could widen the band of companies that are “backable,” if not the band of companies that traditional venture capital players find enticing.
  • And we end with a whole bunch of meta debates, from the role of the platform in vetting campaigns. As with every innovation, including crowdfunding itself, there will be fraud and failure. But if there will be enough bad news to limit consumer interest is far from certain.

This is one of those nerdy topics that gets us really excited about the future of dollar allocation and startup creation. We hope you love the show and leave with a better understanding of what’s ahead.

Equity drops every Monday at 7:00 a.m. PST, Wednesday, and Friday morning at 7:00 a.m. PST, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.

Gumroad wants to make equity crowdfunding mainstream

Gumroad, a startup that helps creators sell their work, is raising $6 million at a $100 million valuation. While $1 million of that total is reserved for AngelList co-founder Naval Ravikant and Basecamp founder Jason Fried, the remaining $5 million is being raised with a twist: anyone willing to fork over at least $100 bucks can invest in the round.

Founded by Sahil Lavingia, Gumroad is using a new SEC regulation, passed today, that increases the maximum amount of money that can be raised in an equity crowdfunding campaign. Now, investors and founders can raise up to $5 million per year from crowdfunding, up from $1.07 million the year prior.

The increase might not turn heads in a world of $90+ billion valuations, but Lavingia thinks the new rules could revitalize a path to raising capital for venture capitalists and founders alike. Unaccredited investors — whether its users, friends or non-accredited investors — could become the new limited partners.

“If this works, startup founders will start to be able to go direct more frequently,” Lavingia said.

Despite venture capital growing as an asset class, alternative ways to raise are becoming increasingly popular to help founders maintain ownership and to access capital.

Up until this point, Gumroad has raised more than $8 million from investors, including Kleiner Perkins, First Round, Max Levchin and SV Angel, as well as others, since 2011. But today marks what Lavingia views as a long-term shift in how Gumroad raises capital. If all goes well, Gumroad will continue raising via crowdfunding on an annual basis until it goes public.

Now that companies can raise $5 million per year through crowdfunding, platforms like WeFunder, StartEngine, SeedInvest and Republic, which Lavingia is using, have a better chance to shake up the modern fundraise.

So far, Gumroad has raised $3.4 million of its $5 million goal across commitments from 3,458 investors. Investors in the crowdfund include part-time creators on Gumroad, Lavingia’s Twitter followers, YouTubers, as well as Figma founder Dylan Field and partners from VC firms. In order to promote a diversity of investors, Gumroad has capped total investments from individuals at $1,000 for the first few days.

The startup is giving up 6% of ownership as part of the financing event, and the investors will only receive equity stakes once the SAFE note turns into a round. This process could take a year, Lavingia said. The conversion round to make it happen could be an IPO, acquisition or $10 million priced round. The priced round will likely happen next year through a Reg A round, the annual limit of which is $75 million, the founder said.

The SAFE’s cap is placed at a present-day 3.5x revenue multiple. In 2020, Gumroad brought in $9.2 million in net revenue, up 87% from the year prior, generating $1.08 million in net profit, up 286% from the year prior.

Background

The new, higher crowdfunding investing cap has some downsides, according to institutional investors. A simple one is that it is an administrative burden to give hundreds of people equity in your company for a small amount of money. Another issue, one investor told TechCrunch, is that institutional investors are sometimes experts in investment areas, which is helpful in a way hundreds of smaller investors might not be. Finally, the max of crowdfunding is still $5 million a year, so the method may be less effective for later-stage companies like, say, Stripe, which needs traditional investors to buy in.

Despite these concerns, the recent Gumroad raise is a continuation of two trends of which Lavingia has been on the forefront: building in public and the democratization of venture capital. He livestreams every Gumroad board meeting through Clubhouse and Zoom, and shares business metrics that most private companies decline to report, such as revenue and profit. (In fact, I knew about this plan to raise months ago after reading one of his newsletters.)

Readers will also remember that Lavingia was one of the first people to use the AngelList platform to create a rolling fund, which uses a 506(c) SEC regulation that allows investors to publicly solicit investments on an ongoing basis. The move was met with controversy at first, since venture capital funds have historically been raised behind closed doors.

