>> "Ultimately, we couldn’t find a way to make the business viable. We explored a number of different options—voluntary subscriptions from users, premium features, increased fees—but the resources required to support a high number of lower-volume creators always outpaced our revenue."
I wonder if Patreon ran into a similar problem trying to stay afloat without handing more control over to VCs.
1) The founder makes the case that if they reach a critical mass of "X users," or "Y Transaction volume," or another relevant metric there will be a windfall to be shared.
2) The investor evaluates the viability of the plan based on macro factors and the track record of the founders.
Every startup pitch has a certain amount of uncertainty. In this case, the market for a Patreon-like service was well-understood. The risk in this deal was whether or not the team could actually execute. There's no definitive way to tell if a team will be able to execute or not until you invest.
It turns out that this team has a strong pedigree in community-building, but perhaps less in the day-to-day operation of a market place in a market with an entrenched competitor. They also seemed to be focused as much on achieving ideological milestones as financial ones (which is fine!).
The outcome is unfortunate, but that doesn't mean the bet was bad when it was made.
Because Google and Facebook and several others got started that way. VCs know that the biggest wins often emerge in unexpected ways. And they can pay for a lot of stupid ideas.
Google and Facebook both had technology that was obviously monetizable from the start. They just needed time to build the product and build the monetization features.
This is a rosy way to look at things after-the-fact, but, as far as I understand, the way Google monetized their search (by showing only relevant ads) was still a fairly new business practice at the time. And Adsense wasn't well tested either. Both were bets that ended up transforming the entire online Ad industry...
Did they get funded? They mention explicitely that they didn't follow the VC route because they couldn't answer how to make it viable.
Anyway, Facebook, Twitter and etc started and grown a lot only with the promise that they would be viable someday. It worked out in a big way for Facebook at least.
I wonder if Patreon ran into a similar problem trying to stay afloat without handing more control over to VCs.