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You know, and I've experienced dog zinstats that they shouldn't eat. Dogs jumping over fences. You didn't think it would be possible for them to jump over. Welcome to season two, episode nine of acquired, the podcast about technology, acquisitions, and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we are talking about a very important company. Without this company existing, there would be no acquired. And it's likely that David and I never would have met. Today's episode is about Rover.com and their merger with Dog VK to consolidate the grand rivals of the dog sitting wars. And we're super fortunate to have with us today the founder and CEO of Rover.com, Aaron Easterly. Well, thanks for having me. Glad to be here. Yeah, we're super pumped. So Aaron, this is the part where we introduce the guest. And I was going to do it from memory, but I wanted to make sure that I nailed the details. So I tried to find a bio for you online, which is harder than most folks. You're not exactly a bio person. I spend exactly zero minutes managing my reputation as we'll become clear throughout the show. The one I did manage to find is from Crunchbase, and let's you as a Rover's top dog. So a Rover's big on puns and we'll revisit that many times throughout the episode. But listeners, to give you a sense of Aaron's background, he was an entrepreneur in residence at Medron Adventure Group, sort of during the Genesis information of Rover and as a key part of that. And Aaron was the, before that, the general manager of network strategy and monetization within Microsoft's advertiser publisher solutions group. Now, Aaron, there are many rumors circulating that you were the youngest GM ever in the history of Microsoft at age 29. Can you confirm? Actually, I can't. I don't know if that's true or not. I was a very young GM for Microsoft at the time. And there's no one that's younger than I'm aware of, but I don't know if that's true. And Aaron, of course, came into Microsoft through the acquisition of a quaniv avenue A atlus, and was a huge ad tech acquisition of that era. So to start the show. Yeah, the most important thing though, which is that through your whole life, Aaron has been a lever of dogs and homerunions, one dog, particular more than anything else. Yeah, I love all animals, but I'm very partial to dogs. And I was owned for 14 years by a four pound fluff ball named Caramel. And we are sitting here in the Rover office in Caramel's den, named for Caramel with a portrait of Caramel up above Aaron on the wall here. Very sweet. 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 Akio Marita before we did our Sony episodes. This incredible primer. You know, he's actually a good example of why people listen to founders until acquired, because all of his greatest entrepreneurs and 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. But 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. The other fun 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 such primer 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 Land's 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 his ideas. And so I think what requires doing what a founder trying to do as well is find the best ideas in history and push them down to 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. All right, David. All the hard stuff is out of the way. Now for the fun stuff. Yeah. It's really fun to have Aaron with us because not only is Aaron a great friend of all of ours, and we spend lots of time together, but literally this story is the story of why we're all here today. As Ben said, I don't think we would have met without it. Certainly there would be no wave, no PSL. None of it. It all comes from the top dog. So thanks, Aaron. Yeah. To set the stage on the Rover origin story and will Aaron will come in here throughout, but there are really three pieces that I want to dive into. And so first setting the background, let's go back to summer 2011 here in Seattle, summer time in Seattle, which is the best time in Seattle, where we're just entering into it again here now. There's a company based here, high growth, high flying company, goes by the name of Amazon, which we've covered on this show before. And the stock price is at astronomical heights. All time high, all time high, $200 a share. And people are wondering, can this go on? Can this hype continue? The things are going so well. The company which had here to four had just one office, had an old hospital building up on Beacon Hill. They've actually purchased from Paul Allen and started constructing a brand new campus in South Lake, Union. Wait, in 2011, Amazon was still in Pac-Med. Yep. Beginning of 2011. It's changed. Amazon is still on Beacon Hill. Wow. And listen, it's a crazy story about that building. It's a little dovetail, but that was a hospital that Amazon converted into their first large major office before effectively colonizing all of downtown Seattle now. And it is now back to a hospital. Totally crazy. But people are wondering, what's going on? They're starting to construct these new buildings. They've just constructed their new headquarters in South Lake, Union here in Seattle. We're going to come back to that. And as part of that, sort of the tech and venture funding thought after the financial crisis is starting to thaw. Optimism is returning to the tech world and to Seattle. And there's this other interesting thing happening in the world right now, which is this concept called the sharing economy is taking off. For me personally, I had just moved to Seattle the fall before in September of 2010 to take a job at Madrona. And I had for the first time stayed in an Airbnb in September of 2010. And I knew about it because my then girlfriend, now wife Jenny, her best friend had just started dating one of the early employees at Airbnb. Now my partner Riley at Wave. And so I heard about Airbnb is where I stayed when I moved here to Seattle. So this is all percolating. They'd raised a seed round from Sequoia. And at the same time here in Seattle, there is an organization called Startup Weekend. And Startup Weekend was really cool. Then you were part of it in the early days, right? Yeah, still is very cool. It's an organization that started as a as a nonprofit and is now part of tech stars that basically gets a bunch of people in a room. Most of them having never been involved in startups before, certainly having never founded them before. And it's people pitching ideas and trying to create companies in 48 hours. So you bring together designers, developers, business people because we never had a better name for business people than business people. And you basically try and come up with a pitchable concept that has evidence of traction or belief it will succeed by the Sunday night. And chief among the useless business people is our partner at Madrona and Greg goddessman. Now, of course, Greg was also on the board of Startup Weekend. I was instrumental in and building out that organization, but also happened to be an idea person. An idea person for sure. And so all of us, the weekend of June 10th here in Seattle, we decamp to Amazon's new campus here in South Lake Union for a startup weekend hosted by Amazon. Greg and I are participating. Aaron, I can remember were you there? You showed up at one point during the weekend. No, I actually got a call from Greg during the weekend back. She did show up during the weekend. My girlfriend at the time was there, but I wasn't. We did a phone a friend. There, the way startup weekends work is that on Friday night, anybody who attends can pitch an idea. And so of course, all the useless business people pitch ideas. And I remember Greg about to go up on stage to pitch his ideas and he's debating between two ideas. I don't remember what the second one was. I was trying to find it. There's another $970 million dollar company lurking in that second idea. Maybe even bigger. What could have been. But one of the ideas is Airbnb for dogs. And he asked me, which one do you think we should do? And I