Paying freelancers in equity and dividends(sahillavingia.com)
sahillavingia.com
Paying freelancers in equity and dividends
https://sahillavingia.com/dividends
12 comments
Everything you wrote was par for the course for a private equity company (note that venture capital is a tiny subclass of private equity)
The founder kept everything because investors expect that their relationship with this person is going to continue and eventually this person is going to “make the fund” in a future venture
That’s the key thing here, as a CEO/founder if you have gotten the stamp of approval from venture/capital class (in the form of a series A conversion on a note, or some kind of liquidity event), as long as you’ve pledged allegiance to returning investors capital above all things, you can “fail” a lot actually, and it’s pretty much ok as a writedown.
Provided that you keep investors legally at the front of the line, they will be willing to continue to invest in you.
This is why you see all these people put “serial founder” in their bios, they want to signal that they are a reliable person for finance to come to
The founder kept everything because investors expect that their relationship with this person is going to continue and eventually this person is going to “make the fund” in a future venture
That’s the key thing here, as a CEO/founder if you have gotten the stamp of approval from venture/capital class (in the form of a series A conversion on a note, or some kind of liquidity event), as long as you’ve pledged allegiance to returning investors capital above all things, you can “fail” a lot actually, and it’s pretty much ok as a writedown.
Provided that you keep investors legally at the front of the line, they will be willing to continue to invest in you.
This is why you see all these people put “serial founder” in their bios, they want to signal that they are a reliable person for finance to come to
I'm not sure that VC's will be investing in the company of a failed entrepreneur. At least something should have changed to make the company "better". In Gumroads case the truth was that the money would be pretty much gone, the company is not going to be valuable. He didn't raise this time from VC's, but from clueless retail investors, which is quite a different thing.
As a strong counterpoint, Adam Neumann lost $16B of Softbank's money and walked away with almost a billion of it himself personally. [0]
He later raised 350m from A16Z[1], so this is not universally true and in fact is a pretty big counterpoint. Adam Neumann is about the worst founder you can fund (Maybe SBF is worse) and can still command vast sums from top tier VCs.
[0]https://www.calcalistech.com/ctechnews/article/a8vuka5hj [1] https://www.google.com/search?q=adam+newman+new+company+fund...
He later raised 350m from A16Z[1], so this is not universally true and in fact is a pretty big counterpoint. Adam Neumann is about the worst founder you can fund (Maybe SBF is worse) and can still command vast sums from top tier VCs.
[0]https://www.calcalistech.com/ctechnews/article/a8vuka5hj [1] https://www.google.com/search?q=adam+newman+new+company+fund...
As best I can tell VCs largely attribute their 99% failure rate to largely random chance rather than their own inability to pick winners - so the failure of an entrepreneur is not a particularly strong mark against them and a weaker mark than the fact they got funding in the first place.
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> I'm not sure that VC's will be investing in the company of a failed entrepreneur
Andreessen Horowitz has entered the chat with a $350M check for Adam Neumann
Andreessen Horowitz has entered the chat with a $350M check for Adam Neumann
> him, and I don't know what became of the employees' equity. Probably nothing, given that the company had to be written down to nearly $0 for this transfer.
It is somewhat addressed (without specifics) in the article:
> We also gave a token amount of equity to alumni who worked on Gumroad from 2011-2015, without whom you wouldn’t be reading any of this. Thank you!
It is somewhat addressed (without specifics) in the article:
> We also gave a token amount of equity to alumni who worked on Gumroad from 2011-2015, without whom you wouldn’t be reading any of this. Thank you!
For sufficiently low values of "token", I might be likely to publicly tell them where to shove it. That's like leaving a $0.10 tip: "it's not that I forgot. I just didn't think it was worth more."
Frankly, I'd rather have nothing.
Frankly, I'd rather have nothing.
Yeah the math on what, 300k in equity on a 100MM “valuation” by retail investors is… hey it ain’t nothing. 0.3% of 5MM dividends is 15K.
For a dude who’s only alive because his investors decided to walk away from their 8MM investment, that’s kinda tight. But freelancers just want the cash, so if he’s paying cash, this is just some weirdo being weird in tolerable ways.
The whole performance here is off putting to me though. You got gifted a huge amount of money and kept almost all of it for yourself. Alright man. You got the right. Everybody is a big boy and agreed to the deal.
But let’s not play around about how you got rich, or how much of the pie goes in your own pocket versus everybody else’s.
For a dude who’s only alive because his investors decided to walk away from their 8MM investment, that’s kinda tight. But freelancers just want the cash, so if he’s paying cash, this is just some weirdo being weird in tolerable ways.
The whole performance here is off putting to me though. You got gifted a huge amount of money and kept almost all of it for yourself. Alright man. You got the right. Everybody is a big boy and agreed to the deal.
