This Week in Startups - Sahil Lavingia on Gumroad’s groundbreaking equity crowdfunding raise, lessons from a decade-long startup journey, insights on rolling funds & more | E1188

Episode Date: March 24, 2021

Check out Gumroad: https://gumroad.com FOLLOW Sahil: https://twitter.com/shl FOLLOW Jason: https://linktr.ee/calacanis

This week in startups is brought to you by Roman. Erectile dysfunction used to be tough to talk about, but now there's Roman. Go to get romans.com slash twist to get $15 off your first order of ED treatment, a free online visit, and free two-day shipping. Dell's precision and XPS product lines can bring your vision to life. They are masterfully crafted from premium materials like machined aluminum and carbon fiber. You can also sign up for a free IT.

consultation at launch.co slash Dell. And our crowd helps you invest early in pre-IPO companies alongside professional VCs. If you're interested in investing, you can join our crowd for free at OUR-CROWD.com slash twist. Hey, everybody, welcome to this week in startups. Very excited to have our next guest on. Who has made a lot of news. noise in the last year or two on Twitter, doing a number of different projects from a rolling fund, to buying out as investors, to dunking on everybody in every direction on Twitter.

Not via VC Braggs. Not VC Braggs. He's not VC Braggs, nor am I, but we do appreciate satire, I think. And his name is Sahil, Lavinga. Lavinga. Lvingia. Lavingia. Lavingia.

What's the origin of it? What's the origin of Lavinia? I'm just curious. I've never heard the name. Yeah, it's pretty unique. And I don't know exactly, but I think it means loving is like bean. And Ia is kind of short for like walla,

which means seller in Hindi. So I think it's like a person who sells beans or something. Or fireworks, apparently is the other one I heard, which sounds cooler. Lvingia. Yeah. So if you ever are thinking of a startup and you want to create a marketplace for fireworks, which might,

I mean, you can't buy fireworks online, can you? Yeah, that's a good, that's a good opportunity. Oh, my Lord, it's a great opportunity. So where to begin? You're an entrepreneur who then got into investing and then has recently, I think we should start with what's most recent and most interesting. Yeah. You have a startup, Gumroad.

And tell everybody what Gumroad does. Yeah, so Gumroad helps content creators sell digital products. directly to their audiences. So we help musician, designers, writers, filmmakers, photographers, all sorts of different types of creators sell digital products, online courses. Now we have a membership's product to sort of D to C. Got it. So if I wanted to sell my podcast or my blog posts or any number of items, photos, videos, whatever it is, a course, instead of just setting up a website and a stripe and a type form or whatever, you have that all in one pack. to manage easily.

Exactly. Exactly. And I guess there's review, which was bought by Twitter, does this for newsletters. Substack does it for newsletters. I'm trying to think of your contemporaries. Ghost, I guess, is a platform that does. Ghosts. Patreon, teachable.

It's a pretty busy, busy marketplace. Right. And how did this, you came up with this idea how many years ago? In 2011, I wanted to sell this pencil icon that I designed in Photoshop to my 2000 Twitter followers and it was just a pain to hook up all these things together and use PayPal and you know this is pre-stripe and so yeah that's that's kind of the origin of gum road so very interesting i remember you raised a bunch of money from krona perkins and the business correct me if i'm wrong it kind of stuttered or didn't get traction in the early days and then it had a

couple of bumps in the road yeah so we yeah we raised the money and you know it was a hot deal so We raised our A sort of pre-product market fit. Wow. We raised sort of seven or eight million bucks and spent, you know, it was just me at the time. So it was like, you know, we had three or four years worth of runway before we had to go out and raise. And I thought everything was great. We were growing. I mean, we were definitely up into the right, you know. But up into the right is not enough for most VCs.

I thought up to the right was the idea here. Up into the right not fast enough? Yeah. not compounding month over month, more like, you know, growing 60, 80% year over year, you know, three years in. So you were slow growth in our industry. Generally in our industry, you're an investor now. People are looking for in the early stages two or three X year over year.

Yeah, exactly. And you were behind that, but you weren't not growing, so that's a good thing. And then a lot of activity started many years after you started this process. and I guess maybe you were early, if we just say you were early? Yeah, I think we were early to a degree. Like, I think the creator economy, especially with COVID,

has seen a huge uptick just generally. So, you know, we wouldn't have been able to raise at this price, like even a year ago, right? Like, I think it is really this kind of new macro, a lot of macro shifts that have happened. Yeah, I think it's mostly we were early and mostly, like, I didn't understand,

like, I didn't do enough market reach. I didn't really understand, like, how early it was and how small the market was and how, you know, like the LTV of a creator is very different from the LTV of a startup, right? And so I saw Stripe and I was like, oh, we're going to be like Stripe for this new market. But that new market was, you know, absolutely tiny. And still is, you know, even today, it still is very, very small. And I hope that it's early days, you know, for it. And just recently, like at the taping of this 48 hours before I think we started taping this episode, you on Republic.co, which is an equity crowdfunding site,

launched one of the first $5 million equity crowdfundings, because as part of the SEC's, it's that the Jobs Act, they did crowdfunding regulations, and they expanded it. It used to be you could raise up to a million a year, but now it's gone up to $5 million a year. Is this the first time you've done an equity crowdfunding raise? Yeah, yeah, it is.

Tell us about the process. Why did you choose to do this as opposed to going to VCs? And then how did it go? Yeah, I mean, you know, I think Gumbrid is a great business that's growing. You know, we grew 97% I think last year, 87% or something last year because of, you know, in large part due to COVID. And so I think we have a great business. It's just still not venture capital scale in my view.

And we're profitable. We made a million bucks in profit last year. So yeah, I just thought it would be nice to have a little bit more money. but I don't need to raise money from VCs. And I have sort of built a lot of this stuff out in the open in the last few years ever since I wrote that post on failing to build a billion dollar company. And I just thought it fit very much in line with what I care about, which is like, and a lot of what you care about, right, which is like democratizing the ability to invest

in early stage tech companies. And I just felt like I'm a VC now with a rolling fund. I have a startup that I run too. Like I'm well positioned for this. And so when I saw that the reg CF changes were happening to increase the limit to $5 million on yesterday on March 15th, 2021, I was like, cool, let's do it. Like, let's do it. The minute it goes live, it makes, you know, let's start it off with a bang. And I hope, you know, I hope it continues to grow and there are a lot more companies.

But, you know, to your point of like the process of doing it, it's like putting up a Kickstarter campaign except you have to get audited by a bunch of people. And the auditing basically just means accountants come in, lawyers come in, and they, you. just fine tooth comb, make sure that almost like a public offering, because we did one for inside.com, which is actually I realized we're living parallel lives. I'm doing inside.com. We have a content company. You have a rolling fund. I have a regular fund. I have the syndicate.com, the largest angel syndicate in the world, and you are now doing equity crowdfunding. So we, you don't have a syndicate, though. You didn't start a syndicate. No, I don't have a second. Well, and it is interesting to be on both sides of the table. What have you

learned now and what do you appreciate about being on both sides of the table that you didn't appreciate when you were just a founder and weren't actually writing checks? I definitely think similar to you. I think being a founder turned VC is generally like, you know, you have a lot. I think, I think, I think, generally have less empathy for the, for the founders, just because the job of a founder is just like, I think way more brutal and multi-dimensional. I mean, is there anything brutal about being an investor? To be honest, no. Like, I mean, I'll be honest, no. I mean, like, the most, most brutal day is like, ah, I put a bunch of money of other people's money to that company. I put my name on the line, and they totally dropped the ball.

And I guess I look bad. Like, that's kind of the worst day, right? Yeah. Is you kind of lose credibility because you made a bet that didn't pay off. But that's kind of like losing a hand to poker in a poker tournament. It's like, well, there's other tournaments and there's other hands, and you didn't lose your whole chip stack. So keep playing the game. Yeah.

Yeah. Yeah. Being a founder is like, you know, going all in. You have one hand. Like you hope that it works out for you every three years. In the pot. It's like, I just shoved my entire net worth into the pot. Please let these aces hold up.

Yeah. And, you know, raising a Series A with, you know, pre-product market fit is like, you know, doing that. Without looking out one card. You're like, oh, a king. Hmm. Wonder what the other card is. Oh, deuce. That's helpful.

Not suited. Fuck. I really need two kings or two deuses here. Please. Yeah. So you hit, let's talk about the scar tissue you have because you've been super honest about it. It's like one of the things that I was like watching you on Twitter. I was like, this guy is really noisy and maybe on the margins annoying.

And I was like, oh, wait a second. That's the definition of my career. I was like, but he's getting a lot of shit done. So we've got to get this guy on the pod. And I need to know everything. So let's go right to it. Klein and Perkins put all this money in. I'm not insulting you.

