Within two weeks of launching, I was making six figures as a creative person.
I didn't change my videos.
I didn't change my music. I just put up a Patreon page and other creators saw that.
I'm not PewDiePie. I'm not, like, top of the pack here.
I'm like a middle of the road bald YouTuber.
Jack Conte wasn't some starving artist eking out a living when he landed on the idea for Patreon.
In fact, he and his wife's indie band called Pomplamoose was pulling in about $400,000 a year at its height.
They had branded merch and mp3s, toured the country, building a dedicated fan base.
And they even had employees with health benefits and a 401(k) match.
It still does. But after spending three months and maxing out his credit cards to produce an intricate music
video for the song Pedals, Jack found himself burned out, sitting alone, literally crying from exhaustion.
And I sat there in a puddle of bottled water, crying like a baby.
And it was so dumb.
Even though that video would go on to rack up millions of views, he knew that the amount of money it would generate
would pale in comparison to the effort he put into creating it.
He felt there had to be a better way for creators to get paid for their work.
There are three numbers to look out for in this story.
$10,000. The amount Jack spent on the Pedals music video.
Three. The number of creators who signed up for Patreon at its launch.
And $400 million.
The total outside investment the company has raised so far.
Today, Jack and his co-founder, Sam Yam, are weighing the cost benefit of taking the company public.
Bet. Okay, so here we go.
Here's how Jack Conte and his co-founder Sam Yam built Patreon.
For CNBC Make It, I'm Nate Skid.
This is Founder Effect.
Jack grew up in Marin County watching Wallace and Gromit stop-motion cartoons and dabbling in the arts from jazz and
acapella to video production.
He was eventually accepted to Stanford, where he started down the STEM path.
I don't think I've ever talked about this, but I just remembered my college essay.
You know how you have to write like an essay to colleges?
I wrote my college essay about a clay animation that I made.
But while his head was in STEM, his heart was in the arts.
So he switched his major to music.
His freshman roommate was another young aspiring musician, Sam Yam.
I ended up even going and performing at Carnegie Hall.
After graduating with a degree in 2006, his parents were excited to hear about his plans for grad school.
There was just one problem.
I wasn't going to get a master's.
I wasn't going to enter the workforce.
Instead, I was going to be in a pop band.
That was the tough conversation with my parents.
What was that conversation really like when you told them?
I mean, was there...
Did they give you like an ultimatum or anything like that?
Were there tears?
I sat down in the kitchen at 3 p.m.
and I sat down at the table and my mom said to me, Jack, you can tell me whatever
you want in the whole world.
You can tell me anything you want as long as you tell me you're still going to grad school.
Jack told his parents about his plan to make music for a living, and his dad gave him some tough love advice.
Look, Jack, I know you like to play piano, and I know you like to sing, but you're no Mel
Tormé is what he said to me.
And I mean, he's not wrong.
Jack and his soon to be wife, Nataly Dawn, formed Pomplamoose in 2008 and slowly began building a business out
of their music.
But there were two seminal moments that led him to the idea for a platform that connected creatives to their
audiences in a financial way.
The first came from a video Pomplamoose posted on its YouTube channel promoting a book drive for the Richmond
School District in the East Bay.
11,000 Amazon packages arrived at the school from Pomplamoose fans.
It's like $140,000 worth of books, and I look up from something like that as a creative person
and I'm like, Damn!
But in 2013, he drained his savings, maxed out two credit cards, and spent months producing a
music video for that song, Pedals.
At the end of the process, when we filmed the final shot, I literally collapsed, knocked over a bottle of
water, and so it just fell over and just pooled all over my lap.
And I sat there in a puddle of bottled water, crying like a baby.
And it was so dumb.
The inequity between the effort required to produce high-end creative content and the revenue generated from it was
stark.
My ad revenue to this day on that video is less than $1,000, and it has 2.5
million views and thousands of thousands of comments.
Right before I post this video is when I started realizing something isn't adding up here.
I put in so much work to this thing and it's going to reach a lot of people, but I'm not going
to be paid for it.
And that was when I sketched out the idea for Patreon on 14 pieces of printer paper and and called up Sam.
Everything I've read, this is a little bit loose in the history of Patreon.
It's like, how did you... Did you guys keep in touch the whole time?
