Gumroad Makes Crowdfunding History | A New Unicorn At The DMV

Forbes staff


	Welcome to the third edition of Midas Touch, your weekly newsletter destination for exclusive insights, reporting and analysis from the world of venture capital and startup fundraising. I’m Alex Konrad, a senior editor at Forbes and the editor of the Midas List. I’m joined by venture capital reporter Becca Szkutak. Last week we looked at two of Coupang's surprise investors who made billions, the data on this year's SPACs, an unusually intentional early-stage cap table and Figma CEO Dylan Field's primer on NFTs and how he sold a digital avatar of an alien for $7.5 million. In this issue, you’ll find crowdfunding’s newest hype man on Clubhouse, a rare case of a woman VC promoted to partner, crypto funding reaching the moon, and a new startup unicorn helping verify your identity with the DMV. Let’s get going.

March 21, 2021

Elevator Pitch


	Picture a Clubhouse room in the not-too distant future. Gumroad CEO Sahil Lavingia — he of the 255,000 followers on the live audio app and 181,000 more on Twitter followers — is onstage speaking with a couple other independent investors and an entrepreneur like Lambda School’s Austen Allred or Helena Price Hambrecht from Haus. Together, they run through the founder’s investment pitch. Then the solo capitalists make a pitch of their own: anyone in the room can join them in backing the startup, no accreditation necessary. Such a future isn’t anti-VC, Lavingia tells Midas Touch, nor is it a new form of influencer grift. “There are way better ways to scam people,” he says. “This is just: anyone who wants to invest, can invest. It’s equal access, equal opportunity.” Lavingia wants to make this future happen soon — as soon as April — by using his rolling fund, which invests about $10 million per year, to co-anchor such a round. He’s emboldened by his recent success raising $5 million through crowdfunding this past week, as Gumroad was the first startup to take advantage of updated SEC rules that raised that limit from $1 million in the U.S. That raise closed in just 12 hours, with 7,303 people investing an average $679. Lavingia had anchors for that round, AngelList founder Naval Ravikant and Basecamp cofounder Jason Fried. But the other big names in the raise, entrepreneurs such as Allred, Figma cofounder Dylan Field, and Winnie cofounder Sara Mauskopf, and investors like Backstage Capital’s Arlan Hamilton, Seven Seven Six’s Alexis Ohanian and Hustle Fund’s Elizabeth Yin, all put in $1,000, the same max-sized check as anyone else. 48% of Gumroad’s backers invested that amount, compared to 18% who committed a minimum $100 check.




	Addressing the gender breakdown of Gumroad backers, Lavingia says one lesson is to be more intentional in seeding interest with diverse communities. "There's a lot of stuff here that we can do better." Republic


	For Lavingia, who worried initially whether his nine-year-old company, Gumroad, which offers software tools for creators to sell directly to customers, would gain enough demand, that quick close was a relief. But even better, nearly 2,300 of Gumroad’s creators participated — customers whose loyalty Lavingia can now leverage. The idea is simple: just like how seemingly anyone who owns Bitcoin won’t stop talking about it, or Tesla stock owners are likely to buy its cars than a competitor’s, Gumroad supporters who own a piece of the company — even a tiny one — are more likely to hype an upcoming product launch or keep selling over the platform, Lavingia says: “I wanted our investors to be our customers. I wanted to blur the lines.” In a hype cycle full of meme stocks, NFTs and SPACs to choose from, Lavingia argues that startup investments aren’t so crazy, even if they take years to see money back. But he admits he could’ve probably found enough FOMO demand at a much higher valuation than the $100 million one he set. That’s on platforms like Republic, the online service he used to host the crowd-funding round, to sniff out, Lavingia says. He urges individuals to do their diligence and invest in a portfolio, not put all their eggs in one basket, regardless of whose. One limitation of the new model: without further SEC changes, it’s costly. Lavingia notes that factoring in fees, legal expenses and the like, he spent about $200,000 to raise a combined $6 million. Even without those costs going down, however, Lavingia says he’d do it again as the equivalent of a similarly-priced marketing campaign. Expect more companies to reach the same conclusion — and still see value in the trade. At work collaboration startup Front, CEO Mathilde Collin made waves when she raised $59 million from an investor group of largely other software CEOs last year. Some of those CEOs’ firms later became Front customers, she says, or built deeper integrations. Why not do the same en masse? “Feeling part of the journey makes people in the community super happy,” she says. “I would have done this for sure.”

Oversubscribed




	Loren Straub is tasked with growing Bowery Capital's West Coast presence as its second partner. Bowery Capital


	After eight years as a solo-partner seed-stage VC shop focused on New York, Bowery Capital’s looking to break out. The firm with 43 software-as-a-service portfolio companies and $94 million in assets has promoted Loren Straub, previously a principal at the firm, to general partner. Straub’s stepping into that role as the firm is expanding its geographic focus with a new $70 million fund. The back story: a veteran of Goldman Sachs and Groupon, Straub initially joined Bowery Capital in 2016 as an associate after Bowery Capital founder Mike Brown spotted her on LinkedIn. She was promoted to principal the following year. The future one: Straub recently relocated to her native San Francisco to open a West Coast office for Bowery, hiring an investment team and searching for deals in the Bay Area with a focus on B2B marketplaces and software for vertical industry. She’ll be investing with Brown out of a fund only modestly larger — $70 million versus $60 million — than Bowery’s second fund raised in 2017; Straub says that’s because despite the average fund growing 55% since 2015, according to PitchBook, Bowery sized its oversubscribed fund to support two partners. The bottom line: Straub not only joins the relatively small but growing ranks of women investment partners with check-writing abilities in VC, she’s one of an even smaller group to work her way up within a firm. All Raise’s most recent data shows that less than a quarter of new women partners are promoted from within; in 2019, only 17% of new women partners came through promotion versus an outside hire, with firms preferring to pluck away executives from high-flying tech companies. “Some people have to fight way harder to get to the same title as a male does, and I hope that with each one of these promotions it becomes more common and less noteworthy,” Straub tells Midas Touch.