“People were upset at the rolling fund, so imagine when they see that you are cutting out the whole industry [of venture capital],” Lavingia said, referring to a conversation he had with AngelList’s Ravikant.

One thing to be wary of, Lavingia says, is the Testing the Waters dynamic. Under Reg CF and A+, startups are able to differentiate between offering and selling securities. Offering simply allows a founder to “test the waters” and see if interest is there for a crowdfunded round. Despite this guardrail, commitments aren’t capital. For example, a startup could get $1 million in commitments but wind up only raising $100,000, Lavingia said. The conversion rate for intended buys versus actual buys could leave some founders in a thorny spot.

His way for combating this is to be obvious about red flags and transparent, which is already in line with Gumroad’s thesis.

“I preceded this fundraise with a blog post that I’m the only person who works on Gumroad as an employee,” he said. “I want to scare off anyone who is like this is weird [from investing].”

Other than Lavingia, Backstage Capital’s Arlan Hamilton has used Republic to crowdfund her firm’s operating fees. Hamilton made history earlier this month when she raised $1 million in eight hours for her fund. Today, she similarly opened up investments in her firm in light of the new cap and has already closed $2.4 million.

When Hamilton spoke about the raise at TC Sessions: Justice, she said she expects another asset class to be born because venture is a “broken” and “old” system.

“I’ll probably pivot Backstage, we’ll find ways and we’ve already started,” she said. “If you look at our raise we did in the Republic, it didn’t exist the way we wanted it to exist, this ability to go to the crowd as a fund.”

“The way it starts is not by a normal person doing it,” Lavingia said. “It’s by someone who is at the tip of the spear, someone who has an interesting angle, and then it gets sort of democratized over time.”

The fact that a founder turned part-time venture capitalist is using crowdfunding to raise money for his own company is a meta headache on its own. But the founder sees this as an opportunity to make crowdfunding mainstream and an attractive asset class.

Long-term, a public crowdfunding round in startups could be just a small drop in a startup’s financing pre-exit, but one that could empower thousands of normal people to own startup equity for the first time.

“I’m basically trying to become a private-market Chamath,” he said, referring to the billionaire behind Social Capital credited with the recent boom in popularity around SPACs. “I want to build a huge brand associated with investing in private equities, startups, and having an army of people that I can use and wield in different ways.”

Two new efforts push to help a wider pool of people invest directly in venture funds

Venture funds have historically counted on a few types of investors — or limited partners — for their investing capital. One of these groups is institutional investors — think pension funds, university endowments, hospital systems and the like. Another is corporations. A third bucket centers on the family offices of wealthy individuals.

It’s a fairly small universe, in other words, but two new initiatives, both announced this week and both very different, are looking to change the equation — and could usher in similar efforts soon.

Arlan Hamilton came out with her news first. Hamilton is the founder of Backstage Capital, a venture firm focused on investing in startups founded by people of color, women, and teams with members from the LGBTQ community. In short, diversity is at its very core. But Hamilton, who is herself Black, isn’t interested in funding diverse founders alone; she is also interested in enabling more people from diverse backgrounds — including socioeconomically — to invest in venture capital as an asset class.

Toward that end, earlier this week, on the private investing platform Republic, she opened a new fund that anyone — including unaccredited investors — could back under a Securities and Exchange Commission rule called Reg CF, or Regulation Crowdfunding.

Hamilton hit the upper boundary of what Reg CF allows an outfit to raise — $1,070,000 within a 12-month period — in what seemed like hours from 2,790 investors who were invited to invest as little as $100. But more could be coming. The reason why: that rule underwent a change in November under former SEC chair Jay Clayton, and will next month begin allowing outfits to crowdsource up to $5 million. The process could be slowed down by the incoming SEC chief. (President Biden has appointed former regulator and former Goldman partner Gary Gensler, who must now receive Senate confirmation.) If it’s not, however, it’s easy to imagine more unaccredited investors being invited to fund other, and larger, venture funds soon.

Opportunity knocking

A second initiative this week has similar objectives to Hamilton — bringing more diverse investors into the ranks of limited partners — though it has a different approach and it’s targeting accredited investors only, which basically means individuals who are earning $200,000 a year and/or have a net worth of $1 million or more.

