DoorDash

0:00 Well first of all, uh, is there like some rule that the graphics that you put in your S one have to be just like painfully low resolution? Welcome to season seven, episode seven 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 twenty thirteen.

0:46 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 Shu and his co-founders were launching Palo Alto Delivery.com. 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.

1:11 How they raised two and a half billion dollars from VC's 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 war path for world domination. Uber. This is the story of insanely fast growth.

1:31 A company currently tripling year over year. And that's the December twenty nineteen number before the global pandemic created the ultimate tailwind at their back to IPO. at the greatest possible time in the business's history. Yeah, 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.

2:04 Unaquired. And your little your hooks and intro's are getting so good. I do we even need to do history and facts? I feel like you You know, you covered everything there. Oh, y you know we didn't. Uh, you mean we should go through these like fifteen pages of notes that I have here.

2:21 Alright, 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. Now, th this is really where we have gotten to know so many of you personally and uh Uh 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. So um thanks to all of you who uh who are a part of that community and um 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 acquire. And all listeners get a seven day free trial.

3:09 All right listeners. Now is a great time to talk about a new partner of ours here on Acquired, Lagora. The agentic operating system that is redefining how the world's best legal teams work. Yep. It's sort of obvious that AI is gonna completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Ligora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry? So the founders did exactly what great founders do.

3:42 operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done. And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lagor's Bet Here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work. and do higher value work. And this means that the pie can grow even as each individual task takes less time.

4:17 And they recently launched Lagora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And Lagora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Lagora numbers essentially speak for themselves. When they have a head to head pilot with their top competitor, they win seventy percent of the time. Lagora now has over a hundred thousand lawyers on the platform from twelve hundred legal teams in fifty countries. And crazily, they went from one million to a hundred million in ARR.

5:04 In about. Eighteen months. truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client.

5:19 If your legal team wants to check it out, whether you're a law firm or you're in house at a company, You can learn more at Lagora.com slash acquired And just tell'em that Ben and David sent you. David. Let's do it.

5:33 Let's do it. Okay, so today in non typical acquired fashion, we're actually gonna start with the founding of the company. Thought about going way back, you know, doing the history of restaurants because just it's too much. We we got a lot to get through here. All right. Yeah, when was the first restaurant? I I don't even know. That's a good question.

5:51 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 Ben, you alluded to on the Stanford. Campus. in the fall of twenty twelve.

6:04 I remember it very vividly and well because I was there. I was starting at GSP uh that very fall. Uh 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 uh DSB has co-taught with GSB and the design school, uh the D school. And uh it was interdisciplinary. It was a two uh 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 gonna like build a company and actually launch a company as part of this class. And so there were four

6:48 Stanford students, two from GSB, two undergrad computer science students who had applied to the design garage. Class that fall. And entered. Andy Fang and Stanley Tang.

7:01 worthy to undergraduate computer science majors. And the two GSB uh business school students were Evan Moore and Tony Shu. So I think the story behind how they came together is that

7:15 Evan and Stanley had worked on a project in another class the previous year. Evan and Tony were second years at D S B, uh, and Stanley and Andy were I think juniors yeah, they were juniors, uh undergrad. So they'd work together in another class and then they brought in their two friends and said, Okay, the four of us We're gonna be the Stella team. So you had 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 in at universities for an entrepreneurship program, the like go start a company class. And it's always the dream if you're the, you know, instructor or professor that one of them actually goes on to become this big successful company, but the vast, vast, vast majority of time it ends up just being an academic exercise.

8:00 Yeah. And the crazy thing at Stanford is like Design Garage is not the only class that does this. There are like probably sixteen classes across campus that all have similar premises. So regardless. Here we are. They get into the class.

8:13 And they start thinking about what they're gonna focus on. Now Tony had just finished interning that summer at Square. And square, of course, that we all know. uh know and use and love today, public company, just about a hundred billion dollar market cap. When he was there that summer, this would have been the f summer of twenty twelve, it was about thirty employees.

8:34 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

8:53 Amount of Commerce and commerce activity. for local merchants. So they thought, Okay. What else can we build? We know that this is a big opportunity. The internet is

9:04 Coming to All these business and like most of these places don't even have Wi Fi, you know? Right. And the and the amazing square innovation there was like so many of these people that could never take credit cards before that were like independent merchants, that were, you know, selling things at craft fairs and food trucks that were could only ever be cash businesses were now, you know, brought online. Like they were sort of trackable GDP of of these categories of now digitally enabled businesses. Yep, and we'll we'll get into this more as we go throughout the episode. But this was A huge insight.