But let’s not play around about how you got rich, or how much of the pie goes in your own pocket versus everybody else’s.
> The founder got to keep the IP, ditch the founding employees
What kind of ungodly sh*t is that...
What kind of ungodly sh*t is that...
I invested $1,000 in Gumroad back when they did the public fundraise, and I got back ~$70 so far. At this rate it'll take multiple years to break even, much less earn a multiplier. But oh well, I liked the Gumroad team so I wasn't looking for much of a profit anyway.
Related, I thought it was hilarious how so many creators on Twitter publicly stated they were leaving Gumroad when the 10% fee change was enacted, only to have the fee actually be a success. It's Netflix all over again, it just goes to show how the internet and the people on it create a vast but very vocal minority of opinions that are not worth listening to in the real world. Anyone worth listening to is not shitposting on Twitter and other social media.
Related, I thought it was hilarious how so many creators on Twitter publicly stated they were leaving Gumroad when the 10% fee change was enacted, only to have the fee actually be a success. It's Netflix all over again, it just goes to show how the internet and the people on it create a vast but very vocal minority of opinions that are not worth listening to in the real world. Anyone worth listening to is not shitposting on Twitter and other social media.
> I invested $1,000 in Gumroad back when they did the public fundraise, and I got back ~$70 so far. At this rate it'll take multiple years to break even, much less earn a multiplier. But oh well, I liked the Gumroad team so I wasn't looking for much of a profit anyway.
It's great that you wanted to fund the company with no expectation of return, but this is a perfect example of what contractors would need to consider when they choose to trade some of their compensation for equity.
It's great that you wanted to fund the company with no expectation of return, but this is a perfect example of what contractors would need to consider when they choose to trade some of their compensation for equity.
Indeed, I would've made more money if I put it into VTI. It's always tenuous to hold equity in such companies, especially at a 100 million dollar valuation which means my 1k would become 10k at most if Gumroad reaches a billion dollar valuation, which might be quite a while from now.
> it just goes to show how the internet and the people on it create a vast but very vocal minority of opinions that are not worth listening to in the real world
I saw this criticism of Twitter, way before Musk bought it, possibly even before Trump became president. This [0] story from 2018 was about journalists paying too much attention
It does feel like Twitter and Facebook are shadows of their former selves though - partly because on the rare days I go to facebook, it rarely has anything on from humans, partly because it's not covered in news that "Blah Blah said Blah on Platform". That's a good thing.
I'm uncertain what drives Meta's continual growth
[0] https://www.cjr.org/the_media_today/journalists-on-twitter-s...
I saw this criticism of Twitter, way before Musk bought it, possibly even before Trump became president. This [0] story from 2018 was about journalists paying too much attention
It does feel like Twitter and Facebook are shadows of their former selves though - partly because on the rare days I go to facebook, it rarely has anything on from humans, partly because it's not covered in news that "Blah Blah said Blah on Platform". That's a good thing.
I'm uncertain what drives Meta's continual growth
[0] https://www.cjr.org/the_media_today/journalists-on-twitter-s...
Instagram and WhatsApp are very popular. Also, Facebook marketplace.
Sorry, but to confirm, they charge a 10% flat fee and that's it? That's insanely good compared to every other platform I've seen for any type of commerce. Sure, Amazon, Apple, and the like also help offer exposure and some other services, but 10% flat seems completely worth it until you hit a critical mass where it makes sense to handle things yourself. I imagine that number is very high though.
10% flat fee + payment processing fee (2.9% + .30c IIRC) - it works out to about 16% for a $10 product. That is still better than comparable ebook platform like Leanpub which charges 20%.
> That's insanely good compared to every other platform I've seen for any type of commerce
I think Patreon has better rates and now they have commerce.
I think Patreon has better rates and now they have commerce.
> Sure, Amazon, Apple, and the like also help offer exposure and some other services
Considering you'd only be paying Apple 15% (I doubt many people on Gumroad are making more than $1 million) it still seems like a relatively good deal in comparison.
Considering you'd only be paying Apple 15% (I doubt many people on Gumroad are making more than $1 million) it still seems like a relatively good deal in comparison.
Well it was more so compared to LemonSqueezy which is 5% or Stripe Checkout which is 3%. But I believe both don't offer hosting of the actual products such as ebooks or videos while Gumroad does.
LemonSqueezy didnt exist when Gumroad changed the pricing. Lemon has some hidden fees on top of the 5% but they are a lot cheaper. Stripe checkout is not Merchant of Record so completely different product.
The company that was (still is) eating Gumroad is Paddle that have true 5% + 50¢ pricing.
Gumroad, Lemon, Paddle all do digital files fulfilment. Paddle wont give you website just pay links / overlay. I guess thats main reason why some people choose Gumroad/Lemon over Paddle.
