TIME Money

PayPal Co-Founder Takes Aim at Credit Card Industry With New Startup

Yelp Chairman Max Levchin Creates New Mobile Payments Startup Affirm
Max Levchin speaks during a Bloomberg West television interview in San Francisco on Thursday, March 28, 2013. David Paul Morris—Bloomberg / Getty Images

“You have to have a credit card. You have to use it. You are going to get screwed and you know it."

The most miserable year of Max Levchin’s life began in 2002, shortly after he sold off his ownership stake in PayPal to eBay for an estimated $34 million. “At the time, I had a fascination with the color yellow,” Levchin told TIME. He would arrive to work in a yellow car, wearing a yellow jumpsuit and hole up in his executive suite, blending in with the all-yellow office paraphernalia. His former direct reports, who numbered in the hundreds, shuffled past the door, “staring at me every morning,” he recalls, “as I would sort of mope around going, ‘My baby’s now been sold to a giant company’ while wearing a yellow clown suit.”

He was 27 years old, flush with cash and adrift in an ocean of downtime. If that sounds like your idea of heaven, then you’re no Levchin. “I literally — I think I started hearing voices,” he says. His girlfriend left him. He wrote 10,000 lines of code, a “minuscule amount,” he insists. His friend persuaded him to take a scenic drive along the Oregon coast. “We saw a lot of very beautiful places,” he says, “and I don’t remember any of it other than the fact that Oregon is a really messed up state, economically.”

Nothing could lift his spirits, short of launching another company, which he did in 2004. It was called Slide, and it was a fun ride down the chute toward another sale in 2010 to Google for $182 million, Levchin says.

Today, he knows better than to slip back into the interminable boredom of easy living. He’s in the thick of a third venture, Affirm, and to sop up the last waning moments of his spare time, he also oversees an investment fund called HVF, short for “Hard, Valuable and Fun.” “Fun” has a very peculiar definition in this case — referring to any massive, globe-spanning problem that Levchin might get to noodle over in his scrappy new office in downtown San Francisco.

Affirm’s 32 employees have set up shop on a quiet street lined by venerable brick buildings, some of which withstood the great fire and earthquake of 1906 and have the commemorative plaques to prove it. Here, Levchin is thriving in his element. His girlfriend came back. They got married and had two kids. He still favors the style of clothing that might diplomatically be called “start-up chic,” a puffy sleeveless winter vest, unzipped and revealing a weathered t-shirt that practically whispers, “I’ve got bigger things to worry about than shopping.”

In fact, though, he does worry about shopping. Obsessively. Levchin has been visiting retailers across the country, asking about the state of consumer lending. He sums it up grimly: “You have to have a credit card. You have to use it. You are going to get screwed and you know it.”

Millennials are ditching the plastic in droves. More than 6 in 10 of them say they have never signed up for a credit card, a group that has doubled in size since the financial collapse of 2007. Evidently they’d rather scrimp on their purchases than get snagged on finely printed fees or mired in debt. “Which is wrong,” Levchin says. “If you are living hand to mouth every month you’re not going to improve your standard of living and you’re not going to scale up.”

Enter Affirm, a startup that that offers consumers the option to split payments over time, which a growing number of online retailers have added to their checkout pages. Users can get instantly approved for a loan by tapping their personal phone numbers into Affirm’s welcome page. From that phone number Affirm launches into the murky world of online data. “It anchors you to a whole host of information that is entirely public, or pretty close to public,” says Levchin. It can scan for social information across social media or dip into proprietary marketing databases or combine that with credit histories. In total, the Affirm team has identified more than 70,000 personal qualities that it thinks could predict a user’s likelihood of paying back a loan. If old fashioned credit scores provide a fixed, black and white portrait of the borrower, Affirm claims to capture that borrower in full, moving technicolor.

The company is so confident in its claims that it puts its own money on the line, extending loans to people who are normally considered a risky gamble. Active duty soldiers, for instance, return home with scant credit histories. A raft of regulations require lenders to extend credit to the soldiers, even if the decision goes against their better judgement. As a result, lenders have historically eyed returning soldiers with suspicion.