9:36 that was completely not obvious yet to the rest of the world. I remember Like I was starting at GSP that fall, I had been at Madrona as an associate before that and every time we looked at a company, a startup that was gonna sell to smaller local businesses, help them with Yacht, it 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 gonna work. These 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, you know Don't know how to use your product well, or in fact they go out of business. And so you have to reacquire someone else. Like is notoriously the worst customer segment as a venture capitalist to be investing in.

10:23 Yeah, if Tony had gone and pitched this on on Sand Hill Road at the time. Uh he definitely would have gotten a lot of rejections. But as we said, like Square was starting to change this. And and really what changed it all was The

10:38 mobile phone and the smartphone that proprietors and managers within stores were using. Okay, so they come up with a few ideas as part of the the vision 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, you know, design conversations with local store owners. They ask them what their problems are. They start thinking about an idea. And um the iPad was big at this point. It was about two years old, uh two, two and a half years old.

11:08 And uh had cellular connectivity. And they're like, Huh, well, you know, Square's taking payments, uh, they're using iPads. They're the store owners are buying iPads, they have'em 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'd you hear about us? And they could see you know always look around. That was the initial That was the initial idea. They had a couple initial ideas, but this was the one that they were testing. I think they had 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 efficiently.

11:44 Yeah. 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 Guyon uh Macaroon Shop in downtown Palo Alto. I never frequented that, but it it was probably too expensive for the uh the broke students at the time of serving serving the VCs in Palo Alto, not the uh not the students and the startup founders. Uh, and so they sit down with her, they're pitching her this half, and she's like and then they're about to leave. And she's like, Actually, you know, I do have A problem.

12:22 that you guys might want to think about. And um They uh as they write on their medium account when they launched the business. Just as we were about to leave, Chloe bursted 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.

12:40 This drives me crazy, she said. I have no drivers to fulfill them, and I'm the one who 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 Sand Hill Road venture firms want their macarons. And so They say like, huh, okay, that's interesting. I wonder if

13:03 Other businesses have the same problems. They go out and they interview more restaurants and food businesses and they hear the same thing. All these restaurants like, you know, the pizza guys are doing delivery, but like nobody else's You know, the tie place isn't doing delivery. Most importantly, Orange Hummus is not doing delivery. Most importantly. And most importantly. And so they say, huh, okay. Well, let's spin up a little MVP. And uh and see what happens here. Which is actually pretty amazing to think about this, like When I was growing up in Ohio If you wanted to order

13:34 Delivery f like there was pizza delivery was a category, then Takeout 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 were ordering delivery food, it was pizza. Yeah, that was that was it was Domino's, it was Papa John's, it was Pizza Hut. And that's kinda the crazy thing too here. 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 gotta think like pizza has to lend itself better to like a more regular type of delivery than other sorts of food that with more complex menus and stuff. Yeah.

14:19 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 a good question. I think there's a very specific answer about why DoorDash 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 Grupub, which merged with 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 uh they buy the bun domain name pallo delivery dot com.

14:54 they take PDF menus of a bunch of the top restaurants in in Palo Alto and they had some really good ones. They they had Orange, they had Pachis, the pizza place. I don't I guess pachis probably didn't Deliver. Uh Pach is a really good pizza in the Bay Area. Um Life kitchen. It was great. Like bunch of good places. They had the Thai place, they had the Indian place. Um so they put it up and then they have on the website

15:17 A phone number. You can't order on the website. It's 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. That's awesome. And so on January twelfth, twenty thirteen, this would have been the start of the second quarter of the winter quarter at Stanford. It's the second quarter of uh design garage. They'll they put this up. And literally within an hour. they get a call so they they put it up and then they put it on a couple like uh they blast it to a couple of email distribution lists uh on s at Stanford. And within an hour they get a call from a guy

15:49 Who wants to order I think it was Thai food. And they're like, Wow. Holy crap. So they drive over. They get the food. They go and they uh They drop it off and they're like uh Tony talks about this. He actually gets out his

