PayPal, the giant digital payments company that was spun off from eBay last year, has had an up-and-down relationship with the business of crowdfunding over the years, but there are some indications that this could change. We’ve been hearing that PayPal was interested in buying GoFundMe — the crowdfunding site that lets people raise money for both serious causes and lighter life events — potentially for a price above $1 billion.
It’s not clear how far conversations proceeded between the two, or if they are still active.
Both GoFundMe and PayPal said their companies do not comment on rumor or speculation; several investors and others we contacted also declined to comment. We believe conversations took place among a limited group of senior people.
Co-founded by Andrew Ballester and Brad Damphousse in 2008 in San Diego, GoFundMe has been on a growth tear. In 2015, the startup — which sits alongside others like Kickstarter, Indiegogo and Tilt, all covering different kinds of crowdfunding — raised what appears to be its only significant external funding: an undisclosed amount of money from a group of investors led by Accel and Technology Crossover Ventures (also including Iconiq Capital, Greylock and Meritech). A month later, it was revealed that Stripes invested in it, too.
As part of that transaction, the investors took a majority stake in the business, buying out the two founders in the process; installing an Accel venture partner, Rob Solomon, as CEO; and valuing the business at around $600 million. At the time, GoFundMe was estimated to be processing $100 million per month in funding for the different campaigns using its platform, growing 300 percent year-over-year.
For PayPal, a closer relationship or acquisition of a crowdfunding site would be an interesting — if surprising — turn of events.
Earlier this year, PayPal stopped offering Purchase Protection for payments made on crowdfunding platforms. The company has had a rocky relationship with the crowdfunding community, with some notable cases of freezing accounts. One of the problems for PayPal is risk management, and specifically whether it would be liable for chargebacks — that is, if a person contributing money decided that he/she wanted a refund.
At GoFundMe, PayPal was removed as a payment option altogether some time ago, replaced by a combination of Stripe and WePay. The reason given by GoFundMe was that these two allowed people to pay directly with debit or credit cards on a campaign page, and gave GoFundMe more control over the payment experience.
Earlier this month, GoFundMe took the issue of purchase protection into its own hands: it launched its own form of limited guarantee for donors and fundraisers, who respectively can claim up to $1,000 and $25,000 in the event of a campaign gone wrong. The guarantee for now is only applicable in the U.S. and Canada.
However, there are reasons why PayPal might be interested in giving crowdfunding another chance, and perhaps getting involved in it in a deeper and more serious way.
GoFundMe, which focuses on funding causes and events, may have had its share of controversy, but it’s also been a strong platform for bringing out generosity and goodwill. It’s also been very popular: one source described it as “printing money”.
A potential buyer could continue to operate GoFundMe as a separate entity. Or more strategically, the company would be a strong complement to PayPal’s existing business, which includes its ongoing relationship providing payments services to eBay, physical world point of sale, payments in third party apps through Braintree and P2P payments.
Getting involved with a very popular crowdfunding platform would give PayPal another channel for driving transactions, and it would open the door potentially to a raft of new users.
GoFundMe, like other commerce platforms, takes a 5% share of the total transaction volume, in addition to a small additional fee through the commerce platforms it uses. Because the site basically operates on the principles of an online social network and (today) relies on outside payment providers, it has little overhead — meaning the gross margin for an operation like this is likely very high.
And integrated with PayPal, GoFundMe could become even more valuable.