get a loan

[chadwhitacre]

Looking at venture capital in #68. How about a loan?

Went to a seminar with Bridgeway Capital today. Gonna try to meet with someone from there next week.

[chadwhitacre]

I'm putting a spreadsheet together:

https://docs.google.com/spreadsheets/d/1zvnAr59LImzeMCRYakhMAAg6MX6JFFcUqq4yM-RNCNw/edit?usp=sharing

Here's a query I used to determine how much Gittip gives out in payroll + gifts each week:

   select substring(timestamp::text from 0 for 8), sum(amount)
     from transfers
    where tippee='Gittip' group by substring(timestamp::text from 0 for 8)
order by substring(timestamp::text from 0 for 8);

[chadwhitacre]

I'm doing two tabs, one without a loan and one with.

[dsernst]

Is there a clear list of what the funds will be spent on?

On Thursday, August 7, 2014, Chad Whitacre [email protected] wrote:

I'm doing two tabs, one without a loan and one with.

—
Reply to this email directly or view it on GitHub
#78 (comment)
.

[chadwhitacre]

On the "Projection: Loan" sheet I show the funds being put into payroll. I think our bottleneck is people to work on Gittip, and if we get capital we should use it to incentivize people to work on Gittip. What do you think?

[dsernst]

Yes, agree, developer bandwidth is of course super-valuable.

I just wonder in part what the loaner would ask when assessing the risk:

• where is the returned money going to come from?
  • How does more capital specifically => more revenue?

By payroll, do you mean that some of this money is meant to let certain
developers completely leave their day jobs?

• Do you have particular people in mind? Or a framework for deciding?
• of course any other CEO would keep hiring info like this close to the
  chest, so I understand if you don't want to go into too many details.

I do wonder what the effect might be for some contributors not invited to
the Funding Party.

• The current Teams structure seems to work relatively well to avoid this
  envy problem:
  • Do you imagine pumping loan money into the existing Gittip team
    distribution, then business as usual?
  • Or if not, what happens to the current team distribution?

Probably helpful to learn how some other leaders approach full-time
open-source devs, e.g. Mozilla, Automattic, Canonical, etc

My overall feeling on this matter is that deciding what to spend money
on is markedly more important before deciding where to fundraise. (Cf the
detailed history of tech startups floundering despite bountiful capital,
sometimes even over-capitalization.) Particularly since Gittip seems more
of a sustainability-type business, as described in Joel Spolsky's
Strategy Letter I: Ben & Jerry's vs Amazon http://www.joelonsoftware.com/articles/fog0000000056.html

Perhaps BountySource could be particularly handy here?

• As a way to distribute incentives envy-free
• As a way to identify markedly High-Value issues ahead of seeking out
  funding

So if there are some explicit "most important" issues, it could make this
whole discussion more concrete and clear.

[chadwhitacre]

Do you imagine pumping loan money into the existing Gittip/Gratipay team distribution, then business as usual?

Yes, exactly. As I see it, we've got a chicken and egg problem:

• The Gratipay team's main source of funding will be people who are making a living on Gratipay.
• We need to improve and market Gratipay in order for enough people to make a living on it that we can be supported by them in turn.

The purpose of taking on debt would be to get out of this dilemma by growing Gratipay to the point where there are enough people deriving value from it that we can be sustained by their direct support. What do you think?

[dsernst]

Ok yes, the benefit for a loan is clearer when you frame it in the chicken-and-egg light.

[dsernst]

Still, I would ask if "growing Gratipay" could be unpacked into more specific & measurable goals?

Examples:

• grow active user base from 2800 to 4000
• get 10% of active users to gift Gittip team

(I'm just making up these numbers for illustrative purposes)

[chrisdev]

@whit537 I found this analysis about Patreon http://research.gigaom.com/2014/02/analysis-patreon-seeing-strong-growth-in-creators-pledges-pageviews/
Which includes this growth chart

[chrisdev]

👍 to @dsernst suggestion about including additional metrics
Although they are implicit in the spreadsheet. You will probably have to do some sort of executive summary for the loan proposal

[Changaco]

Yes, exactly. As I see it, we've got a chicken and egg problem:

• The Gratipay team's main source of funding will be people who are making a living on Gratipay.