said, well, I think there's actually something to this Airbnb thing. I mean, my buddy down there is working there like they're doing pretty well. I stayed at one. It's really cool. Okay. We'll do Airbnb for dogs. Wow, David, you should be a venture investor. And Airbnb for dogs. It was Greg pitches the idea recruits a team led by all star developer. And in his own words, quote unquote, studly college student. The one and only Phil Kimmy home for the summer who was participating in the startup weekend. I believe the direction from from Greg during the weekend to Phil heading the development team was go to Airbnb.com clone everything on the site and replace it with dogs. It should be noted that after the startup weekend, we ended up throwing out everything that was built because it was completely shoddy. But Phil ended up rebuilding it as we shall see. The company called a place for Rover ends up winning startup weekend. It was a little stacked because the judging panel on the judging panel was Matt McElwain, one of our other partners at Modrona. But that aside, Rover ends up winning the startup weekend. Monday comes around. We're in the Monday meeting at Modrona. And Aaron, of course, is a not to pray in residence with us at the time at Modrona. We're discussing the weekend and how things went. And everybody's pretty excited about this idea. So excited that we call up Phil, the Phil Kimmy, the studly college student who had built things over the weekend and say, hey, can you come on down? And we want to talk about this a little more and maybe turning this into a real company. God bless everybody at Modrona who had the confidence in all of us to do this crazy idea because this was before we were a venture firm, venture firms didn't start companies. And with all of us there, we started going on that Monday, June 13th. So Aaron, as we mentioned, was an entrepreneur in residence with us at Modrona. And you were working on some new marketplace ideas, right? Because you had been obviously a marketplace expert being in a corner of, and then a Microsoft. What I was trying to remember, what were you working on? It was like a local commerce idea, right? Well, there's a couple different marketplace ideas I had around advertising and small businesses as well. But mostly on customer acquisition schemes and marketing things for those types of companies, of which I should add I was totally not excited about. You know, I love the digital advertising world. I found it fascinating. The comments to me, I had a lot of fun with building some of the early online marketplaces. But you know, after being in it for over a decade, I was having a really tough time, getting passionate about throwing myself into another digital marketing startup. Am I remembering right? Was there something that people in your family had worked in local businesses and had trouble with customer acquisition that you were going to support them with? Oh, that's a problem. My parents had actually decided to open a pizza and wine bar. That's it. Yes. And in California, right? In California. And you know, the challenges of people who open businesses like that actually being able to devote cycles to doing marketing effectively, it's a big prop. They're typically working in the business, not on the business. They don't spend a lot of time thinking around how to make that efficient. So that that Monday meeting happens and you guys are kind of discussing, hey, this this thing happened over the weekend, it's start-up weekend. We couldn't get Aaron to come in despite the fact that he's this world-class marketplace expert and economist. He wouldn't drag himself over to to South Lake Union. But here we are Monday and we're all looking at each other going, we think we should do this. What does the process look like from there? So Greg dragged me to mean with some of the engineers that were on the team or the weekend that he wanted us to help evaluate and whether or not he should invite them on to kick off a prototype program. And so day one, I was happy to advise and consult on the project. Well, Greg didn't know at the time though, it was actually a dog net. And that I had experienced this problem myself for the better part of 12 years being a single, busy business executive with a dog. I absolutely adored, but would not take with me on business trips. So it's a problem that I had like all the time in my personal life and over a little four pound fluff ball. Because of course at the time, if you before Rover and dog vacay, which we will get into in a minute, if you were going on a trip and you were a loving dog owner, you instead of keeping your dog in this lovely home where he or she lived, it would go to a kennel and be in a cage and locked up. And it was really not a great experience. Well, that was actually the debate between Greg and I on basically day one. So Greg as having been someone who had used a kennel, he had an experience with kennels where I was overpriced. His dog had gotten maled. He felt like he had been nickel and dime. And the debate was, well, that's all good, Greg, but like, I adore my dog. I know lots of dog owners. I'm not sure I know anyone other than you that has ever used a kennel. And so the big debate was was more the population of dog owners like Greg got us meant. Well, of course, I'm going to go to a high and kennel or more like Aaron Easterly. I'm going to go down the rural adex of friends, family neighbors to find someone I can pond my dog off on. There are two in my mind, two super, super key insights that Aaron brought to the business when he finally relented and we convinced him to become the CEO about a month later. And one was that dogs are family now. And this is was a behavioral change that had happened over the last five to 10 years at that point where dogs went from being pets to being, you know, almost at the level of children. Aaron, of course, could speak from experience on that. But part two, and operationally, I think this was such an important insight into rover and what has made it successful is that people were already doing this exactly like you said, Aaron. Many people were not using kennels. They were leveraging friends and family close to them. And so this was not a new concept of behavior change that we had to do with consumers. We just had to bring it online into a better experience and a closed loop marketplace. This begs the question, you're starting an early stage venture. One slide in your pitch deck is market size. How do you figure out the market size of something that's currently not being monetized? Poorly. This is the honest answer. So we initially looked at third party estimates of market size. And the answer there to pin on what you looked at, you could kind of get to three and a half in some sources, maybe six to eight billion in other sources. So it's not small. You know, put that in perspective. You know, that's, you know, about the size of the entire non-search digital advertising industry in the US circa 2008. I think we had six billion in the pitch deck. Yeah. And does that include kennels or is that outside of it? Kennels and private professionals for the most part. But that was what the industry sat you based on, those segments. And so the dilemma was how do you figure out how big the friends family neighbor segment is given that these are oftentimes, you know, what we call shadow market transactions. There are people with needs. They have someone meet those needs more often than not. There actually is a value exchange. A bottle wine. Take your friends to dinner, quid pro quo. I'll get you next time you need something. So there is a value exchange, but it doesn't get reported in the industry stats. And it may or may not be monetary in nature. A tough challenge. And one that we didn't even attempt to solve in the initial series, a pitch. We put in the commercial market and just said, and there's some gravy on top in the shadow market segment, which looking back was just really dumb because as we found out a couple months later that gravy on top is actually 10 times the size of the commercial