16:02 His phone and they Interview'em they want to know like Had to hear about us. What's going on? Why'd you order this? And it turns out it was this guy named Bruce Barcott, who lives on Bainbridge Island in Seattle. And he works for uh for uh Leafley, the marijuana company. He had written a book called Weed the People about legalizing marijuana. And uh he was a visiting

16:26 author at Stanford and he was staying I don't know if it was on Stanford Housing or something over on Alpine Road, which is kind of behind the the dish if you know uh if you know the Stanford campus. And um over there there's not like like you're pretty far from University Ave. There's no food over there. And so he was probably like Go get this food. This is great. Perfect first customer. Yeah, pretty uh pretty great use case. So They do this and they just put it out on the email distribution list. Um so people start using it, like all over the G S B people are using it, the undergrads are using it, Jenny and I used it. Uh the total move was get

17:05 orange on this, especially you're having people over your big party get a big thing of orange. And Palo Alto delivery will come and uh Come and make it happen for you. So they were just and like you remember it being called Palo Alto Delivery. The uh well, I remember I think by the time I was just 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 NYC and they had they had uh changed the name to DoorDash. But Everybody knew that this was happening. Like people like my classmates were easy you go to a party and like

17:34 The food was there from Pell out of delivery. So they had hacked it all together. This was total like Find a problem, solve the problem. you know, not design focus. You know, design focus just in terms of like solving the problem. So they were using Square. So you would call the number, it would ring their cell phones via Google Voice. One of them would pick up

17:57 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 the when they 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. Unreal. It was uh totally. Well that sounds like a tax and accounting nightmare.

18:19 Are you basically losing money'cause you have to pay taxes on The income that you're uh Well they didn't actually incorporate the company until they applied to Y C. So this is all lost to history in terms of the accounting. Uh 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.

18:42 Track. the deliveries in smart so they they could like route people and be like, Oh, okay, this courier is closer to this restaurant. We've got the order coming in over there. Like Hey you when you finish this, like go over, grab this. You know, it's it's so crazy thinking this is probably the first company we've covered on acquired

18:59 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 um in the twenty eighteen, twenty nineteen IPO booms. Like

19:17 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 um Find My Friends. All of which were not available to like the previous generation of startups. Exactly. That and that was the key point uh that made this work.

19:40 Even though probably people had tried this in different ways in the past and Grubhub actually Uh Notorious Gruhub had merged with Seamless. We'll get into their model in a minute. They acquired lots and lots of local delivery companies. Um and uh Uh actually one of them was one of my classmates in the year behind Tony and Evan. Uh he had sold his company in Atlanta, I think, to GrebHub. And so he showed up uh he had the second nicest car in the GSP garage behind the guy who had started a Zynca clone in college, but like didn't raise money and just kept all the cash flow. So I feel like there's a lesson in there somewhere, but uh I don't quite know what uh there's many lessons there. Yeah. We'll unpack that on an LP show. Uh anyway, maybe with a psychologist. Yeah. Back to Why now with Paletta delivery and

20:31 And mobile in these tools. Like It's actually This find my friends thing was really important because Unlike

20:40 Uber where it was you know, you just had the Consumer, the writer. 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.

20:54 It's like the three D chess version of Ride sharing. 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 fine mobile helps with that. You've got the Dashers, right? Of what they end up being called, the couriers.

21:15 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, accept them, know that they've gotten it. Uh

21:35 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 flashback to a previous era of uh business that's working really well now but failed previously. You look at Instacart, you look at Web Van like

21:55 Th aside from there just weren't enough people on the internet yet, there definitely weren't people doing this on mobile phones yet. Um and they there the frankly, the technology stack wasn't sophisticated enough in that web 1.0 era to facilitate all this real timiness 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 in food delivery, because you've got the you know, in addition to the dasher and the po 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 then into two others. But there's also an unbelievably operationally complex component here where the timing has to be perfect. Like

22:46 You're heating 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 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 uh thinking through this problem from a consumer perspective, but just thinking through the technology infrastructure is Really crazy. Yeah.

23:11 I was talking about this with some friends uh in doing research for this episode who are former Uber employees. And the thing is like You know, Uber and Lyft and ride sharing, right? You know, canonically everybody found like, hey, once you get the wait times down to You know, five, maybe ten minutes like That's fine. It's all good.

23:29 But to your point, with Food, it's not all good. 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 Half cooked.

