Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.



Thu, 10 Dec 2020 05:56

Live from the scene of its blockbuster IPO, we recount the crazy, roller coaster journey of this "Palo Alto delivery company". From Sand Hill darling during their Series A and B fundraises to all but left-for-dead during the great unicorn massacre of 2015/16, DoorDash has clawed their way back from the brink and emerged as America's dominant meal delivery service, and its only unit-economic positive standalone logistics player. Is this the dawn of the next great Amazon-like story, or is the company simply benefiting from temporary tailwinds due to the pandemic? As always, we dive DEEP to find out.

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Playbook Themes from this Episode:

(also available on our website at )

1. Sometimes winner-take-all markets DO tip.

  • The end-state that Uber (and its global peers) spent the past decade chasing — that eventually it would outrun its competitors, tip entire markets in their favor, add multiple product lines and turn massively cashflow positive — has thus far proved elusive, leading many to believe that any such undertaking is a false dream. But, since 2018 China's Meituan appears to be doing just that, all while operating in an even more competitive environment than Uber. DoorDash may now be on a similar trajectory in the US.
  • That said, it's almost impossible to predict in advance how much time and capital it will take to get there, let alone any one company's odds of success. DoorDash benefitted immensely from their competitors' relative difficulties accessing capital post-2016, and was willing to sacrifice enormous dilution to outlast them. If you're going to play the winner-take-all game, you need to be willing to go all-in when others blink.

2. If you're going to fly low to the ground, you also need to operate at the lowest level of detail.

  • Flying low to the ground (i.e., sacrificing higher margins in order to share more value back to your customers and suppliers) is a great recipe for success in highly competitive markets like e-commerce and on-demand services. However when you do so, you need to be maniacal about squeezing every last drop of efficiency out of your platform: every 1% improvement in margins could mean a 20%, 30% or even 50% profitability increase and the difference between life (for you) and death (for your competitors). DoorDash clearly gets this and has embedded this ethos in everything they do at the company.

3. Focus on what you can control.

  • DoorDash had the capital markets turn against them HARD early on in the company's life. It would have been easy to lose focus, sell or give up, as did many of their competitors. To Tony and the entire company's credit, they kept moving forward and made decisions each step of the way that kept the company alive — even when those decisions came at a high cost. As a result they outlasted nearly all competition and were in a position to IPO at one of the highest market caps of all-time, all as an only 7 year old company.

4. "Why now" matters.

  • DoorDash had one of the best "why now" answers of all-time: mass-market smartphone adoption (not just high-end) made 3 things true that were never possible before: 1. average consumers could order online conveniently, 2. couriers could plug into the network via their own devices, and 3. restaurants (most of whom didn't have wifi or desk staff) could accept orders online. Before 2013 a business like this would simply have been impossible to build.

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Well first of all, is there like some rule that the graphics that you put in your S1 have to be just like painfully a resolution? Welcome to season 7, episode 7 of acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle. And I'm David Rosenthal and I am an angel investor and advisor to startups based in San Francisco. And we are your hosts. The year was 2013. Everyone had just finished cracking their jokes about how every startup is just another photo sharing app. But the wave of yet another food delivery app was just getting started. Tony Xu and his co-founders were launching Palo Alto, which we all know today as DoorDash. On this episode, we'll dive into how these Stanford students became one of the very few winners in the Cutthroat Food Delivery category, how they raised $2.5 billion from VCs, the Softbank Vision Fund, and even sovereign wealth funds around the world. How they went up against incumbents like GrubHub and Seamless and the even more well-funded startup on a warpath for world domination, Uber. This is the story of insanely fast growth, a company currently tripling year over year. And that's the December 2019 number before the global pandemic created the ultimate tailwind at their back to IPO at the greatest possible time in the business history. You know, they kind of nailed the timing on this one, didn't they? They did, David. Today we will dive into the question that we're all wondering, is it even possible to build a sustainable business with positive unit economics in this category? And if so, will DoorDash actually be the one to do it? All of this and more coming up on acquired. And you're a little, your hooks and inches are getting so good. Do we even need to do history and facts? I feel like you covered everything there. Oh, you know we didn't. We should go through these like 15 pages of notes that I have here. All right, well, lots to do. Let's get to it. As always, if you love acquired and want to hone your own craft of company building, you should join us as an acquired limited partner. You'll get access to the LP show where we dive deeper into the fundamentals of company building and investing in addition to our monthly LP calls where we talk with all of you directly. And of course our book club and the zoom calls with the authors. That this is really where we have gotten to know so many of you personally. And frankly, this is like the set of people who have most influence the direction of the show and kind of the set of topics that we want to tackle. Thanks to all of you who are a part of that community and welcome if you're thinking about joining. If you do want to join, you can click the link in the show notes or go to slash LP and all listeners, get a seven day free trial. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founder. So we knew there's a natural fit. We know the host of founders well, David, Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together. And then they say it's like the best curriculum for founders and executives. It really is we use your show for research a lot. I listened to your episode of the story of a few of Rita before we did our Sony episodes is incredible primer. You know, he's actually a good example of why people listen to founders into acquired because all of history's greatest entrepreneurs investors. They had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence Steve jobs talked about him over and over again if you do the research. I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired we focus on company histories. You tell the histories of the individual people you're the people version of acquired and where the company version of founders listeners. One thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin land from a biography that David did David. It was the third fourth time you've done Polaroid. I've read five biographies of Edwin land and I think I've made eight episodes of them because in my opinion, the greatest entrepreneur to ever do it. My favorite entrepreneur personally is Steve jobs. And if you go back and listen to like a 20 year old Steve jobs. He's talking about Edwin lands my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die, but the ideas never do. And so Edwin land had passed away way before the apex of Apple, but Steve was still able to use those ideas and now he's gone and we can use this ideas. And so I think what requires doing what the founder trying to do as well is find the best ideas in history and push them down the generations. Make sure they're not lost history. I love that. Well listeners go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders go check it out. David, let's do it. Let's do it. Okay, so today in non typical acquired fashion, we're actually going to start with the founding of the company thought about going way back, you know, doing the history of restaurants. We do is just too much. We got a lot to get through here. All right. When was the first restaurant? I don't even know. That's a good question. But anyway, that is a question for another day because this story in and of itself stands on its own. Okay, so we start. That's been you alluded to on the Stanford campus in the fall of 2012. I remember it very vividly and well because I was there. I was starting at GSB. That very fall. But unbeknownst to me right across the kind of made their two main quads right across the way in the class was called startup garage. And this is kind of a legendary class at GSB is co-taught with GSB and the design school, the D school. And it's interdisciplinary is two, two quarter class. And the idea was you apply as a team, a fully formed team to go build a product or service and the idea is you're going to like build a company and actually launch a company as part of this class. And so there were four Stanford students to from GSB to undergrad computer science students who had applied to the design garage class that fall and entered Andy Fang and Stanley Tang were the two undergraduate computer science majors and the two GSB business school students were Evan Moore and Tony. So I think the story behind how they came together is that Evan and Stanley had worked on a project in another class the previous year, Evan and Tony were second years at GSB and Stanley and Andy were I think juniors. Yeah, they were juniors undergrad. So they'd worked together in another class and then they brought in their two friends and said, okay, the four of us we're going to be the stellar team. So you have this like good mix of business school students, computer science undergrad. Yep, the dream team. Yeah, and interestingly, I mean, this is a fairly common thing at universities for an entrepreneurship program to like go start a company class. And it's always the dream if you're the instructor or professor that one of them actually goes on to become this big successful company, but the vast, vast majority time it ends up just being an academic exercise. And the crazy thing it's sampled is like design garage is not the only class that does this. They're like probably 16 classes across campus that all have similar premises. So regardless, here we are. They get into the class and they start thinking about what they're going to focus on. Now Tony had just finished interning that summer at square. And square, of course, that we all know and use love today public company just about a hundred billion dollar market cap when he was there that summer. This would have been the summer of 2012. It was about 30 employees much, much different. It was just the credit card reader. But it was focused on as we covered in our episode this idea of empowering merchants and local businesses to accept credit cards. And it was clear already at least for people on the inside like Tony that this was unlocking a huge amount of commerce and commerce activity for local merchants. So they thought, OK, what else can we build? We know that this is a big opportunity. The internet is coming to all these business and like most of these places don't even have Wi-Fi. And the amazing square innovation there was like so many of these people that could never take credit cards before they were like independent merchants that were selling things at craft fairs and food trucks that could only ever be cash businesses were now brought online. Like they were sort of trackable GDP of these categories of now digitally enabled businesses. Yep, and we'll get into this more as we go through at the episode. But this was a huge insight that was completely not obvious yet to the rest of the world. I remember like I was starting at GSB that fall. I had been at Moderna as an associate before that. And every time we looked at a company a startup that was going to sell the small local businesses help them with yadda was like, no, this is a bad category can't invest there acquiring these customers is too hard. They're not online. It's not going to work. These customers are notoriously difficult to serve because they have razor thin margins. They have low willingness to pay. They churn like crazy. It is expensive to acquire them. And then they obviously don't retain well because either they don't know how to use your product well. Or in fact, they go out of business. So you have to reacquire someone else like notoriously the worst customer segment as a venture capitalist to be investing in. Yeah, if Tony had gone and pitched this on on San Hill road at the time, he definitely would have gotten a lot of rejections. But as we said, like square was starting to change this and really what changed it all was the mobile phone and the smartphone that proprietors and managers within stores were using. So they come up with a few ideas as part of the division is how do we help these local merchants. They go the class sends them out into the streets, the mean streets of Palo Alto. They go and they have design conversations with local store owners. They ask them what their problems are. They start thinking about an idea and the iPad was big at this point. It was about two years old, two and a half years old and had cellular connectivity. And they're like, huh, well, you know, squares taking payments. They're using iPads. They're the store owners are buying iPads. They have them there. What if we had an app also on the iPad that when customers came in the front door, the iPad would be there and it would ask, how do you hear about us? And they can see you know, all these like the numbers. That was the initial business. That was the initial idea. They had a couple of initial ideas, but this was the one that they were testing. I think they'd actually maybe built an MVP of this app and then like these business owners could now track their customers where they came from. They could market to them more effectively. Yeah, great. So they're doing these design interviews and famously as the story goes and by all accounts, this is actually true. They sit down with a woman named Chloe who owned the Chantal Guiana Macaroon Shop in downtown Palo Alto. I never frequented that, but it was probably too expensive for the the broke students at the time of service serving the VCs in Palo Alto, not the not the students in the startup founders. And so they sit down with her. They're pitching her this app and she's like, and then they're about to leave. And she's like, actually, you know, I do have a problem that you guys might want to think about. And they as they write on their medium account when they launched the business just as we were about to leave Chloe burst it out. Well, there is one thing I wanted to show you. She took out a thick booklet. It was pages and pages of delivery orders. This drives me crazy. She said, I have no drivers to fulfill them. And I'm the one doing all of it. She's the proprietor. She's running the store. She's managing the storefront. She's making the Macaroon. She can't take time to go out and do these deliveries, even though probably all the sandhill road venture firms want their macaroon. And so they say like, OK, that's interesting. I wonder if other businesses have the same problems. They go out and interview more restaurants and food businesses. And they hear the same thing. All these restaurants is like, you know, the pizza guys are doing delivery. But like nobody else is. The Thai places and doing delivery was importantly orange hummus is not doing delivery most importantly and most importantly. And so they say, OK, well, let's spin up a little MVP and see what happens here, which is actually pretty amazing to think about this. When I was growing up in Ohio, if you wanted to order delivery, like there was pizza delivery was a category, then take out food was another category where you'd go and you'd pick it up. And like maybe there'd be a Chinese restaurant or a Thai restaurant that would have figured out delivery on their own. But like if you are ordering delivery food, it was pizza. Yeah, that was a dominoes. It was Papa Jones. It was pizza. And that's kind of the crazy thing to hear like they figured it out. And nobody had made the leap yet in the US at least to hey people like getting pizza delivery delivered to their house. They might also like other food getting delivered to their house too. And you had to think like pizza has to lend itself better to like a more regular type of delivery than other sorts of food with more complex menus and stuff. I'm sure we'll get into that. But like it's interesting to just think about like why why was this so obvious and prevalent and decades long for pizza companies and yet no one had really done it for other food categories. Well, it's good. I think there's a very specific answer about why door dash made it work, which we'll get into in a sec. But it's a good question. I mean in New York, it was happening with seamless and then grab up which merge was seamless. And you know when I lived in New York, yeah, you could use seamless to get any food you want to deliver it. But it didn't really happen anywhere else in the country. So, okay, so they throw up this MVP, they buy the money domain name Palo Alto delivery dot com. They take PDF menus of a bunch of the top restaurants in Palo Alto. And they had some really good ones that they'd orange. They had pochies, the pizza place. I guess pochies probably didn't deliver. Pacha's really good pizza in the Bay Area. Life kitchen was great. Like bunch of good places. They had the Thai place, they had the Indian place. So they put it up and then they have on the website a phone number. So you can order on the website is just on the web. It's a phone number and it's a Google voice number that rings all four of their cell phones when anybody calls it. And so on January 12, 2013, this would have been the start of the second quarter of the winter quarter at Stanford, the second quarter of a design garage. They'll they put this up and literally within an hour. They get a call so they put it up and then they put it on a couple like they blasted to a couple email distribution lists on Stanford. And within an hour they get a call from a guy who wants to order. I think it was Thai food. And they're like, wow, holy crap. So the drive over, they get the food, they go and they drop it off and they're like Tony talks about this. He actually gets out his phone and they interview them. They want to know like, how to hear about us. What's going on? Why do you order this? And it turns out it was this guy named Bruce Barcat who lives on Bainbridge Island in Seattle. And he works for for leafly, the marijuana company. He had written a book called Weed, the People about legalizing marijuana. And he was a visiting author at Stanford. And he was stag. I don't know if it was on Stanford, I was like, or something over on Alpine Road, which is kind of behind the dish. If you know, if you know the Stanford campus. And over there, there's not like, like, you're pretty far from university. Have there's no food over there. And so he's probably like, yeah, I just didn't want to get in my car and drive all the way over to go get this food. This is great. Perfect for his customer. Yeah, pretty, pretty great use case. So they do this and they just put it out on the email distribution list. So people start using it like all over the GSB people using it. The undergrads are using it. Jenny and I used it. The total move was get orange on this, especially you're having people over big party get a big big orange and palato delivery will come and come and make it happen for you. And like you remember it being called Palo Alto delivery. Well, I remember I think by the time I was trying to recall I went back and I looked through my email history. I think by the time we actually did our first order, they were in my C and they had changed names of door dash. But everybody knew that this was happening. Like people like like class three to three go to a party and like the food was there from Palo Alto delivery. So they had hacked it all together. This was total like find a problem solve the problem, you know, not design focus. Design focus just in terms of like solving the problem. So they were using square to take payments. So you would call the number. It would ring their cell phones. Be a Google voice. One of them would pick up. They would take your order down. They would then call the restaurant, put the order in with the restaurant. They would go and pay. And then they would drive it over, you know, drop it off. And then they would take out a square reader