I'm appreciating you. It's like the same thing. It's the same criticism for me. They're like, this guy's just making it. Who's this bastard guy Jason Gallicat is doing like 100 projects, you know, a month? And it's like, I'm just trying to get something to stick. I'll be totally honest. I'm just trying over here to have something I throw at the wall not fall straight down.

It can be awkward or embarrassing to talk about erectile dysfunction ED. Usually we just brush it off. Maybe we blame ourselves. But Roman is here to get the advice you want and to help you know. need with no shame. With Roman, you can get a free online evaluation and ongoing care for ED, all from the comfort and privacy of your own home. A healthcare professional will work with you to find the best treatment plan, and if medication is appropriate, Roman will ship you real medicine with free two-day shipping. The whole process is super straightforward. It's simple,

and importantly, it's discreet. Nobody knows what you're getting. It comes in a nice concealed package. So erectile dysfunction used to be tough to talk about, but now there's Roman. And getting started is so simple. Just go to get roman.com slash twist, and you will get $15 off your first order of ED treatment, a free online visit, and free two-day shipping. That's get roman.com slash twist for $15 off your first order of ED treatment, a free online visit, and free two-day shipping. Get Roman.com slash twist.

Thanks again to Roman. supporting this week in startups. So let's talk about the Kleiner relationship, because you detail this. Clinder puts this money in, pre-product market fit. Always a bad idea to put a lot of money into a company before product market fit, because why? Because, you know, you're committed for the next at least five years of your life, and you can't really change, you know, people say what,

raising venture is like putting, you know, gasoline, on a fire or something, right? Like, you don't really want to, you don't, or maybe like, a rocket chip or whatever, right? You don't want to, like, point that in the wrong direction and then, like, two years later. But you kind of have to. When you raise that capital, it's very difficult.

Like, people say, you know, you can raise more and just not spend it. But that's very difficult. It's very hard not to spend money if it's right there. And you have a team that wants, you know, there's a lot of people who want this thing to work. And if you don't signal to everybody that you just raise from Kleiner and things are working, like you're you're kind of like it becomes a self-fulfilling prophecy of it not working so you just kind of have to go into it and you basically see a wall in front of you and you're like I hope I

make it you know like I hope I go fast you don't slow down you go faster right in a way it's like trying to take off you know a pretty big plane on a very short runway you're like well we got to hit the throttle and we uh let's hope for the best but you only most products don't get product market fit so it is a much better alternative to put in 500 K or $2 million, let the founder get to product market fit, get to 10K, 20K, 30K a month, and then give them the next tranche. That's what you do as an angel investor now, or an early stage investor, right? Exactly.

Yeah, you give them $100K, $250K,000, and they have a year to figure out if this thing that they're building has legs and then you can raise more capital. And yeah, I think looking back, I think I was just so new to Silicon Valley and I just wanted that credibility and that kind of stamp of approval. It is a big deal, right? Like, it's, that approval means something. I agree with you. When I had Sequoia back me, I was like, whoa, I've arrived.

And other people said that to me, whoa, you've arrived. It really, I mean, you know, it's easy to sometimes, like, think that I'm a hypocrite because I'm, like, telling people not to raise money, but I've gained so much value from raising money, right? And I think you're totally right. Like, the truth is, like, people do care. Like, people, you know, Sequoia is putting real skin in the game. They have a reputation.

Like, they don't do these deals very frequently. And it does mean something. And it means something to your employees. It means something to your customers. It means something to your to press. It means something to future investors. Like it really does. It can really, really matter.

Right. And so when you have that opportunity, you know, like when Kleiner sort of gave us the term sheet, we got another one from Index, you know, it was kind of like so few people ever get this opportunity. Like I have to take, you don't even think about it because you're like, this is such a rare thing. And I'm like, I was 19, I think at the time. And I was like, wow. I can, I can lock this thing down and, you know, and, uh, that's a big deal, dude, to,

to get that level of venture firm, you're, you're absolutely correct that that's like being 19 and they're like, would you, here, would you like to play Batman or Superman? You know, you're like, uh, okay, well, those are career defining, you know, roles. I, I'll take Batman. You know, like, what are you to do? You have to take the role. It's just too big of an opportunity. And then you started running out of money at some point. And you did this. You're now sitting there as a 23-year-old founder. No, now I'm 20.

Oh, no, back then. Yeah. I was 22. Yeah, 22, I think, at the time. You're 22. You're staying up at night, staring at the ceiling. You got that thing in the bottom of your stomach. Like, oh, my God, I took the role of Batman, and this film's going to suck.

And I'm running out of money. Did you have that, like, disastrous feeling? Yeah, I remember the first. I was so naive. I went into, you know, I had some VCs that I considered friends. And so those are the first people I talked to when I was thinking about the series B, you know, in 2015, late 2014. And I remember the first meeting I was in Kupa Cafe with John Lilly from Greylock. And he was looking at the deck.

And he's like, amazing product, amazing team. You're fucked. Like, you're going to, he didn't say it exactly like that. But, you know, he was like, you're going to have a heart. How exactly were you? How, what was his explanation to you of why you were? completely aft. It was just like the, you know, Josh Coplman has this quote, there's nothing like,

you know, numbers to fuck up a good story, right? And I think I just had, there was just too much data that showed that Gumrod was not working. It was like not going to, you know, if you have a three or four year old company with a bunch of people, you've shipped a ton of product. And every, everything else is working. So, you know, like, it seems it should have worked that it just like the market was just not there. And, you know, we, we, I think we grew like, you know, 60% in 2014 or something. And

it was just like, you're not like, what would you need to clear a market in your mind, do you think? I need at least 2x. At least 2x, yeah. And probably, frankly, probably more, because we had done the A from Kleiner and it had been three years since that round. And so the B would have had, you know, the B would have had to have been like a kind of an, you know, an interesting kind of thing. I think we have three, three X is probably closer to what it should have been, because we weren't even at, I think, like a million A or R at that point, right? Like, it was early in the life of the company. It turns out.

I didn't know it at the time. I thought it was near the end of it. But luckily, things worked out. So you wind up signing a fateful bridge round with Kleiner. Yeah. Yeah. Yeah. We, you know, I went back to Kleiner and I was like, this looks difficult, you know,

and I frankly wish that Kleiner had given me a heads up that this, you know, I thought they would have known this sort of thing before, but I guess they have a lot of investments. But yeah, they gave us a bridge round. They said, you know, like, you don't have to let anyone go. Like, just like take this money. It was $2 million at a 4x preference. Gives, you know, gave me a year with the team. And I told the team this too.

Forex preference means they get $8 million back before that converts into equity. So they're guaranteed to get four times their money back in any sale. Company sells for $8 million. They get that first $8 million. Yeah, exactly right. So we had raised with the bridge and everything at that point a little over $10 million, but we would have had to have sold for at least 16.5, I believe, to have, you know, for any common stockholders to kind of get anything, anything.

And this is where the details of funding rounds really matter. And those liquidation preferences are generally a signal that the VC wants to protect downside. And they actually don't happen all that often in the last decade because they'd rather you'd just shut the company down, correct? Yeah, no, I think I think you're right. Like when you start getting into bad terms, it's not even worth it, right? Like at some point it becomes a, and I don't know why Kleiner did it.

I'm grateful that they did, but like it sort of becomes a self-fulfilling prophecy. Like once you have something like that on your cap table, unless you really, you know, there's a miracle in the next six months or so. Yep. You know, it was not going to ever work. And I should have, in hindsight, should have said, you know, maybe we'll do. a million dollar bridge, but we need to like, you know, like let half the company go and give us, you know, two to three years more, like, you know, nine months to figure this thing out.

Clean terms, you probably learn now are the goal for a reason, right? Because you just said, it kind of screws up future fundraisings to have some funky four-x liquidation preference on the cap table. It does. And I think, you know, as an investor, I'm grateful for that experience because I tell founders this all the time. And I'm like, I'll pass on, you know, I'll pass on a company that's giving me amazing terms because I'm like, these are too good. Like, you're going to,

you're taking this. Like, this is short term, you're, you know, or it's too good for the, for me, right? It's like 40% dilution at a seed round.

And I'm like, look, you're, this is going to make your life very, very, very, very difficult. Uh, you don't see it yet. But when,

when, when thing, and certainly a lot of this stuff doesn't matter if you're a clubhouse, right? But like, most companies are not. No. And,

uh, you got, it's just, I think, when you're in it, you're like, you just kind of start to believe that a little bit too much. You know, I was 19, had raised $8 million from Kleiner and Nival and Max Levechin. And I was, you know, I was like, I have a shot at this. Tell me, so the company then buys out Kleiner or Kleiner gives you the company back?