market. So it wasn't so much gravy. It was the entire case. And this is so fun because once Aaron joined, you know, we were convinced there was a big opportunity here. If the one of the world's marketplace experts saw the opportunity, we should probably continue to fund this. So we were willing to, we're willing to fund this, but we thought there's one person in the world who we should go talk to as well. And maybe we would let them into the round. And that would be someone we've also talked about on this show, Greg McAdoo at Sequoia because he had just done the Airbnb investment. And so we send Aaron packing down to the valley to go pitch Greg. Greg says, you know, yeah, that's all well and good. And you know, Airbnb's doing great. But like, it's such a bigger market. Like, look at this market size. Like, this isn't big enough. And of course, it's hilarious because now Greg is of course a good friend and advisor to us and we've, and he very much regrets passing on the opportunity. But to your point, the market size that was relevant was not the existing market size. I'm glad you guys thought by the way that the fact I was taking the job as an indicator of the market size, I can tell you my personal thought process was quite a bit different than that. But I'm glad that that's what you guys believe. Aaron was your thought process, wow, these guys are willing to fund this. There must be something here. You know, for me, life in general is about having fun, challenging experiences that actually have a unique impact where you're contributing something that's different than what other people could contribute. You're not just a cog. So for me, the thought process was, this is an opportunity that I think exists have no clue how big it is, but it exists at some level. There is a chunk of this, I think I can help out a lot with the deep analytics, the marketplace expertise. I love dogs. And there's a bunch of this consumer side that I don't have a lot of experience with. I've done most of my marketplace stuff and B2B marketplaces, like search and ad exchanges and things like that. And so I was like, God, there's just half of this business. I'm going to fall on my face daily. And so for me, like, hey, I'm sure I can add value in some areas and have no clue what I'm doing in other areas. Plus, I think it's a big enough opportunity to be interesting to throw myself into was basically the extent of the thought process. It's a good thing you didn't tell us that at the time. Totally is. Well, you know, every startup has to go on a little bit of faith. Okay, so before we dig into the dog vacay side of things, and before we start talking about progression from here and the company's growing, we've got some fun stories that we wanted to dig into. So one is the company was originally a place for Rover and it was a place for Rover.com. How long did that last? Actually, about seven years now, our legal name is still a place for Rover. So anytime we file a document, file taxes, file a Delaware, we're still a place for Rover doing business as Rover or Rover.com, but we're still a place for Rover. And I think at the time, it was Greg's play on a place for Mom, which was a mechanism to find care for elderly parents typically. Also a Seattle company. And also had a domain name that was available. So a place for Rover was an available domain name. Purchase during the startup weekend. So during the startup weekend. And so I think it was as simple as that. Domain name available. I had a little bit of a prior art in terms of being used for certain types of care marketplaces. But Rover at the time was not available. And so we had mentioned this a little bit on our last episode in talking about the the T-Mobile Sprint merger. Aaron would love to hear the story from you. How did you end up with Rover.com? This is just one of those cases where connections matter. So some research was done to figure out who actually owned the Rover.com domain name. And it turned out it was Clearwire. Clearwire had acquired it because I was rolling out a mobile internet pack for wireless internet. One of the first mobile Wi-Fi hotspots. And they'd actually cancelled the product. And cancelled the product and also may have run into trademark issues with regards to a French company that had a similar offering like Rover or something like that. So some combination of Clearwire not being able to invest in a new brand slash some long-term concerns around trademark is my understanding. We're doing nothing with it. I had basically decided to put it on the shelf. And as it so happened, one of the other managing directors at Madrid on at the time sat on the Clearwire board. Your former boss. Former boss from Aquado. When we found that out, he shepherded a conversation around, hey, so you're not using this domain name. You want to give to us? And the answer was no. But since we're not using it, how about we're willing to lease it to you guys for a little while? So we initially leased it for like next to nothing and then bought it pretty cheaply actually compared to what five letter domain names with some level of actually brand equity already go for. We got super cheap near Palendrome. You know, you know, just you know in the US at least is this thing that means dog. And we're talking about a service that actually makes it easy to move your dog around when you're traveling. So helping your dog grow around. So it was perfect and cheap and serendipitous. One other real quick fun story is that for the rest of the summer as we were building the MVP based in the Madridona offices, the old Madridona offices at the time, the first dog stay happened in the actual live dog stay happened in the Madridona office. And of course, the dog decided to use the bathroom on the floor in the Madridona office. And our awesome, truly, truly awesome and lovely CFO and general counsel at Madridona. Try check us. Basically, I don't think I've ever seen him mourn and rage than at that moment. And he was he was so skeptical of Rover for years after that. But hopefully everything's you know, everything's a dusted over. It was about a week after that too. We're a Troy Canoes and you know, it's about time you guys find your own place. So we got we got the boot soon thereafter. You know, which was time, you know, we you know, did have our own finding. We could get our own place. But I'm pretty sure the time of that was driven by the dog at the explosive vows. Yeah, or at least, you know, like operate a marketplace instead of you yourself sitting the dogs. Yeah, which at the time, you know, a lot of us actually engaged in dog care as well on both sides of the marketplace to try and get a sense for what worked and what didn't work. Or you know, I was an active sitter for the first several years. I think I still have over 100 views on the site. So probably book close to a thousand nights of care just as myself as a sitter. You know, experienced a lot of awkward situations. And the early days, a lot of us were doing that to get a sense of what worked and what didn't work for the thing that was inherently somewhat awkward. In the early days, I mean, one might call it eating ones. Um, dog care. Okay, we've been on before real quick before transitioning to dog vacay. It's worth mentioning to listeners. We've touched on sort of how David and I know each other. But Rover is really to thank for many, many things that have happened in David in my life sense meeting. The genesis of Madonna labs, a group that that we had started inside of Madonna years later to be a startup studio inside of a venture firm was really the reason why we justified, hey, we think there's a chance we could do this is because of Aaron and Rover because Greg was able to point to that and say, look, we did it in this super ad hoc way. What if we systematized the process? And so I left Microsoft and went to Madonna and met David. And of course, that's the exact same thesis that we have now at sort of this, this broader scale and outside of a single firm with PSL. And David, obviously, instrumental for your marketplace thesis too. Absolutely. I