and you would swipe your credit card to pay them back for the real. It was totally good. Well, that sounds like a tax and accounting nightmare. Are you basically losing money because you have to pay taxes on the income that you're. You can actually incorporate the company until they apply to I see. So this is all lost to history in terms of the accounting. And it was also super cool. The other really smart thing they did once they started bringing on some other drivers to do delivery for them. They used find my friends on iPhones to track the deliveries in real time. So they could like route people and be like, okay, this career is closer to this restaurant. We got the order coming in over there. Like, hey you when you finish this, like go over grab this. It's so crazy thinking this is probably the first company we've covered on acquired on the main show here that is started sort of in this modern. The iPhone is already ubiquitous era. Like you think about Uber's founding or Airbnb, which we'll do tomorrow or so many of the companies that we covered in the 2018 2019 IPO Booms. Like all those stories developed like alongside the mobile revolution. And here you are. You already have a very modern set of tools. There's Google voice, there's square and there's find my friends. All of which were not available to like the previous generation of startups. Exactly. That and that was the key point that made this work. Even though probably people had tried this in different ways in the past and GrubHub actually notorious of GrubHub had merged with CMOS will get into their model in a minute. They acquired lots and lots of local delivery companies. And actually one of them was one of my classmates in the year behind Tony and Evan. He had sold his company in Atlanta, I think, to GrubHub. So he showed up, but he had the second nicest car in the GSB garage behind the guy who had started a Zingaclone in college, but like didn't raise money and just kept all the cash flow. I feel like there's a lesson in there somewhere, but I don't quite know what there's many lessons there. Yeah. We'll unpack that on an LP too. So anyway, back with the psychologist. Yeah. Back to why now with Palo to delivery and mobile in these tools. It's actually this fine my friends thing was really important because unlike Uber, where was you know, you just had the consumer, the rider, and you had the driver, you had these two pieces and like you could give the driver smartphones and like coordinate everything with door dash. It's like the 3D chess version of ridesharing you have this third element, which is the restaurant, which is a participant in the system, both from an operations perspective and from a business model perspective. So like consumers need to be able to place the order easily and efficiently like find mobile helps with that. You've got the dashers, right, what they end up being called the couriers. They need to be tracked just like ride chair drivers, but they need to be routed to the restaurant and to people's homes. So it's like doubly difficult. Then you've got the restaurants, you got to know where the restaurants are, you got to know the status of the food, you got to have them, get the orders coming in except them, know that they've gotten it. And this is super hard and there's no way any of this could have happened without all of these players having smartphones again restaurants most still today most restaurants don't have Wi-Fi. Right. It's such a good point and like to flash back to a previous era of business that's working really well now, but failed previously. You look at Instacart, you look at web van, like aside from there just weren't enough people on the internet yet. Definitely weren't people doing this on mobile phones yet. And they're the frankly the technology stack wasn't sophisticated enough in that web 1.0 era to facilitate all this real timeliness and keeping everyone in sync at the same time. As you were talking there David, it hit me that not only of course do you have to split the money one additional way and food delivery because you've got the you know in addition to the dasher and the person ordering the food and the company facilitating the transaction you have the restaurant involved which is different than ride sharing. So there's sort of money has to flow into four different or out of one pocket into three others instead of out of one pocket and into two others. But there's also an unbelievably operationally complex component here where the timing has to be perfect like you're hitting food. There's a very narrow window where you can get there too early or too late and that be okay. You know just in the kitchen let alone then having it sit out for a while then having you know the right you know amount of time that it takes a driver to get to a person's house like everyone's very familiar with thinking through this problem from a consumer perspective, but just thinking through the technology infrastructure is really crazy. Yeah, I was talking about this with some friends in dude research for this episode who are former Uber employees and the thing is like you know Uber and lift and ride sharing right you know kind of on a glue everybody found like hey once you get the wait times down to you know five maybe 10 minutes like that's fine it's all good. But to your point with food it's not all good like the degree of diminishing returns is much much higher for food delivery because like I want it fast but it also needs to be high quality and like still good if it's fast but it's only halfway cooked like I'm never going to use your service again you know. Yeah and the far more forgiving side is it took too long and you know the food can stay you know warmish under a heat lamp for a while but like I think everybody knows when they've gotten food that's been sitting under a heat lamp for too long. Yep totally so okay so like they're they're hacking these pieces together this is kind of cool from the beginning the business model was was basically already there and they haven't they haven't changed it much since under the hood a lot has changed. But so initially it was a flat six dollar delivery charge to the consumer for getting your food delivered and obviously that is changed since then in terms of how it's calculated but Jenny and I ordered Chinese food last last night from Mama G's here in San Francisco great Chinese place they're on dash pass. We paid a seven dollar tip to the dash and got our food like it was basically the same from our perspective they also started going to the restaurants really early on this even I think during the Palo Alto food delivery days and said hey we're bringing these incremental orders will you pay us a cut of the revenue so that we can make this work the six dollar seven dollar you know delivery fee that'll go to paying the careers and then we're bringing this revenue to you we'll take a little bit of cut of the food delivery. And the restaurants said yeah I've been Tony's talked about this like they they basically never had a problem with it and I think it was because there for many restaurants this behavior had already kind of been established with the grub hub and seamless model. So this is probably good time to take a step back and say like okay what what is unique and different here because I think we were texting before the show like most people I think don't understand the difference between grub hub seamless and and what door dash and eats are doing I mean it took me until actually diving in and doing the research to realize like and I'll just spoil one little bit here that it was only pretty recently that grub hub started actually having fulfillment like drivers as a part of the thing and the business and not just a you know dumb pipes that you order through yep so okay we rerun back grub hub I think grub hub was started maybe like early 2000s seamless Bradstown rights about this in the upstarts had been started in 1999 in New York and they were the same thing they merged in 2010 maybe I want to say but their models were you could go to their websites or you could call that in the early days it was calling seamless it was calling grub hub just like pal out delivery they would take down your order they would call the restaurant just like Tony and team were doing in the early days but then they'd stop at that they just say like hey you know Ben wants Ben wants Pad Thai go ahead go for it so then the restaurant by was 2013 so that the restaurant the owner's was on them to have a driver that could actually get the order to you have a career driver and do the fulfillment yeah and in my career yeah New York is probably a you know bike messenger type person exactly so this is why this is caught on so so well in New York and then other cities this existed you know restaurants were on it was mostly grub hub outside of New York and then they acquired all these small local players this is a pretty good model in grub hub went public was a well regarded internet stock because this is a super capital light model they yeah notably they're very profitable business yeah very profitable they acquire customers and they did all sorts of interesting things shall we say to acquire customers via some SEO hacks and then they would pass on the orders restaurants would pay them a commission fee on the orders for bringing the orders and then and then call it a day and so this worked super super well now what Tony Dord has is doing is obviously very different and the downside of the grub hub model is that most restaurants don't want to aren't equipped or even thinking about doing the logistics and even if you were thinking about this you're saying okay great I'm going to hire a career okay you're going to hire one maybe two careers you're going to use those heavily during the rush hours for eating or whatever your type of food is that you're preparing you know whether that's breakfast lunch or dinner probably lunch or dinner the rest of the day they're going to sit around but then when you need them you're only going to be able to fulfill a couple delivery orders like this is a nightmare right and probably not fair of me earlier to use the term dumb pipes but I guess more to say what they really were were a demand aggregation company where their primary you know business activity was consumer marketing and retention you keep the people you are the mechanism by which they they order but then the market is still constrained to the set of restaurants who are willing to take on this delivery stuff on their own and in a place like Palo Alto which is not a very dense city even though there are a lot of people that live on the San Francisco peninsula it really doesn't make sense and so you didn't have any of this really operating again outside of the dominoes the pizza and the pop of johns so this is another super cool thing that Tony and team do they realize as they get going on this like hey we're not building grub hub and seamless we're building dominoes we're building FedEx and we're just taking it to every we're building a logistics network we're taking it to every business so what do they do they go and they work for dominoes and FedEx for a couple weeks just to like learn how their logistics systems operate oh no way yeah so they signed up Tony was a driver for dominoes delivered pizza for a week or two and took notes on how everything worked and and he talks about this he was really surprised like well hey these are world class operas these are world class operations and so you learn a lot and realize like hey this is a complex business that we're going to have to build and delivery times are super important density is super important you like to make this work but these aren't tech businesses so like Tony talks about dominoes being run on you know paper and not on not with find my friends and not with smart fun technologies and mobile ordering systems and mobile and so he's like okay this is really interesting and so they he then he talks about like is basically during this period that there were three questions that they wanted to answer one of which was just simply like do people want this is there a reason on the demand side where food delivery of non pizza restaurants doesn't exist really outside of big cities that was like a resounding yes like everybody in Bala Alto amount of you wanted this to was can they find a way to do this to pay the drivers and often keep them utilized enough with making trips that they look more like dominoes and FedEx they would like a restaurant trying to do this themselves and not being able to utilize their drivers enough to make it worth it that clearly is a yes well how do they do that like so people want food from 12 to 2 and from you know 5 30 to 8 like how do they handle off peak well you're coming to this is going to show up later in the story but this is the gig economy that makes this work I see so since they're variable expenses it's not you know the business doesn't have to worry about paying people during the hours where there's no demand yeah exactly you can you can do this is 10 99 contractors you don't have to go I don't know what dominoes and FedEx was was doing in those days if they were W2 and their employees are if they were 10 99s but Uber E clearly you know already started to pave the way for right show this was ostensibly legal yeah exactly ostensibly legal and now post prop 22 in California definitely legal so that makes it work on the driver side and then on the restaurant side with the restaurants be happy to pay us for these incremental orders that were generating for them and again like yeah apparently was super easy they were all willing to pay them and so do you know at this point had they started thinking about getting back to my question on like what if you know people do want to work between 2 p.m. and 5 30 like where they are thinking about non food options at this point in order to sort of utilize that workforce over more hours I think they were you going back the original macaron shop Chloe at Chantal Macarons you know that's not a that's not a meal yeah but I suspect what happened was just that the food the meal delivery became so big and like clearly had product market fit that that just became all consuming but now you read the s1 and they talk about hey we do want to be the local the on demand delivery local logistics network FedEx for small local businesses we want to do flowers we want to do groceries were already experimenting with that yeah but it's a small small percentage of the business okay so question number one is do consumers want this question number two is about can we make this work for drivers yep and question number three then is the restaurants is the restaurants and so yeah so then at this point how are they thinking about like how much can we take from restaurants without them a getting mad or be having an unsustainable business and then how little can we take and still have a business ourselves that's a good question I don't know but I do think as we'll get into as we go along the story one thing similar to basis and Amazon in the early days the one thing about door dash is they've been willing to fly very low to the ground so to speak on this until he talks about this a lot though like hey by us improving our density and being able to do more fulfill more orders more more quickly that improves the economics in the system if we can give that back to consumers they've definitely given it back to consumers I mean it's crazy that you pay five six seven dollars to get somebody to drive across the city and deliver food for you and we also give it back to restaurants that'll allow us to grow the market more yeah I grow our share more okay so they figure all this out in the Palo Alto delivery days and then the school year is coming to an end they apply to I commentator they get in and say okay we're going to go do for do this for real now they ditch the Palo Alto delivery name because you know it's hard to right do imagine that playing well in which it's all by the way do you know the other famous example of someone that had to do this but took a little bit of a different track also in the restaurant space also in the food delivery space I don't know people from St. Louis will know what I'm talking about if that's a clue Panera bread open their bread wow to this day in St. Louis is called the St. Louis baking company St. Louis bread company something like that but I remember my first trip to St. Louis I was like what that's the Panera logo and it's like called the St. Louis what is this and when they expanded outside of that region they just decided we're going to leave the ones locally here the same with the same name and you know everywhere else it'll just be called panera and just to wrap this full circle they actually win it alone and they basically run their own single client door dash and and are sort of the black sheep that created their own version of a full end and fulfillment system order on their website and app and they deliver to you I think they're one of the few restaurants who actually does that independently interesting even to this day I think so it was true as of q1 2019 interesting there's there is this other I guess category of restaurants that have done this historically which is the kind of lunch catering office catering sandwich type shops of which panera is obviously consumer facing but I think about like specialty use rate I think they're in a bunch of cities you know you're doing a lunch business meeting yeah they'll deliver and cater that for you that's true that that that has totally been a market that has existed for a long time and there's a different set of startups going after that obviously door dash and these folks are sort of trying to create an offering for those business customers to but yeah that that's that's a little bit of a different market yep yep okay so they do I see coming out of I see they raise a 2.4 million dollar seed round in the fall of 2013 which you know was like good great to you remember nothing crazy here like we're dead at the same time there were companies coming out of I see raising 5 6 7 million dollar seed rounds already this is you know the go go days and it's led by interestingly key through boy who had just joined coast La now Keith before that course PayPal mafia member and now partner of founder and he had been the COO of square while Tony was there over the summer so I'm sure they have to know Tony from I guess it was only 30 people so they had to I'm sure they knew each other so that was that was and would have also explain why he probably was more likely to get this than other VCs at the time right saw the sort of like online action of of independent merchants and particular on food yep so he leads the seed CRV S.V. Angel and pair also come in in the seed and you know to this question of the you said about like what types of delivery are they doing what types of logistics they write a medium post at the time saying ultimately our vision is to become the local on demand FedEx we are a lit logistics company more so than a food company we help small businesses grow we give under employed people meaningful work and we offer affordable convenience to consumers we're tackling some of the most difficult logistical challenges that come with on demand delivery true both in engineering and operations so and I think it's Tony tells the story that was also part of what helped them raise coming out of Y.C. was pitching this bigger vision of like hey this isn't just you know meal delivery you've already heard of this grab hub exists but like this is actually a logistics network and this is something different yep okay I want you to name those all those investment firms again the participated in this this initial round so was coach C.R.B. yep S.V. Angel and pair none of those appear in the S.1 those are all below 5% shareholders and as we will talk about later this company underwent a tremendous amount of inclusion in order to scale the way that they did oh yeah we're we are still in act one of this story here so okay let's wrap up act one there is this they raise this seed 2.4 million and they realize okay we're going to change the name of door to ask we're going to expand beyond Palo Alto let's let's go you know to our first bigger market now the natural thing to do that all the right guys did was go to San Francisco and you think like hey city like natural use case for food delivery like it was for a ride change go there Tony had the insight he had he grew up in Illinois in Champaign or Banna but in high school his family moved to San O.Z. so like you know Champaign or Banna and San O.Z. like these are while San O.Z. is a big metropolitan area it's much more suburban and it is dense like a city Tony said you know actually like the mass market is out there it's not in San Francisco it's not in cities they launch in San O.Z. and in East San O.Z. specifically as their first market and this was just brilliant it's been talked about elsewhere