“I couldn’t care less about the narrative of why that might be true,” Levchin says, “except that I know it’s actually not. From all the loans that we’ve issued I think we’ve had literally 100% repayment rate from active duty servicemen.” Of course, military service is just one of at least 70,000 variables that can tip Affirm in the user’s favor. The formula is complex by design, so that no user can game the system by, say, posting “brain surgeon” as a new job on LinkedIn and then requesting a fat line of credit.

Whether Affirm will truly upend the rules of lending or foolishly rushed in where lenders fear to tread will depend on its ability to collect interest on loans without resorting to hidden fees. After all, credit card companies do that for a reason: It’s lucrative. Affirm, on the other hand, actually alerts users to approaching payment deadlines and clearly states fee rates before they arrive.

In short, Affirm has to lend at the right rates to the right people. Fortunately for the company, it has $45 million of venture capital to test run its unified theory of lending. It also has no shortage of potential competitors circling in on the hotly contested field of smartphone payments, from Apple Pay, to Google, to Levchin’s old “baby,” PayPal, all competing for the same “under-serviced” customers, as he put it.

But perhaps Affirm’s greatest asset is Levchin himself, who was practically bred for this kind of work. His mother was a radiologist at a Soviet-era research institute, where she was tasked with extracting reliable measurements from Geiger counters. The old Soviet era instruments spewed out a tremendous amount of error data. Her manager dropped a computer on her desk and asked her to program her way to a more reliable reading. Stumped, she turned to her 11-year-old son and asked, ”Do you know anything about this stuff?” The question kicked off Levchin’s life-long love affair with programming, and it made him acutely aware of what data a machine can capture, and what essential points might elude its sensors. He points out that a heartbeat counter may measure 64 beats per minute, but it almost certainly misses a number of half-beats along the way. Affirm, in a sense, listens for those missed beats.

“The fact that we can look at data, pull it, and underwrite a loan for you in real-time is very valuable, because we can literally decide, ‘Hey, in the last 48 hours you got a new job, that changes things a little bit. Now you’re able to afford more,'” Levchin says.

Maybe that’s a hasty gamble, or maybe it’s sound financing. In either case, it’s Levchin’s idea of fun.

TIME

This Startup Thinks Pictures of Onions Can Reveal Changes in the Economy

Fruit and vegetables are common items photographed with the Premise app to help measure inflation

Correction appended, August 25

It’s probably every teenager’s dream to get paid for snapping iPhone pictures. Instead of selfies, though, David Soloff is seeking pictures of fruit carts, health clinics and remotely located schools. His startup is hoping to leverage the vast proliferation of smartphones—and our insatiable desire to take photos with them—in order to bring real-time economic data to the masses.

The new company, called Premise, tracks economic indicators by enlisting armies of local residents to record data about their communities, like the price of oranges at a local market or the physical condition of a local health clinic, via an Android app. Premise pays the photo-takers up to 15 cents for each “observation,” which can be a picture or other data point. The company aggregates all the individual observations to derive broader insights about inflation and consumption shifts in different countries, then sells the data to financial institutions.

Premise’s aim is to provide important economic metrics faster than government agencies, which often only release data in weekly or monthly intervals. The company is currently gathering data in 50 cities across four continents, including locations in Argentina, China and the United States.

“What people experience in their day-to-day lives is frequently really, really different from what the official government or news bureau or stats-gathering agencies tell them about their lives,” says Soloff, Premise’s CEO. “By the time those official numbers come out, the world’s probably changed a lot.”

Soloff points to countries like Argentina — where Premise and a variety of economists have projected inflation to be increasing much faster than the government says it is — as an example of a place where private data sources can be more reliable than official figures. In other countries, such as India, where onion prices leapt 190% in 2013, food prices are incredibly volatile and government-released figures can’t keep up with the rapid changes.