How did that go down? Yeah. It's kind of a dream, isn't it? It is. Frankly, I mean, it's, it is. What happened was, so we did the bridge. we tried to make it work. You know, I spent nine months

like pitching the company. I think I met with 150 different VCs because it turns out when Kleiner lead your A, like every firm will take the meeting even though they don't plan on doing the round, right? So I just had so many meetings that went nowhere. But.

Fools gold, right? It's like you, it's fools gold. Yeah, you have been anointed. It doesn't matter if you're 90% of the way there, right? You've been anointed in Silicon Valley so people are like, oh, maybe that is the next Google since Kleiner did. Google series A.

So I have no choice. I had the same thing happened to me with Mahalo, which then became inside. After the Sequoia announcement, my phone just went off the crazy. And there's a group of VCs who follow, you know,

Kleiner in their heyday. And then everybody, you know, and then my series B went through like, boop. I raised a $16 million series B at $100 million dollar valuation before we launched the product. It was crazy.

That's crazy. That is crazy. And yeah, I mean, we, you know, so we did this, this round of layoffs in October or so of 2015 after trying for nine months to raise money and failing. And then we went to from 20 to 5 and then 5 to 1. And I just basically ran it like a lifestyle business, I guess,

for years, for at least a couple of years, would hire contractors back, you know, to fix bugs, hire to support person. But everyone kind of just like consulting for the company. You went into cockroach mode. It was, yeah, it was it was cockroach mode for at least a couple of years. I moved to Provo, Utah from San Francisco and learned to, I was basically oil,

like full time and then I would you know kind of check in on Slack every once in a while and you mean literally oil oil painting is not a metaphor in this case yeah in this case I yeah I was like what's the opposite of a hypergrowth high scale technology startup like oil painting traditional oil painting really uh yeah that's fascinating what did you paint landscapes landscapes yeah I would literally just go out see a barn and paint the barn and then how long did it take you to decompress from the stress of those five years or so. I would say, I mean, I really think that when I published that failure post reflecting on my failure to build a billion dollar company, that was February 2019, that is roughly how long

it took. Wow. And it not only took the time, but it took the distance, you know, because I was an SF from 2015 to 2017, so I was still there. But when you're an SF, like, with a, you know, like as a sort of quote-unquote failure, like, you're just, what I'm like, and it's not to anyone. It's, you know, it's not malice, but it's like, why are you here? Right.

It's like going to a party and being married and your people are like, what are you, you know, you don't really need to be here. Yeah. You're married. You get kids at home. What are you doing here? You're at spring break. You're spending four grand a month, like, living in SF for like, you know, no reason.

Like, so I, yeah, it was the distance. I think it was hanging out with people who like didn't care about startups at all that really helped me, I think, realized like, oh, maybe I shouldn't either, you know. Ah. So you were able to put things in context, the success. the success, the failure, the ups, the downs. And then at some point I see you pop up with his new device that Angelus comes out with called a rolling venture fund that my understanding is David Sacks and Naval came up with this concept

David Sacks, Bestie from the All-Land podcast, and who's on the board of Angelist. And so tell me what is a rolling fund. When did they contact you about it? and when did you decide, hey, I should be a venture capitalist, and I totally failed and got my ass kicked and had to go paid. Worked out for Jason. Yeah, worked out for that kid. Might as well.

I went there slightly different route. I took the scouts route. But yeah, chipping. We call that in poker, chip in a chair. You know, you have that chip. You know the story, chip in a chair, right? No, I don't. I don't.

Oh, it's a famous poker situation where this guy made a bet. he thought he was going all in. And so let's say he had $10,000 in chips. So he takes the $9,000 in chips, and he bets it. But he assumed he went all in. He didn't see the chip that was wedged under the table. It was out of his view. The other people could see it.

He puts the $9,000 in. The hand plays out. He loses. He gets up. And then a person points. He goes, you still have a chip. He takes a $1,000 chip out. He throws it out.

He wins the hand. Now he's got $2,000. And he wins, you know, the hand. and he, two people had called him or whatever, he wins $3,000. And he's like, well, you know, this is meaningless in this tournament. The average snack is, you know, whatever, $20,000. So it just, you know, waits a hand or two,

and he just throws the $3,000 and he doubles up again or triples up again. And then he winds up making it to the final table and, of course, winning the tournament. Chip in a chair. You're never out of the game if you have one chip, right? And that is just so important for people to realize because you are the manifestation of chip in a chair,

which we'll get to in a minute. How can Dell's precision or XPS line of amazing computers bring your vision to life? Well, whether you're a creative enthusiast or you're a professional, find out which brand is right for you. XPS and precision products are masterfully crafted from premium materials like machined aluminum and carbon fiber. They're just stunning. And they deliver the perfect balance of size, weight, and durability, because we're all going to be getting on the road again. I can't wait. So, explore how far your passions can go with Dell laptops, desktops, and workstations that are optimized for your creative endeavors.

And everybody's getting in on creative work. Everybody's making videos now, logos, design, and as the world's number one monitor company, I didn't even know that, Dell has the perfect monitor for you. I am using right now this gorgeous, I think it's 49 or 50 inch Dell monitor. It is stunning. Beautiful widescreen monitors change everything. and they come curved now, so they look really great. And they'll elevate your creative vision with 4K, 8K, HDR,

and of course my favorite, the really beautiful curved displays that have a wider gamut of all of the premier colors that you want to see. So Dell for Entrepreneurs is here to help with any IT projects you have. Go to launch.com slash Dell and sign up for a free start IT consultation. Thanks again to Dell for sponsoring this week in startups. you gumrow just chugs along while you're painting oil. I know you do the rolling phones. We'll talk about that a minute.

But to dovetail with where we started, at some point the business starts growing again. When does it support? Or did it just always grow 60% and then you wake up one day with a $5 million business? What happened was, so we grew around 60% in 2015, 2016 or whatever it was. In 2017, you know, this is like we had no blog.

no Twitter. Like, you know, it was all inactive. And the test was like, will this keep going, right? Like, should, like, let's just see if it keeps going. If it keeps going for, it would have to be a long time. But, like, I don't need to shut this down preemptively, right? Like, I can just let it, let it do its thing. And in 2017, we grew 15% year over year.

In 2018, I started hiring a couple folks and shipping features again and fixing bugs. We grew 25%. In 2019, we grew 40%. And in 2020, we grew, I believe it ended up being 87%. Wow. So you almost got your double up and now you're sitting on a business that's doing... Nine years in. Well, I mean, it is really chipping a chair.

You know, you thought you're out of it. And then it starts every year doubling or tripling or, you know, whatever. Every two years doubling or tripling is basically what's happening here. You know, all of a sudden you break in 2020, $10 million in volume a month, right? And then you make, what do you get 30% of every transaction or 20% of other transaction? We take a lot less. So we take 7%, but still depends. We're at 10 million.

We're actually at 12 million now annualized revenue. Is that the 7% or is that the top line? That's the 7% so that the, oh, wow. Top line is around 180 or so million a year now annualized. What are people buying $180 million with? What's the top two or three customers products, things being sold? I'm curious.

Well, it's all, you know, it's all a plurality, right? Like there's no majority. there's there's like education software like people learning how to code people learning design videos youtube stuff like there's like ebooks documentaries uh comics it's all over the place which is kind of why i think gumbride is yeah did you win because you had the lowest take rate because i know patreon was at 10% and they tried to go to 15 and the audience went crazy i know substacks at 10 i'm trying i don't ghost charges sass fees i'm thinking about moving the launch ticket to ghost to just you know, because they have a newsletter slash, you know, stuff.

It's a good idea. I've heard really good things about Ghost. Yeah. But that's just, like, I think, for newsletters. So did you win by lowering that take rate and then people just picked you because it's got all the same features and it's good, but it's 30% less or, you know, depending, maybe even two there is less. Yeah, I think that's a big part.

And, you know, definitely the advice VCs will tell you is don't compete on price. Right. Like, that's dangerous. But, but we did. And it, you know, we made it up in volume per se, right? Like, it took us a long time to make it interesting, but we finally got there. I did say the other thing is like we, I've always been focused, probably too focused if you care really about growth on just like tiny creators, like helping people get start,

like the on ramp of the creator economy. Like what's the easiest way to sell a PDF on the internet to your Twitter followers? Then you can worry, if it works, you can worry about all the other stuff. And frankly, like a lot of people turn, like a lot of people graduate to some of these other products and platforms because they have a lot more functionality. I hoped over the next couple of years to play catch up. We're kind of playing catch up, right? We have a couple of years to get out of the hole in terms of tech debt and stuff.

What happened with Kleiner? They just gave you the company back for a dollar? Or you buy their shares back for a dollar so they can take the loss against all their gains, phenomenal gains they had us a firm? Yeah. In 2017, I told Kleiner, I emailed all our investors. One thing I had done this whole time is I was just updating my investors. Like, I'm moving to Provo and learning oil painting. I need a break.