but going to the suburbs versus the cities there was no competition like it was dominoes or door to ash yes it's really interesting thinking about and much ink has been spilled on this concept but I think it's really worth diving into here intuitively you would think launching in cities is better because there's much more density it's been working in New York for a long time people really value convenience there it's sort of the convenience economy people lots of disposable income but what that meant was number one they didn't have any competition in the suburbs in terms of other mechanisms of delivery number two drivers were much easier to come by in the suburbs because everyone has a car whereas in cities like 10 to 15% of people have a car so there's much more available sort of dash or supply and on top of all of that there's no traffic and parking is not an issue and so you can actually deliver a higher quality of service at a lower price point with greater supply of dashers like there's all sorts of reasons why it was actually great to be out there and they had a wide open lane to themselves because these incumbents weren't playing there at all well that's the thing you did that one of our dashes core values which usually core values are a bunch of baloney but in this case I think actually make sense is operate at the lowest level of detail and Tony talks about this like yeah in cities you've got this density but like think about what that means you know this is not right sharing where you pull up to the curb somebody gets in and you drive off you pull up to the curb you got a park you got to get out you got to go get the order and if you're getting the order at the restaurant there's a queue you got to wait in the queue and then get the order and then you got to go drive and then you got to drop it off and you might have been dropping it off at a 12th floor apartment building you know in New York this can work okay because everybody's careers are on bicycles and as we'll talk about later door dash did really embrace different forms of vehicles for dense cities but in the early days like even bicycle you know in San Francisco you're going to bike around and do this like you need cars and motorcycles yeah this operate at the lowest level of detail thing is really I think one of the things that makes this this company special I think the quote is averages in our industry are meaningless it's the distribution that matters no consumers care if our average delivery time is 50 this 35 minutes if they receive their food in 53 minutes and it's such a great point it's a very Amazonian way of looking at it where you're obsessed with every customer on an individual basis rather than rolled up metrics and I think for this business in particular you know one bad experience you could lose trust and never rely on them to deliver your dinner again especially if you have company over or you're really hungry or whatever the thing is like it you can you can blow it with one bad customer experience yeah so this going to San Jose was brilliant and it works amazingly well so by they didn't they did YC in the summer of 2013 by the beginning of 2014 so we're now just about a year since they had that first delivery to the weed the people all there on fellowlta delivery deck literally one in six people on the San Francisco Bay Peninsula so not San Francisco itself but the peninsula below San Jose Mountain View Palo Alto and Cooper Tino like there are millions of millions of people that live there have used Dordash they just ran the table on the market very very quickly so on the back of this in May they raise you know they went from being like middle of the pack in YC raising a you know good seed people but like clearly not as large as some of their peers there is a 17 million dollar series a from Sequoia at a 73 and a half million dollar post money valuation led by Brenda the show Alfred Lynn former Zappos COO and it's you know off to the races here so they say okay when you use this money we're going to expand out to other markets later that summer in June they go to L.A. They run the same playbook in the suburbs there and then they go to Boston next which is interesting I assume also in the suburbs but they also go into the urban core in Boston with cyclists so that and Boston's a great city for this because it's flat oh yeah so you do this in any west coast city you're you're in a world where all to hurt yeah exactly exactly and this is before ebikes and scooters of all various types had really become a thing so that's all so it's all going great off to the races this was summer and into fall of 2014 by early 2015 so we're now less than a year after the series a they are live in eight markets they raise a $40 million series B again we're two years and then we're going to move from Palo Alto delivery dot com launching led by Kleiner Perkins at a $600 million valuation John door basically comes out of retirement he's ready to move along I think he's chairman of the firm at this point he joins the board don't I mean if you've listened to the show for a long time you know the name John door but like Google Amazon Amazon the point to drive home here is John is arguably the greatest venture capitalist of all time and he came in personally did this deal if you think about that 40 million on on 600 they sold what is that like 8% of the company like less than 10% of the company in that series B and got freaking John door to do the deal so like the what to read into this is like the company is going gangbusters and has a lot of leverage at this point absolutely I mean today it's not uncommon to see series B is happening within two years of a company's life raising this amount of money at the evaluation with less than 10% solution this was not common back in in those days like yes seed rounds were happening at expensive prices already but this hadn't trickled down they're trickled up to the series A and series B parts of the market yet this was this was an eye popping round that happened and let's talk about what it takes to launch a city because you know now there ubiquitous in the US there in you know every like every suburb it's crazy I think there's something some stat that it's either 85 or 95% of the US population it lives in an area that has door dash at this point but at this time like what is it for them to launch any city because they haven't really signed a lot of big national chains yet it's just as hard to launch your city as it is your second city because you need to go get all the restaurants you need to go get all the drivers you need to do all the consumer marketing because people don't move that much between cities so just because you're alive in Palo Alto in Boston doesn't mean that someone in Tallahassee is heard of you exactly so it was actually in July of 2015 shortly after the series B that they signed their first partnership with young brands to do Taco Bell in the markets that they're ending in later the young also owns KFC the I'd KFC later this was another brands yeah great company it's it was part of Pepsi it's about a Pepsi it was Pepsi's restaurant brands Taco Bell and KFC then it's about now it's an independently treated public company and I don't remember if it's if there's if it was if it's still this way but at some point pizza hut was sort of lumped in there and that's why you had those Contaco Huts at a highway rest stops I think pizza hut is now independent I'm not 100% sure on that though yeah that's actually we when acquired drifts into conglomerate land and out of tech that'll be a fun one to cover oh yeah but that's a good point that they start you know again like the theme here is these guys figure out what it takes to operate at the lowest level of detail and make these launches and this crazy business work having these national brands to be able to go in and open markets with like hey you've never heard of us but do you want Taco Bell in KFC delivered like well especially if you live in the suburbs right I mean and lots of people want that but it's an appealing of value proposition even before they sign any local restaurant exactly exactly so after this round and with this going on this big national partnership they start to attract some attention and specifically they attract attention from well two audiences but first Uber pretty early on in Uber's life I think we talked about this on the Uber episode they started experimenting with other things they had Uber everything they were delivering ice cream they were I remember one one year early on they had like like puppy hugs or something like that they had like carster yeah down with puppies in 2015 they did Uber health so you get a flu shot that was a nurse that got Uber to your office and fact you mentioned the ice cream thing I remember from that promotion I still have the t-shirt that I got when I got my Uber bait my Uber delivered ice cream cone so yes they were that must have been a marketing stunt totally was as was Uber puppies but the you know they definitely were experimenting a lot with like well what else could take an Uber to your house or your office besides a person yep because they also get you know as much as anyone besides door dash at this point like density is super important utilization of drivers in the network is super important so they're looking at this and they launch eats in 2015 but this is this is how hard what is that that door dash was doing they Uber said like I don't I don't think we can really make this work in the same way because this is so hard all the reasons that we said so the first version of eats that they launch I don't know if you remember this listeners yeah it was they partner with some restaurants in a city a small number of them and they load up in like the late morning food in heaters in the back of Uber drivers and have the Uber cars just driving around the city waiting for orders to come in for like salads or you know hot meals David yeah a mutual friend of you and I who who did operations for Uber what this time was telling me about the massive industrial strength refrigerators that they had purchased and kept in the Uber engineering office because they didn't have a separate facility for this yet and so like the mad rush at like 10 30 was all of the Uber drivers showing up to get the food out of the refrigerators and that had been like heated up and then put into the heaters in the back of the Uber's to go and start the delivery routes yeah and of course a month we would try similarly things as well at dinner I can't remember if eats eats was definitely the first version of eats was big at lunch I don't know if they did dinner as well they probably added it at some point and was it was the name not eats like the name was something slightly different to I think it was it's they they first had fresh but fresh I think was more groceries and like drugstore type things interesting if I have my history right so quickly Uber then is like wait actually what people on is what door dash is doing and we need to invest in building out the infrastructure to do that too well it's interesting they do get there and they they get there in 2016 they they realize that pretty quickly but the narrative shifts so hard on this space here and I think I don't know if this is true but as I look looking back on this now with the historical perspective I wonder if what Uber did here was part of how everything shifted so hard perception wise against door dash like here you've got Uber this Titan you know of startups along with Airbnb everybody says you know one of the two canonical at this time the two canonical next generation you know internet companies being built in Silicon Valley and Uber is basically voting with their feet that you can't make this operate profitably the full logistics network that door dash is doing they're having to resort to doing this driving food around in cars to make it simpler interesting right meanwhile door dash has raised all this money they're growing quickly people consumers at least love the surface they're entering all these markets they raise the $40 million series be their plan is to spend the money they're going to blow through it and keep raising and to do that of course as you're launching these markets it does take a huge amount of capital as you're saying Ben you got to go acquire the consumers you got to acquire the restaurants you got to acquire the dashers so then this is another moment of acquired history in November 2015 another blow against the perception of businesses like door dash square goes public we covered this on the show this was such a great one of my favorite all time acquired episodes are square IPO episode and I got to just like we don't do this often but like we nailed that I just feel so good about that episode even today I mean it's a little bit on our sort of older style so the you know it it's not as enjoyable to listen to I don't think is more recent ones but like in terms of the analysis I think certainly the market had decided when they IPO that it was not a good stock but for years afterwards I think people had a lot of hate toward this company and like they just grew 30% year over year over year over year and still are and I think the narrative has shifted now where people love square especially with you know cash but and Bitcoin yeah well yet to get met up for a moment we were texting yesterday about about this door dash episode in the air being the episode we're going to do tomorrow and then I think you had such a good point about us it acquired you like when we do these live you know on the scene episodes it's actually when we're at our second best we're still good like they're better than the average acquired episode not that the average one is bad hopefully but our best acquired episodes are when we have a view on a company that other people don't and don't realize yet and that was the case with square so what all are we talking about for people who don't remember the history square had been also a Silicon Valley darling raised money from Sequoia plenty other great firms multi billion dollar valuation they were in this first group of unicorns talked about alongside Airbnb and Uber and lift and the like and then they made the crazy decision relative to their peers to go public so they go public in fall of 2015 and the market completely turns against them this was the down-round IPO they price at nine dollars a share for less than three billion dollar market cap oh my goodness today they are trading at two hundred thirteen dollars a share and a here under a hundred billion dollar market cap but meme stop popping up all over the valley and like tech crunch and the like of a dead unicorns and this is going to be the reckoning and the bubble has popped and and the impact on that from police there was the that that price that share price was under the last two rounds yeah so anybody got stock options in the last like two and a half years before they went public were completely under water and worthless unless you held them all the way through you know the start recovering people did but yeah ratchets to which those private rounds have been at high valuations but had terms in there that if the company were to go public at a lower share price they would get those investors would get true it up to the new lower share price so it was just a blood bath and I think one of the things that the public markets really penalized square for was this question of like hey this this payments business looks like a bad business it looks like poor unit economics on like you're basically operating these payment rails for your small business customers at lower margins than say visa or master card or MX this seems bad you're selling dollars for 90 cents we're going to put you in the penalty box and of course no Tony had worked at square so there was that connection but it's a similar sort of story here of like we're serving small businesses and we are operating this crazy complicated logistics network for them in a way that like grub hub wasn't doing just like square was operating this this payment rails for them in a way that visa and master card weren't doing and everybody's like yeah you're just given away free value here right this is a big sense infinite customer demand when you're selling dollars for dimes like I don't know how you can grow fast so meanwhile well the other the other thing that happens here is the first big lawsuit hits door to ash they had been delivering in and out in California without in and out permission they didn't have a deal with in and out but they were you don't think me are going to like people want to come in the non partner restaurants so in and out so them in November 2015 and then there would be many other lawsuits along the way with door to ash so you've got uber and square that are like creating these really bad public narratives for door to ash for their prospects and you've got lawsuits hitting meanwhile through all this door dash is investing capital day for is they're growing super fast clearly consumers like this it's a coin Alfred say to the team think you're going great you're going to need to raise another round we're in we're in for you know our parade were even in for more than our peretta in the next round we're going to commit that will do up to forty million dollars in your next round at up to a billion dollar valuation but we want somebody else to come in and price it and last round had been that six hundred million six hundred million a year before and okay so secoy is like we're not going to lead but we're not going to lead but but we're in our money's good and I got to imagine this is going to be this was a huge lesson for secoy as well this before the global growth fund you know is later after this that they just said like we're not going to mess around with anybody else will lead the rounds but they said we're not going to lead and Tony goes out to fundraise and it is just like a so log nobody wants to lead this round and invest in this company and I remember this so well I graduated from GSP at this point I was back at Moderna talking with all my other VC friends Tony didn't come pitch us at Moderna we were only did early stage at the time and wouldn't have let this round anyway but everybody was like man door dash came to see us unit economics are terrible doesn't make sense I can't believe secoy is putting their money in here so what was it that secoy a saw then if the if people believe that unit economics were terrible because what we can kind of see now is like cohorts over time and we'll touch on this later but basically when people retain like they start spending more and make this a regular behavior and need less incentives yeah I don't know it's a good question I mean it's hard to tell certainly we don't have that time frame in the s1 because the only time frame disclosed is like the last 18 years but but for whatever reason you know whether it was blind faith or actually based on the numbers knowing Alfred and secoy I think it's probably based on the numbers they did really believe in the company so the net of it is Tony's out there fundraising for like six months he doesn't you can't find a lead nobody wants to invest in the company so ultimately in March of 2016 even those koia said they didn't want to lead they do lead the round they lead a hundred and twenty seven million dollar series see they bring in the GIC the sovereign wealth fund from Singapore comes in as part of the round as well and they bring in some of secoy as LPs as well to bolster the round and it happens at a seven hundred million post money valuations so one twenty seven seven post a little down down so the actually down this is a down round that happens and this was so hard I mean for all of this I don't really know Tony personally at all I haven't spoken to him since GSB but I just have to imagine this was crushing and just complete says so much about him that he persevered through all of this right and in the whole team that stuck with because at that point you know your start to see stars in your eyes because the all the internal numbers are going up you know you hold a number of shares and the way people probably think about it is really I hold this percentage of the company and you're told it's going to get you know diluted down over time but you sort of in your head you're like well not that much and then some like this happens and you're like oh wow I can get diluted down a lot yeah the dollar and and we're just getting started here we're only an act two so Tony writes on on the company's medium medium account announcing the round it's easy he says it's easy to look at the landscape over the past few months and think that the technology industry has had its best days behind it however at door dash at least I take the contrarian view we are growing fast while building a scalable business that is built to last I mean people must other vc's must have just been like laughing in their shoes reading this in 2015 we