Launched by Acrew Capital — a Palo Alto- and San Francisco-based early-stage venture spearheaded by veteran VC Theresia Gouw — the firm revealed yesterday that it’s currently raising a traditional growth-stage fund with a twist. In addition to giving its current limited partners a crack at investing in the new fund, it is also opening the vehicle up to more women, people of color, and underrepresented individuals who may not have had a chance historically to invest in a later-stage private vehicle.

The key here is Acrew’s emphasis on growth-stage investing. While more women and people of color are breaking into the ranks of seed-stage investing, it takes a long time to make money with early-stage funding. Meanwhile, growth-stage funds are more exclusive because the companies they back are closer to an “exit” typically. That makes them very appealing to institutions — including mutual funds and hedge funds — which leaves a lot of room for the kinds of individuals who Acrew hopes to bring into the fold.

Like Backstage, diversity is in DNA of Acrew, which Gouw cofounded with Laura Kolodny, Vishal Lugani and Mark Kraynak, colleagues from their previous fund, Aspect Ventures.

It’s little surprise that the firm — which says 88% of its overall team is female and 63% comes from underrepresented backgrounds —  would be the first to publicly focus on pulling more women and people of color who are angel investors, board members, and C-level execs into the world of later-stage deals.

But it’s also strategic on the part of Acrew, which focuses largely on fintech and cybersecurity, and which has stakes in the highly valued challenger bank Chime, and the big data security analytics company Exabeam, among many others.

As Kolodny explains it, a growing number of companies is focused on enhancing diversity in the board room, and having an LP base filled individuals from underrepresented groups (with highly vetted networks), works out well for everyone involved.

In fact, it’s an approach that they hope won’t distinguish the firm for long, says Kolodny. “Our hope is that five years from now, a venture firm helping companies to add diverse independent board members and diverse executives won’t be a unique strategy.”

The hope,” she adds, “is [this effort] gets people to embrace a new standard around what is what is expected of venture firms.”

Pictured above: the members of Acrew Capital who are part of its first growth fund, which it has dubbed its Diversity Capital Fund.

Robert Downey Jr. is launching a new ‘rolling’ venture fund to back sustainability startups

A little less than two years ago, when the actor, producer, and investor Robert Downey Jr. unveiled his new, sustainability focused initiative called the FootPrint Coalition at Amazon’s re:MARS conference it was little more than a static website and a subscription prompt.

Jump cut to today, and the firm now has five portfolio companies, a non-profit initiative, and is launching a rolling venture fund, Footprint Coalition Ventures, at the World Economic Forum’s Digital Davos event.

With the new rolling fund, managed through AngelList, Downey Jr.’s initiative sits the intersection of two of the biggest ideas reshaping the world economy — the democratization of access to capital and investment vehicles and the $10 trillion opportunity to decarbonize global industry.

It’s another arrow in the quiver for an institution that aims to combine storytelling, investing, and non-profit commitments to combat the world’s climate crisis.

Rolling funds and the revolution in finance

There’s a revolution happening in finance right now, whether it’s the rise of the Redittors trying to avenge the malfeasance of short-sellers and big institutional investors that’s happening through investments in stocks like Blockbuster, Nokia, Gamestop and AMC, or the new crowdfunding sources and rolling funds that are allowing regular investors to finance early stage companies, things on Wall Street are definitely changing.

And while the public market gambles are undoubtably minting some new millionaires, opening up access to interesting startup investments is a thesis that’s a stark contrast to the cynicism of day-trading gambles.

Both could leave investors with less than zero in some cases, but with rolling funds or crowdfunding, there’s a real opportunity to build something rather than just sticking it to the man.

Unlike traditional venture funds, rolling funds raise new capital commitments on a quarterly basis and invest as they go, hence the “rolling”. Investors come on for a minimum one-year commitment, and invest at a quarterly cadence. In Downey Jr.’s fund that commitment amounts to $5,000 per quarter for up to 2,000 qualified investors (and a smaller number of accredited ones), according to a person with knowledge of the firm’s plans.

“The idea of opening [the fund] to real people, rather than the ivory tower of the institutional bigwigs… It’s a little bit more slamdance than Sundance [and] I kind of dig it,” said Downey Jr.

