Patreon fills a unique niche in the online content creation marketplace. Instead of relying on the platform to monetize their content, creators receive direct contributions from their audience. Patreon takes a commission on each contribution, a business model that has many investors wondering how to buy Patreon stock.
Patreon was founded in 2013, as a joint venture between a web developer and a musician who was looking for ways to monetize YouTube videos and believed that other content creators were looking for the same service. The site grew rapidly and was distributing over $1 million per month to creators only a year after its inception.
Let’s take a closer look at Patreon and how to buy Patreon stock.
What is Patreon?
| Patreon: Fast Facts | |
|---|---|
| Industry | Content Monetization |
| Key Product | The app allows direct contributions from the audience to the creator |
| Key Competitors | No direct competitor. Indirect competition from Kickstarter, YouTube, etc. |
| CEO and Co-Founder | Jack Conte |
| Founded in | 2013 |
| Website | www.patreon.com |
| Current Valuation | $4 billion (as of April 2021) |
| Projected IPO Date | Unknown, dependent on market conditions |
Patreon offers a new approach to content monetization. Traditional ad-based platforms like YouTube require very large audiences and have ever-changing monetization algorithms. Patreon allows creators to offer ongoing memberships to their audience. Members offer a monthly contribution or a contribution each time the creator releases work.
Patreon offers three pricing tires.
- Lite charges a 5% commission.
- Pro charges an 8% commission.
- Premium charges a 12% commission.
The average commission rate is 8.5%.
Patreon allows content creators to bypass the increasingly complex monetization processes of sites like YouTube and deal directly with their audience. This system rewards creators who have relatively small or specialized but highly committed audiences, rather than the mass market favored by many host sites.
Creators say that Patreon allows them to focus on creating, rather than keeping track of policies or popular tastes, and provides more consistent revenue. The system allows the creator to retain ownership of their work and retain control over it through a direct connection to the audience, without publishers, producers, or platforms in the way.
Patreon dominates its business and faces little direct competition. Indirect competition comes from crowdfunding platforms like Kickstarter, which are more oriented toward single-project funding, and traditional platforms like YouTube. Patreon holds 10 patents.
When Will Patreon Hold its IPO
A Patreon IPO was widely discussed during the 2021 IPO boom, but that discussion has now faded.
Patreon announced in October 2021 that an IPO was “on the table”, and some analysts speculated that an IPO could take place by late 2021. That did not happen, presumably because the bottom dropped out of the IPO market, leaving an inhospitable climate for offerings and causing many companies to delay their IPOs.
It is not clear when Patreon will go public, but the large concentration of venture capital funding suggests that an IPO is inevitable: these investors will want an exit strategy eventually, and the Company’s growth rate has remained solid.
With the IPO market currently in a deep freeze, the market for pre-IPO shares currently favors buyers. If you believe in Patreon’s future, it may be a good time to consider a pre-IPO investment, if you can find shares available.
What Do We Know About Patreon’s Fundamentals?
Patreon is a privately held company and is not required to file audited financial reports. Publicly available sources offer quite a bit of information about Patreon’s business and finances, but detailed information will only be available when Patreon files a registration statement.
As of January 2022, Patreon was serving 216,000 creators with at least one patron. The total number of patrons was 7 million. Creators were earning $100 million per month from 2 million individual pledges, suggesting that the average monthly pledge size is $50.
Patreon’s annual revenue in 2021 was estimated at $160 million. The Company has announced that it plans to double its size in 2022. Patreon is planning to introduce its own native video platform, new options for formatting, data, and analytics, a revamped billing system, and other improvements. To accomplish these goals Patreon is expanding from 400 employees in 2021 to an expected 1000 by the end of 2022.
Patreon’s list of Patrons has grown dramatically, though 2021 figures remain unavailable.
The figures for creators are more complex.
The explanation for this pattern lies in the pattern of “creator churn” – creators that join the platform and then leave – on Patreon.
The creators that are most successful on Patreon join the platform with an existing audience. Most of them achieve a degree of popularity on another platform before moving to Patreon. Creators who join Patreon without an existing audience often leave the platform because they are unable to attract patrons. Creators generating substantial income from Patreon very rarely leave.
At the start of the COVID-19 pandemic, a large number of new creators joined the platform. Many of them did not bring an audience with them, and the decline from June 2020 to September 2020 reflects their departure from the platform. Growth resumed once those non-viable accounts were shaken out.
Who’s On Patreon?