added 19 markets to door dash including two in Canada and have completed millions of deliveries across our footprint we've built a business based on first principles that is helping grow local businesses across North America and we have more than doubled our staff by recruiting great you know blah blah blah the facts that we were able to raise the fact that in a tough economic market and in a crowded space we were able to raise more than 125 million here we go without resorting to valuation gimmicks and employee unfriendly terms is a testament to the incredible team technology and opportunity at door dash oh man because yeah that's right at this time everyone was so obsessed with being a unicorn and being a billion dollar company that people were taking crazy like participating preferred terms and like yeah basically say like really high liquidation preferences like the ultimate downside protection many rounds before you would have that sort of downside protection built in yep really private equity style capital coming in and it was private equity firms like it was TPG was doing this you know you saw a big traditional private equity firms come in and say oh yeah I'll make that trade you're basically guaranteeing me my money with some upside so that you can write your medium post and say you're a unicorn yeah they have this capital though uh they pull back on market growth so they finish 2016 with 28 markets that they're in broader markets so their individual cities and towns within the broad geographic market they only add six that year even though what did Tony say they added 19 the previous year um so clearly they're trying to conserve cash same deal in 2017 and actually in 2017 towards the end to 2017 they signed their next really big national distribution deal with Wendy's yeah before we move on to it is worth in the blog post there's two words in their or three words where Tony talks about the economic climate it is worth remembering that there was a macro economic stock market hiccup in I think q one 2016 I'm trying to remember exactly when that hiccup was but there there was all this like narrative around like the longest bull run in history and yes and peas in an all-time high and like taxa bubble and like there there was a moment where like people you know the market got scared um and obviously came roaring back and then even through a global pandemic came roaring back again um but the the I just want to like the first time I read that medium post I was a little confused by the economic climate the term that he referenced and then I was like you know you go back and you look at stock ticket and you're like oh yeah I forgot about that okay so by end of 2017 even with slowing market expansion trying to conserve cash it is still incredibly capital intensive to run this business um and so they're out of cash at the end of 2017 um and they can't raise money so they do they this was not announced uh we only found out about this by going through the S1 it's in the S1 they do a $60 million dollar inside bridge round just to keep the company alive at the end of 2017 um that was led by existing investors and one new investor according to the S1 not sure who that was I don't think it was soft bank yet but uh TBD um I'm sure that was uh I'm sure one of the existing investors at least was Sequoia stepping up to keep this company alive um and that's that's I mean what you hear Sequoia doing here over and over again that's how you build a position in a company especially if you have a big fund like Sequoia owns how much of this company at IPO like 18% or something like that and like you you're seeing in the narrative here how they sort of built that position over time especially having conviction one others didn't and and yes you alluded to at the top of the episode everybody else who had invested along the way they're not in the S1 because they got massively deluded here um so uh then meanwhile just one more quick comparison Uber and its private lifetime raised something like eight billion dollars and we're like they IPO'd in 2018 so by 2017 they had already raised the majority of that so this is like yep you know DoorDash is a company that's raised in the low hundreds of millions at this point and their biggest competitor is a better part of eight billion dollar funded you know uh juggernaut um yeah and that also has this other business other uh synergistic business to well fine that's what they're doing theoretically synergistic business we'll get into it yeah um okay so end of 2017 we're now uh you know remember it was March 2016 when Sequoia stepped up to lead that inside round we're now end of 2017 18 plus months later companies out of cash have to do a bridge around uh I mean it looks like like DeathStore here and then history turns well I would say on a knife point in this case it turns on a singular man and his vision one might say yes we're now in March 2018 and DoorDash's fortunes change the big deal I wasn't quite in the back of a taxi cab like Adam Newman's was but uh you know that I don't think uh this one doesn't have quite the same story to it around like Masa telling Adam that um the crazy man beats the smart man or whatever it is in the in the fight uh but kind of the same approach well it's it's funny it's the same you know I love the this of the quote is you know Masa Masa O.C. Sean of course of Softbank and the Vision Fund which is what we're talking about here when they invest in we work there's the story of you know back of the back of the Hooper I think or taxi with Adam Newman and says crazy man beats the smart man and obviously that went horribly wrong in this case actually I'm gonna make the argument and the markets are proving Softbank right here today um this was the smart not the crazy bet yeah I mean Softbank is looking like a genius out of all this so uh David how how did this deal go down and then more importantly how did they do this and Uber yeah oh boy well that's uh I don't know the incident that I'm gonna guess the answer is door dash was desperate for cash um but uh and Softbank was already a big investor in Uber at this point yes I believe this is 2018 I believe I'm pretty sure at this point yes there are already of the largest investor in Uber I think at this point yep um so they come in and do a five hundred and thirty five million dollar series D in the company that's check size not valuation so this company has raised like yeah what do we what do we say like little over two hundred million previously and all the capital that they've raised Softbank comes in over five hundred million dollars pumped into the company so I said a minute ago that I thought this was the smart move not the crazy move why would Softbank do this like were they just being cowboys maybe maybe and they had some dumb luck here but I don't think so um they did suddenly do plenty and that he's stuff but there's you know remember Softbank is basically investing in they're investing globally but most of their dollars are going into two markets at this point the US and North America and China and they are not investors in a company in this company in China in Maytwan which had at this point merged with Yanping it was Maytwan Van Ping but they were active investors in the Chinese ecosystem and I think maybe in one of the competitors but and maytwan is food delivery well maytwan has a very interesting story of its own that we need to tell one day unacquired but at this point maytwan has become food delivery and they are starting to dominate the Chinese food delivery market they are on a clear path to becoming the winner this is the dream this is what everybody was chasing with uber and lift and in theory the same thing here with food delivery was yeah you might have competition yeah you might have bad unit economics that you while you're investing in growing the market but at a certain point you're going to get to a spot where you have enough density that you can have low enough prices to all participants in the ecosystem and just have enough volume of transactions going through that you're still able to eke out a marginal profit at that while having way lower prices than any competitor you tip the market you become a monopoly essentially you win and this is happening in China with Maytwan so now maytwan real quick we'll do a whole episode on them someday they actually started as a Groupon clone in the early 2010s of course they did went through a whole long you know crazy history but by this point they had pivoted into food delivery merged with their base competitor Dion Pingh and they were dominating the food delivery market in China which is even bigger than the food delivery market in the US they went public later that year in 2018 at a 50 billion dollar plus market cap and today Maytwan which we'll get into later is much more also than food delivery now this here is a investor in Maytwan Sequoia capital China so they knew what was going on here too so good okay so soft thing comes in they do this big round there's a catch though as there as we ground a goal and what's the valuation on the 500 million they're putting yeah you think you know oh man 500 million dollar rounds like gotta be like a 5 billion dollar valuation nope 1.4 billion dollar post money valuation so door dashes now a company yeah door dashes now a unicorn but that is coming at a very high cost 38% of the company that they sell in this round to soft bank and the other investors and the crazy here's the really crazy thing so they raise all this money 1.4 billion dollar valuation the actual share price is still lower than the series b the Cliner led at a 600 post back in the day because the delusion is so large here that while the post money valuation is obviously much higher over 2x higher the share price at which shares are being sold is still lower than the series b that's crazy I did not realize that it was this could possibly be a down-round but yeah there were two down rounds that happened okay so soft bank now owns a ton of this company and still today at IPO the lawyer to shareholder well I bet yep I mean that one's hard to dilute that down now other existing investors did come in for per rat as well as he was quite others in this round but yeah but this changes the game and this that's it's a new I mean they're back in it that's for it's a new breath not only are they back in it I mean this this deal as costly literally costly as it was to the company and its its existing shareholders creates a whole new life an opportunity here so door dash goes back on the offensive we're now in 2018 remember Uber is getting ready to go public on their own they've got the new CEO Dara they're going through all of this stuff they've got their own investors and prospective public market investors breathing down their neck about profitability path to profitability postmates which we have talked they certainly had their own challenges aside from that too exactly we haven't talked about postmates yet on on this episode but they're struggling they haven't raised money since 2015 remember capital intensive business you're three years without raising three years without raising money gonna be pretty hard to keep taking to keep winning share here door dash has all this money they say we're going big they go all in they literally five X so multiply by five the number of markets that they're in during this year in 2018 by the end of 2018 they are operating in over 3000 towns and cities in America enormously wider footprint than certainly postmates are caviar their other independent competitors and approaching and probably even surpassing in terms of footprint Uber at this point and they start taking a ton of share in the market they quickly become the fastest growing food delivery company they overtake Uber during this year for the number two spot behind grub hub grub hub is still the biggest in 2018 and on the back of this presumably we don't have access to the data but as they get this density even though they're spending all this money to acquire new customers through promotions the unit economics and their attention starts to work and it starts to play out like things have in China with me to one and they build loyalty on the platform so before the year is even out in August of 2018 there is another $250 million from co2 and dst at a four billion dollar valuation so we're now six months again yeah there's six months after less than six months after that highly dilutive soft bank ground now they raise a quarter billion at what is that 5% less than 5% dilution yeah incredible got the leverage back got the leverage back then in the next year in march of 2019 they finally pass grub hub and become literally the number one player in North America summer of 2019 as we've talked about on the show they acquire caviar for four hundred billion dollars from square that adds even more restaurant supply and order diner demand to the platform so they consolidate there they raise even more money at increasing valuations by the end of 2019 they are at a I think there is 600 million at a 12.6 billion dollar valuation so now we're 10x the price of the soft bank ground already within a little over a year and so what what what tipped there because they went from like on the ropes to I mean being a darling obviously having five hundred million dollars to spend can give you the opportunity to do a lot of growth quickly which we saw in the new markets but like what was changing around the company that would change people's opinions on why they're willing to bet on this thing and so heavily the two hypotheses I would have are one simply watching me to on in china and that they are making it work they are becoming a dominant number one player in the public markets at this point in time and their stock is performing exceedingly well I think they are now add or over a hundred billion dollar market cap as we record today and then to all the other players have suddenly either shot themselves in the photo taken themselves out of the game so square gives up with caviar and sells to door dash uber is now public and going through all the struggles that we've chronic hold on the show not to mention pre public with Travis you know that's in the past but early 2017 was no no cake walk for them either so they've had multiple floated wounds yeah multiple years now of self-inflicted wins postmates can't raise money meanwhile door dashes out there spending money they're the only player doing it I think that's the the window finally opened I think to realize or attempt to realize this dream you know the matuan dream of becoming number one player in a highly competitive market right and then you know I think that we see in markets is an explosion and then consolidation especially when they're these low margin highly competitive ones and so you're right as everything started to consolidate around them and they suddenly had a large balance sheet it became possible to see how they would be the one left standing who would roll up others rather than you know being forced to you know join one of the big guys on unfavorable terms yeah and as we've seen I mean I think it's even become a question of do they need to roll up anymore or are they just gonna take so much share it doesn't matter yeah so by the end of 2019 they finish with 800 this is the first year I guess the second year we have full financials for them in the s1 885 million in net revenue up over 3x year on year 263 million orders also up over 3x 8 billion in total gross order value and this is I thought really interesting too 60% year over year same store sales growth on the platform so taking out new market launches taking out new restaurants added to the platform just for existing restaurants that were on the platform last year doing 60% more sales the next year in 2019 and the question you're asking yourself if you're one of those restaurants is is all 60% of that new customers or is that some of my old customers shifting their behavior toward ordering through this thing where I don't make as much profit yeah before we get into that the other thing that happens in 2019 which like we've told hopefully it's come across up so we're so excited and you know a lot of TORI of just this journey that Dordache has been on because it's they have really faced the fire here and pulled out of it on the other hand we can't let them off the hook the other thing that happens in 2019 is tips yeah so this we're gonna dive into it because it's a really important thing to know about the company for this may just sound very familiar to lots of you I I want to open this by saying the company's response to their tipping scandal is completely nonsensical like I have listened and watched and read many interviews with people at the company trying to explain what they were doing that was like you're doing it was it is like just absolutely predatory and wrong and and honestly none of the none of the explanations make any sense to me but David what was happening well so what was happening was always or at least from the early post-Pelowelto delivery days early Dordache days as a consumer on the platform you'd order you would pay for the food and then there would be a service charge and then you have the option to add a tip for your dasher uh well it comes out I think the New York Times did a big investigative piece in mid 20 it was July 2019 that that tip that you assume when you're tipping your career that money is going to the career like it would in our restaurant when you tip the waiter and it goes to the wait staff and the and the cooks in the kitchen and you know maybe there's a tip pool but it's all split between the employees that tip is going to Dordache and Dordache is combining the tip into the total value of the order and then they are splitting up the economics of the order according to their you know their their fee splits right basically what they were doing is they were only paying the tip out uh to the driver if the driver basically didn't make enough in their base from Dordache from the order that they delivered and they're like oh I guess we have to give you some of your tip because you didn't hit them in a moment but if you did hit the minimum then Dordache was keeping the tip yeah it was like the minimum and the maximum yeah yeah so yeah and honestly like it is for anybody who wants to listen to like the company's response to this it kind of like sounds good and you're nodding your head until you're like wait I that literally doesn't make any sense like they they try and blame it on a UX issue sometimes they try and blame it on it's actually originally intended to help the dasher and you're like how could it possibly have been trying to help the dasher um you know it just goes to illustrate what if freaking tight margin business this is and what a what a you know tight rope they're walking to make this thing profitable yeah that's it there's no excuse for it um no so that they fixed it they did a complete 180 the tips are real tips now as they needed to do exactly uh and I think that's interesting like it was um maybe it was there's no way to know maybe it was part of what helped make the unit economics work during this period that doesn't make it right to do it makes it wrong uh still but now they fixed it and now the business is unit economic positive even with uh not stealing the tips uh so let's pick back up how does this happen basically 2020 has been a rough year for a lot of people it has been the opposite of a rough year for door dash uh the yeah door dash had their zoom moment yeah they basically had their zoom moment in the private markets um so when the pandemic hits in March in the US at least door dash grows over 20% that month which was already coming off an eight billion dollar plus base uh which is pretty incredible right like for context a company growing 20% in a month is like way it's like what a really good seed stage company with product market fit can do and this is uh a company that did eight billion dollars the previous year in gross order volume yeah and um actually don't have the stats for the other platforms uh handy right now they grow too with the pandemic but nowhere near the degree that door dash grows so they're share-taking of the market just accelerates further uh throughout covid such that by the time the S1 hits uh which we'll get to in a sec um door dash now has 50% of the entire food delivery market in America up from 20 something the year before yeah i mean it was like uh over the year in three quarters between the beginning of 2019 and when the um IPO uh S1 was followed was filed they just had an extraordinary run of of becoming the dominant player in the space um and i it's actually it's kind of hard to figure out why like i don't really know why they smoked uber eats so hard um and uber eats grew too but in terms of share how door dash went from like a one of four players with a you know i 20 something percent share to like now over 50% if i had to hypothesis i think it's two things i think