“Almost certainly, in a lot of countries, the government is lying about price changes,” says Gary Burtless, an economist at the Brookings Institution. “It would be useful to know, to ordinary people and to businesses, what the real inflation is.”

How does Premise ensure that its figures are accurate? To devise its economic models, the company has brought on advisors whom Soloff calls the “adult supervision.” Among them are Hal Varian, Google’s chief economist and Alan Krueger, the former chairman of President Obama’s Council of Economic Advisers. To guarantee that data are collected accurately on the ground, Premise vets local residents by giving them test assignments, then evaluating their performance before committing their observations to the official dataset. The company recruits new workers via social media, online job boards and college campuses.

“It’s not an open cast call,” Soloff says. “These are students or people on the way to jobs or people who are doing the weekly shopping for their families at the market.”

0_Task lists
The Premise app assigns users tasks to complete in order to feed the company’s massive data set.

So far, Bloomberg and Standard Charter Bank have signed on to receive Premise’s data, in addition to other financial institutions that Soloff declined to disclose. The company is currently unprofitable, but it has raised $16.5 million in venture funding from bigtime backers like Google Ventures and Andreessen Horowitz.

Soloff isn’t the most likely man to head a high-tech San Francisco data firm. He studied Near Eastern linguistics as an undergrad at Columbia University and has a master’s in history from the University of California, Berkeley. But Soloff believes his humanities background gives him an edge in Silicon Valley.

“I’ve always been interested in systems, how things work,” he says. “Language systems, social systems, financial markets have always fascinated me.”

It also helps that Soloff had a two-year stint as a quantitative analyst at a Wall Street investment bank and co-founded Metamarkets, an analytics tool used for programmatic online advertising.

Soloff’s long-term goal is to expand the scope of Premise into a real-time financial pulse that can provide immediate economic data to not only wealthy investment institutions but also regular citizens. Other platforms have similar aims — the Billion Prices Project, started by a pair of MIT professors, gathers online price listings from more than 70 countries to predict inflation trends from around the world. Such initiatives “have a real value to consumers and businesses,” the Brookings Institution’s Burtless says.

But the devil is in the data, of course. Some economists question whether locally recruited residents can reliably document data for an entire community or country.

“Surveys are of no value unless we can be assured by some means that they are representative of the underlying population,” Barry Bosworth, another economist at the Brookings Institution, said in an email. “The survey will reflect all the biases of the reporter who decides what prices to report. We may use the Internet more in the future to collect data but it will have to be used with some structure to assure that the individual quotes are representative of an even larger underlying population.”

Premise spokesperson Sara Blask said in an email that the company’s contributors capture observations at predetermined locations and intervals to assure that the sample is indeed accurate. “In this sense we are the opposite of crowdsourcing,” she said.

Premise’s dataset should grow more robust and useful as it racks up more observations.

In five years’ time, Soloff envisions millions of people around the world submitting photos and other information to Premise. He believes such a cascade of data could help keep governments more honest in the future. “Rather than relying on the official story, so to speak, [people] have an alternative read that’s generated by the citizens just like them,” he says. “We don’t need to tell them what’s happening—it’s the opposite.”

Correction: The original version of this story misstated the number of locations where Premise has launched. The company is collecting data in 50 cities.

TIME apps

Apple’s iPhone Is at the Center of Another Major Revolution

First Person In The UK To Be Fitted With The I-limb Ultra Revolution Bionic Hand.
Patrick Kane is fitted with a Touch Bionics prosthetic hand on April 23, 2013 in Livingston, Scotland. Jeff J Mitchell—Getty Images

Improving lives in unexpected ways

The most essential app Aimee Copeland has downloaded for her iPhone isn’t Facebook, Candy Crush Saga or Evernote. It’s “my i-limb,” an app that allows her to easily change the gestures her two prosthetic hands can make while on the go. Copeland, who lost her hands after a zipline accident in 2012, used to have to visit a registered prosthetist who had access to special software in order to adjust the grips on her hands for different physical activities. Now, with the i-limb bionic hand and its accompanying mobile app, such changes are as simple as booting up her phone or tablet.