I'm not sure that's true. [Removed non-public information. —@whit537]

[chrisdev]

@whit537 I just noticed the FTE column, is this Full Time Employee?
I think the spreadsheet makes a very convincing case for the ability to repay and future viability of Gratipay. However, I think the growth projections past year 3 should be adjusted downwards. Is income for august 2020 projected to be $4,004,137,698,384

[chadwhitacre]

I have a meeting with Bridgeway Capital tomorrow morning at 10am. Turns out a friend of mine is an analyst with them, and he provided this feedback when I linked him to the spreadsheet:

Two issues that you may face - how does an increase in payroll monetarily benefit you? I understand that you will be able to employ another developer, but how soon will Gratipay realize an increase in volume due to the addition? Also, I see that you imply a 35% month over month, is this realistic, or a best case scenario? The best way to win over Bridgeway is to fulfill the mission - employing 1-2 individuals, in a low-income neighborhood. Let me know if you need more advice, but overall, the projections were actually much more thorough than most I've reviewed.

[chadwhitacre]

I just noticed the FTE column, is this Full Time Employee?

@chrisdev Yeah, that divides payroll by the estimate at the top of the column to get a rough estimate of the number of people we can sustainably support.

[chadwhitacre]

However, I think the growth projections past year 3 should be adjusted downwards.

I tried to use a Gompertz curve (you'll see this on the "Assumptions" sheet, and I wrote a gompertz macro that is attached to the workbook somehow), but I couldn't get it to work so I kept the projections to a simple exponential model. How do we achieve this downward adjustment?

[chadwhitacre]

I'm not sure that's true.

Fair enough. We should answer this question with aggregate data, probably in a way that we can easily track over time. An addition to the stats/charts? We should also talk about how to incentivize giving back to Gittip. Both are probably out of scope here, though?

[chadwhitacre]

I guess what's in scope here is understanding what the purpose of taking a loan would be for us. The purpose is to get over the hump identified in Gittip, Year Two, where Gittip clearly works as a platform for making a living, but not yet for us. Our goal is to get Gittip to the point where it is itself sustainably funded. How do we do that? By working on Gittip, continuing to write PRs that close issues, and getting the word out to people who want to use Gittip. Right?

[chadwhitacre]

Whatever the details of our source of revenue (whether our money is coming from receivers that regive to us or from givers that also give to us), the fact is that we haven't yet reached the economy of scale we need to be able to adequately pay the people building Gittip. Like, I'm not making enough money from Gittip. Me, personally. I don't make enough from Gittip to say that Gittip is working for me yet. @Changaco and @seanlinsley are the only others that are remotely trying right now (based on the current team takes). I believe @seanlinsley has a day job, and I think @Changaco also has other work.

I guess what we're faced with is a revenue-per-effort differential. Gittip requires proportionally more effort relative to our revenue at this stage than it will once the business is further along. Right?

[chadwhitacre]

So if we're able to fund the extra effort now, then we'll be able to grow the business to the point where we are taking in more money per unit of effort, and it will be enough more money to comfortably pay back the loan.

[dsernst]

I hear your thinking, but some of the growth may also limited by time more
than anything else.

One question: who's legally obligated to the debt? You in a personal
fashion? Gittip LLC— which in name is you, but if the debt is defaulted
on, someone else would try to seize assets?

On Sunday, August 10, 2014, Chad Whitacre [email protected] wrote:

So if we're able to fund the extra effort now, then we'll be able to grow
the business to the point where we are taking in more money per unit of
effort, and it will be enough more money to comfortably pay back the
loan.

—
Reply to this email directly or view it on GitHub
#78 (comment)
.

[chadwhitacre]

some of the growth may also limited by time more than anything else.

Right. Money buys us time.

The loan would be to Gittip, LLC.

[chadwhitacre]

I was calculating our growth wrong. Now it looks like we've averaged 12% growth over the past 23 months (with a standard deviation of 10%). During our best run, from January, 2013 through February, 2014 (14 months), we averaged 17% growth (σ = 6%).