it's one being willing to spend on customer acquisition you know just in San Francisco at least i noticed especially at the start of the pandemic way more billboards for door dash than anything else than any of the other i don't think i saw i like i've ever seen a need so our postmates billboard uh i'm sure they exist somewhere um to though it is i think also related to this being willing to fly low to the ground that door dash uh has always operated with the prices that you are paying as a consumer are notoriously opaque in this space but i do generally think this is a feeling more than any um data that i have uh that generally ordering on door dash i am relatively paying a fair or pretty close to price of the food that i would also pay hmm if i were to go order from the restaurant directly now i'm also paying the the tip to the career to deliver it whereas on other fees yeah and the service fee you know what up but like it's all reasonable and and door dash but there's a delivery fee there's a there so the food may or may not cost more you're saying it doesn't there's a delivery fee there's a service fee there's a tip yep and then there's a I think door dash just has the service fee uh well if you're ordering with dash pass uh so that's yes that's the important distinction is that the deliver one of the fees drops to zero and one of them gets shaved by like three years delivery yeah drop test to zero um um well the other thing that we didn't talk about is they do it deal with chase and accept fire so wait but before i i looked it up because i i hate just like throwing out wrong numbers on this show so uh in the two and three quarters years from january 2018 to october 2020 um they grew from 17 percent market share to 50 percent market share so just an extraordinary last two and a half years well i guess the definitive point i was going to make before certainly on postmates and also i again it's a feeling to an extent on new parrots i've ordered from those platforms and then looked at the bill and been like this is crazy how am i paying $70 for you know two dishes from a tire restaurant uh just from all the markups that they were doing on the food yeah i think that's really fair i think it's totally fair i will say it feels nicer as a dash pass member the the prices do somehow feel more reasonable at the end of the day like the the prices go down just enough for you're like okay it's it's meaningfully cheaper to order than Uber compared to Uber Eats and we should explain what what dash passes um you pay ten dollars a month um it's basically amazon prime so they knock off your your sum amount of the fees um and uh you know it it makes sense for you for ordering a lot of door dash uh some numbers on that and they do call this they call it a a membership program to the physical world which i i think is an interesting way to we're gonna get into discussing that when we get to narratives yes so uh they've got five million customers on dash pass so if you actually you know if everyone paid for that it would be a six hundred million dollar revenue business on its own just just dash pass um now obviously there's some internal accounting there because they are losing the fees that they would be making if you weren't on dash pass but much like amazon prime i'm sure they make up for it in the amount that you are now loyal to and condition to have a habit of using door dash um instead of uh competitors or frankly just making food on your own you know i think the way i mean they're retaining your platform right the way amazon prime famously works is uh you know originally they were like well if we can just break even then it'll be nice to be able to increase the number of orders people make and now i think it's very much the mindset of we actually don't need to break even because we just know how much more that makes people invested in the amazon ecosystem um people can correct me if i'm i'm wrong on that but that's my impression of despite the price like how they feel about it i mean it's got to be the amount of value you get as a consumer out of that what is it $129 a year crazy and david teahure comment earlier on chase afiire reserve the way that i have door dash is not at all because i felt like i should pay ten dollars a month to um have dash pass is because my credit card came with it for free this year and so uh interestingly enough i do think it worked at least for me personally wildly anecdotal this is not data um it did make me a more loyal door dash customer to the point where i think maybe three times i compared my exact same cart in door dash versus uber eats and it was like five eight ten bucks cheaper on door dash so i was like great i'll keep and i don't check anymore in the same way that i don't price check amazon anymore um so that totally worked and the thing that is interesting to me about that chase afiire reserve deal is the customer segment they're going after because the sapphire reserve is a fascinating credit card it's a $550 annual fee of which you can get some meaningful amount three hundred bucks or something back and three fifty back travel credit but then you can basically get the rest of it back in these other benefits in lift pink which is the same thing as dash pass but for lift uh in the dash pass which you know as a value of a hundredish dollars a year um now they're crediting back your peloton um uh some amount of your peloton number ship yes they're uh were we still flying you effectively get a um it's like an effective seven percent uh back as long as you redeem it for travel because you get the what is it five percent but then it has the fifty percent bigger so it's amazing card if you like have a particular lifestyle where you eat out and you travel and you know frankly they it was i think famously a wildly successful program they ran out of aluminum they were printing on them on paper for a while in the initial batch and they they couldn't sell enough of these things very interesting for door dash to say we want to throw in with um with this lot and and get this crowd to be door dash customers um because i do think it probably skews a little bit more city um then so like the suburb strategy was a great go-to-market and now they're i think saying like okay now we need all customers and i'll be very curious i don't think they'll have a discloser but how many of these five million uh people that are currently using dash pass are via this chase fire reserve program and how many of them are actually paying and to contextualize that five million number um how many people are currently door dash uh customers david do you have that off the top of your head uh eighteen million i believe so that's a meaningful chunk i mean that's a little under a third uh of their total customer base are on this um you know reduced fee program yeah so the net of all that you know in q1 of which it's only marching q1 that is the pandemic month for the company uh they because they're so us based like they have so they almost know international penetration and canada and australia but very small in each right so it wasn't till jade march that they would have seen really any end of march yeah um they reach overall for the whole company positive contribution margin in q1 and to define contribution margin for a second why this is so important contribution margin is so you've got your revenue they're uh you know what was it eight hundred and eighty five millionish revenue that the net revenue that they did in 2019 uh if you take out all of the variable costs associated with that revenue cost to serve support uh and most importantly sales and marketing how much sales and marketing spend how much how many promos you do and do acquire all the customers and retain all the customers that goes into generating that revenue base take that all out for the whole rest of the company's life up until this point they were losing money at this point like they were literally giving away dollars for less than a dollar ninety seven cents or something yeah yeah at this point in q1 it flips so they're now contribution margin positive now they're not uh either cash flow or net income positive as a company at this point yet because they still have their fixed costs you know they're engineering based their gna headquarters they rent see if they keep that uh all that they're paying um but this is a huge moment in any company's life and i believe i did some work uh based on what i could tell from uber's uh ten k for 2019 uber only in 2019 just barely hit this mark they were essentially contribution margin break even in 2019 despite being way older way bigger having multiple products around for a long time door dash hits this in q1 um and then continues to accelerate throughout the pandemic and the rest of the year accelerate in growth or get more contribution margin positive well the answer is both definitely growth and contribution margin so in the last quarter q3 and it's up to thirty uh uh contribution profit improved to two hundred and fifteen million which a year ago they had lost fifty two million in q3 and i believe the total contribution profit for the nine months of 2020 so far is four hundred and thirty three million so they did half of that in q3 so spread across q1 and q2 would obviously be less so they're accelerating yeah so their contribution margin was negative 70 percent then negative 20 percent then negative 20 and then exactly what you're talking about in q1 it flipped where they were positive seven percent then q3 positive 29 percent oh i'm sorry q2 and then q3 was positive 24 percent so like having 25 ish percent contribution margin is great um the big question will be will this continue after the pandemic after they have uh i think i was in one of the sources that you can check out in the show notes i remember reading that someone was like they're effectively essential infrastructure for the country right now i sure hope they can be profitable with that kind of demand but yeah i mean i all power to them there yep totally so then two more things to wrap up history in facts on election day november third 2020 a huge moment for the country but also for dordash and uber and the whole gig economy prop 22 passes in california this is super controversial we said we would get back to gig labor here we won't go into all the ins and out just here but like basically the tldr as california has a really crazy legislative and legal system where citizens actually vote directly on propositions that in fact the law is instead of a republican representative type system and uber and dordash as well as the other gig economy companies had put forward this prop 22 to basically permanently creates base and classify their labor as contractors and gig economy workers this idea of a third type of work you have pure contractors we're 1099 you have pure w2 employees and california and other states had been trying to classify gig workers as make companies classify them as w2 employees and prop 22 says no they are contractors they will be paid as 1099s but it's this third class of business and it basically opens the way for the companies sustainable economics on their labor supply so that was a huge win for the companies regardless of what you think politically whether this is good for gig workers or not it happened it removed an existential threat to the business so literally 10 days later on november 13th 2020 dordash releases their s1 and files to go public yep as we wrap up history in fact so we talk about some of the interesting nuggets revealed about their absolutely all right so one thing that I sort of found interesting was trying to put into context the size of their business and I think that this was useful for for me because we talk about all these different companies and numbers once you get to a certain level of big number there's like big number syndrome that takes over where you're like I don't even understand like what what kind of how many billions are normal you know like you get into this weird headspace yeah so there was eight billion dollars in gross order volume in 2019 as we've talked about which basically means eight billion dollars of food were paid for including taxes and of course dordash kept it think it was eight hundred and eighty million of that as revenue so that's an effective take rate of like eleven percent when you think about it of like all you know all their cohorts have different take rates they started at different take rates there's different incentives applied to each one so it's kind of this like eleven to fifteen percent or ten to fifteen percent floating thing that starts high and then goes down over time as you receive less incentives but anyway in terms of what the incentives that the consumers are getting but the take rate for dordash gets higher over time as they're paying out incentives right sorry yes I said that backwards so then of course they had monumental growth you can sort of back into depending on how their q4 goes that their run rate right now is something like a twenty two to twenty five billion dollar gross order volume for on an annualized basis so for for twenty twenty it would seem like they'll probably come in around twenty five billion dollars in gross order volume now how big is twenty five billion dollars to contextualize this at the small is order values of food delivery as a category compared to say travel which we will cover tomorrow on the air being the episode it's actually kind of hard to stack all those purchases on top of each other to get to a truly huge gross business and those who have done that successfully are in the e-commerce vertical so you know dordash has twenty five billion each a year that moves through their platform amazon last year had three hundred and thirty five billion and when you look at allie baba and china they had close to a trillion dollars of of gross volume through their platform and even pin dodo dodo which we covered to start this season had a hundred and fifty billion in in gmv or or gross volume man talk about big numbers syndrome that's six x dordashes gross order volume and even crazier to put pin dodo doos growth and scale into context as that they started two years after door dash did but china is like a whole different capital you know comparing any numbers to us based which by the way total six we've talked about me to one here now we're talking about pin do doo like i mean china's so different we need to do more episodes we need to do me to one but like it's just create tens and owns over twenty percent of both pin dodo and me to one so you want to index this take a look at ten said yeah another few interesting things that i thought were were noteworthy from the s one were the existence of different products that i did not know that doordash had most notably so there's door dash for work which is the kind of competing in that market of office delivery that we talked about we talked about dash pass there's these two things that i didn't know about door dash storefront and door dash drive that are worth understanding because basically the way you can think about door dash is they are the ones who are aggregating all the customer demand and then they are putting massive amounts of pressure on the sort of back end of the supply chain the person delivering it to you and the restaurant because they sort of hold the customer hostage like they say i've got this customer i can send it wherever i want therefore i get to have outsized economics in this transaction and for some restaurants that's a bummer for other restaurants they say i got my own customers who love me sure your delivery networks interesting and maybe your little checkout pages interesting i don't i'm going to operate my own business thank you very much and i'm going to pay you sort of piecemeal for for these things and if i can't get it from you doordash i'm getting it from other people and so you know we had nika kona's on the lp show to talk about talk and we had this fun episode we do with him called arming the restaurant tour rebels and um you know that was a really fun dive into basically like if you wanted to not use door dash and you felt like you had a strong brand and customer relationships and a big email list whatever how do you do that yourself so um of course door dash then realizes okay we we got to compete if people are unbundling us we have to be able to offer our services piecemeal in order to compete with those who are building their own restaurant stack and so storefront is an interesting version where they basically say look you don't want to build your own complicated ordering website so it's a white label ordering solution they launched it in july i don't think they want to be in this business but they kind of have to be otherwise are just going to lose those customers so this is directly competing with talk talk and um what's the other big online order mark at the at the at the uh order mark federates it out to all the others all the others but there's a handful of toast yes they're letting you stand up your own you know check out page yep most of those don't offer the delivery because as we talked about that's a very difficult check check problem solve the operational problem they partnered with door dash where I assume with the drive product to do the logistics and delivery right so it's interesting uh the storefront ends up being two bucks in order if there's a you know a some sass fee that you pay um monthly along with that but basically it's two bucks out of every order uh go to door dash just for operating the little website that you drive your own customers to i think is is now is that covering the payment fees though might be i think it probably is might be okay and then the second product that's probably the more interesting one david the one your referencing is door dash drive which is the white label logistics service where restaurants can have food delivered from orders that they generate through their own own and operated channels like the telephone maybe they use door dash storefront or a competitor or they make their own website that's seven dollars per order and one dollar for every mile after the first and i was like oh door dash drive that's interesting i wonder like if any like does anyone use that i have gotten Chipotle delivered from my Chipotle app many many many times and have never realized that that is actually door dash on the back end a dash or walks into Chipotle picks it up brings to my house that that is a really interesting business to be in you get to command obviously less of the economics because you don't control the customer relationship if you're the door dash in this case that we're talking about but it lets them leverage this asset that they've built for customers who say like hey i do have my own customer relationships i still want to pay you to use this driver-based asset that you've created and all the technology to power the whole thing and it lets them address basically a larger market than they would otherwise be able to address with the pure door dash marketplace yeah the analogy i've heard here and i think it's apt is door dashes both the amazon and the shopify in this space the amazon in that day operating marketplace that consumers go to the door dash app and they'll generate the demand and they'll you know send you marketplace orders fulfill it with their logistics just like you know the fba just like amazon does and they'll take a cut of the transaction for doing that and they're also the shopify where like hey you got your own demand just like you say been that's cool do that we'll give you the tools to service your demand and you'll pay us for the tools yep and they actually encourage their customers if it's like a Chipotle to do a list they say look you have your customers like you you have an app you should do that we should only extract seven-ish dollars of value from you if you've got your own customers if you got our you know you probably want access to our customers too you should also list on the yeah what's up there yeah just like lots of ddc brand sell on amazon and sell direct exactly it's it's the omnitriental strategy for food yep all somehow paying door dash along the way well and i think that's like to find my that's what i find so we'll get into more nuggets from the s1 but that's what i find so impressive about the company right is like they have gone through this slog and built up this thing that everybody thought was impossible and the thing being a local delivery logistics network that can operate contribution margin positive yep and once you have that then you can start doing all of these other things yep the last point i want to make on that is a great point that was done in the s1 club and the s1 club is an awesome sub stack that friends of the show put together that you should check out and then you can click the link in the show notes to see that too in our sources an excellent analysis with that basically shows it costs about six dollars for a door dash to