Patreon serves many different kinds of content creators. Here’s a breakdown of the most popular types.
| Category | Monthly payouts |
|---|---|
| Video | $6.43 million (26.84%) |
| Podcasts | $3.54 million (14.80%) |
| Games | $1.77 million (7.39%) |
| Adult Games | $1.84 million (7.70%) |
| Music | $1.18 million (4.95%) |
| Writing | $1.03 million (4.30%) |
| Adult Video | $675 thousand (2.81%) |
| Adult Photography | $94 thousand (0.39%) |
| Adult Cosplay | $46 thousand (0.19%) |
| Cosplay | $24 thousand (0.10%) |
Source: Backlinko
Almost 70% of Patreon’s contributions and revenues involve creators with more than $1000/month in payouts, and the most popular creators account for a large percentage of revenue.
What We Don’t Know
These figures are sourced or deduced from company statements and are not based on audited financials, We can make deductions on revenue based on figures for the amount of the contributions and the average commission, but we have no data on costs, margins, or profitability.
These factors will only be open to assessment when Patreon files a formal registration statement.
Patreon Financing
Patreon has raised $413 million in venture capital funding. The most recent funding round was in April 2021 and raised $155 million, effectively valuing Patreon at $4 billion. The funding round was led by Tiger Capital, with other participants including Woodline Partners and previous investors DFJ Growth, Glade Brook Capital, New Enterprise Associates, and Lone Pine Capital.
Patreon has held 10 venture capital funding rounds with a total of 38 investors.
| Date | Transaction | Number of Investors | Amount Raised |
|---|---|---|---|
| Aug 01, 2013 | Seed Round | 8 | $2.1 million |
| Aug 12, 2013 | Seed Round | – | $1.5 million |
| June 23, 2014 | Series A | 19 | $15.3 million |
| Jan 16, 2016 | Series B | 7 | $30 million |
| Sept 14, 2017 | Series C | 6 | $59.4 million |
| July 16, 2019 | Series D | 10 | $60 million |
| Sept 2, 2020 | Series E | 5 | $90 million |
| April 7, 2021 | Series F | 8 | $155 million |
| Sep 15, 2021 | Venture Round | 1 | – |
| Nov 10, 2021 | Secondary Market | 2 | – |
Source: Crunchbase
This concentration of venture capital funding suggests that an eventual IPO is almost inevitable, as these investors will press for a profitable exit strategy. The timing of this expected IPO remains entirely uncertain and will depend on the recovery of the overall IPO market.
How Can I Buy Patreon Stock
Patreon is a privately held company and its stock does not currently trade on any public exchange. You will not be able to buy Patreon stock through a conventional broker until the Company has its IPO.
It is possible to buy shares in pre-IPO companies through private share marketplaces. These marketplaces acquire shares or broker shares being sold by early investors or by employees who have received shares as part of their compensation.
This is not a sure thing. Shares in any given company may not be available at any given time, and there may be restrictions on who can buy private company shares. If you’re convinced that a company has a bright future, it’s still worth a try as long as you have fully considered the risks of pre-IPO investing.
As of June 2022, the pre-IPO market presents a unique opportunity for investors with a long time horizon and cash that they are willing to place in a high-risk investment (all pre-IPO investments have to be considered high risk).
Today’s flat IPO market has led to a radical drop in demand for pre-IPO shares. Investors are reluctant to buy shares that may remain illiquid until the IPO market improves. Significant numbers of employees in companies that have postponed IPOs are looking to offload shares. That increased supply and lack of demand point to increased availability and more accessible pricing for pre-IPO shares.
Pre-IPO Secondary Markets
These marketplaces often impose investor qualifications, and there is no guarantee or assurance that they will have available shares in any given pre-IPO company.
- Forge Global merged with Sharespost in 2020. The combined company is now the world’s largest marketplace for private company shares. Investors must make a minimum purchase of $100,000 worth of shares. The minimum may be higher for some companies. Investors may need to meet qualification requirements.
- EquityZen acquires shares from early investors or from employees who have received stock as part of their compensation. They work with companies to assure that transactions will be recognized and sell the shares to investors who meet the revised SEC “accredited investor” criteria. There’s a minimum investment of $10,000, which may be higher for some companies.
- Nasdaq Private Market provides access to private-company shares for investors who meet the SEC’s accredited investor criteria.
- EquityBee is a private marketplace that allows investors to fund employee stock options in return for a share in the proceeds of an eventual sale.
Most pre-IPO transactions must be approved by the issuing company, Beware of unknown platforms offering shares. They may not be approved or legally tradeable.
⚠️ There are substantial risks in pre-IPO investing. An IPO may not take place as expected, and if it doesn’t there may be no market for your shares. Learn more about pre-IPO investing.
📚 Review this guide to how to buy pre-IPO stock before you consider a pre-IPO purchase of Patreon stock!
Invest in the IPO
If pre-IPO shares are not available or the requirements are too strict, investing in the IPO may be a better option. Many IPOs allocate limited numbers of shares to major brokers, and if your broker has a share allotment you may be able to buy at the IPO. You may still need to meet qualifying requirements.
