A Private Market Chamath

March 18, 2021

The new crowdfunding rules allow startups to raise up to $5 million per year from normal people (the opposite of accredited investors who are not normal people).  The limit used to be $1.07 million.  Crowdfunding is investing and not patronage so the normal people actually get equity, not swag.

The likely beneficiaries of the new higher dollar amount will be 1) crowdfunding platforms, 2) the normal people (who will now presumably see bigger and better companies raising capital via crowdfunding) and 3) Sahil Lavingia.

Who’s Sahil?
Sahil Lavingia is the founder of Gumroad, an e-commerce platform which helps creators monetize their work and is popular for his mantras of building in public and democratizing venture capital.

Gumroad is among the first companies to take advantage of the new higher limit and has raised $5 million from around 7,400 investors, according to the company’s Twitter feed.  The investors include Lavingia’s Twitter followers, YouTubers, Figma founder Dylan Field and VC firm partners. 

They also raised an additional $1 million from AngelList co-founder Naval Ravikant and Basecamp founder Jason Fried – both amounts were raised on the same terms and at a $100 million valuation.

The new crowdfunding rules
The new $5M threshold is important because companies that wouldn’t go through the time and expense of a smaller raise may consider crowdfunding now which opens the door to a new class of companies raising capital this way.  More companies also means new investors entering the crowdfunding space.

The new rules permit a company to ‘test the waters,’ so they can gauge potential interest in a financing before spending the time and money filing the paperwork to do so.  Of course, a company may get, for example, $1M in commitments but end up only raising $250K as intended purchases may not result in final deals.  But that is still better than a relatively blind leap. 

"I think the new regulation will spur a wave of founders that want to democratize funding relationships," Lavingia said. "It's a direct-to-consumer model applied to VC."

Are we in Sherwood Forest?
The new crowdfunding model is coming at a time when there is a lot of money available for investment sloshing around in the system and in a GameStop/Robinhood fueled environment in the retail investor space.

Lavingia has said that he wants anyone to be able to invest in the private markets, just like they can in public markets.

Compared to the billions raised from VCs, the crowdfunding pool of capital is still relatively small.  In 2020, around 1,000 companies raised a record $215 million from equity crowdfunding.  But that looks set for growth under the new rule regime.

“I’m basically trying to become a private-market Chamath,” Lavingia said, referring to

SPAC king Chamath Palihapitiya.  “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.”

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