acquire a customer and assuming that they stick around for five years and frankly we we don't know how long they're going to stick around but that seems like a reasonable enough estimate just because the company's so young that door dash can earn about $60 in pure profit from them over those five years so that's a you know 10 to 1 cacti ltv ratio and it takes about 16 months for them to recover that $6 and it sounds like a little bit of money but when you think about you know you're ordering all this food door dashes only keeping a small percentage of that call it 11 to 15 percent for most people you're not ordering every night you know from door dash ordering a few times a month or a year in an addition they're doing a lot of incentive based like little subsidies that are trying to get you to get your order so the longer someone sticks around the more the more they're going to generate and a lot of that profit is actually back-weighted for door dash. Yeah and and I think the other important point here too that you know as Bill Gurley's written about in the past a lot of how you know just looking at cacti ltv and payback mass a lot of complexity and important things about the business you got to think about what the levers are that door dashes pulling here they certainly could do things to generate more profits out of every order that they're getting from customers through raising prices and that would make those numbers go up and that would make payback happen faster but because if you think about what do we say there their contribution profit margin is based on gross order value right now 2% 3% 2.4% 2.4% right so okay right so that shows like on the average order value of a $30 order including tip after allocating all the variable costs and all the sales and marketing costs and promotions door dashes contribution margins about 80 cents so that's how you wait to understand why it takes 16 months to earn back that six dollars yeah so so now so think about that right you're going to earn 50 dollars in contribution margin profit over five years that means consumers are spending 25x that in terms of the dollars they're spending on the platform that's that's huge amount of economic activity you're generating right and so by keeping those margins lower this is the whole thing flying close to the ground based as your margin is my opportunity you're generating more value for consumers and for the restaurants and the dashers in the platform presumably to by keeping that lower other people won't be able to match that you get more density you grow over time the flywheel spins here so like you know yeah 50 bucks to you but what's that $2500 in spend that the customers are doing over over five years and yeah you know can that grow as you add new categories I think it good you better hope if you're a buyer of the stock that it can grow as they add new categories I mean that David that this is the best illustration yet at the whole point we've been trying to make on this episode which is in order to try and be profitable and grow without massive investor influx of cash so in order to be a cash flow positive company who is profitable and growing in this category you have to fly so freaking close to the wire if it can be done at all and the best possible illustration is for one order one thirty dollar and thirty six cent order they get to keep eighty cents and boy are they working hard to get that eighty cents so it might they have to believe that they're providing tons of value all around the ecosystem and betting that there's going to be a crap ton of those transactions in order for you to believe that this business can eventually spit off a lot of cash indeed well I think that brings us to our analysis section should talk about the price yes just like contextualize who currently owns this company before it's going to IPO soft bank the vision fund owns about twenty two percent sequoia eighteen percent I think that's very evident by the story told of how we sort of got their green view who we didn't really talk about loans nine percent that's a GIC that's Singapore oh I didn't realize okay so I did did talk about GIC is stands for a green view that's been capital or something like got it Tony owns five percent co-founders and and Ian Stanley each own four point seven percent so once upon a time these guys own the entire company along with a court of fourth co-founder and here they are three of them representing under fifteen percent that's a story of delusion if I've ever seen one Clinder Perkins owns about two point one percent that was reported and I don't think that's necessarily in the s one but I think the number of shares because John Doris on the board so the number of shares that was closed so okay that's that's who owns this company coming into today I sent David an article last night just to take a trip down memory lane I should look up the date on this I think it was November 13th from the Wall Street Journal food delivery company expected to fetch valuation of over twenty five billion dollars in December market debut so that's how I've been I we had talked I mean I think the biggest number we might have mentioned was thirteen billion they did raise around an evaluation of sixteen billion so my gosh that would be awesome if they could fetch a twenty five billion dollar valuation that's a great markup for ingredients yeah share price for that would have been I'm trying to remember gosh I get it's hard to remember back that price was so low yeah what were some of the different ranges that then were given in the ensuing weeks so when they filed the s one like all companies I think the range was blank then the first range that they filed was seventy five to eighty five bucks a share I think they up that eighty five to ninety five bucks a share and then last night Tuesday December 8th 2020 they priced the idea woo for a fully deluded market cap of thirty nine billion dollars a lot of higher than sixteen now to be fair they so last year net revenue was eight hundred and eighty five million so just under a billion so far in the first nine months of twenty twenty they've done almost two billion one point nine billion in net revenue so you know high we're talking twenty times trailing nine months net revenue so I do some math extrapolate that out to a year maybe at fifteen times revenue still high still high so uh David and I have not refreshed our browsers yet but uh as of you know we started this episode it had not uh it had priced and sold it at um a hundred and two dollars but price discovery was still happening from market open David let's uh let's pop open the stock see where it's trading now holy crap I mean I don't have a yet hang on I have I'll tell you the price that it opened this morning it opened trading at one hundred and eighty two dollars a share which is a market cap of around what like seventy a billion wow David where are we now as I look at the ticker at one seventy seven and seventy seven cents all right so dropped a little since the open yep but that is up seventy five percent tape one thought and they did we didn't you know time to really research this but maybe you did bend but you know Goldman is leading this IPO and they had some hybrid system and they're like you know everybody's like uh you know traditional IPOs you give off the pop you leave money on the table girl he's been crusading against this for years he gets back some well not DPO's like I we got this new system not gonna leave money on the table I don't know about this new system this uh I mean this is one of the most egregious offenders of leaving money on the table like this is probably close to a three billion dollar wealth transfer from you know employees and investors of this company to the people who bought the IPO last night the investment banks clients yeah all right here's the thing though like I think it's been proven it over the last uh five plus years that people have been talking about this that you can't beat them you can't you can't stop this from happening so I think what we need to do is we need to find a way for the acquired community to get to get out of the ship and that's right that we got to do it we can't beat them we're gonna do it so all our friends at Goldman if you're listening yes we need to get just carve a client yeah we need outcations wow David I honestly I cannot believe this I like if you would have told me a month ago that door dash was gonna be a 65 70 billion dollar company up 71 and a half percent ish from a 39 billion dollar market cap what say we're talking at 70 billion ish market cap right somewhere in that neighborhood wow this is gonna be it's kind of a volatile first day too because it's it's uh you know if it opened at 182 it's now down to one let's see the the the high point on the day was 187 the low point so far has been 173 so there's still a good amount of price discovery happening in the public markets right now yeah wow man so okay all right so what we've got another hour ish to trade here so okay over the course of are the the next several sections all these analysis sections I think the question that we have to keep in the back of our minds is what is the things you have to believe about their future growth and about their future profitability in order to in some way justify the value of this company right now and I can't think of any better way to do that than heading into our our narrative section where we for folks who are new to the show this section we try and paint the media narratives over the last few months for the bull case and the bear case of why you should be excited about this company or why you should run from it at all costs and the market has certainly spoken but David what was the the sort of biggest bull narrative surrounding the company so yeah I mean the bull narrative I think we've told a lot of it along the way here and I at least mostly subscribe to it is they have just like me Tuan seems to have done in China they have accomplished the dream or in the process of accomplishing the dream and taking a market like this a highly competitive local network effect market and tipped it in their favor such that there's no viable competition they have a wide birth to run both to keep growing in the sector that they're in right now with food delivery to add other products and services into it and become the dominant you know me Tuan is we'll get into now is it's not really just food delivery anymore that's a small part of what they do they are a super app just like Tencent and we chat is the super digital app me Tuan in China is the super physical app friend of the show Rita Yang over at GGV has a really great YouTube walk through that we'll link to in our sources of what it's like to use me Tuan in China and like you want to book a massage you book a massage you want to order food you order food you want to order flowers you order flowers you want to bake a restaurant reservation great like you order your food from restaurants you also make restaurant reservations in the app and you're opening it all the time and it's how you interact with your physical world and local businesses around you I think that's probably the bookcase to me yeah it's boiled down to they are the last mile near real-time logistics company like they're the local on-demand FedEx to get anything to you and then and that then you just have to let your mind wander on what are all the things that you could want at your door in a moment's notice and really that starts to shift your mindset to like oh so there are actually a competitor of Amazon Prime now less so a food delivery company well I think what's interesting is I think it's a yes and on the real bookcase yes I mean this market cap it has to be it has to be a yes and right I think it's everything you just said but it's also this you know what made Tuan has become in China which is and Tony talks about this and they talk about it in the s1 and this is part of what dash pass is it is your way that you interact with all local businesses in your area whether that's bringing stuff to you or you going to them or even other interactions you know the example of restaurant reservations well what if it's you know you can make restaurant reservations but you also get special offers at the restaurant you can book things you can book special experiences and because you're a dash pass member you might get some discounts on that well and then just like Amazon has made a big business a big high margin business in advertising on Amazon well right once you have that traffic there's lots of ways to not hard to believe you could have sponsored listings for food delivery or for other things within the app and if I as a consumer I'm opening this three four five six ten times a week to interact with things and I'm getting all this stuff put in front of me that's pretty interesting right yeah smart name the company door dash and not like door food dash and uh it's also smart to to introduce dash pass in sort of uh like even pulling the door away from it you know because then dash pass you could you could imagine applying that brand to you get special discounts and special relationships with merchants that aren't necessarily being delivered to your house but you're just transacting through the app yeah and I think so look this is the super bowl case uh lots of questions about whether this can happen when how there is another way to paint the bowl case too which is basically like that this company is an optimization machine and they will run at fully fully utilized optimization it's kind of like a factory floor like all those machines are really expensive so you better run them at the most perfect harmonious capacities so that you can be profitable on that you know high amount of fixed costs and the the way to think about that in in this sense is like there's a lot of different ways in which they can optimize but like the biggest one is once you've acquired a customer can you get the most amount of profitable transactions out of them over time and obviously like big performance marketing angle to this company uh similar to like a restaurant once you on board a restaurant can you keep them for a long time can you be profitable on them it's it's all about like getting to not only the scale but the sort of internal data that the company has so they know exactly how to price every component what customers go at worth going after what restaurants worth going after what product at what time like it's in a lot of ways it's basically a bet on data and data science being able to be the way that you can do this thing profitably. Yeah not to mention even just the fixed costs so to speak although they're variable costs but it's a fixed set of variable costs right of having the dashers operating right like yeah you have capital in the system all day every day with the dashers that are operating on the platform right and so like how do you lever the fact that they're getting paid to be doing the fulfillment on the platform how do you get more leverage out of that meaning make them do more deliveries more efficiently during the time that they're working for you it's almost like the gig economy it's a third way to think about costs it's it's not it's it's variable but it's not totally variable cost it's a fixed set of variable costs in the network and how much leverage can you get out of that yeah okay so then that goes to the bear case which is actually one of them is pandemic related which is the most simple way to look at the pandemic related bear cases this is the best it's ever going to be for this business and after this there's going to be way less demand than there previously was the other I think a little bit more nuanced way to look at it is the data that they're getting right now may not inform consumer behavior in the future and so it will be hard to trust the guardrails for this cohort yeah of course all there most recent cohorts are looking great right now because of the pandemic right you know I personally think the way it will play out is that all the new customers they did acquire have pseudo permanently changed their behavior like I think once you make a behavior shift and I just know this from you know myself like I dored ash to sort of one me over as a customer and I don't think I will sort of change behavior after this but they're certainly not going to acquire customers with the ease that they did during the pandemic so that's sort of my like meter bear case on on the I would say also to even on that you know one thing we don't get delivery often I've done it the last couple nights in research for this episode but what we do do often is take out and I think this is one of the things that's really smart that dored ash has invested in is making that a feature on the platform too like yeah it's way more I vastly prefer and probably the restaurant vastly prefers me to place my takeout order to walk over and pick up from my local type place via an app rather than calling them and tying up the phone lines and dored ash has found a way to enable that and get paid for it. Yep yep I think that pretty well anyway the the biggest bear case I think you can make is that they're not going to be able to make the leap out of this restaurant category and this is going to continue to be a razor thin highly competitive business and they're just never going to be able to sort of take all the investment that they've made and actually get to benefit from an immensely cash flow positive output on the other side. Yep that makes sense I mean I guess maybe maybe there is one more legitimate argument you could make on the bear case especially at this valuation which is this tam is maybe not as big as you think and like obviously it's big but how big is it now in the s1 they talk about what is it I want to say something like 600 billionish of off-premise restaurant food annually. Oh yeah yeah that sounds right okay now what percentage of that is actually addressable by dored ash so last year they did eight billion in GMV out of that 600 but like you know a bunch of that is dominoes a bunch of that is catering businesses which obviously dored ash is getting into that but like they're not going to be able to address all of that. By the way it's my 300 billion the off-premise spend at restaurants and other food service in the United States. 