The company that was (still is) eating Gumroad is Paddle that have true 5% + 50¢ pricing.
Gumroad, Lemon, Paddle all do digital files fulfilment. Paddle wont give you website just pay links / overlay. I guess thats main reason why some people choose Gumroad/Lemon over Paddle.
LemonSqueezy was founded in 2020. Gumroad changed their pricing to a flat 10% on January 31, 2023, as stated in the article.
Yes, Paddle is also a competitor but my main point was that many people on social media thought Gumroad was too expensive yet it turns out no sellers in the real world actually cared. The benefits of Gumroad (apparently to them) outweigh the extra 5% they pay.
Yes, Paddle is also a competitor but my main point was that many people on social media thought Gumroad was too expensive yet it turns out no sellers in the real world actually cared. The benefits of Gumroad (apparently to them) outweigh the extra 5% they pay.
> Today, Gumroad pays hourly freelancers around the world $125-$200/hr.
Compliance with local laws is VERY difficult. I would not take this equity even for free. It triggers all sort of accounting laws, exceptions and so on. How should I estimate the price on my tax returns? What if I am on some sort of sanction list?
Cash is the king when it comes to freelancers.
Compliance with local laws is VERY difficult. I would not take this equity even for free. It triggers all sort of accounting laws, exceptions and so on. How should I estimate the price on my tax returns? What if I am on some sort of sanction list?
Cash is the king when it comes to freelancers.
I think Flexile is a great concept, and there's tremendous value in simplifying things like equity & dividends. I'd like to see dividends become the norm for other companies!
Extraordinarily more difficult to get rich that way vs cashing out in the public markets. A 10x revenue multiple vs whatever share of profits your equity gets you after your nvestment terms are satisfied?
I had a generalization of this idea once: not only giving freelancers equity, but giving EVERYONE equity who contributed to the success of the company. For a while, during my 2nd startup attempt, I carried a little paper notebook and documented anyone who helped me. (Alas, I did not raise funding the world was not ready for mobile search in 2004...)
I wish you addressed your original hypothesis with concrete examples (is this fair, does being early matter, is it clear)
Eg, you gave equity to early contributors, how much and what did that translate to? If those same people work as freelance now, are they paid the same relative equity? Same class?
How long would someone allocating to equity need to work before they see the equivalent in dividends? Calculator seems like 25 years. Or working as more or less full time for 12 years with a 50% split.
For me by the end I was left with more questions than answers, so I side with mom, but I like the general idea of https://flexile.com/
Eg, you gave equity to early contributors, how much and what did that translate to? If those same people work as freelance now, are they paid the same relative equity? Same class?
How long would someone allocating to equity need to work before they see the equivalent in dividends? Calculator seems like 25 years. Or working as more or less full time for 12 years with a 50% split.
For me by the end I was left with more questions than answers, so I side with mom, but I like the general idea of https://flexile.com/
why would this platform need to have the answers to those questions? i would guess that all of those questions should be left up to each individual company. that is something to be figured out by the company, not the platform. it seems like flexile is simply a platform for facilitating those types of labor agreements. i doubt they want to be opinionated about all of that, and i think they shouldn't be. the platform is a system to make those deals easier, regardless of how the equity is structured etc.
at least, this is my hope as a broke ass peasant who invested in gumroad's "funding" offering, and also as somebody who sees this tool as a simple way to facilitate alternative labor relationships.
at least, this is my hope as a broke ass peasant who invested in gumroad's "funding" offering, and also as somebody who sees this tool as a simple way to facilitate alternative labor relationships.
oh wait i misread your questions. thought you were like, "how does this work at the cap table" or whatever
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I love seeing into Gumroad so much. Very curious if it's worth 100 M at the moment based on dividends
In 2023: 20.7 M Revenue - 8.9 M net income - 5.34 M dividend
With no net income growth would take about 19 years for the dividends to pay out your original investment
Will be interesting to see the 2024 numbers.
In 2023: 20.7 M Revenue - 8.9 M net income - 5.34 M dividend
With no net income growth would take about 19 years for the dividends to pay out your original investment
Will be interesting to see the 2024 numbers.
At a price of $100m and net income of $8.9m, that would be a P/E of 11 and a dividend yield of 5.34%. Assuming limited net income growth, such as a large corporation such as Coca-Cola (KO), this is a great stock! KO is kind of the poster-child for a stable, terminal business (how much more Coca-Cola / soft drinks can the world drink?), and it has a P/E of 25 and a dividend yield of 3.1 %. But, in fact, Gumroad is likely to grow earnings (and presumably the dividend), so this is an even better deal.