[chadwhitacre]

Still, I would ask if "growing Gratipay" could be unpacked into more specific & measurable goals?
👍 to @dsernst suggestion about including additional metrics

My goal is basically for me to make a living via my take from the Gratipay team + my personal receipts - my own giving. I want to focus on growing the income to the Gratipay team so I can take more from there; I don't care if my personal receipts go up (though if they were to go down significantly that'd make a difference to my calculations).

I receive about $520/wk right now and I give $120, so call it $400 for personal. I need about $1,000 per week to live modestly in my town (cf. the U.S. median of $51,017 mentioned in Year Two), so let's say I need to be taking $600 per week from the Gratipay team. I'm not comfortable taking more than 20% of the total income because we need 15-20% for operations/savings and I want to leave plenty of room in the payroll for others. $600 is 20% of $3,000, or $13,000 per (normalized) month.

In Gittip, Year Two, I set a goal of reaching "our first $100,000 week by June 1, 2015." That's $433,333 per (normalized) month. If we maintain the 3% income to volume ratio then our payroll would be ... $13,000! This suggests that reaching our target of moving $100,000/week coincides with my personal target of taking $600/wk, and that the $100,000 volume goal is a suitable proxy for "reaching sustainability" for the Gratipay team as concretized in my own personal ability to be sustainably funded on Gratipay.

To hit the "first $100,000 week" goal we will need to see 25% average monthly growth (AMG) for the next nine months. Our current best nine-month run was March, 2013 through November, 2013, and we only achieved 19% AMG during that run, so we would need to beat our current best run by six percentage points AMG in order to hit the "first $100,000 week" target. Which is to say, it looks like we're not going to achieve this goal.

I'm going to use 17% as our best-case scenario because that was our longest sustained run. I'm using 12% for our likely scenario since that encompasses the most history. I'm using 2% for our worst case since that is one standard deviation below our long-term average.

Scenario	AMG	Months to Sustainability
Worst-Case	2%	106
Likely	12%	18
Best-Case	17%	13

Assumptions:

• Sustainability is defined as Chad making a living on Gratipay.
• $100,000 per week in volume is a proxy for sustainability.
• The Gratipay team maintains a 3% income to volume ratio.
• I take 20% from the Gratipay team (I've just upped my take to 20%).
• My personal receipts/giving stay more or less steady.

[chrisdev]

No your original calculations are about correct. Your total growth from month 10 to month 29 is (55311/6498 -1)* 100 = 751.2%
So the average monthly growth rate is 39.537 %

[chadwhitacre]

The purpose of a loan would be to artificially sustain the Gratipay team until we reach sustainability. I would start taking $600/wk immediately. @Changaco @seanlinsley Are you able to estimate what you'd expect to up your take to if we receive a loan? Really it'd be good to hear from all team members on this point.

[chadwhitacre]

No your original calculations are about correct.

Then why am I only seeing from -9 to 25 percent growth month to month in the new "Growth" column I've added? What am I doing wrong?

[seanlinsley]

Normally my limitation isn't money, but time. It'd be easier to estimate how much I'd up my take (and my time dedication) if I was a contractor instead of working as a full time employee elsewhere.

If I were to work for Gratipay more-or-less full time, I'd imagine I'd base my take on some fraction of a normal contracting rate, multiplied by the hours I actually put in.

[chrisdev]

Ok the average growth rate is misleading.
Based on the Compound Monthly Growth Rate we have this formula
((End Value/Start Value)^(1/(Periods - 1)) -1
((55311/5439)^(1/(24 - 1)) -1 = 10.15%

[chadwhitacre]

@chrisdev Hah! That's a third number again! :D

[chrisdev]

Well it only takes the the start and end into account but it's close to your average of monthly growth rates so we go with your method :)

[chadwhitacre]

Who was working with you on Gittip at the time? There was nobody working full time, right?

Correct.

[chadwhitacre]

Personal loan denied by LendingClub.