You’ll have to tell your broker how many shares you’d like to buy, and there’s no guarantee that you’ll get that number or any allocation at all.
Several major brokers provide IPO investing access for clients. Different brokers have different requirements.
- Charles Schwab requires a history of 36 trades or an account balance of at least $100,000 for IPO participation.
- E*Trade has no account balance or trading history requirements for IPO participation. You may have to pass a questionnaire provided by the IPO underwriters.
- Fidelity allows IPO participation for clients who meet a minimum household asset requirement or are members of their Private and Premium client groups.
- TD Ameritrade allows IPO participation if they are part of the selling group. Participants must have a minimum account balance of $250,000 or have made 30 trades in the last calendar year.
Buying at the IPO has one major advantage over a pre-IPO purchase. At least you know that after the IPO there will be a public market for your shares. You may not be able to take immediate advantage of that market, though. IPO share purchases typically come with a 30 or 60-day lockup period.
Invest After the IPO
If you’re convinced that Patreon will be a good long-term investment, the simplest way to buy the stock is simply to wait until the IPO concludes. You can then buy through your regular broker with no restrictions or requirements. You’ll be able to sell the stock at any time you like.
You will not get the low per-share price that you’d get from a pre-IPO or even IPO investment, but you’ll face substantially less risk. You’ll also get a chance to see how the market responds to the IPO before you pull the trigger.
If the stock rises straight after the IPO your entry price will be substantially inflated, but that is by no means guaranteed. If you intend to hold the stock for an extended period the difference is likely to be minimal.
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Are There Any Concerns About Patreon?
Any pre-IPO company is a risky investment, especially if the Company has not filed a registration statement, leaving many unanswered questions. If you buy shares now, you are buying them with no knowledge of the Company’s costs, margins, or profitability.
That concern applies to any pre-IPO company. Here are some risk factors that apply specifically to Patreon.
- Patreon is expanding rapidly. Patreon’s dominance of its core business is unassailable. The Company intends to double in size in 2022, introducing new features and services and expanding from 400 employees to over 1000. This is a capital-intensive effort and it’s not certain that Patreon can effectively integrate the rapid expansion.
- There may be limits to growth. Patreon has gone on a remarkable growth tear as popular creators flocked to the site and brought their audiences with them. A small number of very popular creators still generate a large percentage of revenue. There are a limited number of popular creators and as new ones appear old ones may fade away. The scalability of the model remains to be seen. How long can this growth rate be sustained? We don’t know.
- Potential for competition. Right now Patreon faces no large-scale competition in its primary niche. If a major platform like YouTube decides to embrace a direct contribution model, that could change very quickly.
- Valuation questions. Assuming a valuation of $4 billion and revenues of $160 million, Patreon would be trading at 25x sales as a public company. That’s not insanely high, but it’s high, and it raises questions about how high the ceiling is for the post-IPO stock price.
- Potential content issues. Like all content monetization platforms, Patreon has to walk a thin line between freedom of speech and the potential negative impact of highly controversial content. This is particularly true of adult content and political extremism. Failure to achieve a viable compromise could affect the Company’s image and value.
These risks are speculative. They may or may not emerge as significant issues. There may also be risks that are currently not known or anticipated.
Conclusion
Patreon isn’t in the upper ranks of the current unicorn list. Compared to ByteDance ($300 billion) or SpaceX ($127 billion) its $4 billion valuation seems minuscule. It is still a bona fide unicorn (a private company valued at $1 billion or above) and a highly visible company. Its IPO will be closely watched.
Pre-IPO investing is always risky, and in the current environment, both risks and rewards are magnified. Nobody knows when the IPO market will revive, how long Patreon will wait to go public, or even whether it will go public at all.
That elevated risk also offers an opportunity: private equity demand is flat and sellers outnumber buyers. That means more available shares and lower prices.
If you have the conviction, the ability to lock up funds for extended periods, and the risk tolerance, this might be the time to move.
An investment in Patreon – or any pre-IPO investment – is not the right move for everyone. You’ll need a healthy appreciation of the risks and the will to take on a highly speculative portfolio allocation. It’s still an open option that some investors will want to consider!
FAQs
Patreon’s numbers show remarkable growth. The number of creators and patrons using the platform has grown dramatically since the pre-pandemic years. Contributions and revenues have spiked proportionally. Patreon expects to double in size in 2022.
Patreon’s numbers show remarkable growth. The number of creators and patrons using the platform has grown dramatically since the pre-pandemic years. Contributions and revenues have spiked proportionally. Patreon expects to double in size in 2022.
Patreon is a privately held company, and its stock is not traded on any public exchange. It may be possible to buy shares on private equity marketplaces, but share availability is uncertain and there may be requirements. You may be able to get a share allocation from your broker at the IPO, and you can easily purchase shares through your regular broker once the stock is publicly traded.