You could potentially move into an interesting related business: that of allowing people to draw down their salary whenever they like, so they can take it weekly or monthly or daily (if they liked). That's a very gig-economy-friendly feature.
[deleted]
Yeah I will only take cash -or- cash and equity. One success story does not a model make...
That is what is stated in the article, yes. Workers can take 0% to 80% of their compensation as equity, they are still paid at least 20% as cash.
I'd never heard of gumroad, so I took a look into it.
The Wikipedia isn't much help, but does do a decent definition.
"Gumroad enables creators to sell digital products, such as e-books, music, videos, software, and physical goods."
https://en.wikipedia.org/wiki/Gumroad
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Then MakeUseOf has an article, which makes it sound good. They compare it to Etsy as another site for selling things on.
see: https://www.makeuseof.com/what-is-gumroad-what-can-you-sell-...
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Checking on scamadvisor, the site rates it pretty highly, but user score is low. I'm guessing this has to do with creators getting burned by their history and/or price increases.
see: https://www.scamadviser.com/check-website/gumroad.com
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Some reddit posts have positive things to say. With a common theme of BYOA (Bring Your Own Audience), as gumroad seems to do a minimal job of pushing content; Which matches up with my experience of never having heard of it before.
see: https://www.reddit.com/r/selfpublishing/comments/h02pls/anyo... https://www.reddit.com/r/artbusiness/comments/17ij8nz/is_gum...
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Checking pitchbook and crunchbase shows it's a private company with pretty good financials. And so there's minimal risk of being "Actively Evil" that public companies can be; i.e., selling out the company for short term profits while grifting customers for all their worth.
see: https://pitchbook.com/profiles/company/53830-99 https://www.crunchbase.com/organization/gumroad/
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One caveat is that they don't seem support commissions; That is, paying a fee to an artist or creator for a customized piece.
see: https://www.reddit.com/r/selfpublishing/comments/h02pls/anyo...
The Wikipedia isn't much help, but does do a decent definition.
"Gumroad enables creators to sell digital products, such as e-books, music, videos, software, and physical goods."
https://en.wikipedia.org/wiki/Gumroad
--
Then MakeUseOf has an article, which makes it sound good. They compare it to Etsy as another site for selling things on.
see: https://www.makeuseof.com/what-is-gumroad-what-can-you-sell-...
--
Checking on scamadvisor, the site rates it pretty highly, but user score is low. I'm guessing this has to do with creators getting burned by their history and/or price increases.
see: https://www.scamadviser.com/check-website/gumroad.com
--
Some reddit posts have positive things to say. With a common theme of BYOA (Bring Your Own Audience), as gumroad seems to do a minimal job of pushing content; Which matches up with my experience of never having heard of it before.
see: https://www.reddit.com/r/selfpublishing/comments/h02pls/anyo... https://www.reddit.com/r/artbusiness/comments/17ij8nz/is_gum...
--
Checking pitchbook and crunchbase shows it's a private company with pretty good financials. And so there's minimal risk of being "Actively Evil" that public companies can be; i.e., selling out the company for short term profits while grifting customers for all their worth.
see: https://pitchbook.com/profiles/company/53830-99 https://www.crunchbase.com/organization/gumroad/
--
One caveat is that they don't seem support commissions; That is, paying a fee to an artist or creator for a customized piece.
see: https://www.reddit.com/r/selfpublishing/comments/h02pls/anyo...
Gumroad started in 2011 and raised $8 million. The reason "no one wanted" any equity in 2015 was because they laid most employees off, replaced them with contractors, and the investors wrote their equity down to $1 as a gift to the founder. The founder got to keep the IP, ditch the founding employees, and continue running the company.
The founder wrote a couple articles about the experience:
https://www.businessinsider.com/startup-failure-gumroad-why-...
https://sahillavingia.com/reflecting
What's not pictured in these articles is the employee perspective. The founder got to keep his company, got the company's IP handed to him, and I don't know what became of the employees' equity. Probably nothing, given that the company had to be written down to nearly $0 for this transfer.
I remember reading a very angry Twitter rant from an ex employee who was burned. I wish I could find it now, but that was nearly a decade ago. It was one of my cautionary tales about taking equity in startups at the time. It hadn't ever crossed my mind that someone could take VC money, pay employees (partially with equity) to build a company, then everyone gets laid off, equity declared worthless, but the founder gets to continue operating the company at a profit.
It's also interesting to note that the Tweets embedded in both of those articles above come from Austen Allred, the now-infamous founder of Lambda School. Lambda School was rebranded to BloomTech after their first wave of scandals, which was rebranded again to Bloom Institute of Technology after their recent scandal (which resulted in Austen being banned from all student-lending related activities for 10 years). The two of them are prolific social media users and have an incredible ability to rewrite their own stories through sheer volume of social media postings and articles.