“The two things go together,” she says of the hands and the app. “It really allows me to have a greater control over the i-limb instead of having to go the prosthetist to have any tiny thing adjusted.”

Copeland is just one of the many people with disabilities who now use a smartphone as a tool to help navigate the physical world. A bevy of apps and services are helping not only those with prosthetic limbs but also those with poor hearing, troubled vision and impaired motor skills.

Copeland’s hands are developed by Touch Bionics, a Scottish company that specializes in prosthetic limbs. The company launched its app for Apple’s iOS devices in 2013 in order to provide users more mobility. Previously, changing grip settings would have required downloading software to a PC or visiting a prosthetist. Now the company’s app and the hand can communicate wirelessly and quickly via Bluetooth. “We wanted to move it to a more mobile platform,” says Touch Bionics CEO Ian Stevens. “You’re not going to take a PC to a restaurant with you if you want to reprogram the hand.”

Beyond programming the hand itself, users can also place special bluetooth sensors called grip chips around their home or office to shift their hand to different positions when it enters the chip’s proximity—a chip near a sink, for instance, might automatically shift the hand’s grip to effectively grasp a water faucet. The chips can also be programmed by the i-limb mobile app.

Apple’s ubiquitous iPhone is increasingly becoming a centerpiece of this new ecosystem. The California company has sold more than half a billion iPhones since the device launched seven years ago. Hearing aid manufacturer Starkey Hearing Technologies, for example, offers an iPhone app that allows users to fine-tune audio settings—such as volume, bass and treble—of its hearing aids. Using the iPhone’s so-called geo-fencing technology, users can program their hearing aids to automatically adjust to specific areas, a noisy restaurant for instance or home. Users can also pipe music and phone calls directly into the hearing aids, and even use an iPhone’s microphone to speak into the wearer’s ear from a distance.

Beyond the high-tech features, the ability to adjust the hearing aid’s basic settings has big appeal to users, says Dave Fabry, Starkey’s vice president for audiology. “You don’t have to fiddle around up in your ears or use an additional piece of hardware,” he says. “They just look like they’re doing what the rest of the world is doing, fiddling around with email or text. It reduces that stigma that they’re doing something different with that special device.”

Both Starkey and Touch Bionics say their phone-enhanced products have seen strong sales. Stevens said his company’s mobile app was “definitely a contributing factor” to the firm reaching $20 million in sales last year, while Fabry says Starkey’s app has opened up hearing aids to a new demographic. “We’re seeing young people being more attracted to this,” he says, noting that the average hearing aid user is 69. “It’s been selling like crazy.” Both companies apps are exclusive to Apple’s iOS for now, but they say they have versions for Google’s Android operating system in the works.

These small companies are able to offer innovative apps thanks to the groundwork laid by the tech giants in developing platforms that can cater to the disabled. Apple’s iOS 7 comes pre-installed with a wide variety of accessibility features. A program called VoiceOver helps the visually impaired by reading aloud whatever item a user touches on his iPhone screen, while AssistiveTouch lets people with motor challenges create alternate gestures to interact with their phone. Google’s Android also boasts accessibility features, and the company’s newest gadget, Google Glass, is already attempting to improve the lives of users with disabilities.

Advocates for the disabled still want software makers to do more. While praising Apple as the firm that “has done more for accessibility than any other company to date” earlier this year, Mark Riccobono, president of the National Federation of the Blind, said his group is still trying to ensure that all developers make their apps as accessible as possible.

Though accessibility in technology is hardly standard, experts say significant progress has been made. “In the past, people with disabilities have often been the afterthought,” says Mark Perriello, president of the American Association of People With Disabilities, which works with tech companies to implement new technologies for the disabled. “Now people with disabilities are at the forefront of these technological innovations.”