Up And To The Right


	Trends in the public markets tend to take a few quarters to trickle over to private investment activity — unless you’re crypto. As Elon Musk acts as a puppet master with crypto coin prices through his Twitter account, and investors await the direct listing of digital coin exchange Coinbase, expected by some to reach a $100 billion valuation when it goes public in upcoming weeks, VCs aren’t waiting any longer to pile on. Recent numbers from Preqin show that investors have poured a record amount of funding into crypto startups this quarter, surpassing $3 billion in dollars deployed.


	The $3.3 billion poured into crypto companies so far in Q1 is already more than such companies raised in the entirety of 2020 ($3.07 billion) and 2019 ($1.8 billion). In fact, this quarter is only topped by one annual total: 2018, the sector’s breakout year, when $5 billion was invested overall. Such investment has, unsurprisingly, minted two mew crypto unicorns. Austria-based BitPanda raised $170 million at a $1.2 billion valuation on March 16, becoming that country’s first billion-dollar startup. And Jersey City-based BlockFi raised $350 million at a $3 billion valuation earlier in March. The craziest part: even without those two mega-rounds, this quarter would still top every other on record for crypto investment by at least 30%.

Deal Dive


	With corporate identity already producing multi-billion-dollar companies (see Okta’s market cap, $28 billion) and acquisition outcomes (see the company it just bought, Auth0, for $6.5 billion), it’s not shocking that attention is turning to consumer identity next. And startup ID.me, founded by military veterans and partnering with nearly half of U.S. states so far, thinks it’s in pole position to win that race.




	ID.me CEO Blake Hall says he hopes to build the "Visa of the identity layer of the internet." ID.me


	The history: Launched by Blake Hall and Matthew Thompson in 2010, ID.me started out as TroopSwap, a service verifying fellow Armed Forces veterans, for discounts at participating businesses — a twist on a classic affiliate marketing approach. Over time, the Harvard Business School classmates realized their log-in process was more valuable than that niche. Rebranded as ID.me, the company expanded to students and teachers, as well as beyond affiliate discounts to verification for government portals and private sites. Think army veterans logging in to check their benefits across different portals, or guests at the MGM Grand casino checking in digitally to skip the in-person line. Businesses pay per user much like they do for tools like Twilio. The pitch: ID.me claims to be used by 22 states since August 2020, with 19 using ID.me to verify users for unemployment benefits. Combining document scanning, video verification and other checks, ID.me verified more than one million people remotely in January, Hall says, and is now on pace to add one million users per 13 days (it has 39 million overall). 38% of Californian adults are on the platform now through its work with the DMV there; ID.me’s also thwarted 1.2 million fraudulent claims, its CEO says. The round: With annual recurring revenue of $65 million or so, net revenue retention of 154% and a massive contract with the Department of the Treasury — Hall says it’s $398 million over five years — set to go live in a few months, investors poured $100 million into ID.me’s Series C at a $1.5 billion valuation. Viking Global Investors led, with Counterpoint Global, a Morgan Stanley unit, PSP Growth, Lead Edge Capital, CapitalG, WndrCo, Willoughby Capital, BoxGroup, and Moonshots Capital participating. The spin: Penny Pritzker, the former U.S. secretary of commerce and billionaire member of the Pritzker family who invested through her firm PSP Growth, argues that consumers’ digital identities are safer with ID.me. “It empowers an individual to take control of their data and have it be portable and trusted,” she says. Or as Hall, who claims his video tools can help those otherwise rejected for claims get verified, puts it: “Portable logins aren’t trusted, and trusted logins aren’t portable.” Still, ID.me’s far from the only player in this space, its government connections and feel-good veteran story aside. Don’t be surprised to see more large funding rounds look to hold serve with Hall’s McLean, Virginia-based firm.

Party Round


	Our top stories and favorite reads from the week in VC.




	First Round's newest partner is Meka Asonye, a sales veteran of Stripe and Mixpanel. BONNIE RAE MILLS PHOTOGRAPHY

Breaking into venture is hard—especially for emerging women managers. Transact Global is here to help. The organization emerges from stealth and looks to not only support these women while they fundraise but also make the necessary connections to land real commitments. (Forbes) — BS

After opening up its partner search to the public last year in a bid to consider a more diverse talent pool, First Round received more than 600 inbound applications. The result: new partner and ex-Stripe sales veteran Meka Asonye. (Forbes) — AK

Ok, it’s probably time for me to learn what NFTs are as it seems the trend of trading these non-fungible tokens is here to stay. An NFT marketplace was able to ink a $23 million Series A round this week, a 10x increase from its seed in 2017, as this market continues to swell. (TechCrunch) — BS

Anti-venture venture firm Juxtapose closes its second fund to continue its strategy of creating its portfolio companies inhouse. The venture studio says that through this method it’s able to get VC returns with a risk profile more similar to private equity. (Fortune) — BS

Sequoia apparently isn’t worried about jinxing the markets. A year after its “Black Swan” open letter to founders warned them to hoard capital and prepare for the worst, the VC firm is now telling entrepreneurs to “start carefully stepping on the gas.” (Medium) — AK

E-commerce has exploded over the last year thanks to Covid-19. Because of this, e-commerce marketing companies have emerged as unsung heroes of changing consumer behavior. Marketing startup Yotpo cashed in to raise $300 million over the last seven months. (Forbes) — BS

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Gumroad Makes Crowdfunding History | A New Unicorn At The DMV | Crypto VC To The Moon

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