And like, we're going to figure something out to work together?
Or were you just like, Sam's the smartest guy I know.
We got to get this figured out.
It was a little bit of both.
And I was like, no, no, no. I want to, I want to pitch you this vision.
Like, I've got to meet in person.
And and I.. And I want you to sign an NDA first.
I asked you to sign an NDA, but I'm a fricking creator.
I'm not a businessman. I'm not an entrepreneur.
And what you told me was, Jack, don't worry about NDAs.
Ideas are cheap.
It's all about execution.
Everybody's got ideas.
What matters is making the idea come true.
So don't worry about telling people your idea.
Nobody's going to care.
That's what you said.
I literally said, "Nobody's going to care about your idea.
You can just tell me and I'll give you that feedback."
And then you came and you pitched this idea, and I was like, "Jack, don't tell anyone.
We... No one else because this is brilliant.
We're going to get started now."
We like did that agreement through email and then we went off with it.
What do you guys do next?
Did you spend Pomplamoose money to get this off the ground?
Did you like just bootstrap it yourselves?
We didn't have any money.
I had no money. I had spent all my money on this frickin robot music video.
So we weren't spending money.
We were just trying to figure out how to get this thing out there.
I wasn't paying Sam.
Like, we agreed to go in this together as partners and I sent Sam an email.
We need to use a lawyer.
We didn't incorporate.
We didn't... We didn't do frickin LegalZoom.
We did nothing. I sent Sam an email and I was like, "Sam, let's build this thing.
Here's the rough agreement.
Do you kind of agree to this roughly?"
And he was like, "Yes, I do.
Let's go." And then we went.
So there was no infrastructure.
There was no strategy.
There was no business plan.
There was no deck. There was no TAM analysis.
There was no market sizing.
We had to buy the website, which we did, and it was like $10.
And, and then I think, Sammy, you had to, you had to spin up some
services to kind of get the thing off the ground.
But that was minimal cost because we had no traffic.
But but that changed actually when we when we launched.
It got it got pretty, pretty big pretty quickly.
Jack scoured YouTube for creators he thought could benefit from Patreon's model and built a spreadsheet of names.
He reached out to 40 of them.
And 40 out of 40 said no.
And we ended up launching with just me and my girlfriend and our roommate.
The but is I had a feeling that when this came out and people saw it working,
they would change their minds.
What date do you did you go live with your content on Patreon?
May 7th, 2013.
Here's how Patreon works.
Creators sign up for one of three tiers of service that cost 5, 8 or 12% of the revenue they generate,
depending on the services they require.
YouTube takes 45% of ad revenue.
It stems from a different philosophy of the world.
Right? It's like it's not just accidental that those pricing philosophies are.
There's such a gap in those.
Our purpose in the world is to pay creative people.
And so we're trying to build a system in which creators can take home almost everything.
Right?
Once creators saw how effective Patreon was at helping them make money, interest in the platform
grew exponentially.
Within two weeks of launching, I was making six figures as a creative person.
Like within two weeks of putting up a paycheck.
I didn't change my videos.
I didn't change my music. I didn't change my anything.
I just put up a Patreon page and other creators saw that.
You know, I'm not PewDiePie.
You know, I'm not like top of the pack here.
I'm like a middle of the road bald YouTuber.
Over 1,000 people signed up the day Patreon went live.
Patreon's operation quickly outgrew their ability to manage it.
So they set out to raise $700,000 in their first round of outside investment.
It didn't go well.
It wasn't until I went in and I literally just pitched the robot music video story.
I just went in and I showed them pictures of the Millennium Falcon.
I was like, "I built this with my bare hands.
It took me three months. I worked 19 hour days and it got millions of views.
And I got paid $200.
And that's. And we have to fix that."
But it wasn't until I was really kind of able to just be myself.
I think that people saw that, like, there was a real problem here that a real person was having
and that Sam and I were the right team to solve that problem.
Freestyle Capital took the whole $700,000, then the floodgates opened up.
I want to put in the full amount.
And so that filled up the round immediately.
And we had already been in touch with a few other investors who are still kind of on the fence.
And once we told them that the round was closed, we filled up the full $700,000.
They ended up raising over $2 million in their first round, which came in handy.
It was time to scale, but there were too many threads to pull at once.