23:46 Like I'm never gonna use your service again, you know? Yeah, and the far more forgiving side is It took too long. And you know, the 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 kinda cool. From the beginning the business model was was basically already there and they haven't

24:12 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. Uh to the consumer for getting your food delivered. And obviously that is changed since then, uh, in terms of how it's calculated. But

24:29 Jenny and I ordered Chinese food last uh last night from uh Mama G's here in San Francisco. Great Chinese place. They're on Dash Pass. uh we paid a seven dollar tip to the dasher and got our food. Like it was basically the same from our perspective. Uh 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 you these incremental orders. Will you pay us a cut of the revenue so that we can make this work. The six dollar, seven dollar

24:57 You know, delivery fee. That'll go to paying. the couriers. Uh, and then we're bringing this revenue to you, we'll take a little bit of cut of The food and

25:06 The restaurants. Said. Yeah, I mean 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

25:19 kind of been established. With The Grub Hub and Seamless Model. Um So this is probably a good time to take a step back and say like Okay. What's what is unique and different here? Because I think uh we were texting before the show, like most people I think don't understand the difference between Grub Hub Seamless and

25:38 And what DoorDash and Eats are doing. I mean it took me until actually diving in and doing the research to realise like And I'll just spoil one little bit here, that it was only pretty recently that Grubhub started actually having fulfillment, like drivers as a part of the thing, and not just uh, you know, dumb pipes that you order through. Yep. So okay.

25:58 We rerind back. Um Grubhub. I think Grubhub was started maybe like early two thousands. Seamless, uh Brad Stone writes about this in the upstarts, had been started in nineteen ninety nine in New York. Um, and they were the same thing. They merged in twenty ten, maybe, I wanna say. Um but uh their models were You could go to their websites or you could call them in the early days. It was calling seamless. It was calling Grub Hub, just like Palo Alto Delivery. They would take down your order. They would call the restaurant, just like Tony and T and we're doing in the early days.

26:35 But then they'd stop at that. They'd just say, like, hey, you know, Ben wants um Ben wants pad Thai. Go ahead, go for it. And so then the restaurant, by the way, is twenty thirteen. Um so then the restaurant the onus was on them to have a driver that could actually get the order to you. To have a courier or a driver and do The fulfillment. Yeah. And um in many. Yeah, New York it's probably a uh you know, bike messenger type person. Exactly. So this is why this this caught on so so well in New York. And then other cities this existed. You know, restaurants were on. It was mostly Grubhub outside of New York. And then they acquired all these small local players. Um

27:10 This was a pretty good model and Greb Hub went public, uh, was a well regarded internet stock because this was a super capital late model. Notably they're a very profitable business. Yeah, very profitable. They acquire customers. Uh and they did all sorts of interesting things, shall we say, to acquire customers via some SEO hacks. Uh and then they would pass on the orders. Restaurants would pay them a commission fee on the orders for bringing the orders.

27:41 Um And then and then call it a day. And so this worked super, super well. Now what Tony and DoorDash is doing is is obviously very different. And the downside of the Greb Hub model is that most restaurants don't wanna aren't equipped or aren't even thinking about.

27:59 doing the logistics. And even if you were thinking about this. You're saying, Okay, great, I'm gonna hire a courier. Okay, you're gonna hire one, maybe two couriers. You're gonna 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. Um, the rest of the day they're gonna sit around. But then when you need them, you're only gonna be able to fulfill

28:26 A couple delivery orders. Like this is a nightmare. Right. And probably not fair of me earlier to use the the term dumb pipes, but m I guess more to say what they really were were a demand aggregation company where their primary um you know, business activity was consumer marketing and retention. You keep the people, you 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, Um

29:07 It really doesn't make sense. And so you didn't have any of this really operating, again outside of the Domino's, the Pizzas, and the Papa John's. 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 crap up 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 Domino's and FedEx for a couple of weeks just to like learn how

29:39 Their logistics. systems operate. Oh no way. So they signed up. Tony was a driver for Domino's delivered pizza for a week or two and uh took notes on how everything worked. And um And he talked about this, he was really surprised, like Well A These are world class operations. And so you learn a lot and realize like, hey, this is a complex business that we're gonna have to build and delivery times are super important, density is super important like to make this work.