mean, it wave. It's a combination of both of the aspects of Rover of starting companies and investing companies at the very beginning before there's a product as we just talked about can work. And then also in the disruptive power of marketplace businesses. So thanks Aaron. Thanks. You're welcome. I'm proud of you screwed up and perpetually ruin your guys's career. So speaking of dad jokes, essentially, at the same time, not quite the same time, but slightly after as this is all going on. And we made no secrets about what we were doing up here in Seattle. And in fact, much of the tech press, Pillaritas, called this a sign of second sign of the tech apocalypse, pets.com take two. But you know, as Jeff Bezos says, well, it's the willing to, the Washington Post is willing to put body parts through the ringer. But if you're not doing something that people make fun of, you're probably not doing something interesting. You know, I think we're made a list of the top five worst ideas that are VC funded in that year. Yeah. It's a fun press to get. And you know, the, the fine thing about the same time that people are like, I can't believe this is a thing. This is embarrassing. Why would anyone ever invest money? At the same time, that was going on that like the next three or so startup weekends, the idea that was pitched in one was the same day on my. Yeah. That's what the copy cats started popping up. Wait, so people pitched like literally the same Airbnb for dogs again, literally pitched the exact same idea. And the people who run the startup weekend event were like, Hey guys, this one last week, one last two weeks. And the judges are like, I don't care. It's cool. I like it. And because in every town, there's a different set of judges that are local and we're into the last one. So it's new to them. And so we went from kind of, oh my god, this is almost laughably bad idea to at the same time having like 10 companies announced that they were going to do it. So it's kind of like the worst of all worlds where you have now like 10 potential competitors for an idea that everyone thinks is awful. Seems like there may be something to it. Humans psychology is so fascinating. So among the competitors that pop up, the most credible by far is a company based in Los Angeles called dog vacay. And dog vacay was started in the fall of 2012 as part of the incubator down there, the Walnut incubator science started by Mike Jones, formerly of my space and Peter fam. And it was started by Aaron Herschorn and his wife Karine. And they were dog owners and Aaron had been a confusing was confusing for many, many years. We have Aaron E up here in Seattle and Aaron H down in Los Angeles. But Aaron H had been a consultant for many years and it actually worked at a venture fund. He was among the minority of people who realized that this was not a bad idea, but actually a great idea. So they started the company and then in the spring of 2012, they raised a seed round led by first round capital and Jeff Jordan from Andrews and Horowitz. From then that point on really the race was on. And it was later that year that Bill Gurley at Benchmark would lead their series A. And he correctly identified the massive marketplace opportunity here and Bill had already was famous for many marketplace investments including the series A of Uber. And he wrote a canonical blog post called Not All Market Places are created equal. He put forth his framework for evaluating marketplaces and then wrote a side car essentially investment memo that he published for dog vacay about all the marketplace dynamics and why this made for such a great investment. And he was completely correct. Yeah and Bill set a post on this are biblical for listeners that are thinking about a marketplace business. And in fact, David and I were we're talking about a concept yesterday where we're like we should probably put it through Bill's framework. Like this is this is sort of the way to think about marketplace businesses. And I in doing research for this episode just found out it was modeled after the dog vacay investment. And so that happened and then right around the same time we raised the technically serious b's since Moderna had done the A but effectively the same amount of money from Brad fell that found you grew up here rover. So I'm curious we on the Moderna and venture side had lots of thoughts as all of this was happening. But how did you feel Aaron when when these competitive financing's are happening? You know, I think all this stuff matters a lot more to VCs than it does to me. You know, at the time I there's a lot of marketplace orthodoxy around every marketplace who's winner takes all and every marketplace is you know first to scale wins and we have to be super aggressive because no one can ever come back from being a little bit behind. And so if you believe this and if you spend a lot of time being a VC and you care a lot about other VCs track records and who are the big names you care about this stuff. If you don't you don't and I probably found the category of not caring now eventually I did care when it affected whether or not other people were willing to give us money and had to figure out how to speak to it. But it's definitely one of those things where Greg and others at Moderna you know were a lot more intrigued and concerned around who might be investing in dog vacay than I was. It's one of these classic things to the operator mentality that makes people so good is being able to shut out a lot of the noise and a lot of the things other than put your head down and focus on the business because you're probably going to make missteps and kill yourself long before your competitors will kill you. Obviously not the case here both companies pushed on and were successful for a long time. So I'm just going to refrain from all the tail chasing analogies. I mean basically listening to what happens is that was the end of 2012 from the end of 2012 until the merger happens in the beginning of 2017 Rover and dog vacay are in lockstep in terms of growth in terms of fundraising at least to the outside and VC perspective worlds. But underneath the covers we were doing a lot of really interesting things at Rover and I'm curious to your perspective what were the things that we decided to invest in that helped us in the long run. Ultimately you know we thought that this business was going to come down to marketplace mechanics and how you make use of data. One of the things that a lot of people believe about marketplace is that they can have great economies of scale. But sometimes people forget to ask the question of where those economies of scale are coming from and whether they happen naturally or they actually have to be earned. And so there are certain cases like an Uber that the commies of scale can happen naturally. So for example you just get more drivers on the road relative to the demand and all of a sudden your wait time after you hit the button is less and it happens for the most part somewhat naturally and you can improve and optimize it but just happens. Or Airbnb more people in more cities come on the platform and now you can travel to more cities and it becomes more a part of your life and you book more and then that brings more supply. Our view though is that most of the economies of scale in this business weren't going to just weren't going to come from just pure scale. It was going to come from the use of data on the back end that there's a big difference in the performance of sitters. There's a big difference in the desirability of certain sitters. There's a lot of subtle micro differentiation and so the design the marketplace mechanics design the back end data would matter a lot more than any short term advantage in scale. And one of the other things that actually gave us conviction around that was that this business was about the shadow market. It was about the people that were using friends family neighbors. Businesses that are free to use I think social media can kind of spring up almost overnight. Businesses that have a large existing market where a better