Deal Abstract

Mature startup is kicking off the $5m new SEC raise limits. Almost finished round within 24 hours of launching. Marketplace for digital goods trying to enter the subscription economy.

Financials (VRB)

Question	Notes
1. Fundraising Target?	$5000000
2. Fundraised So Far?	$4891362
3. Pre-Money Valuation?	$100000000
4. Previous Year's Annual Revenue	$4923912
5. Previous Year's Annual Net Income (+ Profitable, - Burning Cash)	~$288092

Source

The 6 Calacanis Characteristics ("Sow Passion, Not easy mediocrity", or S2 P6 N18)

Criteria	Yes/No
1. A startup that is based in SV?	True: San Francisco, CA
2. Has at least 2 founders?	False: Two
3. Has product in the market?	True: Revenue generating
4. 6 months of continuous user growth or 6 months of revenue?	True: Grew by 1.6m in revenue from 2019 to 2020, so nearly 50%
5. Notable investors?	True: Greatest hits, so many famous inveestors
6. Post-funding, will have 18 months of runway?	True: Profitable, so interesting that they're raising

Source

The 7 Thiel Questions (Every Time Man Profits, Don't Dismiss Serendipity)

Question	Score	Notes
1. Engineering?	2	Engineering is good, but not 10x better. Stripe, Ghost, Substack, Patreon, etc. all offer recurring revenue for subscription.
2. Timing?	3	Creator economy definitely flourishing, but as someone in the creator economy, I didn't really think of Gumroad when building my subscription business
3. Monopoly?	2	Has a good amount of marketshare, but again, as someone in the creator/digital goods space, I don't know anyone using Gumroad
4. People?	2	Founder seems good but not noticing much of a team
5. Distribution?	3	Very good, heavy weight investors and strong brand
6. Durability?	3	Once creators are on the platform and the fees are reasonable, inertia is high. Switching from WP to Ghost for me was a pain.
7. Secret?	3	Taking the sales of digital courses and e-products and pivoting to subscription will take Gumroad to unicorn status.

What has to go right for the startup to return money on investment:

1. Manage the transition to subscription economy correctly; 2. Raise prices and provide/capture more value; 3.

What the Risks Are

1. Growth has not been hockey stick growth, and at $100m for $4m in revenue, that's a high valuation; 2. The marketplace to subscription model has other tools that are gaining more marketshare; 3. Not seeing the rest of the team which tells me the leadership is founder centric instead of team centric

Bonus Muhan's Notes

So, so, so, cool. Not surprised the company almost raised $5m in 24 hours!

Updates

This is where I’ll post updates about the company. This way all my notes from offering to post-offering updates will be on one page.

Review these deal memos every time the startup raises a new round

Test if original thesis still applies

Notice trends in how you think

So, did I invest?

Click here to find out.

Other thoughts, questions, comments, or concerns? Write me at mail@muhanzhang.com and let me know.