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tl;dr: The Flywheel was the inspiration for my current full-time venture, Swapstack. Swapstack is a creator monetization platform, currently focused on enabling all newsletter creators to monetize their work through paid sponsorships.

Jake Schonberger (from The Premoney List) and I have been building Swapstack for ~8 months, and have seen enough validation via our current product to triple-down and raise a small pre-seed round to support our large vision for the platform.

If you want the condensed version of the vision and the fundraise details, check out Jake’s Premoney from today.

Read the Premoney Investment Brief

In my previous post I mentioned my intention to bring you, my dear readers, stories of exciting new companies that I encounter, along with opportunities to invest in their success.

In today’s post I follow through on that promise. 

It seems fitting that the first startup I bring to you is my own, Swapstack, a project that I credit in large part to my work on The Flywheel. 

Just about one year ago, when this newsletter reached the 1,000 subscriber mark in its first 2 months, I started wondering how I might be able to monetize The Flywheel. That small thought was the first step in a whirlwind journey that included starting, selling, spinning out, and ultimately fundraising for a company, all in under 12 months.

This is that story. 

Before we dive in, a disclaimer: yes, Swapstack is raising a pre-seed round, and yes, I’m inviting my readers to participate. However, please keep in mind that this is not investment advice. I will make the case for why I’m dedicating a meaningful portion of my energy for multiple years to this project, but each of you should do your own diligence and make your own decision accordingly. Similarly, investing in startups is highly risky, and if you choose to participate, the overwhelmingly likely outcome is that you will lose all your money. In the United States, you must be an accredited investor to invest in startups (though if you’d like to gamble your savings away at the casino or on lotto tickets, go right ahead!) for this reason. Onto the article!

Origin Story

I never intended to start an AdTech startup.

When I started The Flywheel, it was truly a ‘throw spaghetti on the wall and see what sticks’ kind of moment. I had just resigned from Amazon for the second time in ~8 months, and wasn’t sure exactly what I wanted to do next. All I knew for certain was that I wanted to never need to go back for a third time.

The Flywheel was one project among what I assumed would be many attempts to find something that might stick. At the same time I enrolled in the On Deck Founder fellowship, where I expected to meet people who might want to work on other projects with me.

Little did I know what the serendipity of the internet had in store. Within 2 months, The Flywheel started taking off. I was now a ‘Newsletter Writer’ with a fast growing audience, with messages from all sorts of interesting people in my Twitter inbox for the first time ever.

Suddenly, The Flywheel was no longer just an attempt, it was a Project with a capital P, one with potential to turn into a real business. Thinking about it like a real business changed everything for me.

I started contemplating monetization opportunities around the 1,000 subscriber mark. Yes, my audience was still small, but it was growing quickly, attracting hundreds of smart, interesting people every week or two.

This was during the height of the Substack boom, so the obvious first idea was to sell subscriptions to my writing. It felt like something I could pull off, but after attending a talk by Lenny Rachistky during the On Deck Writer’s Fellowship (like I said, I was a writer now), I decided against it.

Lenny explained that turning on the paywall effectively converts your newsletter into a job, and for me The Flywheel was much too new to make that level of commitment. I had spent years trying to break away from jobs I didn’t want so I could create something new for myself; the last thing I wanted was to create a job I didn’t love.

With subscriptions off the table for the time being, advertising was the other real candidate. I wrote about Not Boring much later; at the time, though, Packy was just getting his own ad-supported newsletter model off the ground and teaching the rest of us how he was doing it. 

The benefit of ads is that it imposes much less pressure than subscriptions: you charge for your ads, and only make money when you publish. This tends to align your incentives with your own mental health quite nicely: publish more, make more. Crucially, your readers aren’t paying you, so it’s easier to grow your audience (thus allowing you to increase your rates), and if you don’t publish for two months or so—cough not that this would ever happen..cough—nobody can really complain.

The downside of ads, of course, is that it’s not easy (there’s no free lunch!). The incomplete list of things you need to do to effectively sell ads in a newsletter includes: identify, contact, communicate with, and transact with brands; maintain an inventory calendar, listings page of ad options, and inbound requests from prospective brands; write, review, edit, and receive approvals for ad copy and creative assets; collect and report results back to the brand.