And everyone's like, cool, whatever. Go have at it, whatever. And so I email Kleiner. I want to open source this whole thing. Like, it's not going to be a significant business. We worked really hard. Like, why not just give it away and see what happens? Like, WordPress style, right?

And they were like, you know, like, this is weird, but like, you know, you can do whatever you want, but like we still own IP. Like, it was a conversation where I kind of was trying to get them to say, let's just write it off. Yeah. And they said no. And then months later, I get an email from them out of the blue. I put that email in that failure post.

It's just like, it's literally just that one line. it's like, you know, we want to buy back the shares for a dollar. You know, do you want to talk about that? And I was like, or sell, sorry, sell the shares, right? And I was like, yeah. I was, I mean, like, I literally was on the phone. I was like, what's the catch? I mean, like, you invested seven or eight million bucks.

Like, why are you selling it back for a dollar? I never really got an answer. Well, you know, the tax write off. It's a tax right off. Because if they have this loss, like, let's say they had slack or something and they made a billion dollars in Slack. Now they've got seven million in losses that they can take against that. You know, and that's how tax works.

So they're kind of, if you're a good fund like that, you basically are guaranteed on your downside to limit it to at least your tax right off that you'll be able to get out of it. I mean, imagine, and also it gives closure. Imagine you're sending, like for example, with Mahalo and Inside, now in the second decade, it hasn't had an outcome for folks, but it's doing well enough. And at some point, Sequoia has got,

close that fund because now we're in year 12 or 13 so it's like come on jkow hurry up and at some point they might say to me the same thing like hey here's a dollar let's just because we want to they want to wrap the fund and but now i think people are starting to get used to funds being maybe 15 or 20 years because you could have things that hang out there and then all of a sudden have an uptick and you know the founders who don't give up sometimes thrive and that's why i'm i'm big into resiliency and i have a lot respect for what you've done um so you buy it back they get the right off great everybody's cool And then you decide, you have all these folks who love the products. You decide you're going to do this equity crowdfunding thing.

Republic contacted you. You contacted them. How did it go down? Yeah. Well, the rolling funds kind of happened in between this. Sure. But we can get to that. But like, yeah, basically what happened is I was like, I think creators should just

own this thing like over time. And so I tweeted out in like last year, I think, or the year before last year, 2019. I said, you know, what's the right way to do this? Is it crypto? Is it LTSE? Is it something else? Like, you know, this is when Reg CF was still very new and you could only raise a million bucks. And I looked at it and it was just, it would basically cost, I think you did it, right?

It cost a significant amount of capital to just do the million dollar round. Like, if you can raise a million bucks from BCs for free off safes, like, that's a way better outcome. And so we had a conversation and we just never really did anything with it. And then when Gumroad started growing fast, faster in 2020 because of COVID. And I had this new audience from, you know, from kind of just tweeting about the failure stuff and all that. Like, I was like, this is perfect. I mean, we can, you know, we can take advantage of this jobs act, these new changes that are coming live and be the first and just kind of hopefully, I wouldn't say pioneer it because people have been doing it for a long

time, but be a really good case study, kind of like what I did with rolling funds, right? Like, I was able to kind of show people like what are the benefits of this product versus just like what are the technical specs right and so I think it I think that's kind of my goal with this crowdfunding around it in large part is just to make crowdfunding cool and like trying to make it a thing because I think it's important I think you agree like more people should be yeah I've been trying to get this going and it's so hard with the equity crowdfunding because there's a million dollar cap a lot of our founders are like well I'd rather just take a million or three million from a credit investment. from the syndicate have 150 people in one SPV rather than have a thousand or whatever it winds up being in a crowdfunding. And well, that's capped at a million. Well, you know, I don't want just a million. And then I have to do all this extra work to just get a million. So you're basically, this was the problem with the SEC's approach here, or the challenge.

I shouldn't say it's necessarily a problem, but it's a challenge because they're trying to balance protecting consumers while providing the opportunity. and every time you try to protect consumers, you create red tape, and you and I can go to Vegas right now with our entire net worth, you could put it on black, I can put it on red,

and then it comes out double green, we both lose everything. Nobody educated us. Nobody told us anything. We put down a million dollars each, and boom, gone. And no recourse. But if you want to put $500 or $5,000

or $50, whatever, into an equity crowdfunding, they have to be audited, they have to do all the stuff, And I understand why, but I think it should be, you know, my best advice to the SEC is to say, everybody gets to spend up to $5,000 a year on any product, any project, or whatever, and any company can do up to $5 million. And, you know, there doesn't have to be, you know, as much red tape or limitations, right?

just if you put the cap on the individual you could kind of keep the crater of if there was a fraud or if there was an action taken or you know anybody did something fugazi what would the what would the crater look like five million dollars or five thousand dollars per individual it's not actually the risk of ruin for most people people can recover for them in other words because no you're exactly right like just say you know you can it's five thousand or 10 percent of your net income you know whatever is your revenue you're Revenue for the year. Right.

Yeah. There's so many ways, frankly, to do it that it just, it needs to, it will happen. And, you know, it seems inevitable to me, but it will take. So how did it go? I didn't get the latest update, but you launched it on Monday of this week, March 14th or 15th or something? 15th, yeah, March 15th. Which is that Monday? And today is, is today, Tuesday?

Wait, you watched it yesterday. I launched it yesterday. Yeah, I launched it yesterday. At 9 a.m. PST. P-T. Okay, so new and Eastern time, nine Pacific. What does it look like at the end of day one? You know, when you had dinner. It was closed.

I'm sorry. Did you say closed? Yeah, it's $5 million. We raised. In the first day? In the first 12 hours, by 9. I'll be right back. I got to go raise another round for inside. I'll be right back. What the? Seriously, no, you should. Yeah, you should. I mean, it's incredible. I mean, this is why I'm telling you, man.

This is, it's insane. I mean, and the cool things we did it, you know, you have to do it. We did it in public. We raised $5 million. We sent updates by the hour on. Twitter and and to note we had a $1,000 maximum check size so we needed cool we had we ended up with seven I think it's gonna be around 7600 new investors on the cap table or via you know VN SPV but it's amazing I mean if we had a no no max check size and we could raise more than five million like who knows what would have happened I mean it's pretty insane do you ever wish you invested early in some of the best

performing IPOs of 2019 and 2020, well, our crowd investors did invest early in many of those awesome IPOs. With our crowd, accredited investors can invest directly and easily in startups early before they IPO or get bought. Our crowd investors have benefited from companies IPOing, like Beyond Meat and Lemonade, both of which have seen pretty great returns since they've gone public. And some of the companies have been acquired by buyers like Intel, Nike, Microsoft, Oracle, and Uber Yum Yum, the investment professionals at Our Crowd have already invested hundreds of millions of dollars in over 200 companies with dozens of exits. So here's your CTA, the old call to action. Today, you can join Our Crowd's investment in Shield, an AI-powered platform that helps global financial enterprises meet increasingly complex compliance rules.

According to the deal memo, Shield addresses an $89 billion market with tools that, automatically detect an alert on behaviors that lead to market abuse, employee misconduct, and information sharing. If you're in the finance space, you know all about this, right? You can get in early on Shield and other unique opportunities at R-Crowd.com slash twist. I recently wet my beak and I placed a little bet on Sciabra, a company that uses AI to uncover disinformation and expose fake news on social media. The R-C-R-C-R-O-W-D.com slash twist. Okay, let's get back to this amazing episode. So what was the total number of investors in it?

70s, I think it'll be around 7,600. Of those, how many were Gumroad stakeholders already? In other words, the users of Gumroad on either side of the transaction. And did you email that list and say, hey, you've bought assets or you use Gumroad. Would you like to invest? Yeah. So what I did was I emailed the Gumroad creators and I said, hey, I'm doing a, I do these open board meetings on YouTube. So I, I said, I'm doing an open board meeting. FYI, if you want to invest in Gumroad, like, you should show up to this, right? And, uh, and so I kind of, the SEC, you know, doesn't really like you doing this kind of thing. So like, so now it's actually allowed. So now, so that one of the changes that

happened Monday, which I think is really, really notable, maybe even more notable than the one to five change, uh, the one million to five million change is you can test the waters. So you can generally solicit, which actually, well, like fun. like very, very aligned in that front now, right? And so I think now founders can be, you, for example, can go tweet. You don't even have to do anything. You can just have a Google form. And it's like, hey, I'm thinking about doing this.

These are the rough terms I'm going to do. Are you in for how much? Do you need more info? You know, let's do a Zoom webinar. Ken from, Ken from Republican congratulated. Or maybe, hey, do me a favorite team. Can we book him to be on the show? And let's talk to him about this.