TIME technology

These Vintage Computer Ads Show We’ve Come a Long, Long Way

These ads from the 70's and 80's remind us of a time when computers came in briefcases and cost "Under $18,000!"

TIME Data

Meet the Man Who Turned NYC Into His Own Lab

Steven Koonin, under secretary for science at the U.S. Department of Energy, listens during the 2011 CERAWEEK conference in Houston on March 11, 2011.
Steven Koonin, under secretary for science at the U.S. Department of Energy, listens during the 2011 CERAWEEK conference in Houston on March 11, 2011. Bloomberg—Bloomberg via Getty Images

Using big data to make a difference

In the mornings, Steven Koonin often dons a light blue shirt and khaki suit jacket, walks out of his apartment above Manhattan’s chic Washington Square park and heads for the subway. As he beelines down the sidewalk, the West Village buildings burp up black clouds of smoke as their boilers are fired on. At Sixth Avenue, an express bus screeches to the curb and blocks the pedestrian crosswalk. And as Koonin sits in the subway, he notices some of the signs are badly placed. “Can we fix this?” he wonders. He gets off at Brooklyn’s Jay Street-Metrotech station and rides an elevator to the 19th floor of a commanding building perched high above his native city. Then he gets to work.

Koonin is the director of New York University’s Center for Urban Science and Progress (CUSP), which is to say, he is the big data guru of New York City. He’s been given a lot of cash, millions of data points and a broad mandate by the city of New York: make it better. No big data project of this scale has been attempted before, and that’s because the tools never existed, until now. “There’s an enormous amount of data out there,” Koonin says with the vestiges of a Brooklyn accent. “If we can use the data to understand what’s going on in cities, we can improve them in a rational way.”

CUSP is both a research laboratory and a school. This year, it will have more than 60 students and 8 full-time faculty members. The students collaborate with the faculty and the city on big projects while they work toward either a Master of Science degree or an educational certificate. About a quarter of students this year will have social science degrees, another quarter each are engineers or scientists by training, and the rest will hail from fields as miscellaneous as film and fashion design. Their collective challenge is to turn numbers, spreadsheets, graphs and charts into a model that makes New York City work faster, cleaner, and more efficiently.

The program is already starting to make policy recommendations to the city, and as the institute attracts more talent, it will begin to play an important role in everything from easing Manhattan’s nasty rush hour traffic congestion, advising on prekindergarten school placement, cutting back on city pollution and helping businesses decide where best to open a franchise. “CUSP is able to work on those projects and take it to a deeper level of making more vetted recommendations,” says Nicholas O’Brien, the chief of staff in the Mayor’s Office of Data Analytics. “They bridge the gap between city data and creating actionable policy for city agencies.”

Koonin grew up in Bensonhurst, Brooklyn and in the late 1960s attended the prestigious Stuyvesant High School, where he and his friends once tried to use an old IBM computer (“it clunked along and had less power than your phone,” he says) to try and figure out the shortest time a subway rider could visit every single city stop on one fare. Koonin would go to the MTA headquarters to copy down timetables and input them into the computer.

Forty years later, Koonin has more data than he knows how to use. There are figures for household water consumption, purchases of goods, noise levels, taxi ridership, nutrition, traffic levels, restaurant inspections, parking violations and public park use; subway ridership, bus deployment, boiler lifespans, recycling rates, reservoir levels, street pedestrian counts; granular demographic breakdowns, household income, building permits, epidemic monitoring, toxin emissions, and on, and on and on. The challenge is making sense out of it, and that’s where CUSP comes in.

“The city has very little time to stand back and ask itself, ‘what are the patterns here?’” Koonin says. “That’s because they’re up to their asses in alligators, as you almost always are in government.”

Koonin would know. After receiving a Ph.D from MIT, he taught as a theoretical physics professor at Caltech before eventually working for BP and then the Obama administration. As Undersecretary of Energy for Science in the Obama administration, he was frustrated by the glacial progress on energy policy. To get things done, Koonin concluded, he needed a novel approach. “I came up with this notion of, ‘I’m going to go instrument a city as a scientist would,’” he says. In April 2012, he was announced director of the newly created CUSP program to make New York a living laboratory for urban improvement. Since then, Koonin has overseen a rapidly growing operation as it dances between 13 city agencies, the Metropolitan Transit Authority, the mayor’s office, and NYU, taking chunks of data and imagining actionable city policy.