version or cheaper version comes along can kind of spring up overnight. But businesses that are mostly about changing fundamental consumer behavior and not the existing commercial market and aren't free to use those are grinds. You know they play out over time. Behavior fundamentally changes. There's a limit to kind of how fast you can go on those businesses because you actually have to adopt consumers have to change their behavior. And something like travel people on average travel 27 nights a year away from home. So at any point tie like very few people actually have a travel related need. So there was an inherent speed limit on this business. So you couldn't just pump a lot of PR pump a lot of marketing and somehow create an instrument and believe our view is that it's always going to come down more to the back end piece. I remember you you talking about and giving me and and Riley the advice as we were starting wave that these speed bumps at first blush can seem to be negative factors in markets. But if you believe in the ultimate market size enough they become a competitive mode. This is certainly an outsider's perspective. But what I think was held to be true in the industry was rovers really really good at engineering at data science at operations at like really aggressive segmentation of their customer base and understanding exactly what drives behavior and narrowing funnel like being really crisp on your your your funnel and you know removing leaking this wherever possible. And in the most aggressive ways like if there was a dollar that Rover could spend on a brand advertisement versus a way to further decrease drop off in a funnel step it was absolutely going into that that funnel step every single time. How do you sort of look at the way that you guys did that and how it showed up in short term versus long term you know so listeners have a little bit of a visibility on this. I don't think Rover was you know leapt out to to a lead in the early days correct me if I'm wrong. But I think in that 2012 to 2014 there's a lot of metrics you could look at where it looked like dog vacay was was really on the lead. No doubt about it dog vacay got a much faster start did a much better job with initial PR and marketing and graphic design had a group of well-known valley investors and got out to a fast start you know one time LA in New York which are large markets dog vacay was six times our size in both of those markets when we're doing a deal with dog vacay we were materially larger in both of those markets than they were so come came back from a six to one deficit to be a clear leader in those markets but we got our butt kicked in the early days. It's just interesting to hear stories like that and try and draw draw inspiration for future times when you're getting your butt kicked. You know as an interesting conversation because going back to tuning out noise thing you know love Greg Greg is super helpful about the company but you know probably multiple times a week you know I'd get calls around how frustrating he found it that he was reading dog vacay's PR all the time and they were in the press all the time and had all those buzz all the time and those things work like clearly in LA and New York his great examples get a bunch of sitters you know get a bunch of customers yeah and you know definitely help get the business off the ground and I would say it was also helpful to create an awareness for the category which had a follow on benefit to Rover looking back you know ultimately I wish we had done a little bit more in PR in the early days you know took us a while to make up the ground on SEO for example and domain authority so we could have been a little bit more balanced I think on the net net it was the right overall prioritization but we could have been more balanced in our practice. And to put some more specifics on this you know for listeners you aren't necessarily experts in marketplaces I mean this for me this was like a education on the fly in how to manage these things it ultimately kind of came down to all the dynamics and investment on data science and the back end and funnels and analytics that we we did at Rover meant that our conversion rates as new customers new needs were we're hitting the marketplace ended up being much higher over time than our competitors and and then not just the conversion rates but also most importantly our repeat booking rates because as we were acquiring folks the lifetime value of those people because they would convert at higher rates but then repeat much more often just ended up that even though we we had a slower ramp the exponential kink in the curve was that much steeper. And the important thing to note here is you think about the equation of cost to acquire customer versus the customer lifetime value and trying to make that delta as that as wide as possible that multiple as wide as possible is they're not a customer until they actually book in a marketplace business and so the more funnel optimization you can do where you increase the rate of sign up to booking the more you can spend or and and the the broader you can spend on getting new people in the door. I don't get it not actually customer until they complete the transaction. Yeah yeah yeah you know if you think about if you're twice as good at turning someone who hits your site into someone that completes a transaction then you know if you're competing over the same ad words keywords you can outspend because you know that you're going to be able to more profitably move those customers through your process. Indeed I think the other thing that cannot be understated I'm sure Aaron would agree is a major moment in Revers history which was the hiring of Brent Turner in January January 2014 as Revers COO. Yeah so Aaron who is Brent and how did that all go down? Brent has been by companion for most of the last 20 years in Seattle. Brent and I met in the early days or the pre public days of Avenue A which later became a quanif. We've worked together for something like 17 in the last 20 years. There have been times where I have reported to him times when we've been peers times when he's reported to me but the vision of labor is was kind of always the same. So I took about three years of effort for me to get Brent to become involved in Rover. I tried to get him as an angel investor in the early days and I think- What was like a war of attrition of people convincing each other to do things? Hey for a company founded on love of family members. There are some funny stories with people who when I left Microsoft were like hey just tell me what you're doing next whatever you do all invested and then I got over there with Rover and they're like accept that. I'm not going to invest in that business. I mean including people at the VC world- like very well-known venture firms that you flew down to the valley to have meetings with were like oh actually not sorry not that thing. Yeah I would invest in anything but this or like so what are you doing with your career? This seems like the worst idea ever and you're throwing away your career do you know you're doing that and so Brent wasn't being someone who I'm also friends with and cares a lot about. He was more diplomatic than that but basically he was just like dude I'm not giving you angel dollars for this. I'm not sure I'm not sure and so like I kept on for a couple years and it was kind of like okay well here's how we're doing and each time it's like wow it's a bigger opportunity to hear that I thought and so eventually convinced him to join Rover and in a lot of ways Brent's a co-CEO but the best manager I've ever met the best developer of talent I've ever met the best operator I've ever met kind of rounding out the diversity of skill sets and the Rover executive team. And we were we were having drinks last night with with Phil Kimmy who of course is still lead developer for Rover and the studly college student that separate. Oh yeah we should we should we should tell a little of Phil's story so after staying the summer then Aaron and Greg lobbied him to not go back