We'll chop it up. So now you have that $5 million. You raised it at $100 million valuation or something like that. Yeah, $100 million pre-money. Which is 10 times or so, 10 times your revenue ballpark? Yeah, yeah, around 8.5X it ended up being. Oh, 8.5X. Okay, so in today's market, which is hot, that would be kind of reasonable, right?

Yeah, I mean, to be honest, like, I can say this now that I'm not, the round's closed, so I'm no longer. pitching the company, it's cheap. It's very, very cheap. And the reason I chose it is because I really want crowdfunding to be a thing. And if I can show people, wow, these people got in at $100 million, really easy mental thing, right? Like if we become a unicorn, it's a 10x. And so I think it's just like a very clear story for folks to be like, oh, wow, like I could get in at this price. And I'd rather dilute myself a few more points, but then get these 7,600 people a really positive return. and many of them, as you mentioned, many of them are our creators, right?

So they're the reasons we even exist in the first place. And so, yeah, I think it was a good, it was a good price and it was anchored by Jason Freed from Basecamp and Naval Ravicon from Angelus and some other folks. So you lean on them, they put in 100, 250, 500 each, and that gets everybody, that gives you some social credibility, I guess. Yeah, exactly. I mean, it turns out we probably didn't need it.

but at the time, the concern that I had, and this is, it's, it's similar to how I think Jamath did it with Spax is he just tied his brand to it, right? And he, like, he just really put real skin in the game. And that's kind of what I want to do with, with these folks. Why is that so important? Skin in the game. Well, I think, I think it's important because there's so much money flying around right now. Like, it's just, it's just crazy. It's stupid. Let's be honest. And like, like, people are spending 69 million on an FTA. I mean, there's no, I'm not deriding the artist.

I'm super happy for the artist and I'm super happy for the buyer if they don't care about money where they want to reward an artist with $69 million. I know that was a collection of work but I mean, it is pretty stupid out there. Let's be honest.

There's been a lot of wealth creation recently, right? And that needs to get invested back into risk capital, which is effectively like what tech companies and crypto? And that's it. Apparently it's also non-funds. Oh, yeah, exactly.

tokens and, you know, Bitcoin and everything else. I mean, it's just crazy to think that somebody is buying the first tweet ever for $2.5 million, but I don't know exactly what you're buying. It's kind of like buying a baseball card, I guess. You don't have any rights. There's no way to monetize it except maybe to resell it. I'm interested to see, actually, that would be the ultimate test is if that $2.5 million tweet or that $69 million NFT sell ever again for anything.

related to the purchase price now? What is your guess? In 10 years, you think either of those could be sold for more than they were bought for? I think so. Yeah, I really do. What's your thesis? My thesis is, I mean, it's kind of paradoxical, I think, but like basically the value, the value of it is created by not selling it, but to actually get the value of it, you need to sell it. And it's also just how many people know about it, right? Like, why is the Monolisa worth what it's worth? It's because everybody knows what I can say that. And you know it would You know, it's, so I think it's a self-fulfilling prophecy. Like, if enough people care enough about this for long enough, it just like, by the way,

just like a startup, right? Like, just like reaching part of market. Well, I mean, a startup might also have profits that would then be dividends that would then you could buy it for future cash flow. Fair, fair. That's why I think these NFTs with the art, if the art could be, yeah, I mean, art is delightful anyway if you love it. And I think it's also a bit of a status game.

That's what my thinking is. I think the people are buying these, I believe they both. uncloaked themselves, they seem to be playing a status game where they're using their ability to purchase that, like somebody in a club who purchases 10 bottles of champagne and it comes on a float with sparklers is showing I can buy $10,000 with their champagne and I give you shit. It's, you know, then everybody wants to come to your table and have some of your $10,000 champagne, which actually costs 500. Yeah. It's, it's, you know, it's the fact that other people care about it, right? It's just, it is totally one.

100% a status game. So that is just very hard to predict, right? Because who knows, it's like fashion. Like, who knows where it goes versus with a, you know, if you're building a product, right, that has clear value. It's a little easier to predict that. And profits. And profits.

And exactly. And a chance that somebody might buy it down the road. I mean, there's still a chance that somebody might buy it down the road. What I'm interested in is, do you have the, when you buy that tweet, if I bought that tweet from Jack, could I then, could I then, if I bought that, tweet, make t-shirts and calendars and posters and license it to other people. Like, are you actually buying the underlying right to monetize it in perpetuity in all mediums and forms now created or in the future?

Well, the problem is you're combining two different worlds, right, where there's this crypto world, which is all code and all these non-fungible tokens and sort of everything is in software. And then you have, like, IP, which is, like, litigated in real life in, like, the U.S., you know, like, trademark system, right? Like, all the copyrighting, et cetera. Like, so I think you basically, I think what you need to do if that, if that, if you wanted that to happen, right? If you wanted that to work in a way that was, like, fair and everyone was bought into it, you would basically have to figure out how to replicate every single thing that we figured out in contract law or in IP protection. Which we have in music.

Yeah. I mean, if you think about it in terms of music, if you're Neil Yelliell. and you own, you don't own, you own the physical tapes when you, you know, recorded the album harvest or the Beatles have the, you know, white album. And they have the physical tapes. They own those tapes. They may have sold the rights for the royalties, for the mechanicals or the performance royalties to other people. So they own the rights to the masters to exploit them commercially, but you actually have the physical tapes that were in the recording studio. But you can't then make albums out of it or sell it to Pepsi for a commercial.

just to fill in the audience, the buyer of the $69 million NFT, which was done by the artist, Beeple, is that his name? Beeple was an Indian, apparently, an Indian crypto investor who has one name, Meta Coven, and he is the chief financier behind the MetaPers. I'm guessing MetaPers or some kind of wallet. This kid has $18,000. and followers on Twitter, and we'll get them on the pod. MetaPers is a crypto-exclusive fund that specializes in identifying early-stage projects

across blockchain, infrastructure, finance, art, unique, collectibles, and virtual state. So, as I predicted, this is a pump. Everything in this business is a pump. He is in the digital asset business, so he just anointed people. Who knows how many peoples he owns previously, or how many other NFTs he owned, or... He owns a lot of people. by the way, he owns almost all of them. Ah, so now we see what's happening.

This is exactly what people in the art market do. The art gallery goes to their best clients and says, hey, this new show is coming. There's 30 pieces. Here's 15 of them. You can buy it at this great price. If you buy them right now, great, thank you for the cash. Other 15 are there.

Then people bid up those last 15 in their scarcity. Then those people sell five of those paintings, triple their money, and they got the original 10 for free. and the gallery got to turn over the inventory twice and they got monetary velocity so they could take their vet. And it's all, and that's classic pumping and dumping.

Yeah, one thing to add to the, to the fine art example is then you give it to a gallery or a museum. And you get the tax right off. And then you get the tax right off too. And then you get the cliner dollar, you get the dollar email.

On the, on the value of this painting that it's been pumped, right? Exactly. You don't let it on what you bought it for. And so there is, there is a lot of, incentives here that I think are not necessarily good, but they will be replicated in NFT. It will just be, at least in that world, you should be able to see it all. It should be transparent,

right? So if it's happening, you should be able to see it. And then you can argue if it's right or wrong. But at least in the art, you know, at least it's more, I think, more sort of decentralized, right? Versus like, you wouldn't know in the art. Yeah, you wouldn't know the fine art galleries were running this kind of scam, or you wouldn't know what the things actually sold for, and here it's all in the blockchain. And I'm not sure in the BEEPLE example, but what I love about the BEEPLE example,

or the NFT example, is that you can set how much I get in the resale value. So I get 10% of the next one or the next one. So the artist has 10% ownership in their piece forever. So if that piece trades 20 more times in their lifetime, at increasing value, they've essentially, if they're getting 10% sold the entirety of the piece, piece two more times. They got to sell it essentially three times. Yeah, that is a very interesting

idea. Yeah. That is a very interesting idea. Like this idea that these royalties almost are baked into that, like into that transfer of ownership. That is really interesting. But, you know, yeah, who knows? NFTs are, yeah, it's, they're interesting. Well, you started with digital assets. So that's sort of interesting. I wonder how you're thinking about NFTing or blockchain income. Is that like in the back of your mind where you're like, I wonder if this is going to apply to courses. A little bit. Yeah.

Yeah, definitely. I mean, you know, definitely, you know, I'd listen to creators, right? And creators are very, very aware of NFTs because it's a way that they're seeing other creators make quite a lot of money. Yeah. Which isn't always good, you know, it depends how many people, what's the long tail look like, et cetera, et cetera. But I think it's very, it's very interesting.

