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Massdrop, an online community for enthusiasts, raises $40M

Massdrop helps members sell their goods and services to others in the community

Financial trends and news by Steven Loeb
August 13, 2015
Short URL: http://vator.tv/n/3f76

Anytime I have ever needed a question answered online, I can be assured that somebody, somewhere, out there in the Internet has already asked it. And likely someone else has answered it. 25 years of Internet archives can really come in handy.

With the huge number of forums and communities out there that have developed over the years, it's a little bit mind boggling that nobody ever thought to go ahead and monetize them. At least nobody tried to do that until Massdrop, a company that hopes to harnassing the experts in communities to rally their followers, and non-experts, into buying a goods and services.

Massdrop announced on Thursday that it has raised a $40 million Series B financing round led by August Capital with continued support from First Round Capital, Mayfield Fund, and  Cowboy Ventures.

The company had previously raised around $12 million, including a $6.5 million round in September of 2014. It has now raised a total of $52 million in funding. 

It was also revealed that David Hornik, General Partner of August Capital, will also be joining the Board of Directors at Massdrop.

Massdrop is a community commerce platform that makes it possible for enthusiast communities to buy together. When multiple people get together and use their combined purchasing power to buy something, it's called a “drop."

"We started this company three years ago with the goal of building better community for enthusiasts, who were passionate and knowledgeable and who care a lot about their hobby or interest. That can be audiophiles, or quilters or people who make ther own beer," Steve El-Hage, co-founder and CEO of Massdrop, told me in an interview.

"There are hundreds of communities online who are supportive, where you can ask questions, and who are very willing to help. They create amazing content and they total hundreds of millions of people, but historically, forums, which used to be cutting edge in 1993 1994, have not really progressed. They are stagnant, and they have seen little to no technological innovation. We wanted to rethink the way groups interact as a community, not by making a better forum, but by creating a better comminication platform."

The founders decided to do this in pieces, and to see what was happening on forums and what could be done better. One thing they saw right away: forums had become places for people to buy and sell goods, but without any structure around them.

"Group buys have been happening on forums since the beginning, where one person comes on, comes up with product to buy, and sees who wants to buy in bulk. It can be hundreds of people, and so they all get a discount. Everyone in the community benefits. For someone into quilting, they would buy the fabric, cut it up and ship it. Or someone in the beer community would buy grains, and repackage and ship them," El-Hage said.

"The problems is that it took six to 12 months to do the shipping, vendors didn't like working with mobs, and there were meaningful tax implications if you were wired a lot of money, since the IRS wants their take. We wanted to make the process better, and we built version in seven days."

The next thing the site did, around seven to eight months ago, was try to tap into the knowledge that its users have, to see it could use how much they know about their categories to help create new types of products.

"We have hundreds of thousands of audiophile users. If a vendor is creating a new pair of headphones we want their their critical opinions, to see what they like, and what could be done better. They can take that feedback, and use it in what they want to make. We had a third party that was good at making headphones. We connected them with people who want to buy headphones, and they sold 10,000 units across multiple categories. They weren't able to do that before.

Massdrop’s user base has grown seven times in the past year, now reaching over a million users. It has a total of 11 categories on the site right now: ultralight, audiophile, mechanical keyboards, everyday carry, men's style, hobby shop, pro audio, quilting, tech and writing. 

The first on the site were for audiphiles, due to the fact that it was an interest shared by the founders of Massdrop.

"The way we started that had to do with what the founding tam knew a lot about, what were were active in and understood. There's a lot of subtlety to the online commuhity, and we didn't want to create something based on market potential. That was important in the beginning, and we wanted to create something that we could add meaninful value to," El-Hage said. 

Since then it has relied on polling its users to find out what they are most interested in, and will likely be adding categories based on photography and men's watches, but there are other factors that go into what gets chosen.

"We want them to be high quality, so we watch the community. Something we are conscious of is to make sure that we look into categories that female-centric. Other factors we look at are the existing online community. We have historically helped communities that have a platform that is inadequate, and where people want to go to something better," said El-Hage.  

"We also check the size, since we like communities that have a broad spectrum of accessiblity. In audio, if you don't care about headphones, there's still tons of complexity, and people who want to go deeper and get more specs. It appeals to amateurs as well as serious experts. We also look to make sure how well served those communities are online. Some have strong communities built around amazing stuff, and which are way ahead of others. We are more interested in really big communities that are stagnant or neglected."

Massdrop's fees vary per product, but averages between 5% and 15% of the price paid.

The funding will go toward building out the team. At this time last year it had 17 people, and now has 70. It plans to have 110 by end of this year, and 250 by end of next year. It will also expands its categories to 30 by the end of next year, necesseitating a build out of its product engineering team.

It also plans to develop new features over the next six to 12 months helping to build out the discussion part of the platform.

"People write tons of blog posts and reviews. Most communities have developed blog a scene, but the toughest part is getting a following. People write amazing content, but its hard to get people to read it. There are quilters that write amazing stuff and they get 30 to 40 views," said El-Hage.

"We have an audio community of hundreds of thousands, which one of the largest audio communities, and they love writing about headphones , and they average 20,000  to 50,000 views per article. We want to be to take people and help them build a following, based on the knowledge they have and the things they care about."

Many of the vendors that are on Massdrop are indie, meaning they are less than 10 people, and they are extremely passionate about the products they make. And Massdrop helps them by creating a community around their products, who can tell them what they want, help them make it and then buy it.

"This is a big leap, and something we haven' t seen done ever. We are the first community ever to have control and ownership over manufactuerers and the design process. And that control comes by having the community play a meaninful role in the process," said El-Hage.


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