[chadwhitacre]

Personal loan denied by Prosper:

[chrisdev]

@dsernst @whit537 Why use Kickstarter when we can use the GitTip team infrastructure.

Let say we have want to raise $5,000 for the loan downpayment, then we could get for example 10+ of our current team members to give $125 for 4 weeks (or something like that) to fund this project. As I said before its not a loan or an investment with a guaranteed return. We are investing in the future of gittip, hoping that it can become viable and we may be able at some future point we may feel that we can "up our takes" on gittip. But as with any kickstarter project, the reward is really psychic i.e ensuring that Gittip keeps going so that others can benefit.

Of course we can do bigger projects i.e raise more money but I say we start small.

[tshepang]

I don't like the idea of taking a loan; I'm glad the applications were rejected. I think just do Gittip part time @whit537, and don't be too concerned that the growth will slow down. I believe there's a lot more momentum now than back then when you were practically the only person (?) working on Gittip.

[chadwhitacre]

@tshepang Only the personal loan applications were rejected. The business loan applications are still open.

[chadwhitacre]

Okay, let's talk about a funding campaign for Gittip. We have 2,856 active users. 201 are giving to Gittip. 2,655 active users are not giving to Gittip. My minimum requirement is an extra $500 per week, so let's say that our target is $1,000 for the Gittip team. We're at $470 right now. We need an average of 20¢ each from the remaining 2,655 non-paying users. How about a prompt at the top for logged-in active users? Something like this:

[chadwhitacre]

PR opened at gratipay/gratipay.com#2629.

[chadwhitacre]

I had a call with LendingClub. It sounds like we are being efficiently moved along their conveyor belt. I am given to understand that if I upload a few more documents into their website that we will be speedily approved for the loan, meaning we could have $22,050 in our bank account some time next week(!). Eric was looking at our charts and was like, "That's some impressive growth." Not nuthin', folks. Not nuthin'.

To be honest, I'm impressed with LendingClub's product. It's very neat and tidy and efficient. No b.s., but with plenty of stats for those who want them, as well as a helpful, uncluttered knowledge base. We could do much worse than to emulate LendingClub.

In our worst-case scenario, where we only grow 2% per month, we hit 1.3x after 6 months. What we would do at that point is drop payroll to $0, and I would get a job. At that point we'd have another year until Gratipay ran out of cash, and at that point we'd only need $7,000 or so to pay back the loan. In other words, I believe that in our worst case scenario, we will still be able to avoid defaulting on the loan and jeopardizing Gittip, LLC's assets, namely, our database. I've added a sheet with these numbers.

That said, I really, really believe that we'll be able to find another growth streak in the next six months. Don't you?

[chadwhitacre]

But you know what? I'll never get a job again. I'm ruined. I'd rather uproot my family and live in a yurt in the woods than hide my labor behind a corporate face ever again. I can't do it. I'll never be able to do it.

[chadwhitacre]

Ooh! I had it wrong: if we turn payroll off and essentially just let Gratipay coast, we will easily pay off the loan even if Gratipay shrinks at 2% per month for the remaining 18 months of the loan. There's no reason that we shouldn't be able to avoid defaulting on this loan. I believe we can keep Gittip, LLC's assets safe, including the db.

[chadwhitacre]

I don't think we should go for a larger loan, because (a) it's less clear that we absolutely need it and what exactly we would spend it on, (b) it exposes us to more risk, and (c) it will take more time and effort to secure. We can turn LendingClub into a news item if we want to.

[chadwhitacre]

Dropping to part-time on Gratipay and finding a job would be, for me, like switching to Django. I'm just not personally constituted to do that. Sorry. :-(

[chadwhitacre]

My proposal, therefore, is this:

1. Let's launch Let's ask people to support us gratipay.com#2629 ASAP, with attendant blog/Twitter push. We have no idea how that will perform. For all we know we could end up with $1,000/wk within a week.
2. Let's keep moving along with LendingClub, and assuming Let's ask people to support us gratipay.com#2629 doesn't pleasantly surprise us, let's pull the trigger w/ LendingClub after next week's payday, with money to land the week after, before September 1. Until then, I'll try to keep the door open with Bridgeway as a fallback.
3. Would any of you—@dsernst @chrisdev @oakes et al.—be willing to help me personally for a few weeks on Gittip while options (1) and (2) solidify? My goal is $1,000 per week. I will repay you with earnest and long-lived gratitude, and redoubled effort to lead Gratipay to be the best it can be ... and I'm happy to trickle the money back to you once (1) and/or (2) come together.