I don't, we have no plans or, you know, no commits to kind of pursue this yet. but who knows it's so unpredictable I think if there's a real market for it and creators want it we'll build we'll build some way of maybe you can you can either sell nfts on gumroad or you can nfti the products you've already sold on gumroad and say you have the one of one of this digital product that I've been selling for years but now I'm doing the the one for you know the one of one of it and if that's compelling to people then you know I can't really I don't know, for me, it's not a value. You know, it's like whatever, sure. Okay, let's pivot over to the rolling funds. Tell me, explain to the audience what a rolling fund is and how it's different and distinct

from both of traditional fund and a syndicate. Yeah, totally. So I mean, credit to David and the vol for this. It's effectively a fund that starts at zero and you raise money on a quarterly basis and you deploy capital on a quarterly, effectively, you know, out of a quarterly fund. And you, so it's similar to a fund in the sense that it's a blind pool of capital. People give you capital. It's just instead of a two-year fund or a three-year fund, it's an ongoing quarterly subscription, right? So it's like a Netflix subscription per se for a fund, which I really like.

I think it's really clean for people who haven't done LP, you know, institutional investors are like, what the hell is this thing? But individuals are like, yeah, this is how I think about putting money into Vanguard or crypto. So, like, this makes sense to me. And then the other thing. So it's a quarterly commit. Got it. Yeah.

You can do it openly, right? So I can tweet, like, I have a fund, which generally in venture capital, you have not been able to do. And a lot of feces don't do that because their funds aren't set up in that way. And that's called, what is that, 506C or something? Exactly right. Yeah, it's 506C. So 506C versus 506B. Get your own attorney here.

but the general rule is general solicitation. And general solicitation means what for somebody who doesn't understand this? Yeah, it's basically you're pitching, you're selling, right? You're going to a forum of some sort. When the rules were written, it was literally like a town square. There's no internet in the 30s when these rules were put into place. But yeah, effectively you would, I assume it was to prevent people from basically going to strangers and trying to sell them like you see timeshares or the people on Clubhouse

or whatever, right? It's that sort of thing that they wanted to prevent. So effectively, you could only sort of solicit on sort of your own network. You would have to kind of like network your way into a fund, which as a non-VC person, like I was, I didn't know how to do. I didn't really have, even though I was in startups and I raised money, like I didn't know what a family office was, right? I didn't know what in like an endowment. How do I, I, I still don't know, frankly, how I would get in front of a lot of those folks. So I think it just like allowing me to just tweet about it is like huge. Because all these people, by the way, are in my audience.

I just don't know who they are, right? Right. And they don't know you're raising a fund. So the only way for you to actually raise money is for you to get an introduction to somebody or somebody to reach out to you and you cannot generally solicit. And the reason this existed was they wanted to save people from, I don't know, being convinced to give away their retirement savings to some copper mine or gold mine in Albuquerque or something.

I mean, literally, I think it's like, I think this comes from the Great Depression and, like, that era is my understanding when these laws came from. So you start just telling people, I have a rolling fund on the Twitter. Yeah. And what happens? Yeah, it was, it was pretty insane. And just to give a little bit of context, the reason I started one was I tweeted out after the George Floyd protest, I tweeted out, I want to invest in black founders. I got a bunch of emails.

I wrote four checks. And then I, you know, three of them were looking for more capital. So I emailed Naval and a bunch of other folks saying, hey, you know, these startups I invested and are looking for more. And Naval just replies being like, you should start a fund. I'll anchor it, help you get started. We have this new rolling funds product. You could use start at zero, see where it goes.

At that point, he was like, you know, start at zero user network. At that point, openness wasn't really part of the conversation. I kind of introduced that to rolling funds. And I remember having a call with the Angels team. And they're like, do you want a 506B or a 506C? And I was like, what does the 506C get you? And they're like, you can tweet about it. And I was like, okay, that one, please.

Well, what's the downside then? Why doesn't everybody do it? Why doesn't everybody do a 506C as opposed to a 506B? Yeah, it's a great question. Frankly, I think a lot of it's just like lack of awareness that it's possible. But there are two actual literal reasons. One is with a 506B, you can technically have, they're up to 35 non-accredited. So if you wanted a bunch of friends and family into your startup or into your fund, that's possible.

I don't know if anyone actually does it because I've heard the liabilities are still there, so lawyers will tell you not to. But really, the reason people don't do it is it's just burdensome, right? Like, the reason you can generally solicit for a 5060C is that you basically, after you generally solicit them, they sign up, you have to verify that they are accredited or qualified. How does that occur? verifying somebody is accredited. Yeah. So in my case, for example, like I had to get my CPA to write a letter

that says that I'm worth X, over X amount of money. So somebody with an accreditation will then prove that you're accredited and put their CPA, license, lawyer, whatever, on the line. And there are also now third-party services, I know, Assure Fund Management,

which I use from my back-end. They have a service that does this. And I believe Angelis does it for you, right? Like, and I don't know if they charge 50 bucks for it or what they charge for it or if it's just baked into the cost of doing all this. Yeah, it's, it's baked in. And my guess is it will, you know, it will be standard, you know, five years from now. I can't imagine.

Like, why not? Like, all this stuff should be automated anyway, right? Or as close as possible. And I have 200 LPs and it wasn't a concern, honestly, to get everyone verified. It was, I think, more burdensome on Angelist and they handled it for me. So, yeah, this is. It's pretty great. attorneys are always going to tell you to take the easy way that is the least exposure it's kind of their job right so hey you're gonna you're gonna add risk and they're want to mitigate risk but there is also the upside and the upside is I'm watching you do this and I'm like at the same time you're doing this I was closing launch fund three and I'm like I got a bigger following than this kid and he's out there talking it was fun I can't talk about my phone I'm going crazy and they're like well you elected to do this and so you have to stay in the lane and I don't

I'm like, ah, the next fund I'm doing what you did, I think, if I even do another fund, I'm not sure if I'm going to even do a launch fund for because I have the syndicate. It's growing so big. I don't know if I need it. It's like, I could just do syndicate deals all day and you don't even need to have a fund. So it's really interesting how this new concept is really enabling people like yourself who've never done investing to have a fund. Where is the fund now?

Every quarter you get how much money from these two investors? Yeah, right now it's at around, it's around $12 million a year. So it's around $3 million a quarter that I get. So each person's putting in on average $50,000 to $100K per quarter? Or per year? But I have 200 LPs. So, yeah, the way it's set up, it's actually two funds, one so QP vehicle. Qualified purchaser, which is people who have over, I think, $10 million in networks?

Five million. Oh, is it five now? Yeah, yeah. So five million qualified purchaser. So they get treated another way because they're like, they're beyond accredited slash. When you hear the word accredited, just think sophisticated or rich. And then when you hear qualified purchase, you think really rich. Like Ricky Jervais, you know, kind of money. Like NBA player money, not just rich in Silicon Valley money. Exactly. So the other thing, though, is they have to pay in every quarter. And at any point in time, they can, change their investment amount, correct? Yeah, exactly. So how many quarters into your rolling fund are you? I'm on my third quarter now. Have you seen people actually take advantage of that where they say, you know, oh, I'm feeling rich instead of my 10K a quarter commitment, I'm going to go to 30, or, oh, consequently, I need money for whatever. I'm, you know, selling a home or got a divorce,

whatever life events going on, buying a home, I'm going to take this quarter off. Yeah, yeah. I have seen, I have seen the former. I'm not sure if I've seen the ladder. I've seen the ladder once actually, at least once. Okay. But mostly it's the former. And it's, I think it's because people want to deploy more capital from the beginning, but now they can get comfortable, right? So they can start with 10K a quarter. And then two quarters in, like, I've had people go from like 10K to 50k. And that isn't like a life. That is like, that's five X. It's a big deal. It's basically going from 40K to 200k a year. I mean, you start. And then over five years, you're talking about the different. between 200K over five years or a million dollars.

I mean, and so in a way, I mean, I don't mean to say this in a derogatory way, but for new fund managers, and I am in my third fund, even with the massive success I've had, I mean, it's pretty ridiculous when you look at my IRA. I mean, I don't want to, I'm not trying to brag here, but I got really lucky with a couple of investments. I have a hard time raising from the traditional LP group, and they tell me they need more, you know, evidence that I'm good at this. and I mean, you're 11.

When you're a new fund manager, first-time fund manager, you basically set up a $12 million fund, which is really the equivalent of a $36 million fund, you know, because they usually get deployed over three years, and your first time up at bat, and off a tweet.