300 billion okay yeah so now you're like wait a minute so say even you get the whole market 300 billion dollars in gross order value you said we said we have a 2.5% contribution margin let's say 10% revenue oh let's let's just even use revenue a 10% revenue margin so now you're talking about a 30 billion dollar net revenue company yeah that's great that's super impressive but like that's not amazon right and that's if you address a hundred percent of it and yeah even amazon only addresses what is it 50% of e-commerce but e-commerce only 20-ish percent of commerce so yeah the way they define their market just make sure I actually understand this well as they say American spend one and a half trillion dollars a year on food 600 billion of that has been on restaurants and then 300 billion is off-premise that's what I was thinking the 600 the 600 is also dining in right right so that you could imagine I don't know I don't know how the dining is addressable for them man so okay at this valuation not only do you have to not believe the bear case you have to believe the bookcase that they are going to expand outside of just the off-premise food delivery market yep absolutely well um this is a really actually we decided to do power on this episode as well in a section where we normally trade it off with narratives but I think it's actually very appropriate to do uh both of them so this comes from friend of the show Hamilton Helmer's book seven powers and power is defined as what enables the business to achieve persistent differential returns or put another way how do you be profitable and more profitable than your closest competitor and do so sustainably over a long period of time and the the options for this are counter positioning scale economies switching costs network economies process power branding and cornered resource and um David I'm curious where you come down on what power do they actually have here well it's interesting before we get to us um it seems pretty clear to me that uh Tony and the team at door dash are probably also Hamilton Helmer fans because if you read the s1 they have this handy little flywheel diagram uh three noted flywheel and then they also talk about what they view as their defensibility and they list local network effects economies of scale and increasing brand affinity so three of the seven got to imagine that uh Hamilton as he has so many uh uh as his work has influenced so many people here and Silicon Valley has also influenced them so that's what they they think network effects economies of scale scale economies and brand and we can talk about how they think about them to me the biggest one right now is is is economies of scale 100 percent I think it's actually the only legitimate one because I I think I think it's pretty easy to hop for any network any participant in the ecosystem it's very easy to multi-home and it's very easy to choose the next best competitor like it's easy to order food it's easy to deliver food and it's easy to as a restaurant also list on Uber Eats no problem at all so I think the I think any defensibility that comes from a network effect is not really real yeah yeah no I was going to say that it's related to order times and density but that's that's that's scale economies so yeah I think it's I think scale economies is the big one I think and there's something to brand but it's always hard to actually know how much to sort of chalk up to brand I mean what one thing is really true and and rings really really true to me which is like the whole end game is aggregating the consumer attention and this is the Bentomson aggregation theory concept applied to food where if if you're the way that people think to order food like you're the destination site they're the front door to someone's purchase you're going to get superior economics on that transaction and I think like as you think about the far especially if you start introducing an advertising business model into this to absolutely and I think about as you think about the far future of like what is the how does the world of restaurants reorganize given you now have this participant in the system or the setup participants in the system that are you know a gobbling up all the consumer attention and the default way to order food as the default shifts from that real world to online whether it's door dash or you're using prime now to have stuff delivered they're going to start eating or they already are eating the profit of that local business or store and for the vast majority of local businesses without a differentiated offering other than store location which is how most businesses used to differentiate door dash will totally eat them and they'll actually eat their back end too in the same way that prime now has a warehouse like door dash will eventually have warehouses for the most commonly purchased things and and be able to capture some more of that margin so then only the restaurants who deliver unique product or a unique experience will actually be in a good position as the world continues to to reorganize like it's the same thing Amazon did to e-commerce is going to happen in food yeah I agree with all that I don't think this is brand power in the Hamilton sense like I don't think this this is that is a consequence of economies of scale and then growing into network economies which I think they you know they maybe have a little bit of now but I do think as what you're saying happens that'll grow more the more of a network effect as they have all the consumers and all the restaurants for now but let's say suppliers with large local businesses on the other end brand though to me brand like for brand to be a power it has to be like Tiffany's you know that's the canonical thing we're like I'm willing to pay more for this exact same commoditized thing simply because of the brand name on it and there's no way that that applies to door dash like no way if each gave it to be cheaper or for the same for like yep yeah you're absolutely right on that yep so that's that's pretty aspirational nice one Tony we appreciate it good try well listeners for what would have happened otherwise our sort of section where we in a traditional acquired episode would talk about what would happen if this transaction didn't happen we thought it'd be fun on this episode to dive into what would have happened if Uber hadn't imploded during their 27 and in 2018 would we be here today and I think you know that gave in the ride sharing market lift a new breath where they were basically dead until Uber you know imploded and are now quite formidable competitor well 20 I don't know if I can come for minimal when like no one's ride share they they exist and there's not like a it doesn't seem like they're about like in 2017 it seemed like they were about to die and indeed as we've talked about on the lift and Uber episodes they were about to die Uber was going to win and then they haven't and now it's stabilized into more of a do up early type structure yep so what would have happened to door dash if Uber hadn't gone through their 2017 and 18 and as we know like 2016 wasn't looking so good for door dash early 2017 they could have died so how much of Uber fumbling had to do with door dash having a breath well this is I think this is really one of the most interesting questions on this episode because part of the narrative around this whole space and Uber's role in it particularly that we haven't yet talked about on this episode is what Uber would say which is we have a structural advantage in both of the main core products that we markets that we operate in ride share and food delivery because we can use our supply of drivers across both of these products lift is a pure play ride sharing they can use their supply for food delivery door dashes pure play food delivery they don't do ride sharing thus we should you know that these as the the narrative that they and lots of other people believe it every time is we should be able to win both markets because we will be you know we'll have better essentially 2x the scale economy that any pure play player could have yep that has not played out interesting question is I do want to say like that that actually according to Tony is not true like that well right yeah that dashers are actually different than ride share drivers so like that all sounds great and until I was doing the research I was like how did Uber now win here they already had all the drivers like all they do is tell them to deliver food instead of people but like according to Tony at least the average dashers in their mid 20s and the average ride share driver is in their early 40s and women are willing to be dashers there's 40 40% of dashers are female whereas only 15 percent of ride share drivers are women maybe largely because of the safety concern so this has been this like you know common observe you know common belief well I think there's an even more important uh so I totally agree um I think on the what would have happened otherwise I think it would be interesting so I think Uber got lazy and relied on this idea and I think it would have been interesting if they weren't going through everything that they went through to see like would they have how would well would they have done with baby being less having their eye taken off the ball here because I totally agree with Tony on this one that the nature of the supply for food delivery is quite different across many dimensions versus ride share um and in particular so there's all the demographics that you mentioned um I think perhaps especially in cities the more important one is vehicle type uh so if you're going to do ride share in a city you need to have a nice late model car or access to one that immediately segments out a huge portion of your addressable gig labor economy your gig labor force there there are a whole lot more people who either don't have a car at all or have a car that doesn't meet the standards of Uber and Lyft and Dordesqueam along and said this is why I think bicycles were so brilliant in the early days in in Boston and then that grew into ebikes then that grew into scooters of all different types but the powered you know motorcycle like scooters and so bird like scooters and I think that opened up a lot more addressable supply for them that Uber was never going to be able to multi home across their two products it's a really great point yeah it's yeah it's a it's a larger potential supply base than than Uber has and the way Uber sells that problem is like oh well that person can lease a car from us but like if you're a person who um or lease a car from one of our for one of our partners I actually think this gets to the fact that the the way that people plug into Dordesqueam is pretty different than the way that people plug into ride sharing I think Uber would like to continue the narrative that it's largely the sharing economy but I think the professionalization of supply is pretty clear at this point the majority of Uber drivers their full-time job is to drive Uber I actually don't know if that's true with Dordesqueam I think it is much more like a younger crowd with a different job that is using this to make a little bit of money on the side in order to do something else and like it feels to me much more like an actual realization of the sharing economy as opposed to what Uber turned into yeah I would agree with that so yeah I actually don't know what what would have happened otherwise is not clear it's not like we can crystal clear say like oh yeah Uber shout themselves in the foot they would have won here things would have been different well certainly it became possible for Dordesque to raise money in a climate that would have been too hostile had Uber continued to be a jug or not yeah and raise money from Uber's largest shareholder still so crazy to me that that happened it did all right playbook playbook let's do it oh man so many things so many things we've already talked about but the like the headline of this needs to be uh winner take all markets do indeed have a pot of gold at the end but so far we have just seen cash flooding into try and take it all but that pot of gold has totally not materialized like in 2018 they lost 200 million dollars and then just like their growth they tripled it to over $660 million loss in 2019 and of course the losses are shrinking in the pandemic they've only lost $150 million so far this year but I mean this is the classic modern embodiment of a venture capital business where capital floods in because the perception is that when you're at the the biggest scale then even if you stay small margin all those little margins across all those little purchases add up and maybe maybe people can take that next leap and believe that you have pricing power so then actually you can make more money per per order of a time when you're you know I'm an opley but I think I think this is the you know this is like the bear case on this whole ecosystem that we're in right now the winner take all effects may not be as strong as people thought um and the the lock-in and moat may not be as as deep or wide or whatever you want to say as people thought and it continues to take longer and longer and longer to be able to realize that end state where you actually can uh realize all the fruits of your labor or not really labor but actually capital that has gone in yep so to me that's like that's the biggest playbook theme here is there they're running the playbook that is the winner take all capture a winner take all market but we're we're in the middle of the story we're not at the end of it yet yeah yeah I think that's I think that's true although I think coronavirus um was a huge accelerant to them vastly improve their chances and also stepping on the gas and continue to run this playbook while their competitors pulled back vastly improve their chances so you know whereas the narrative has shifted on this where in 2013 2014 it was run this playbook there is the pot of gold in 2016 1718 it was there's no pot of gold at all this is all a mirage now the question is well there may be a pot of gold right I think it's a good way I think I'm related corollary playbook theme to that for me that we've seen across this season that acquired and some of the other episodes we've done recently focusing on more bootstrap businesses and just businesses with different histories I mean even I would put epic games in this category too different markets are different right like and if you're gonna go after a market like this you stand no shot unless you raise a lot of money like you're gonna get torched but that's not the case in other markets sort of if you it depends if you want to compete nationally or globally or not like hmm I don't know door dashes probably gonna win if you're trying to operate just in one city um and then they come in and compete against you in that city but I actually don't think there are any meaningful cross geography network effects other than the national chains hmm which door dashes don't better at than uber but like if your uber eats like really what are the cross geography network effects between your uber eats business basically nothing like you get to reuse the same technology on the back end great customers know of your brand great but like compared to air b and b which has an unbelievable cross geography network effect uh probably the best ever right like it I only live in one place and if word gets around pretty quick that all the restaurants are on one app so it's yeah I don't think I don't think you need a national brand or an international brand in order to win like I think that's fair but I think you're your upside is capital like you're never gonna build an epic games type size company if you don't take the go-bake approach any capital intensive market like this yes great point great point I guess it really comes down to capital intensity like if you're operating in a capital intensive market good luck if you don't have capital but as we've seen on this on this season there are lots of other markets that are not capital intensive yeah okay great that's one for me the other one I want to highlight again because I think it uh it's very amazonian it's very apt to me just sums up door to ash exquisitely well uh is their value of operating at the lowest level of detail and I think it's it's one of those things that like people say it's like oh yeah like you know like people talk about the amazon um leadership principles the leadership principles yeah exactly but I think understanding what that really means Tony talks a lot about this in interviews and he uses the example of the cheesecake factory in san francisco which is in union square and the cheesecake factory is on the sixth floor of a mall in union square there's no dedicated parking out front uh you need to take an elevator to get up there and they have a bunch of different serving stations and you've got customers even in san francisco who like to order from cheesecake factory and they live you know a 20 minute car ride away in the city so how are you gonna get them the get them their cheesecake in a high quality timely manner well the only way you can do that is by doing things like he talks about like well okay we went to the mall and we're like can we get a dedicated elevator shaft for us great we went to the restaurant and we were like can you give us a dedicated serving station great they went to the parking garage there and they're like can we get dedicated dash air parking spots great you know that only happens when you can't do that when you're sitting in a when you're sitting in an office riding code right and only paying attention to averages I think another great embodiment of this is uh I think it's Michael block is how you pronounce his name on twitter talked about how uh and he's an early employee in food delivery you can compete on four things price speed selection and quality and they sort of like looked around realize that they they weren't necessarily going to beat uber on price or speed because they didn't have the density yet that that uh was in cities um they didn't have the broadest selection yet they did have high quality restaurants uh and one of the very interesting things that they zeroed in on his speed they're like well how fast do we need to be and he says our analysis showed that there was a limited marginal benefit to customer conversion or retention rates under 42 minute ETAs as long as deliveries were sub 42 minute customers didn't really care how long they took and it's just looks like amazing light bulb that by diving into it this flies in the face of what I said a moment ago because this is an average number and not a sort of like per customer per location per type of food tail number um but then the idea that like they can learn that 42 minutes is their food delivery equivalent of that sort of magic five minute mark for uber where like I don't care if an uber is two minutes away or five minutes away it's the same thing I do care if it's five minutes away versus 15 minutes away that's those are very different things um and I think his point in his Twitter thread which again will link in the show notes is uh that you know when they were competing against uber uber was in a constant optimization race to get the food to you faster and dordash was kind of realizing actually that that might be a waste of resources yeah yeah so anyway it's the Amazon leadership principle dive deep like being deeply analytical which they need to be to be able to operate at the margins that they're operating at yeah all right um last section before grading is value creation and value capture and this is a section that we started doing um based on actually a lot of listener demand that has two parts the first part is how does the value that they are capturing compare to the value that the company creates so you know or is it like Wikipedia where they capture a tiny little percentage and could be capturing way more or are they capturing plenty like Google who makes a ton of money from the value that they create in the world so there's that that component and the second is you know how does the value created for the world not just for shareholders uh compared to any value destruction that they've done in the world and i think let's let's address these in order so on that first one they seem to be capturing basically the maximum amount that they possibly could and anymore and consumers probably wouldn't buy i mean it's effectively a 40% markup on your food in order to pay uh dordash and then to pay the dachar and like uh the market actually feels relatively constrained to me of people who will are willing to pay 40% more for their food to have that sort of convenience so like i don't think they could be extracting anymore so that's anymore from consumers anymore on the restaurant side and the restaurant's probably couldn't keep their doors open like i think dordash does a lot of research figuring out like how much of the drip do we need to give to restaurants so they'll continue to be our suppliers um and not you know turn off the platform either because they don't like us or because they just can't operate at all so i think they're they they're doing a reasonably good job of maximizing the value that they possibly can take well then there's the dasher side too yeah um of are they earning enough on the platform right and and you know the knock on this whole freaking businesses like this business model is is there actually enough dollars to go around as you start to get to more and more customers versus a smaller set of customers who are willing to pay a larger markup in order to have more you know actual dollars to go to go around here so that that's sort of how i would describe i think companies doing a bang up job of capturing value um how does the value created for the world compared to value destroyed for the world i mean i think there's a strong case to be made around exploitation of gig workers not nearly as strong as like ride sharing um i actually think that there uh this seems to be a much friendlier company to dashers than um ride sharing tends to be to to drivers but i agree and i think that the the biggest reason for that i think is structural we were talking about a minute ago in terms of vehicle types the depreciation uh on ride sharing on the vehicles is a huge hidden cost that the laborers bear and of course depending on what vehicle you're driving with for door dash you're probably also incurring depreciation but potentially way less right and a lot of them are leases so it's sort of like built into the cost of the lease but yeah um i think the bigger case to make that you know it's there's value destruction happening for the world is on the the restaurant side as much as door dash wants to sell a story around we empower local businesses and you know i would hate to live in a world where those businesses didn't thrive and people only bought stuff through us and we're not the merchant our merchants are the merchant and we're just the platform i just don't think that's where this business is really going i think that's a wolf in sheep's clothing or fox in the house or whatever you want to say especially now that they have the market cap that they do and they're publicly traded and they have the shareholders that they do like i just don't see a world where what they're actually doing 10 years from now is empowering local businesses yeah it's interesting the it's funny i i think i would maybe push back on that a little bit in the now in the short term um in that like yes there's a lot of a lot of sentiment among restaurants and often justifiably so that door dash and other platforms