For those wondering why Patreon went for more funding even though they should make about $7.5 million this year from the 5% fee they charge: They are growing faster than their current cash flow can handle and need to increase their staff beyond the 70+ they already employ. They are still a "young startup" where they can get this sort of funding where a standard growing business would get a loan.
This still doesn't strike me as a very satisfying answer. "growing faster than their current clash flow can handle" can also be phrased as "they are spending too much money". Big investments always raise big expectations, and can ruin a perfectly fine business (model). Why are they spending more than they earn ? At this valuation, it seems like they are going to need a unicorn exit at some point. How are they planning to do that ?
Business loans are granted all the time on the basis that a company demonstrating profit or a plan to reach profitability (this scenario is more constrained) should theoretically be able to pay the loans back.
Investment rounds are similar in this way but tend to address the "plan to reach profitability" or "plan to exit" scenarios more directly than a loan might. Patreon's making money, but Patreon needs to stay ahead of current and potential competitors, continue to expand, and continue to grow their positive cash flow. Sure they could keep going without raising investments, but if they run the risk of being disrupted by competing implementations of the same business model (a very real risk), it'd be stupid not to raise money to accelerate their growth.
A good software service company does not need to raise so much money to accelerate their growth. Raising more money won't prevent them from being disrupted by a competing implementation. We can argue their action can invite competition from more nimble operations who can take less money from creators. Look up DistroKid,
they compete with companies much larger, with far more funding, yet DistroKid is doing very well as a business.
There are a lot of unsatisfying answers to this question on the thread. Put another way, why does Patreon need $60M when Kickstarter grew to 134 FTEs on $10M investment?
+ Is it that Patreon is managed worse?
+ That the ecosystem has changed in the last few years?
+ Are they trying to do something substantively more intensive than Kickstarter?
Patreon has a slow and steady growth rate, while Kickstarter grew quite rapidly gaining a lot of press from big campaigns brining in huge amounts of money all at once(where Kickstarter got a huge influx of cash each time a 30-day campaign completed). For Patreon, people are more hesitant to sign-up for a subscription type expense. After a popular creator starts a Patreon and gets that initial boost, the growth rate for them is quite linear.
A large Patreon campaign of $60K/month nets Patreon $3,000 while a large Kickstarter campaign of $3M nets Kickstarter $150,000.
That's a really good point. There's no million dollar Patreon yet. Assuming scale and steady-state, Patreon will have a much more impressive model with a predictable month to month revenue stream.
If they are growing faster than the current cash flow can handle, there is a problem with their business model. Growth for this type of service business should bring profits not losses. This is not exciting news for the creators on Patreon, if anything they should be concerned.
Website engineers, database engineers, iOS developer(s?), android developer(s?), website designers, customer support (both for creators and patrons), fraud team (this is huge because they deal with a lot of money and a lot of transactions, they need to be on the look out for money laundering, etc), accounting, administrative, and probably more that I am not thinking of right now.
Don't forget huge costs associated with having a physical office, maintenance related to that, etc, and all the productivity destruction such a thing creates. Compensating for that eats up a ton of money in companies.
Based on comments on HN, people are surprised that a company that "just runs a website" can employ "so many people." But this is a platform processing hundreds of millions of dollars among hundreds of thousands of users.
Here's a rough sketch of possible headcount. I'm making these numbers up, but maybe you can see how it does take a lot of work to make a business like this work.
- Engineering
- 5 - frontend dev/QA (web, tablet, responsive, A/B tests)
- 5 - backend dev/QA (app logic, video/content hosting, scaling up & out)
- 5 - payments dev/QA (payments is huge and complicated, probably a few payment processor partners)
- 5 - app dev/QA (iOS and Android)
- 5 - product owners (web, 2 apps, email, internal tools for agents etc)
- 5 - management (cto, engr manager, director etc)
- Business
- 5 - creator experience, patron experience, outreach, community
- 5 - marketing, advertising, lifecycle email and email campaigns
- 5 - partnerships, relations with big creators, collaborations
- 5 - fraud detection and remediation (fraud is huge, chargebacks are expensive, and the ability to charge $1 to test cards attracts fraudsters)
- Operations
- 20 - agents handling creator/patron requests/issues (more if 24/7 or multiple languages)
- 5 - ops/systems (keep everything running, downtime means less income)
- 5 - HR, recruiting, accounting, etc
I would't take too much stock in that category list, their category system does not work that well. I know they are working a category overhaul (source: I'm the guy behind Graphtreon)