CUSP’s temporary location (before it moves into the retrofitted Metropolitan Transit Authority headquarters) is an eclectic mix of high-tech and deep retro. The foyer, with firm orange chairs and dull wood paneling, looks like an Ikea designer recreated a 1970’s-era therapists’ office, but inside, two robots patrol the halls wielding touchscreens. A glass-enclosed conference room has 60 high-resolution monitors that on one Wednesday displayed the city’s taxi pick-up and drop-off data from the evening of May 1, and hundreds of teal and black taxi icons are scattered around a detailed digital map of Manhattan. In Koonin’s impressive corner office with magisterial vistas of downtown Brooklyn, he keeps a classic slate blackboard next to a keyboard. He can fluidly play “You Go To My Head,” the J. Fred Coots jazz standard, and “The Way You Look Tonight.”

“My dream is to be a lounge pianist,” Koonin the data-meister says drolly.

Like a doctor holding a prodigious stethoscope to New York City’s skyscrapers, Koonin needs to give the city a thorough physical before he can write a prescription. “The city has a pulse, it has a rhythm. It happens every day. There’s a characteristic pattern in the rise of economic activity, energy use, water use, taxi rides, et cetera,” Koonin says. “Can we measure the physiology of the city in its various dimensions? And define what normal is? What’s normal for a weekday, what’s normal for a weekend?”

“Then you can start to look for abnormalities,” he continues. “If subway ridership was low, was that correlated with the weather? When subway ridership is low, is taxi ridership high? You get a sense of what’s connected to what in the city. Can we look for anomalies, precursors of things? Epidemics, economic slowdown. So measuring the pulse of the city is one of the big things we’re after.”

CUSP is creating a system to measure microbiological samples from the city’s sewage system, using genomic technology to learn more about people’s nutrition and disease based on their waste. Do certain neighborhoods need better nutritional or hygienic practices? Another project involves a camera fixed to the roof of CUSP headquarters that can see anonymized data of when people’s lights turn on and off and monitor energy usage. When do people go to sleep? How regular are people’s sleeping hours? The institute is also working out a way to help the city’s Parks Department measure how many people use city parks, and what they do in them. (Hint: it could involve lots of infrared video.) The city could then much more intelligently design its public spaces.

“This is opening the door to the possibility that we would very accurately and very comprehensively understand how people would use our public spaces,” says Jacqueline Lu, director of analytics at the Parks Department.

The city’s 8.3 million-strong crowds, packed together on the subway like brightly colored gumballs or streaming through the streets like grains of sand blown by the wind, will be the ultimate beneficiaries of Koonin’s work. On his morning commute, he notes how the city has changed since he was a kid coming up in the public schools. “Everyday it’s really interesting to look at the crowds and see how they interact with one another,” he says. “The city works better. The trains are pretty much on time. So it’s pretty good.”

TIME Startups

How YouTube Stars Can Actually Make a Living

Pedals Music Video—Conte

Patreon offers a new approach to crowdfunding

Being a YouTube star doesn’t actually pay all that well. Just ask Jack Conte, a singer and musician who has scored viral hits mashing up Pharrell songs and stripping down pop hits like Beyonce’s “Single Ladies” as one half of the indie rock duo Pomplamoose. Between the group and his solo work, Conte says his videos can rack up as many as four million views each month on the video sharing site. But all those eyeballs do little for Conte’s bottom line—in a good month, he collects $400 in advertising revenue from YouTube.

“There’s great ways for people to build an audience online right now,” he says. “There’s really no great way for people to make a living.”