Off a tweet, and now you do that, and it's like, whoa, this is unbelievable. Like, this rolling, and it's, oh, so the thing I was going to say that, you know, would be, you know, maybe some people would take this in a derogatory way. it's almost like a pretty short leash or training wheels where it's like, okay, and you kind of implied it yourself, like they trust you. So it's hard to trust a new manager because what if they're a

total screw up? What if they give the money to their friends? Or they invest in non-venture businesses? Whatever. They tell you one thesis. There's a lot of trust involved in this. So instead of in that example, the person giving you a million dollar commitment for your fund, they started at 10 or 200K over the life of the fund maybe. And then they upped it and upped it and up did and up did to the point at which they felt comfortable. Or conversely, if they're like, you're investing in companies

that don't make any sense to me, where did you, how'd you, had you pick these? They can then say, I'm out. Exactly. Yeah, I think it has pros and cons,

but it's, I'm hopeful that, you know, I have no institutional LPs in my fund and I don't think I would be able to get them like they would have, as you mentioned, they would look at me

and be like, come back in 15 years, you know? Yep. Trust me. And so I just think, they don't get it or they don't, you know, it's just the risk, like, the risk is just too high by default, just like the commitment that they intend to make, that they basically will only do it for people they've known for like 20 years they went to school with, which inherently

leads to a very homogenous community. Yeah, it is pretty homogenous. I think it's actually even less pernicious than that. It's actually that they have a committee they go to. They can add but one, two, three funds a year. And the existing funds, let's say the, you know, really blue chip funds, like a Kleiner, you've seen them do bigger and bigger funds. You've seen them do a, you know, a scout seed, series A, growth, opportunity, secondary share, crypto. They all of a sudden come up with 10 different fund ideas.

If you're some giant school's endowment and you say no to Kleiner's, you know, six new fund in your mind, this is what they've told me at least, I'll take Kleiner out of it, Acme Ventures. You know, so Delta University has got a relationship with Acme Ventures. Acme Ventures comes up with four new products. And the firm, the endowment doesn't participate. They lose access to the ones they were in originally. So now they're just getting squeezed by, you know,

Indreason Horowitz has like 15 funds in 10 years. And so what I've heard from them is like, we have to be in the next Indreason, Von, or else they won't let us in the other ones. therefore there's no room for new fund managers. So essentially these giant funds have taken all the air out of the room with that set of LPs, which then leads us to be independent of them. So this is their big mistake.

Someone like you is going to make their own way in the world or me with my syndicate. And by the time one of those big funds wants to participate, it's like, well, we don't need you. And that's what I told them last time. I went on the tour. I was like, you realize they're probably not going to need you anymore because if the syndicate goes from 2,000 to 4,000 people, I'll have a skill. velocity. And now it's 7,000 people. So it's like, eh, you don't need them. Yeah, exactly.

This new, this new democratization that we're talking about here, both from crowdfunding and from rolling funds and from syndicates is just crazy. Do you tell them what you're investing in every quarter? Do you give them a quarterly report? How do you communicate to the rolling fund LPs, what you're doing, or do they even care? Most of them don't care too much. I basically email them once a quarter with an LP update saying these are the 12 companies that I invested in. Here's the some stats, median valuation, et cetera. And then I do a Zoom call. I'll probably do it on Clubhouse going forward.

And that's it for for another three months. And you were able to do the Series A in Clubhouse. Congratulations on that. You got your beak wet. Thank you. I got my beak wet. Yeah. Well, you got Mark Andreessen.

Yeah. And you got Mark Andreessen as an LP in your fund as well. Congratulations on that. He's awesome. Oh, it's weird actually, but it's also awesome. He's a little bit weird. He's smart. He's smart.

Yeah, you know, smart people get, when a smart person gets really rich, they get weird sometimes. That's Mark. He's super smart. Smart plus money. And then you just draw a line. It's like, weird. Blocks. He's an LP on my fund.

Then he blocks me. Then he won't come on the podcast, but then he wants his partners on the podcast. And his PR person's emailing me. It's just like, can we just have a normal relationship, Mark Andreessen? Like, why does it have to be so weird with Andreessen Horowitz? Such a weird firm. All right. Congratulations on your amazing success.

Do we miss anything? Thank you. What did we miss? I don't know if we missed anything. No, I think we got it. Are you happy? You seem really happy. Thank you.

That means a lot, honestly. No, I just, I see the joy on your face. You seem so engaged and I know you had a rough patch. Maybe you could speak to, if you are in fact happy, you know, this arc of a story we went through where you were, you know, staring at the ceiling and then had to go paint, oil paint. to get your head straight. What have you learned in all of this crazy Mushugana and 10 years of, you know, ups and downs? You have any advice for the 19-year-old Sahilves out there

coming up in the world? I think when you're that young, you're kind of on that, your Y-slope seems stratospheric, right? But more likely what it has, it's asymptotic. It's more likely that you may be for some reason you had a little bit, you know, but a lot of these prodigies, you know, they're at eight, they're like, they're 20, but then when they're 25, they're like everybody else who's 25 who worked hard to get there,

you know? So I think I just really wish I just told myself, like, you don't have to figure this thing out by the time you're 23 because Zuck did and Steve Jobs did. And if you don't, you're screwed, you know. So be patient with yourself. I mean, it's kind of like what you said, like it's the chip on the table thing, right? Yeah. it's just like stay in the game.

If you enjoy the game or if you, you know, like stay in the game as long as you still have conviction and enjoy yourself, like don't, you know, I'm having a lot of fun. I can see that. Yeah. That's great. You know, the rolling fun and it's, it's,

and I mean, that's such a big part of it to me because like if, you know, as you mentioned, like talking to these institutions and all peace, like it wouldn't be fun for me, right? Like I don't fail because they would be. Imagine having somebody take every investment.

Imagine in five years, somebody taking every investment you have. having five MBAs do every form of spreadsheet and then take the companies you don't even remember you invested in that were complete total screw ups and be like tell me about this investment you made and I was like at one point I'm in like one of the great halls of capital and I tell me this one I'm like great story that founder absconded with the money and disappeared and ghosted us and then we started getting all kinds of crazy legal notices about him not shutting the company down properly and we still can't find him wow and there's

It's like 12 people in the room and they're like, what? And I'm like, yeah, you know, we make 50, 100 K bets. And, you know, back then we didn't really do much diligence. Now we have a better diligence process. But yeah, that was a complete and utter disaster. It's like, well, I mean, what do you think can happen? You invest in somebody there are 19, 20 years old like Mark Zuckerberg was or was was. Like, that's kind of how it works.

It's really messy. And then sometimes it works out brilliantly. And then there's a spectrum in between of every permutating. but if you're looking for perfection, do not, do not work with humans and certainly not entrepreneurs and startups, early stage startups.

There is no perfection here. If perfection is your goal, for the love of God, get out a chessboard and spend 10 hours a day, just grinding it out on a chessboard because you will get to a 2000 rating and, you know.

Well, I would say, the other thing I would add is just like, it's such a beautiful time where anyone can build, can learn any skill basically for free on the internet. Be careful. You'll get canceled for that. I know.

I know. You say that. What is? That's so dumb. You're like, wow, the world is so much better now. And they're like, no,

it's not. And it's like, it sucks. Are you sure? No, it's pretty good for me. Pretty great. And the last time I checked,

I don't think you're a cis white male. No, I'm not. I mean, I can get you a male. Unfortunately, I think. But I don't want to make any judgments here. But, I mean, if you literally say that, every skill you can get online,

it's, people lose their mind. I joke that if I was white I'd be canceled already I'd get a little bit more leeway if you if you were if you were me because I can tell you what it'd be like I say this stuff and then they're like Jason Calacanus has the number one most racist tweet ever and I'm like I do

and they're like yeah and I'm like what is the tweet and it's like anybody can learn anything everything is on YouTube now and they're and like I'm getting canceled it's like you don't take into account systematic racism I'm like this has nothing to do with racism I'm just talking about the how two videos on YouTube.

Yeah. And MIT courseware. Yeah. I mean, I learned I was employee number two at Pinterest. How did I get there from Singapore with no degree? I learned a code using Stanford's iOS development course CS193P that's available online for free to everybody. Yes.

But you don't have to go to Stanford. How did you do that without an internet connection? Because that's the response I get. Or you didn't have a computer. And it's like, are you sure people don't have computers and internet connections anymore? because they're free at McDonald's, and a Chromebook is $100 slash free. Yeah. And there's why, you know, I grew up very, very privileged, but, you know, my parents did

not, you know, they immigrated from India to Long Island. Like, and you know, I know your story in Chimots and all these end of alls and bologies and like it just, I think a lot of people don't really realize, like, you have empathy for what they're saying. You've been through that. All they see is where you are now. with your 11 home runs or whatever. And, you know, I just, and I honestly think they just are, you know,

they're just just, you know, it doesn't feel fair. And 100% of the time, or I'd say 98% of the time, they're rich white liberals living in a coastal city who are saying poor people, specifically poor non-white people, don't have access to computers, don't have access to YouTube, don't have access to the internet. And I'm like, you can go to the Pew Research Center

and see the percentage of people who have access. I think that you're basically saying that poor people are dumb or too dumb to get to an internet connection. Like, I think what you're saying is kind of racist. I know you're trying to be anti-racist, but what you just said is poor people don't have motivation.