30:05 Um But these aren't tech businesses. So like Tony talks about dominoes being run on, you know. Paper and uh uh not on not with find my friends and not with uh you know smartphone technologies and mobile ordering systems and mobile uh app logistics at the endpoints. Uh and so he's like, Oh, okay. This is really. Interesting. Um

30:30 And so the he then He talks about like it's 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

30:46 food delivery of non pizza restaurants doesn't exist really outside of big cities. And the answer to that was like a resounding yes. Like everybody in Palo Alto and Mountain Vie wanted this. Two. Was Can they find a way to do this? to pay.

31:02 the drivers enough and keep them utilized enough with making trips that they look more like Dominoes and FedEx than they would like a restaurant trying to do this themselves and not being able to utilize their drivers enough to make it worth it. Um That clearly. is a yes. Well and how well how do they do that? Like f so people want food from twelve to two and from You know, five thirty to eight.

31:27 Like how do they handle off peak? Ah. Well. You're coming to this is gonna show up later in the story, but this is The gig economy. That makes this work.

31:37 Oh, I see. So so since they're variable expenses, um, 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. Like you can you can do this as ten ninety nine. Contractors, you don't have to go I don't know what Domino's and FedEx was was doing in those days if they were W twoing their employees or if they were ten ninety nines. Um But Uber clearly, you know, already started to pave the way for show to show this was uh ostensibly legal.

32:06 Yeah, exactly. Ostensibly legal and now post Prop Twenty two in California, uh Definitely legal. Um so that makes it work. On the Driver's side. And then

32:18 On the Restaurant side. With the restaurants. be happy to pay us for these incremental orders that we're generating for them.

32:26 And again, like Yeah, apparently it 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 two PM and five thirty. Like were they already thinking about non food options at this point in order to sort of utilize that workforce over more hours? I think they were. Um

32:51 Uh you're going back to the original Macaroon shop, uh, Chloe at at Chantel Macaroons. Um You know, that's not a That's not a meal. Um But I suspect what happened was just that the

33:05 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 S one and they talk about hey, we do wanna be The local The On demand delivery, local logistics network, FedEx for small local businesses. Uh we wanna do flowers, we wanna do groceries, we're already experimenting with that. But it's a small, small percentage of the business. Okay, so question number one is do consumers want this? Question number two is

33:34 Um about Can we make this work for drivers? Yep. And question number three then. Is the restaurants. This the restaurants. And so

33:44 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 B 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

34:03 as we'll get into as we go along the story, one thing Similar to Bezos and Amazon in the early days, um Th one thing about DoorDash is they've been willing to fly very low to the ground, so to the so to speak, on this. Um, and Tony talks about this a lot, though like Hey.

34:21 By Us improving our Density. Uh And being able to do more

34:26 fulfill more orders more f uh 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. Uh 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. Um Uh and we also give it back to restaurants that'll allow us to

34:49 Grow the market more. Yeah. I grow, I share more. Okay. So they figure all this out. In the Palo Alto delivery days.

34:57 And then The school year is coming to an end. They apply to Y Combinator. They get in and say, Okay, we're gonna go do for do this for real now. They ditch the Palo Alto delivery name,'cause you know, it's hard to uh hard to imagine that playing well in Wichita. 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.

35:24 Mm. I don't know. People from Saint Louis will know what I'm talking about. If that's a clue. Panera bread. Oh Panera Bread, wow. To this day in Saint Louis is called the Saint Louis Baking Company.

35:38 St. Louis Bread Company, something like that. But I remember my first trip to St. Louis, I was like, What it that's the Panera logo? And it's like called the Saint Louis what is this? And when they expanded outside of that region, they just decided we're gonna leave the ones locally here the same uh Um with the same name and you know, everywhere else it'll just be called Panera. And Just to r wrap this full circle.

36:00 Um, they actually went it alone and they basically run their own single client DoorDash and and are sort of the black sheep that created their own version of a um full end to end fulfillment system order on their website and app and they deliver to you. Um 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 Q one twenty nineteen.

36:26 Interesting. There's um There is this other, I guess, category of 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 um specialties, right? I think they're in a bunch of cities. You know, you're doing a lunch business meeting. Yep. 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. And obviously DoorDash and and these folks are sort of trying to create an offering for those business customers too, but um Yeah, that that's that's a little bit of a different market.