After a particularly elaborate music video involving singing robots on a handmade replica of the Millennium Falcon earned him just a few hundred dollars, Conte realized that there had to be a better way to earn money online. He wanted what he calls a “quality driven Web,” or a space where artists could make money based on the passion of their fanbases rather than trying to lure millions of mildly interested passersby by “going viral.”

His solution was Patreon, a new crowdfunding platform that helps creators earn revenue from their most ardent fans on an ongoing basis. Unlike Kickstarter, where inventors and creative types solicit money from users in a month-long campaign frenzy, Patreon asks users to pay creators each time they produce a new work. That could be a music video, a web comic any other kind of creative project. As on Kickstarter, patrons are given varying prizes based on how much they donate.

The unusual funding model creates a new dynamic between creators and fans. It’s not as much about crafting one brilliant idea and marketing it well but rather building and sustaining an audience over the long term. The idea of individual fans supporting artists on such a granular basis might seem anachronistic in an age where YouTube has helped make media more accessible, but Conte believes people are still willing to pay for art. “Patronage is a very old phenomenon that’s occurred in people and in society for thousands of years,” he says. “It stems from an emotional response to someone’s art. It’s a feeling of responsibility and importance and a desire to be a part of what they’re making.”

Since launching in May 2013, Patreon has attracted 25,000 creators who are requesting funding for everything from science fiction short stories to Minecraft raps to video game reviews. So far patrons have paid more than $2 million for creative works on the site, with $1 million of that coming in just the last two months. The most popular creators can earn close to $10,000 per project on the site.

Molly Lewis, a ukulele player with a small but devout following on YouTube, believes Patreon could eventually become her primary revenue source as an artist. She’s currently convinced more than 400 fans to pledge $2,600 total for each new song she makes, more than double her original funding goal. To attract donations, she promises exclusives like videos of live shows and personalized limericks written for hardcore fans. “It’s kind of like a fan club,” she says. “The money they spend goes directly into my buying food and making more music. They can see their dollars at work in a way that you can’t really when you go to a Katy Perry show or something.”

This desire to get an inside track on the creation of a new project has already helped Kickstarter pull in more than $1 billion in pledges from people around the world. Experts believe the Patreon model can also reach massive scale since it’s appealing to both creators and their fans. ““Here you can evaluate the quality of output over time and then decide whether you want to continue subscribing or not,” says Anindya Ghose, a professor of information, operation and management sciences at New York University who also studies crowdfunding. “It’s a very positive self-reinforcing cycle where people give small amounts of money, which incentivizes artists to do a better job, which then leads people to give more money more frequently.”

Plenty of obstacles remain for the still-nascent startup. It’s not yet clear just how long people will be willing to continually support a single artist’s work—Ghose points out that a few popular creators pumping out subpar work simply to collect a check could sour new users on the platform. More worrying could be YouTube’s entrance into the donations space. The video giant launched a virtual tip jar of its own recently as a response to ongoing gripes that it’s hard to earn money directly on the site. For now, Conte contends that Patreon’s features differentiates it from YouTube’s less robust offering, while YouTube has expressed support for crowdfunding platforms like Patreon and Kickstarter.

Silicon Valley, at least, believes in Patreon’s future. The startup closed a $15 million round of venture funding in June which included leading venture capitalist Danny Rimer and Alexis Ohanian, one of the co-founders of Reddit. The money will allow the company to launch a mobile app and open an office in San Francisco instead of working out of the two-bedroom apartment where Conte and co-founder Sam Yam live.

As Patreon grows, Conte promises that it will remain focused on creators’ interests. The currently unprofitable company charges a 5% commission on all donations, and Conte vows the fee won’t increase in the future (Kickstarter and YouTube charge the same amount). Though he’s now a CEO, he’s still a creator at heart—Conte has 1,300 patrons of his own paying more than $5,000 for each new video he makes. He envisions a future where every creative person isn’t a starving artist or a pop megastar. There’s room in the middle for artists, too, and people will pay for their work because, as Conte says, “Everybody wants to be able to enjoy beautiful things.”

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