What This Startup’s Failure to Become a Billion Dollar Company Can Teach Us About Venture Funding

In February 2019, startup founder Sahil Lavingia published a post on the publishing article with an attention-grabbing headline: “Reflecting on My Failure to Build a Billion-Dollar Company.”

In the post, Lavingia told the story of his startup, Gumroad — an ecommerce platform for makers and entrepreneurs — and his journey from a 19-year-old CEO of a venture-backed company with $8 million in venture capital in the bank to laying off 75% of his company in a desperate bid to save it from certain death.

The post struck a nerve, racking up more than 100,000 claps on the publishing site. (For reference, a post that nets 2,000 claps falls within the top 1% of content published on Medium.)

Lavingia isn’t the only person grappling with the pitfalls of the venture capital model. His post is part of a broader reckoning that has been going on within the tech world about the role of venture capital and whether taking on VC funding is really the road to success that popular imagination has made it out to be.

Founders of prominent startups like Buffer and Wistia have spoken openly about their decision to stop taking on venture capital and buy out their existing investors. A movement called Zebras Unite has emerged to urge entrepreneurs to consider alternatives to venture capital, arguing in their manifesto that the current VC pathway “rewards quantity over quality, consumption over creation, quick exits over sustainable growth, and shareholder profit over shared prosperity.”

There are those who defend the VC model. In January 2019-the month before Lavingia published his Medium post-angel investor and vocal VC proponent Jason Calacanis published a blog post titled WARNING: Venture capital is for founders who want to grow fast (duh). “Everyone in Silicon Valley, the founders most of all, understand the deal: VCs give you the money to take a shot at changing the world. Most of the time it doesn’t work out and that’s OK because when it does work out the world’s greatest companies are built.

Clearly, there’s a Civil War brewing in Startupland. And the story of Gumroad provides a glimpse into what that war looks like for the founders on the ground: how a promising startup can go from $8M in VC funding to startup life support — and what happens after.

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