to school including calling his parents including calling his parents and convincing them which didn't go over well then and continue to not go over well for years years well you know so Phil Phil of course did drop out and as a co-founder of Rover built the engineering side of the business with with a great engineering team into what it is today and only recently have you know Phil's parents started to come around on uh okay there's something to it well I think they're both doctors so you know both your parents are doctors and you decide hey I'm dropping out to go do dog sitting you know you can imagine why that might be met with a little bit of skepticism but Phil's point of course having been along the ride for for all this journey as well was that just like we were talking about you know if you had to choose a dollar to invest in the early days in your back end and data science analytics for marketplace versus uh marketing and growth you would you should for sure choose the back end every time however ultimately you need to do both and that it was brands coming on board in 2014 that really built the muscle and the company to be able to do both and be world class in both cannot understate the impact there no well David do you want to bring us to kind of the year leading up to the merger yes so as all this was happening uh I believe Rover and dog vague hay raised four rounds of fundraising in lockstep three or four rounds for the most part R.A. was kind of their seed R.B. was kind of their a you know R.C. was kind of their B and we were in touch with them during that time yep so all along there's a little bit of a dance going on and and of course you know on their side on the VC side which is more what I had exposure to Bill Gurley had lived through a very similar dynamic with Grubhub and Seamless in the food delivery space being two competitors in a market both private companies both scaling nicely you could see a path to being large public companies someday in a difficult manner but ultimately affecting a merger uh between the two of them becoming Grubhub Seamless one company before going public and that really being a great value accretion event for all shareholders Bill really started lobbying the investor base first within dog vague hay but then on the Rover side to consider following a similar playbook in this space and it ended up taking gosh it was I mean it was over a year well over a year of lobbying and negotiations before we really actually many years actually yes we actually the conversation around putting the companies together actually started in year one Aaron Hirschhorn and I actually had a pretty healthy relationship and I actually brought this up with him around the time of the A um series A round and said hey seems like the companies um are onto the same thing um you guys seem to be a lot more competent on the marketing the PR side think we have a lot of advantages on the uh back end and the analytics and the marketplace side I think how this is going to play out as you guys are going to get off to a fast start the our advantages will matter more over time and then we'll like pass you over time but you know do you want to consider putting the companies together now um given that we don't have a lot of overlapping executives we haven't raised too much money and we'll just get harder over time um so that's a conversation I actually had with Aaron H um in year one well I didn't realize it was that early yes um I don't think Greg was super excited about the idea but it was uh uh uh year one that I had that conversation and you know generally turned out to be true I said hey you guys are going to raise some money we're going to raise some money you're going to raise some money we're going to raise some money and that that played out and it also played out that it was more difficult as time went on to have the discussion more investors at the table more decision-making makers more overlapping um functions more overlapping the exacts it just becomes hard it really it really did in uh this was a lesson to me you know as over the sort of year and a half almost two years that it was really active leading up to the actual merger of how hard it is to affect these things particularly with with private companies and uh I remember my wife Jenny and I used to joke that uh bill uh bill girlie had like a neck of just calling it the most inopportune times and there was one one time in particular where we were we were on vacation we were in um uh bill doesn't know this but we were in uh in Cambridge in England and we were going to even song at King's College chapel which is this amazing you know very solemn event we were in line they just opened the door to the chapel hundreds of people are filing in you know you have to turn your phone off when you when you enter the chapel and with my phone buzzes I look down and it's like of course it's uh it's nice to hold on one minute but it was it was hard work getting it done um and uh which I'm sure you will on the operating side agree with as well Aaron take us through what did the process look like to everyone look around the table and say yeah we're gonna do this and then after that the integration there are several overtures made over the years and um including people cornering our investors at conferences and saying you guys should do this we'd get that over time and you know there's a couple times where Aaron and I talked around you know how we might engage in a process and you know it was tough to get agreement you know at a high level um there's a bunch of things that make getting to agreement difficult on these and the first and is that entrepreneurs by their nature especially in tech have to be a little delusional in order to take on the risk of starting a business that most of times gonna make a lose a lot of money before it ever makes money the odds are stacked against you lots of risk lots of complexity but for you to decide you know well like this is a good decision with my life and my career you you just have to be a little delusional well it's in news to me you didn't believe in the market size at the beginning or yeah a little delusional or during the job for different reasons yeah and so because of that dynamic that kind of confidence faith commitment like we can figure this out we'll get it done it also can make negotiating terms challenging um because entrepreneurs typically have a pretty high faith in themselves and they're ready to get done and when companies are both private you know there's no stock market that's a third-party validation you can point to for relative value and share price totally yeah stock market be like okay here are stock here's what the markets think you can debate around the edges a little bit most of the time it's you know relative to that with private companies you don't have it most of the time they're not making money at the time so you can't look at profit multiples so you gotta look at some combination of revenue unity economics relative growth rates um and not to mention more important on the investor side but but also equally relevant on the entrepreneur side there are two preference stacks for each of these separate companies in terms of the money that each has raised and it's challenging to figure out how to combine those yeah and for folks listening uh who aren't familiar sort of with preference stacks basically the when an investor comes in and does the most recent round they have the preference in case that it's basically downside protection if the the company ends up selling for sort of less the or in a in a downside um they're sort of the first to get their money back and that continues in a waterfall on down to the earliest investors and then to the common stock of course the issue David raises is now you got two sets of those what do you do yeah like do they both investors get to keep them and you burden the company with the combined preference so like if there's been three hundred million dollars in total invested and that definitely wasn't the case in this case but do you say okay there's gonna