take way too much of the order it's eating their costs their costs the restaurants cost structures are not sustainable uh profit margins with what when selling on these platforms they can make things work i think they're probably a sumptuous to that on the other hand i think there are also plenty of businesses and restaurants that have figured out how to make it work and and it's like incredibly additive to them um being able to have this new delivery channel that honestly they just they they can't operate this network themselves as we've talked about in the whole episode so i think that's today i do think though in the future you're probably the point you made is going to become more salient as cloud kitchens ghost kitchens other food related businesses get built that are going to be more of scale businesses as opposed to local restaurants and my question is how does how do they just not end up combining like and how does door dash not build this themselves i think they are i think they're working on it internally i think they're also a bunch of other startups out there several that have come out of uber uh one that my brother-in-law works for a virtual kitchen company so i think those businesses are going to be more scale businesses and some of them are going to partner with local restaurants like virtual virtual kitchen company partners with local brands and helps them and includes them in the economics and i think others are going to just be like no we're doing this ourselves we're vertically integrated and you're going to move more and more towards an amazon type marketplace where you have big players that are large consolidated manufacturers and brands operating in the amazon marketplace and the small guys get pushed out yeah it's going to be more important than ever for restaurants to create customer love yeah and and not in a begging way not know like please support us versus these bad guys and shop local but more in like a delight way like i think if i was running a local restaurant right now what i would try and do is like and i should caveat all this with like oh my gosh i can only imagine how hard it must be to be a small small business entrepreneur running a restaurant right now um but i think the most successful path forward for the future is look at something like door dash drive and be like okay great we're going to use them for the delivery network awesome let's not list on door dash the marketplace try and aggressively start building my direct email list figure out how to do all sorts of segmentation on like you know who loves me the most figure out referral programs figure out basically how do you run your restaurant like a bootstrap web business where you have like really rich CRM information about your customers and then try and and be creative in ways where you're not just a food experience like you have an online component or you i mean a lot of this is like pages from canless's book and cacones and talk to totally done it alinea and with next to like you know they they've executed this playbook to a tea how do you do this stuff creatively cleverly digitally cheaply um you know without being a fine dining experience and then use use door dash for its component parts because it's great that it's built out but you don't want your customers coming from there and then you don't want that traffic at the whim of hmm of someone who's trying to commoditize you so anyway i think the restaurants that do have the most differentiated offerings will be able to thrive independently and otherwise i think it's going to be it actually looks a lot like the travel market where like once ota's came into the picture it was really hard for any airline to differentiate and then they all ended up being a commodity racing to the bottom dropping their prices seeing massive consolidation yeah it feels like that's a playbook that's a being run in restaurants right now yep totally which i think you know then the question is for value creation bellycaps here for door dash question is was that going to happen anyway like is door dash causing this or they you know participating in it they're also arming the rebels like it's got you merely an inevitability yeah like in the same way that like was facebook an inevitability yeah for for the publishing world yeah because i get to any door dash the team these are amazing they persevered they had really great insights the very few other people had at the moment they persevered through incredibly hard times and they have against all odds bill seemingly built actually like they're on the path of doing it they built a good single business at the same time like this was going to happen because this is happening in china like this this this moment was if it wasn't them would have been somebody else and again not to take away from anything that they've done but like the timing was right that why now of like mobile enabling this for all three sides in the marketplace it was going to happen yep uh grading so yeah for for the the new influx of folks joining for the show when a company buys another company what we do is we grade how good of a use of the capital of the acquirers company was for the acquirer to to basically for facebook to buy instagram you know in hindsight how good of a use a capital was that on this episode the way that we're going to do that is collectively how good of a use a capital was it for the company like all these people's human capital and for the investors in the monetary capital to to go after this business opportunity in this way over the last five years and everyone bought in a different share price so I think it's a little bit of a it's it's very different to say how good of a use of of it was to was it to buy a share today versus if you're sequoia but I I think actually what we should do is in some ways that's true in other ways everyone's all on the same boat now and it's unlikely that there's any path other than really big success uh long term or kind of going out of business or doing some kind of merger combination because at some point the market cap is going to reflect the actual long term cash flows of the business and that might be a long time from now so I don't want to talk about like gosh if you had gotten in early what your shares would be worth today like it's just not actually interesting to think about the the sort of market value of the shares right now what I think is interesting is to say should all of these people and all of this capital have raised after this opportunity and will will that eventually yield a very profitable business yeah such a good way to frame it so glad you had this idea to do it this way on this episode um yeah I think my answer is uh it was a not in the very beginning not in the seed a or b but in that period after the b it was a very contrarian move to keep doing this the end is not yet written so we can't like say for sure because uh that you know they've had a couple uh contribution laws but contribution margin positive quarters during the greatest tailwind to their business that they could ever experience but uh given that and given now this uh the reward along the way in this IPO and the 70 billion dollar market cap journey outcome temporary outcome here gosh I got I think it's an an A to make this decision like it's so high stakes though it reminds me I hadn't the notes and didn't say but it reminds me of um in a very different way of saunty at emergence and the zoom investment I mean like like this was a for a lot of people and specifically for sequoia and I have to imagine Alfred at Sequoia uh this was a bit your career moment and uh for a lot of these people and you know it took a lot of conviction to do to stick with the company like they did and and I think it's it's paid off so far so I give it an A I can and I see what you're saying but I guess what I'm saying is we should totally abstract any notion of so far like let's take out the notion of like uh have your shares appreciate it in value because like a yeah freaking course like there's a hype train you know that's like have you seen snowpiercer I imagine the hype train for this is like the train from snowpiercer go through oh no and uh so like the the way that I've been thinking about this is basically like what is the likelihood that they'll actually be able to be very profitable in each customer or get a whole bunch of customers that are contribution margin positive and they can sort of ramp down marketing spend at ramp down R&D relative to their overall revenue in the future and like I think the thesis a few years ago of we're going to be your local real-time FedEx I think it sounds better than it has been true in practice based on the way the market has evolved like remember when uber said they were going to be uber for everything and everyone was like oh my god this is going to be the most valuable company or yeah I think it sounds better because it sounds better than it is because once you start actually getting into it you're like okay what are they going to deliver to besides food and you're like oh groceries but that market like that adjacency kind of went away like instacart kind of like that that lane is no longer open for them like for uber the adjacency of food was interesting and there's like other adjacencies that are interesting I don't think door dash has as rich of an adjacency landscape available to it because when you when pressed they're like oh you know flower delivery you're like that's that's what you're going to list in like the first two or three yeah that's not big enough from like drug stores like we're already listing stuff from CBS and you're like so you're going to compete head to head with Amazon on prime now okay huh yeah and I think like I think the market that they're actually in here is food delivery and I think based on their cohort data and their return on marketing spend and their cactl tv ratio like this is going to be a really good food delivery business when they can finally ramp down the marketing spend but I don't think it's bigger than that so for me it's like a B opportunity for everyone to have chased after this just because I think it's like a big market but not an Amazon market I totally hear you I think well I don't know I think I'm probably maybe a little caught up in the story and the the hype trade the snowpiercer hype trade but I do think I come back to like as I was thinking this morning in the couple hours before we started recording I went back to me to on and looking at what that business is I do think there's an opportunity to be more and be more in a way well tomorrow on the Airbnb episode we're going to talk about trips and the honestly kind of zany 2016 I think it was Airbnb open within us yeah with the the nb-trips the products that none of us ever used yeah exactly experiences places reservations all this stuff I think that could be that like that's just like nobody wants that it's just a bad product idea one more likely though when I look at me to I'm like oh wow that that all lives on me to now I think the issue was with Airbnb like you didn't interact with Airbnb every day you interacted with Airbnb very infrequently for a travel use case with door dash if you're opening it multiple times a week and interacting with it I don't know it is still a stretch it's not what they're doing today but I think there's a good chance that they can add more just in the same way that Amazon was the book company when they started very fair well this will this will certainly be a fun one to to watch evolve indeed I know we've gone longer than any other acquired episode in history but I do think we should do carve outs I think we haven't done them in a while in their phone yeah I'm curious David what you got on the docket oh and if you're new to the show carve outs are basically where we throw and like things we're watching things we're paying attention to things we're reading that have nothing to do with the show but we think are are interesting to put on y'all's radar yeah I'm so excited we're doing this too it's been a long time so I've got a I thought about all the like you know important area-dite stuff I could put in here I was like you know what it's mid-December we're heading into the holidays it's been a rough year my carve out that I've been getting a lot of fun and joy out of is the game Hades on the switch I think it's on PC switch might be on PlayStation Xbox 2 it's made by the guys who made Bastion and Transistor if you ever played those games so like indie game developer but just like super high quality really well done and this game is so much fun you play you're the son of Hades the god of the underworld and you're trying to escape Hades and like all the other Olympian gods like help you escape and and that's so you try and like do these escape runs and then you die like you never make it and so you go do you like over never but they it's so well done so fun great time suck but you feel like you're progressing you get that sense of accomplishment like I didn't just like throw you know hours down the drain like I actually built you know my skill it's kind of like what Rahul was talking about in game design like you know building towards a sense of mastery like you have this account you're getting like yeah like whatever it is it's got that magic that I just feel like it's like worthwhile investment sweet love good game design all right I have to get a switch and then I have to get that game and check it out I have three because I was making my lesson I was like you know what like I'm just gonna put all three on here there are all three things you can watch while you're looking for some things to stream while you're staying safe this holiday season the first two I think are the best written acted directed TV shows that I've I've streamed this year and like I have a lot of like kind of like trashier TV I like to watch always sunny the league like a lot of that stuff but like it is always jarring when you watch something that is just tremendous it's art and there's two great pieces of art that I want to talk about in the movie so if you haven't seen Watchman on HBO this series whether or not you were a big fan of the graphic novel or the movie it is exceptional and I think it grapples with social justice issues in a really unique and interesting way that was a little ahead of its time since it was sort of before this summer but it's fun sci-fi fun social justice amazingly well produced and written so it's highly recommended the other I'm sure many people who listen to this show have watched a succession and David I don't know if you've been a fan I've not I've now watched it but heard many people told me about it before I got a chance to watch it's basically it's a it's a fictionalization of the effectively the Murdoch family and newscorp different names different characters all that but just unbelievably well written and acted and it's like it's so easy to get super sucked in and you can't stop thinking about it so highly recommend both of those then for a movie on Hulu you should go watch Palm Springs is an absolute delight to Andy St. Brook film this is hilarious it's so funny it's so lighthearted it's so unexpected it's in some ways it's actually a thinker movie well being lighthearted it's like a it's like a modern groundhog day right it's got elements of that yeah but I believe you're thinking in a different way than the other two but it's it's also worth your time so you know if you're like me and you're looking for great stuff to to get into on these streaming services all three of those are awesome well you know before we wrap here David I know you've got a little tribute that you want to you want to do yeah one other thing we wanted to say you know we didn't want to make a huge deal because we didn't know him and you know we're more arms length but Tony Shay passed away last week and we just want to take a moment and just reflect on how tragic that was but also say you know just thank you to everything the impact that he had on the whole text looking value ecosystem the companies that we're covering you know today and in Door Dash indirectly through Alfred Lynn who was CEO of Zappos Airbnb tomorrow Tony had a huge impact on just the whole ecosystem and you know tragic he passed away so young but thank you to everything he did do during his life to really push the valley forward and other communities too I mean I remember when I was really involved in the startup weekend community Tony hosted a bunch of us at the downtown project in downtown LA and like what he was doing to revitalize that area north of the strip like it's just really cool staying at the container park and just seeing sort of that that vision come to life I know the city is much better for it yeah such a good point not just the valley but our whole industry and other things yeah graduate of same high school as my wife Jenny Branson in in Marin well now I know a security question of yours well for folks who don't know as we wind down the show here we have started codifying codifying I think it's codifying the the playbook from each episode so pulling out all of the not only in the actual playbooks section that we talk about but sort of key themes from earlier on if you wanted to run the door-dash playbook how would you go about doing it and we've been pulling those from each episode in some written bullet points and we started emailing those to folks after we post each episode so if you want sort of a digestible consumable way to you know share or help you sort of understand the points we're making in each episode you can sign up to receive those playbooks at anywhere that allows you to type in your email we'll we don't really have one email we send so you'll get that one and if you join the acquired community slack at slash slack you'll be automatically signed up for that as well we're going to do those on an ongoing basis it's totally open to any of you if you want to tackle that for a previous episode because we think it'd be cool to host more of those on our website too we've had some great ones that community members have done yep thanks to the folks that have already done that if you want to just shoot us a note at or in the slack if if you want to do those we've talked about the LP show a bunch but I did want to highlight our most recent one we just did with two of David and my LPs from our current and past funds from from Foundry Group actual LPs like actual yes it was the first time LPs on the LP show and investors in venture funds and it was like amazing to get to kind of like talk about all the things that we talk about more in private with them the ways that they sort of help guide especially for me at PSL ventures like how to think about our portfolio construction and the ways that we work with the portfolio and how do you manage your time across all those and when you're sizing the types of investments you want to make how much do you save for reserves how much do you do at front so just really good to dive into a lot of nitty-gritty in a super structured way in a way that we can share more than just the private conversations we have so that was part four in our VC fundamental series more more good stuff like that to come but if you want to be an LP seven day free trial slash LP feel free yeah and also two things for the holidays that are important on that front one LP subscriptions make great gifts for the acquired fans in your life woo woo and two on an even more important note we've said before but it's been a while we never want financial hardship of any type to be a barrier to someone accessing more acquired content and engaging more deeply with us and getting access to all the stuff we do on the LP show so if that is the case for you for whatever reason just shoot us an email hit us up on slack acquired fm at or join the slack in dm one of us and we will make sure that we take care of you and you get access to an LP subscription even if you can't afford it. Yep similarly for gifts it's a little complicated to go through the matchinations of making sure to use someone else's email address so if you want to give the LP show as a gift just shoot us a note and we will we will send over instructions and with that if you are not already subscribed and you like what you hear you totally should subscribe and if you like this episode and you have a friend that you think would like it to you can share it from your favorite social media hilltop or with them one-on-one directly we always I think that's probably the best ways for any one person to tell a friend personally like this was great you should listen to it too I think you'll like it for x reason you know I just love the like one-to-one-to-one-to-ones spread that we've had so far so feel free to share it feel free to sign up for playbooks and yeah with that everyone we'll see you next time actually tomorrow for everyone yeah let's go say usually we say we'll see you next time today we'll say we'll see you tomorrow see you tomorrow