Their first hire handled operations and he built out everything from human resources to creator
partnerships and payroll.
Next came engineers and tech support.
For many months, Sam was the only engineer.
And so, you know, when we launched, I think a lot of folks don't know this.
We launched even before we had before Sam had written payments.
We launched on May 7th.
Payments was not written yet.
So Sam had 23 days to write payments before the first of the month when we charged credit cards.
I mean, that's kind of crazy that you guys launched before you could do the thing you were trying to sell that you
could do.
Right? Hey.
We want to be able to get this idea.
We were so excited in front of people as quickly as possible.
And and we did.
We put it out in front of there.
We hadn't done the actual processing of taking that money.
One of the first things users asked for was to be able to use PayPal, but the team hadn't automated payments yet.
Which meant they spent countless hours manually approving thousands and thousands of payments.
I think it took us, like, over a year.
Right, Jack? Before we had even sent $1,000,000, we put that whole big poster up and we were celebrating it.
And in retrospect, now you look at us being able to send over like $3 billion now to
creators. Like, the scale on which a lot of this has has grown has been extremely rapid.
But even at that time it felt like things were growing quite quickly.
Patreon has put up some truly impressive numbers.
So far, it has sent over $3.5 billion to creatives.
And there are over 250,000 creators on the site generating recurring revenue, some of which are pulling in up to
$10 million a year with 40 employees and they even have office space.
I think the long-term trend here is there are now hundreds of millions of creative people around the
world.
You know, creation tools like this phone that we all have in our pockets.
Right? There are billions of these and they take better videos than the
cameras used to film some of my favorite movies ever created.
We have the distribution figured out.
We have the creation tools that are cheap and ubiquitous.
The last thing is the business infrastructure required to help creative people build real, sustainable,
awesome businesses from their work.
That's the last leg of the stool.
But growth at that scale comes with costs and incredibly different decisions that have to be made.
Jack and Sam say they're debating right now whether or not to go public.
How much total investment have you guys gotten so far?
It's it's a little over $400 million in the total that Patreon has raised since the beginning of the company.
Jesus Christ, why not go public?
So the sort of the plan for Patreon here, what I want for the company and what
matters to me.
I want there to be a company in the world that looks at the world through the
eyes of a creator and solves problems for creative people.
How does that work with shareholder, like shareholders coming first?
Because like, it can't be both.
That is my job and that is the hard part of the job.
Here's what I believe. I believe the thing that is best for creative people is best for shareholders over the long run.
Now, they may not know that, but our ability to trade for creators, our ability
to always do what is in a creator's best interests over the long run.
I believe that the companies that do that well are the companies who build the most value and the companies who do
the best for shareholders in the company.
Who do the best in the market.
Now there's a second component of it, which is the design of our business model.
We don't get paid unless creators are successful.
What that essentially means is we don't have to choose between people and profit.
I don't know, man.
This is where I get... where I get iffy.
Is that, like, I believe in you because you had the experience of spending your $10,000.
So that's in your heart.
Shareholder interest is would they pay 6, 9 and 13%?
How how far could we get them to go while they would still see value over us, over somebody different?
You ask a really good question and I don't want to brush it off for soundbites because it
is it is the core, I believe, of my job.
And it's hard. And I guess I just want to acknowledge that there isn't a silver bullet solution
here. The thing that I have learned about this.
Is that it's everything that you do.
It's the people you hire.
It's the investors you bring on.
It's the way you start all hands.
It's the messages that you send to the team.
It's how I write and how I speak.
It's who we hire and who we promote.
It's who we let go. It's our systems and processes internally.
Everything has to bleed that creator-first mindset.
Everything has to reinforce that the company exists to do right by creators over
the coming decades.
Everything that we do in the company has to bring that into the foreground and be in a spotlight
at the company. And any slippage on that is scary AF
for me, right? Like, I want to build a system where we are thinking about creators
all the time and they're the top of our minds.
And I'm not going to pretend like that isn't hard.
There's always a a risk that the company shifts in balance and that's a risk I think
we've seen play out with lots of other companies.
I don't want that to play out at Patreon and that's why it's like the top thing on my mind every morning when I get out
of bed. So I guess I just want to acknowledge the critical importance of that question that you asked.
It's the right question. And it's the thing that I that I keep in the front of my brain.