be three hundred million dollars of preference and so uh none of the employees are gonna get anything until you get well above that point um it create some pretty perverse incentives um do you eliminate the preferences if you eliminate them how do you get someone to agree to eliminate their rights to that and how do you figure out how much of that reduction is you know eaten by side A versus side B and related to the preference that's slightly different is sometimes there are also different control or voting rights attached to each round of financing someone has done so in some cases just the investors in the last round have a right to veto certain decisions so it becomes a very complicated decision process with the law stakeholders all in the context of entrepreneurs feeling optimistic about the go-to-loan approach all in a context of a lot of uncertainty and that's just getting the deal terms which for me is half the battle people have very complicated ways to think about M&A acquisitions mergers you know for me there's two simple questions do you have conviction on the deal terms like is a good deal terms like do you think there's gonna be more value than what you're paying whether you're paying an equity cash whatever and the second is do you have conviction around the post-close plan can you actually execute it and the second one is often forgotten about um it's tough to get to terms but in the tech world if you look at the history of M&A um most people including third parties would say that the vast majority of acquisitions are failures the basis for this show the vast majority are failures the reason why they're failures is not because they were off slightly on the negotiated terms the reason why they're failures is because the execution post-close destroyed a bunch of value if you don't have conviction in the execution plan regardless of how given negotiator you are it's not gonna work it's not gonna work and so Aaron what was the execution plan then coming out of the out of the merger you know in this case we decided to do what's called what we call a hard cutover so basically we're gonna migrate all dog vacay customers on the demand side all their sitters on the supply side over to the rover platform and basically execute a shutdown of the dog vacay technology and you know probably the office um we were gonna offer some jobs to people to move to Seattle and some cases we may allow people to work remote um but we decided to do a hard cutover and and again that made so much sense because of all the dynamics we talked about before there's just the the marketplace uh a rover converted at a at a much higher efficiency and then repeated it a much higher efficiency so again it's in everybody's best interest to add in all of this new liquidity into the marketplace new supply there's new demand it's suddenly easier to find a sitter near you it's you're finding higher quality sitters or better match sitters all the benefits of of having a lot more people on the platform David I'm gonna say the word again and I think now it's it's it's actually a thing that I say on the show which is unfortunate it's like legitimate actual synergy and it's actually yeah it's it's true um and you know how much of that's a realizable yeah um versus in theory you know but I'd say it you know it's easy to say oh this clearly made sense there are compelling alternatives that smart people can rationalize you know um and market places uh sometimes there's the hey let's have two independent brands um you know if you're dependent upon uh what's we've covered a trillion zillow if you're if you're depend upon s c r s e m y remove one of your slots from google if you think that there are different consumer segments so the different brands may actually attract different people and in specializing in different things so for us you know the the options we consider it is you know two brands are and two backends so we use two front-ends two back-ends two front-ends um but one back-end or one front-end one back-end and the challenge with this is like there's pretty compelling rationales for each of the three um and if you look at how a lot of the marketplace businesses have managed this not everyone goes aggressively to the uh one front-end one back-end very few actually have but we were at a stage where we thought that slowing down for two years while a bunch of internal lobbying went on around this a bunch of uh systems integration with different text acts different coding languages different skill sets different architecture we just thought it'd be a disaster to lose two years in that type of integration you know that if we were further along you know if we're already a public company you know or soon to be like grab hub uh and seamless maybe we could have made a different choice um but we just thought it would uh slow down quite a bit for uncertain benefit of keeping the brand um but it's also the most offensive thing to propose to another company hey um we want to do this deal we're excited about it and by the way we're gonna quickly throughout everything you've done um it's just really really hard and yet if you don't get that agreement in advance your chance of successfully executing a deal post-close is like no oh or at least it'll drag out for a really long time we thought all this through in advance and we got agreement from dog vacay that uh we weren't gonna close on the deal unless both sides could mutually agree upon the post-close plan execution plan integration plan and so kudos to the dog vacay senior leadership team their executives came up uh met with us we kind of laid out each of the three scenarios said you know here's what we think the advantages and disadvantages of each one you tell us which one you think makes sense we didn't offer our own opinion and we didn't buy us the conversation and uh unanimously their executive teams that hard cut over go to the rover platform which you know probably take a lot of courage yeah rational is that may be there's huge emotional you know attachment to it not only what you've built but the dream of what could be totally and then it creates a bunch of uncertainty well god if if the platform's gonna be rover then what happens to the Santa Monica office what happens to my personal job i have a lot of expertise on how our system works and our system's not gonna be relevant you know uh it was very proud of the dog vacay team um for being a consummate professionals you know the right call but we were unique if you look at Odesky lands if you look at grub hub seamless Zillow trillia as well Zillow trillia none of those companies had attempted to be as aggressive with the plan as us we wanted to be done in six months and not two years not three years not a year so kudos uh to the team for being able to take that on with such passion this might be among many lessons um you know for listeners in this episode and uh for all of us personally living it I mean this is ranks right up there as hard as it was in terms of as we were talking about all the stakeholders on the investor operational side taking taking years to get to a point to want to do a merger the speed and effectiveness of the integration and the vast outperformance of it uh and the combined company I mean I remember we were all of both sides putting together spreadsheets you know throughout the negotiation process of what we thought the combined value could be and growth thereafter the company has far exceeded that on all levels and I think it's a testament to to all of this in the team and the dog vacay team for suggesting this and and the rubber team for and everybody combined executing on it um it has definitely been the best thing for the company and and and for the companies for shareholders in both companies yeah I think it turned out to be the right plan execute well we got done uh in about half the time and exceeded every three months right three months see the goals on the successful sitter migration successful owner migration uh it was uh well execute and um you know we had given stay bonuses to people in Santa Monica