It’s May 7, 2013 and Jack Conte is, in his own words, “totally exhausted, slash, totally wired, in that really weird in-between zone.” He has spent 18 hours per day for the last 50 days building a replica of the Millennium Falcon set from “Star Wars” and shooting a music video in it. When Conte has a vision for something he wants to create, he becomes obsessive. In fact, he maxed out his credit cards to see his vision through on this one.
But this is the moment. He uploads his video to YouTube where he has 100,000 subscribers. It’s not just a music video though: Conte inserted a segment at the end where he encourages fans to support him by going to a website he and his friend Sam have created called patreon.com. There, they will be able to download his new music (for free) and pledge money to help fund each video he creates going forward.
His fans respond with encouragement — and their wallets. While Conte normally makes just $100 in ad revenue per video, his fans commit to funding him with more than $5,000 per video within the first few weeks of the announcement. His creative economics had changed practically overnight.
When he was getting ready to announce patreon.com to his fans, Conte had reached out to 40 other creators asking them to create accounts, but none of them were interested. He, his girlfriend, and his roommate were the only creators on the platform when it launched. But buzz about Conte’s thousands of dollars in patronage triggered hundreds of creators to sign up. And so the story of Patreon begins.
Reading time for this article is about 8 minutes. Feature illustration by Bryce Durbin / TechCrunch. This is part of the Extra Crunch EC-1 on Patreon.
Conte came up with the idea for Patreon in February 2013 due to his own financial situation: the small amount of ad revenue he expected from YouTube wouldn’t come close to repaying the thousands of dollars he was expecting to spend on the “Pedals” music video (it ultimately cost $10,000). He believed there was a small subset of his audience who would be happy to help though, and to do so for each future video. He mocked-up his vision on 14 pieces of printer paper and, unable to build a software platform himself, reached out to his old Stanford roommate, Sam Yam.
Conte, who studied music as an undergraduate in the Stanford class of 2006, gained notability as a musician through the duo Pomplamoose he formed with his girlfriend and now wife Nataly Dawn in 2008. While Pomplamoose considered offers from several respected record labels, they decided they could gain distribution without giving up economics or creative control given the rise of YouTube and other direct-to-fan platforms online. After an initial surge of independent success, they fell into a three-year hiatus, a period in which the ad revenue creators earned on YouTube dried up considerably.
Meanwhile, Yam was building a name for himself in the startup world. After graduation, he continued studying at Stanford for a master’s in computer science (Marc Andreessen wrote his letter of recommendation) but took a leave of absence to become one of the first engineers at the social-mapping startup Loopt.
After Loopt was acquired for $43 million in 2006, Yam founded AdWhirl, which allowed iPhone developers to dynamically select their ad networks. It was acquired in 2009 by AdMob, which Google then bought a few months later. After a short stint at Google, he spent three years trying out new startup ideas. For part of that time, he worked out of the Dogpatch Labs incubator space, sitting next to Kevin Systrom and Mike Krieger as they tinkered with early versions of Instagram, as well as media entrepreneur-turned-VC Josh Felser.
After Conte reached out to Yam about his idea for what would become Patreon, they arranged to meet at Coffee Bar on Bryant Street in San Francisco on March 6, 2013. On that day though, Yam’s focus was elsewhere. He had discovered a startup concept he believed could be a winner: a freelance photographer marketplace called OurSpot. March 6th was the day Yam was unveiling OurSpot to the world, and he had arranged for coverage in TechCrunch.
Conte’s pitch struck Yam immediately. He agreed it was an enormous opportunity and that Conte was the natural entrepreneur to drive it forward as a creator solving his own need. Yam had started their discussion by telling Conte there was no need for an NDA because ideas are a dime a dozen and execution is everything, but by the end, he was urging Conte not to tell anyone else about the idea.
That very evening, even as inbound interest from the TechCrunch coverage of OurSpot rolled in, Yam went with his gut: he began coding the Patreon platform. It quickly became his main focus, although he kept running OurSpot in parallel until Patreon’s seed round closed.
Raising the seed round
The month after Conte launched his Patreon page, he and Yam — who agreed to be equal co-founders — set out to raise their first round of funding, setting a target of $700,000. Yam reached out to Josh Felser, who had passed on investing in OurSpot but liked Yam and was intrigued to hear he had suddenly switched to work on Patreon. Felser met Conte for the first time on June 7th and says he knew he wanted to invest right away. His firm Freestyle Ventures formally committed on June 12th, offering to invest the full $700,000 on a $5.5 million pre-money valuation.
Saar Gur, a partner in the Palo Alto office of CRV, heard about Patreon through Evan Tana, who had worked with Yam at Loopt. Gur saw the sudden rise of Kickstarter as a sign of a broader wave of transformation — the rise of a new online creative class with the ability to crowdsource their financing. He had been evaluating a number of crowdfunding startups that all launched around the same time, and he said Patreon was not the obvious standout among them in terms of metrics. But Yam had solid experience, and based on the behind-the-scenes video about the making of “Pedals,” he believed Conte had the qualities of a high-potential entrepreneur.
As Gur and others met Conte and Yam, Patreon quickly became a hot deal among VCs in the Valley. Some investors who had previously ignored them returned bearing term sheets. The founders decided to raise more than they anticipated: a $2.1 million seed round led by CRV and Freestyle and joined by several other investors, including Reddit co-founder Alexis Ohanian.
When I asked Conte how he decides which VC firms to work with, he explained that it has always come down to which individuals most genuinely understood and cared about Patreon’s mission. CRV and Thrive Capital (which led the Series B and C) won the jockeying to invest and gain board seats, he noted, because Gur and Thrive’s Chris Paik as individuals felt like the most authentic partners.