Are you crazy? When you're poor, man, you're motivated. Like, when I was broke, I was motivated. That is a motivated. thing for people. When you're broke and you want to get smarter and get better. I think there's just a gap between people even knowing where to begin. I think that's the actual problem because every time I talk to people, they're like, where do I start? And I'm like, just Google. How to do a startup and just read everything. And when we meet a founder who's figured it out, that's what they did. And almost

universally, they say, I started with a Google search or a YouTube search. Yeah, it's, it's mind-boggling, but it is what it is. And yeah, I, you know, I, I mean, I did listen. to my own advice. It's not advice I enlist to, but it's like built, especially today, like, like, for example, if you're an aspiring VC for whatever reason, like first don't be, but if you are, like, don't try to go up the,

don't, like, don't climb the ladder. Like, there's no reason to do this. Side door, man, go through the, I always go through the exit, go through the exit door, fire door. Yeah, get smart, write stuff on the internet. Yeah, start a blog, go viral, show that you

know what you're talking about, build an audience, tweet out that you have a rolling fund and get started that way. And don't overthink it. And yeah, there are some gatekeepers in the way, but like, I don't know. It's, it's, it's, it's, I really believe it's manageable. And I worry that when, when, when, if you just hear that it's not possible, like, if you get this far, there's going to be a ceiling here. You're not going to be overcome. You know, overcome. You're just not going to try. And that that's the prevision part. I believe that I can do anything. And I think that is a quality that you, I mean, Jermon Green. how do you be number one? Well, first, you have to believe that you have the ability to be

number one. Yes. And if you work hard, like, it'll happen for you. It's not going to be easy and you're going to, you know, but it's possible. Trust me, he works hard. And then you look at like, well, I mean, and then you just, I was literally talking to the other day about like his goals for this season and, or before the season started. And he was really working on his passing. And he was talking about just, you know, his understanding of the floor and his ability to, and I said, do you work like on one thing. He's like, well, I try to improve everything, but I do sometimes find something that I really want to get really good at. And mentoring Wiseman and some other players was a big focus of his and his ability to direct the floor. So now you have Draymond Green

getting 15 assists in a game. It's like, the ceiling is, we haven't even gotten close to it in terms. And that's what I get so excited about is like how early it is. Yeah. And like, yeah, start planning those seeds, right? Like how many passes has Draymond made, dream I made in the last, I don't know, a million. I literally don't know what order of magnitude, but it's, it's, it's more bad passes than you've had perfect pass, like, or vice versa, right? Like, he's had more bad than you've had good. Like, yeah, I think you have to embrace that part.

And yeah, I just, I did. And I just think everyone should do it. And every time I meet a founder who's like, I wasn't able to raise from VCs, I'm like, well, have you, like, what have you built? Have you learned a code? And off in the answer is. What skills do you have? Yeah.

They're like, no, I'm an idea person. It's like, yeah. Congratulations. You and 7 billion other people on the planet who cannot stop thinking about every idea that rolls into their mind. Like, you get zero credit for ideas. And now with crowdfunding, potentially, you don't even need VCs, right? Arguably, if you can build an audience, you can now raise up to $5 million direct from your community of a thousand, 2,000. You're a thousand true fans, right? Like it's coming true more and more. It is literally like Kevin Kelly's Thousand True Fans theory, which was basically if you have a thousand true fans, you'll never be hungry because you can

do a comedy show or sing a song and sell it to a thousand of them who will buy your dollar song or $10. And there's, those thousand people are there. There's seven billion people. So at least one, seven millionth of the people will, you know, should like your thing. Literally.

Hopefully. It's so interesting that this essay that Kevin Kelly did so long ago is now reemerging. We just literally on the last week, Toby from Shopify, episode 1184, for those of you going into the archive, talked about it. And it was, the thousand true fans has never been more true. And VCs are just candidly two, their funds are so big. And it's so messy and so much work, as we talked about earlier with like founders just disappearing or, you know, ghosting you as an investor. It's so hard in the early stages that VCs now are like, call me when you want to do an overpriced.

A. Literally what MVC told me. Like, Jason, I don't want to do what you do. What you do is so painful. I want to go skiing. I want to go to Italy. I want to go to Tokyo. And I want you to do all the work.

And then I will overpay you for your startups. I will literally give you $10 million for 20% of the company or 15% of the company. And you do all the heavy lifting. And I will mark up your book. But I do not want to make investments in two-person companies anymore. It's too hard. It's interesting. Yeah.

If you have that capital, then you can start to make those decisions. But if you don't, you've got to work really, really freaking hard. And by the way. Try to get your points on the table. Yeah, and it's kind of fun to. Your chips. Yeah, it's kind of fun to play in this. I much prefer the arena of when there's, you know, product market fit is just starting to click.

To me, that's kind of the magic is watching that all of a sudden click in, you know? I don't know what your moment is for a startup. But for me, it's when it's like, we got three people to pay for this and seven people told us to go, we'll whack ourselves and leap that out. And all of a sudden, but yeah, then these other three people said we'd pay for it. And then now we got 90 people paying for it. And you're like, what about the seven people who told you to go after yourself? They're like, yeah, who cares about them?

I got 90 people paying for this thing. It's working. And you're like, you've figured it out. You don't have to get everybody. You just need to get somebody to care. It's such a great issue. That happens like one time per startup, per 10 years or something. You know, you only need one.

And you only need one. You only need one. That's a name of my autobiography. You only need to be right once, the Jason Gallag Canistery. Sahel, I'm glad we got to do this. You're a champ. And congratulations on Gumroad. Congratulations on equity crowdfunding.

Congratulations on rolling funds. Congratulations on a big social media following to wetting your beak and clubhouse. Lots of great things going on for you. And let's make sure we NFT these oil paintings because the Sahel oil paintings from that dark era. I don't know what's going on in those paintings, but do they go from like darkness to light over time as your head cleared?

I don't know. They actually do. They do? They actually do. Yeah. It's pretty crazy. Stormy nights and mud, just banshees and horrible creatures in the woods. And then all of a sudden,

it's beautiful hayfields and sunsets and rainbows. Yeah, I don't know if I became a better painter or if I just, you know, got happy or something. But probably, you know what? Happiness just kills art. I mean, I know so many artists who got happy, and it's just like production was like, they're like, life is so good. Why would I go to the studio?

Enjoy my life. I was talking to another founder about this who just started a rolling fund, and he's like, man, I don't know if I would ever. I'm like, I'm so glad I did it this way. Like, I'm never starting a company again. Luckily, I already have one. But it's like, man, after this, it's just like, do I really want to go back into that? It's very hard. I don't know if I have the energy to do one more to be.

I'm glad I'm still on my first. And I, you know, I'm like, if it's when someone does multiple companies. companies in a row. I'm like, wow, you're a mess. I have a lot of, yeah. For some people, that feeling of the insurmountable odds is the feeling to get up in the morning. For other people, the insurmountable odds, it's like great to have done, but they might, they don't want to climb Mount Everest the third time. You know, it's kind of like I climb Mount Everest. That was an interesting experience, but I like oxygen and I like not dying. So maybe I won't go to the top of the highest peak, lose oxygen and crawl past dead bodies that nobody even has the energy or, you know,

effort to take down from the top of the mountain. You ever see all the dead bodies on the way up to Everest? Oh my gosh. That's basically startups. It's basically startups except you don't actually die. You just have your soul crushed. And did you ever see the line of people in line on Everest? I mean, it's like, what are you people doing? You people are insane. And I just thought, I put that in my fundraising deck. I just showed the line. I was like, this is what we do.

See all those people in line? We give them the money to do that. I wish I had to get people. I wish I might, if I could go back in time to answer your question, I wish I showed Series A Sawhill being like, you are actually quite far up, but there's still a lot of dead people ahead of you.

So like, you're not. Congratulations. You're in line. One out of 20 of you are going to die. And it's going to be bruised. because you're going to die of a lack of oxygen, so you're literally going to stophicate while you're freezing to death.

Exactly. Still want to go up Everest? Okay. Then do it. Yeah, exactly. This has been another amazing episode of this week at startups. Congratulations to founders on your journey

to certain death and pain and suffering, but you never know. Could be glory. You could get that snapshot at the top of the mountain. You could ring the bell on the NASDAQ. Who knows? All right. Great catching up with you, Sahel,

and continue success. Likewise. We'll see you all next time on this week and start. Bye-bye.