because there was uncertainty around whether or not there's still going to be a job after we got done the migration we accelerated we gave new grants and accelerated portion of them that was kind of a based on when the migration was done hopefully people feel really good and felt like they were treated uh well and appropriately rewarded for what a herculean job they did in a small amount of time um but turned out to be the right plan uh with uh better than expected execution and you know that kind of brings us to today rover just recently announced a combined company of major new fundraising things are going really well and I think particularly well we're expanding internationally which is wonderful but particularly not having the distraction not having the distraction of all that at a moment when we were just starting to layer in all the additional services besides dog boarding dog walking daycare uh all the other in-home services which have become huge growth drivers for the for the business uh was critical yeah I think that's one of the biggest reasons we didn't want to slow down um we view this area as like one the second or third inning we're a small fraction of the size we hope to be long term most of our business uh was overnight care we had rolled out dog walking and dropping visits and in-home daycare at the exact same time we were doing this migration we launched our on-demand dog walking effort so why not yeah why not um and so it's it was uh one of our biggest concerns is that it's not like we were a manufacturing plant and we're like okay we're operating at capacity now can we squeeze out a little bit more efficiency um our view is we're nowhere near capacity in terms of what we want to accomplish you know let's not slow down the speed um and minimizing the distraction of the execution plan was super important so we could launch on-demand dog walking we could roll out new offerings uh we could uh start to look at aggressive international expansion which we we're kicking off um right now in Europe let's do our other sections here real quick and make sure we check a few boxes because a couple points that I think we haven't quite made yet listeners our next section is acquisition category where we decide whether it was a people technology product business line asset consolidation or other type of acquisition clear consolidation I think there's anything we're looking around the room we're all nodding our heads there's not that that much has been discussed there's what would have happened otherwise where you know one thing that I think we touched on a little bit here is the the cost to acquire a customer and the sort of war going on between former vk and former rover and the dynamic of this type of business and I'll explain sort of my understanding of it and Aaron you can correct me in areas where I don't have enough sort of sophistication or understanding of it but this business is a very intent driven business so people go to google and they search on the internet for a solution to a problem that they have which is I need a dog sitter so you got to buy all the keywords to cover all of those things now google's keyword tool is of course a an auction so with two parties bidding it up your cost to acquire should be meaningfully higher if there's two people bidding for it then if there was just one major player and so then you have both of these companies that are always aggressively bidding on these keywords driving up the price and as soon as there's just one party it should theoretically be much easier and cheaper to acquire that that person who has intent to do the thing that your service provides was that a major driver of the acquisition and have you kind of seen that materialize sure so I think the question is is whether or not the saving done the marketing side was a major area of value of the acquisition the answer is yes you know a lot of people suggest you know valuing these types of deals you know on strategic value your your multiple as a public company would be higher you know with the consolidation and that's not how we did it you know I don't I struggle with hand wavy things and I struggle with this assumption that like there's going to be some long term multiple gain when we live in a highly dynamic area where there are lots of big funds and competitors can get funded you know competitive landscape change um so we modeled it as basically a cash flow like what is the amount of um incremental revenue minus incremental cost and the case where there's cost savings and it's obviously you add the cost savings over some number of years and that's how we added it and it turned out that only about 15 percent of the value of the deal was dog vacays existing revenue stream the other portions of value came through other forms and savings on the marketing side was a big one you know some of the other ones though were a better data coverage so to the degree our marketplace works well because we do smart things with data in order to do smart things you have to kind of with data yeah two things are data you have to have data and you have to know what the smart things are and um for the service providers that were on both platforms it gave us a more holistic picture of how they perform and do people like them and do they use them again and how responsive are they and then for people that are on just one platform for example just on dog vacay we were able to use kind of those algorithms that we had invested a little bit more in to help evaluate those people and so we got a decent amount of value from call it the economies of scale on the data side in addition to the marketing savings interesting never would have occurred to me that's cool tech themes and then and then wrap up here sounds good you want to go first man that was my major one was really the era of the fruits of competition lining Google's pockets I have a couple but I think I think the biggest one is something we've talked about a lot on the show and reliving the story has brought back to mind and recalled for me the lived experience here the the adage the two by two matrix of the way you make money investing or starting companies is not just by being correct in your hypothesis but having a correct non consensus bet and I think back to the early days of rover and the signs of the apocalypse and pet dot com and I will Aaron I will give you money to do anything oh you're doing that I'm not gonna give you money to do that now sometimes when you do that you are wrong and everybody else is right and then you know not only you not make money it's not just about making money but you fail but the way that you win and that you win really really big is you do things that are correct and not obvious and rover to me is just a shining example of that in Peter teal zero to one what's your secret Aaron secret was dogs but it's all it was also the thing that like you know if you spent 10 minutes and got over the knee jerk reaction yeah even though yes we weren't clear on market size and we've joked throughout the episode like we knew there was something here we knew there was something here everything else I think we've covered yep grading I'm gonna be quick this isn't a nice job well thank you for having me on the show today by the way just to be clear our view is that we're haven't achieved anything yet you know we're still a money losing startup that may be more on the late stage side and there's a lot of work to do it's nice to be right about some things early in the company's history but we need to be right about a bunch of things go forward too but I really appreciate the chance to come on and share a little bit of our story so if you're in the Seattle area or not in the Seattle area and you want to be part of a great company that's already great that still has a long journey ahead of it come talk to everyone here over yep all right let's wrap up if you like the show and you want to hear more episodes you can subscribe from your favorite podcast client and come join us in the slack at acquire.fm thanks everyone we'll see you next time thanks guys