Gumroad is raising via a SAFE at a $100 million valuation with a 20% discount. The company’s valuation is quite high when compared to other early-stage startups that are pursuing crowdfunding. However, when taken in the context of Gumroad’s steady and strong growth paired with healthy revenue and recent profitability, the valuation becomes much more reasonable. As a result of these factors, the price score for Gumroad is above average.

The global digital content creation market was estimated at $11 billion in 2019, and it has only seen increases due to COVID-19. In March 2020, as the pandemic was just beginning to take hold in the United States, Patreon noted that 30k new creators joined the platform — a figure markedly higher than usual. These competitor increases, on one hand, bode well for Gumroad because it shows that the entire industry is moving forward. However, it also means that new arrivals onto the scene have a harder time outpacing the already established competitors. Both Patreon and OnlyFans offer very similar services, and the average creator will have heard of (and potentially have friends or acquaintances who use) one of those two large platforms.

 Overall, the massively growing market is more of a benefit than a risk. Additionally, there is no indication currently that this market cannot accommodate multiple winners. Thus, Gumroad’s market score is extremely high.

Gumroad was founded by Sahil Lavingia in 2011. Lavingia previously worked at Pinterest and was the second employee brought on to work for the young company back in 2010. He is also an investor in companies much like his own, giving him the experience as a venture capitalist for a startup as well as the founder and CEO of a startup. This dual level of experience makes him well suited for his role at the head of Gumroad. However, he is the only member on the executive team, which limits the experience and expertise of the team as a whole. Gumroad’s team score is middle of the road due to its small employee list.

Currently, Gumroad offers only a platform for selling digital content. Gumroad creators are able to create a profile for themselves and directly sell their digital creations to customers. They can also set up membership subscriptions for customers who want to receive recurring content. This combination separates Gumroad from Patreon — Patreon only offers membership subscription services to its creators, positioning itself as a platform for creators and fans to interact and support each other. Gumroad brings ecommerce functionality to this structure. It may be more fair to compare Gumroad to OnlyFans, rather than Patreon. Both Gumroad and OnlyFans enable creators to directly monetize their digital content and offer membership subscriptions. Currently, the main differentiator Gumroad can boast against OnlyFans is its transparency. Gumroads publishes its monthly financials via Twitter and holds open board meetings on YouTube. Additionally, Gumroad has plans to expand into supporting the sale of physical creations via its platform, a distinction which would set it solidly apart from both Patreon and OnlyFans. 

The main concern for Gumroad is defensibility. The creation of a platform with similar offerings is not difficult, as already indicated by the number of competitors in the space. However, if Gumroad can continue to expand its functionality and features, it may maintain enough of a moat to stay ahead. Taken all together, the differentiators score for Gumroad is strong.

Gumroad’s performance thus far has been very strong. The company had just under $5 million in revenue in 2020, which was an increase from 2019’s revenue of $3.3 million. Since 2011, Gumroad has raised more than $8 million in various rounds of funding, showing widespread belief in the company’s product. 

 Not only has Gumroad been successful on financial sheets and with investors, but the company’s platform is also very impressive. With more than 74,000 active creators using the platform, Gumroad has seen its creators earn nearly $400 million. With a growing market, an already profitable business model, and continuously growing revenue year-over-year, Gumroad’s performance is a very attractive aspect of its raise. Thus, its performance score is near perfect.

Gumroad is a strong company with few glaring risks. Most notably, the company has a very small executive team, which could increase possible bad decisions made by leadership. Lavingia seems like a solid leader with good experience from Pinterest, but one errant decision with no advisors or larger team to offer advice could hurt the company. 

Gumroad’s growth trajectory could be hindered by one simple fact – the space for platforms like Gumroad’s (which, simply put, allows content creators to sell their content directly to fans) is quickly filling up with competition. Companies like the aforementioned Patreon and OnlyFans have also been growing in popularity in this space as well. Some creators may opt for more ‘brand-name’ platforms, which could slow Gumroad’s growth. Additionally, digital content as a whole may see a decline in popularity after COVID-19 is a thing of the past. . Gumroad has seen good traction thus far, but it is by no means a sure-fire success.

Gumroad ended the previous fiscal year profitable, thanks to large growth in revenue (up to $5 million from $3.3 million). The 74,000 creators that utilize Gumroad’s platform to promote and sell their content have made more than $390 million. This early traction and revenue growth that Gumroad has seen is very promising.

The company is also operating in an industry that has grown rapidly in the pandemic – if Gumroad can capitalize on this attainable market growth (online content creation has been on the rise in recent years as well), it may see its 74,000 creators turn into well over 100,000.

With solid financials and a rapidly growing attainable market, Gumroad is positioned to continue growing rapidly, much like industry competitor Patreon in recent months.

Gumroad has a very solid financial sheet, running at a profit with close to $5 million in revenue in 2020. Industry competitors have seen recent rises in users, and Gumroad seems well positioned to follow suit. With $8.1 million raised since 2011, Gumroad has very solid backing. The main concern for the company is its one-man executive team, which brings increased risk for poor operational decisions to be made. Additionally, if the appetite for digital content decreases as the pandemic ends, the company may find its growth stunted. However, Gumroad’s impressive history thus far provides some reassurance against this risk. Thus, Gumroad is a Deal to Watch.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Ethan Thomas.