Around this time, Packy open-sourced the impressive slide deck he was using to sell ads in Not Boring; this thing was intense, thorough, and impressive. It occurred to me that it might be useful to be an ex-investment banker after all. 

All things considered, sponsorship seemed a much better fit for me than subscriptions, so I applied to some advertising marketplaces I found online as a starting point. After all, email marketing is not a new industry, even if the Substack-led boom in newsletters was something of a resurgence for the medium. 

Pretty soon, I got rejected or ghosted by them all. When I received an explanation, I was told to come back when my audience was 100,000+.

This seemed clearly wrong—Packy was proving that an audience of 5 or 10,000 is valuable, selling ads for $3,000 a piece even at that size. At 1,000 subscribers and growing fast, The Flywheel had line of sight to those sorts of numbers. If these more established marketplaces were not willing to serve an audience like mine or Packy’s, I figured, someone ought to.

This ignited a spark of an idea for a business that would help newsletter writers like myself sell sponsorships. Pretty soon, I met a fella in On Deck Founders (ODF) who shared my name and my burgeoning interest in newsletters.

Swapping (Sub)Stacks

Jake Schonberger was working on a number of projects when I met him in ODF, the most relevant of which he was calling Swapstack. He had recently started a newsletter of his own called The Premoney List—featuring early-stage startups that were raising their first rounds of funding—and was interested in growing his audience.

He recruited a group of other newsletter writers, including myself, to run a bunch of Swaps: in other words, reciprocal promotions of one another’s newsletters.

I ran one of the first Swaps in this piece with Aja Singer of For the Love (I guess I like working with people who share either my first or last name), and Jake and I got to talking more about opportunities in the newsletter space. Eventually, I convinced him that there was probably more of a business in the sponsorships angle than the swapping angle. After a long period of cofounder dating, we decided to go for it—we officially teamed up to start building a company. 

Swapstack MVP

After deciding to focus on newsletter monetization, we started designing a MVP to validate whether there were meaningful problems in this space that we could solve for both creators and brands. The initial hypotheses for these were:

1. Newsletter writers don’t have the time or ability to secure consistent sponsorships from high quality brands. 

2. Brands are missing an opportunity for a high quality, high-ROI marketing channel because they either don’t know about it or it is too difficult to execute.

Through our collective work on The Flywheel, Premoney, Swapstack, and our combined three On Deck fellowships, we were as well positioned as anyone to test these hypotheses with both writers and brands. Jake’s ad sales experience at Facebook was a huge bonus, since it’s a space I personally knew little about.

With ‘do things that don’t scale’ at the top of our mind, our MVP was not really a product at all. We spent lots of time talking to potential customers on both sides, seeing what it would take to broker sponsorship deals. 

We created some Airtable lists to keep track of everyone we were meeting, along with a Slack channel to communicate with fellow writers. From there, we pounded the pavement, recruiting participants on both sides, suggesting ‘matches’ and if both sides wanted to connect, we sent an intro email. If not, we didn’t! Airtable and Zapier automations made the entire thing feel more put together than it really was. 

Though we had no way to capture payment, manage results, or really anything beyond that initial intro email, writers kept coming back for more and the brands called the process ‘magical.’ 

Based on this reaction from our earliest users, we felt confident that we had an opportunity to create value for users. We hadn’t yet committed to Swapstack full time, and we still needed to learn how much value we could create and whether we could capture some portion of it.

v2 of the MVP was designed to answer these questions. We launched Swapstack Beta at the end of January, which was essentially an invoicing tool and not much else. Writers could log in and cut invoices to the brands they met through us. While debate about what cut is too much to take from creators on various platforms is a hot topic today, we decided that our take rate from creators would be 0%. Instead, we added a 10% fee to every invoice, so that we could send writers exactly the amount they charged.

Our “product” now encompassed the beginning (introductions) and end (payment) of the sponsorship experience, with nothing in the middle. And, to our amazement, people started using it. In January, writers submitted 89 intro requests with a 45% approval rate, and invoices totaling $500. In February, we saw 140 intro requests (similar approval rate) and $3,000 in invoices. 