"This is the life you chose. Accept it."

[chadwhitacre]

Received in private email. Reposting with permission:

Chad,

I encourage you to consider a bank loan to be the last and worst of your options. Loans from friends can also get messy, but are preferable to a bank or similar institution that will have a lien on your home, charge interest, and make sustainability more difficult since you will need more funds to pay it back. Crowdfunding would be much better -- though that's a guess, since I don't know how it works in detail. It would seem the first thing to try is appealing to the folks who are using Gittip now a la Wikipedia's appeals, as you mentioned yesterday.

The ideal is to earn your living through Gratipay, but Gratipay has to exist for that to happen. Up to this point you've appealed to the tech community for help in developing Gratipay and also for funding. But I've thought one of the main distinctives of Gratipay is funding through lots of small donations. To have lots of small donations Gratipay has to be accessible to lots of people, which is what you are working towards, as you were saying yesterday. So the issue is how to be funded before Gratipay can be your source of funding, if an appeal now does not bring in the necessary funds. I suppose a crowdfunding source of income would be in line with the ideal -- i.e., looking to people's generosity to provide for you. For what it is worth, I do not see working part time as counter to the Gratipay ideal. And now that you have more of a team to work with you perhaps you can keep making progress on Gratipay even if you have to work 10 hours a week for someone else. For what its worth, I think working part time is far better than taking out a loan -- it is not in keeping with the Gratipay ideal any more than working part time and it can get nasty.

Just some thoughts, fwtw.

Dad

[chadwhitacre]

Loans from friends can also get messy, but are preferable to a bank or similar institution

Of course, I could always go to friends and family for a loan if it looks like we are in fact going to default on the bank loan. It could be wise to communicate with these friends and family now so they're not as surprised when it happens. But then of course once I'm in that conversation it's going to be like, "Why don't you just borrow money from me now?" Hmm ...

I've added an "apocalyptic" scenario that shows us shrinking by 5% per month starting now. If we maintain 3% income to volume and turn off payroll after six months, we run out of money in month 19, with four payments left (~$4,000).

[chadwhitacre]

@dsernst When you raised money from friends and family, was it a loan? What were the terms?

[dsernst]

No, all has been for equity. No loans. urBin used convertible notes,
although if we were doing it again we'd probably use the new Y-Combinator
designed SAFE.

On Thursday, August 14, 2014, Chad Whitacre [email protected]
wrote:

@dsernst https://github.com/dsernst When you raised money from friends
and family, was it a loan? What were the terms?

—
Reply to this email directly or view it on GitHub
#78 (comment)
.

[chadwhitacre]

LendingClub is out. They have a $75,000 annual revenue minimum, and last year's revenue to the Gittip team was peanuts ($5,750).

Okay!

[chadwhitacre]

http://www.ycombinator.com/documents/

[chadwhitacre]

The door is still open with Bridgeway.

Me:

I'm only going to be able to show $5,750 business income for last year, and $11,644 for this year. Is it still worth applying for a loan with such low numbers? :-(

Reply:

Did you still plan on preparing projections based off of receiving our loan? If so, I think it’s worth us taking a look at it. Also, do you or someone that would be willing to sign as a guarantor have a secondary income source?

[chadwhitacre]

Yes, we are projecting income to increase, though by how much relative to not having the loan, I don't know yet. Also, I don't have a secondary income source, no, and I don't have someone lined up for that yet. More work to do!

[chadwhitacre]

Decided not to go this route (I've emailed Bridgeway). My wife found work and we're going to try to make ends meet that way.

Good exercise on the spreadsheet though. Let's grow Gratipay! 💃