A guide to recognizing FootPrint Coalition Ventures

FootPrint Coalition Ventures will be split between early and late stage investment funds and will be looking to make six investments per year in early stage companies and four later stage deals.

Helping Downey Jr. manage the operations are investors like Jonathan Schulthof, who previously founded LOOM Media, which leverages smart urban infrastructure for advertising, founded Motivate International, which manages bike sharing services in cities across the U.S., and served as a managing partner for Global Technology Investments. Schulthof is joined by Steve Levin, who co-founded Team Downey, Downey Jr.’s media production company and Downey Ventures, which invests in media and technology companies. 

The firm already has four companies in its portfolio through investments it made using the founders’ own capital. And while those investments were all under $1 million, the firm expects that the size of its commitments will grow as it raises additional cash. Footprint Coalition has also maintained pro-rata investment rights so that it can increase the size of its stake in businesses over time. And the investments it made to date were sized in anticipation of potential for follow-ons at much higher valuations.

A venture fund inside of a coalition

The initiative that Downey Jr. hopes to build is more than just an investment arm. Both he and his co-founders see the investment side as a single piece of a broader platform that leverages the massive social following Downey Jr. has created and the storytelling skills he and his team have mastered through decades spent working in the movie business.

That broader team includes Rachel Kropa, the former head of the CAA Foundation, who will lead scientific and philanthropic efforts and serve as the fund’s Impact Advisor and liaison to the scientific and research communities, according to a statement.

Rachel Kropa, former head of the CAA Foundation who joined Footprint Coalition to lead scientific and philanthropic efforts last year, will serve as the fund’s Impact Advisor and liaison to the scientific and research communities.

“The idea that the content that we made can be related back to the individual is very powerful,” said Kropa. “This problem is so intractable and interconnected across the world. It does matter that the fish that you eat are made using a sustainable feed.”

Kropa is referring to a piece that the FootPrint Coalition put out around sustainable aquaculture tied to the group’s recent investment in Ÿnsect, a company that makes protein from crickets for use in animal feed and human food.

“Our content around Cellular Agriculture, exemplifies the type of content we can create in the course of taking a deep dive into a particular industry. Though we have not (yet) invested in the space, we do believe there are interesting stories to tell,” said one person who works with the company.

That media is additive to activate the group’s audience, and is not something that it charges for — or considers part of its investment valuation. “We’ve been creating edited video segments with Robert doing voice over and overlaying animation all of which we’ve been posting to social. We do this for free to the companies, and we don’t charge / strong-arm / cajole for warrants, advisor shares, or the like in return,” the person said.

Weird science and sustainability

While Ÿnsect is one example of a company that the FootPrint Coalition has backed that’s doing something which may be a little outside of the purview of most of Downey Jr.’s following, other businesses like the bamboo toilet paper company, Cloud Paper, and the new investment in the sustainability focused financial services company, Aspiration, have definite direct consumer ties.

That balance is something that Schulthof said the firm was looking for as it pursues not just environmental and sustainability returns, but, more concretely, profit.

“We look at things that are meaningful and impactful [and] I get to be purely capitalist. The question is this a good opportunity is something that has to do with its margins, its scale, its risk profile, the people involved and fundamentally what are the terms… do we think the company will deliver value to investors,” said Schulthof. “We’re looking for returns.”

The opportunity for returns is enormous. As the group noted, the ESG sector – funds that focus on the Environmental, Social and Governance issues – continues to grow rapidly Part of the broader stakeholder capitalism movement, impact investing funds have topped $250 billion, and sustainability assets have doubled in value over the past three years.

“We see two powerful trends working together to support the environment. First, engaging content and media distribution enable us to create a passionate community from Robert’s 100 million followers and to use that audience to access great investments. Second, a turnkey technology platform now enables us to manage a broad set of individual investors,” said Schulthof in a statement. “Venture funds traditionally have high minimums that exclude only the wealthiest individuals, or endowments and foundations. With much lower minimums and shorter investment periods, we can now offer access to these same companies to a much broader group. When these investors further ignite our passionate audience, we hope to set a positive feedback loop in motion with environmental technologies as the ultimate beneficiary.”