Although we were seeing promising results, the discussion around whether to go full time, whether to raise a round of financing, or generally what the big picture might be still loomed.

And then, something happened that fundamentally changed the very tenor of that conversation.

A buyer came in.

On Deck or Not On Deck

Before all this, I wrote a piece about On Deck (OD) that was—up til then—my most successful by far. Afterwards, I stayed in touch with Erik Torenberg and David Booth, founders of OD. They’d occasionally ask me questions about company strategy, to which I’d respond, ‘you know I don’t actually work for you, right?’. After enough times, their answer became, ‘well, maybe you should’.

That kicked off a series of conversations exploring what a role at OD could look like for me. Unbeknownst to me, other Jake was having similar conversations. When we started working on Swapstack together, we both told the other about these conversations, and that our ability to commit to Swapstack might be impacted by their outcome.

The conversations dragged on, and Jake and I got to building (see previous section). Eventually, we started seeing some real traction, and the conversation between us and OD shifted to an acquisition exploration. Yes, Swapstack was comically early at the time, but we were getting increasingly fired up about its potential, and OD became excited about the possibility of bringing us in to build it internally.

The prospect of selling a company that had barely just started, securing super cool jobs at a hot, rocket ship of a startup, and removing any short-term financial pressure proved too tempting to turn down, and we agreed to move forward. Though it wasn’t terribly straightforward, we closed the deal for an undisclosed amount and started working at OD in early April.

The narrative was compelling: OD had multiple fellowships for creators (writers, podcasters, and more on the way), and we were coming in to lead what would eventually be OD’s creator business. The Swapstack marketplace would be one component of many in this eventual broader creator organization.

It wasn’t long after, though, that our two companies started to drift apart.

OD—a fast growing and early-stage company in its own right—eventually decided to focus more on startup founders and less on creators, as its major announcement today testifies.

Meanwhile, Swapstack’s core marketplace started looking like a real business, and we decided to focus on expanding it rather than on building a big, new org which would inevitably distract us.

Eventually, we both realized that for Swapstack to reach its full potential, it would need to break free of the OD umbrella, and mutually decided to spin the company out. The move would allow Swapstack to become its own independent company once again, with Jake and Jake no longer employees of OD.

That brings us to where we are today—the OD spin out is nearly complete, and Swapstack is off to the races. 

In case you are wondering how sincere OD’s desire was for Swapstack to reach its potential, they’re putting their money where their mouth is: OD is our first investor, and Swapstack is also participating in the brand-new ODX accelerator which was announced today.

Our time at On Deck was highly valuable—between advisers, customers, and collaborators, we are more likely to be successful because of our time at OD—and we think ODX will prove to be the same. 

Swapstack 2.0

That’s the story, now let’s talk about the business. First I’ll describe what problems Swapstack solves, how it works, and what it looks like. Then we’ll talk about how it’s going. Finally, I’ll share some vision for where we think it could go, and how the fund raise fits into that vision.

Problems

I already described the difficulties that creators encounter in running an ad-supported business. At first, we were primarily focused on solving problems for creators:

• How do you get the attention of a brand?

• How should a newsletter ad be priced?

• What does a pitch look like?

• How can you convert a single ad to a long term relationship? 

Over time, we started to better understand the problems that brands face too:

• How do you identify the right creator?

• How do you manage potentially hundreds of individual creator relationships?

• How can you close a deal with creators quickly and efficiently?

Our goal with Swapstack is to alleviate these issues and help brands unlock the power of creator marketing without the headache.

To read more about how we’re tackling these problems, the vision, product, and fundraise details, and much more..

Read the full article online 🖱

I have had more fun working on Swapstack than anything else I’ve ever worked on professionally. Through this process, I’ve learned a lot about what I like doing, what I don’t like doing, and how wrong I was about some of that in the past. 

Although it has certainly cost me the ability to consistently publish in The Flywheel, I couldn’t be more thrilled to keep going on Swapstack, and I’d be honored to have any of you along for the ride in one capacity or another.

That’s it for today’s edition of The Flywheel. Thanks a ton to Jake and Tanya for helping out with this one. Let me know what you thought of this piece by clicking one of the links below👇🏼.

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