37:05 Yep, yep. Okay, so they do I see. Uh coming. out of Y C They raise a two point four million dollar seed round.

37:15 In the fall of twenty thirteen. Which, you know, was like good. Great C run, but nothing. crazy here. Like we're at the same time there were companies coming out of Y C raising Five, six, seven million dollar seed rounds already. This is you know The go go days. Um

37:30 Uh and it's led by Interestingly, Keith Raboy, who had just joined Kosla. Now Keith before that, of course, PayPal Mafia member, uh, and now uh partner at Founders Fund. Um He had been the COO of Square while Tony was there over the summer, so I'm sure Yeah, did he know Tony from the I guess it was only thirty people, so they had to. I'm sure they knew each other. Um

37:55 So that was uh That was and would have also uh explained why he probably was more likely to get this. than other VCs at the time. Right. Um

38:10 Particular on food. Yep. So He leads the seed, uh CRV, SB Angel, and Pear also come in in the seed. And uh You know, to this question of that you said about like what types of delivery are they doing, what types of logistics

38:25 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 underemployed 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. Um so uh And and I think as Tony tells the story, that was also part of what helped them raise coming out of Y C

38:58 was pitch this bigger vision of like, hey, this isn't just, you know, meal delivery. You've already heard of this, Grubhub exists, but like This is actually a logistics network and this is something different. Yeah.

39:10 Okay, I want you to name those all those investment firms again that participated in this this initial round. So it was Cause. CRV. Yeah. S V Angel.

39:21 And pair. None of those appear in the S one. Those are all below five percent shareholders. And as we will talk about later, this company underwent a tremendous amount of dilution in order to scale the way that they did. Oh yeah, we're uh we are still in act one of this story here. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta.

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41:15 So you can get$100 off Vanta at vanta.com slash acquired. That's V A N T A.com slash acquired for a thousand dollars off. And just tell them. That Ben and David sent you. Okay, let's wrap up act one. Um They raise this they raise this seed, uh two point four million.

41:33 And they realized okay, we're gonna we're change the name of Doras, we're gonna expand beyond Palo Alto. Uh let's let's go, you know, to our first bigger market. Now the natural thing to do that All the ride sharing 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 chain, you should go there. Tony had the insight. He had uh he grew up in um

41:59 Illinois, uh, in Champaign, Urbana, but in high school his family moved to San Jose So like you know, Champagne, Urbana, and San Jose, like these are while San Jose is a big metropolitan area, it's much more suburban in feel than it is Dense like a city. Tony said, You know actually like The mass market Is out there. It's not

42:19 in San Francisco. It's not in cities. They launch in San Jose and in East San Jose 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 Domino's or Doordash. Yeah, it's it's really interesting thinking about uh and much ink has been spilled on this concept, but I think it's really worth diving into here.

42:45 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. Um people really value convenience there. It's sort of the convenience economy. People have lots of disposable income. Um

43:00 But what that meant was number one, they didn't have any competition in the suburbs in terms of other mechanisms of of delivery. Number two Drivers were much easier to come by in the suburbs because everyone has a car, whereas in cities, like ten to fifteen percent of people have a car, so there's much more available um sort of dasher supply. And on top of all of that, There's no traffic and parking's 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

43:35 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 the um Wonder that is uh Core values. Which usually core values are a bunch of baloney. But in this case, uh, I think actually makes 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 ride sharing where you pull up to the curb, somebody gets in and you drive off. You pull up to the curve, you gotta park. You gotta get out.

44:06 You gotta go get the order and if you're getting the order at the restaurant and there's a cue, you gotta wait. In the Q. And then get the order and then you gotta go drive and then you gotta drop it off and you might ha be dropping it off at a twelfth floor apartment building. Um, you know, in New York this can work okay because everybody's couriers are on bicycles. And as we'll talk about later, DoorDash did

44:26 really embrace different forms of vehicles for dense cities. Um But in the early days, like y even bicycle even in San Francisco, you gonna bike around and do this? Like no, you need cars and motorcycles. Um I think one of the things that makes this this company special, I I think Um the quote is averages in our industry are meaningless. It's the distribution that matters. No consumers care if our average delivery time is fift this thirty five minutes if they receive their food in fifty three minutes. And it's such a great point. It's a very Amazonian

44:59 way of looking at it where you're obsessed with every customer on an individual basis rather than rolled up metrics. Um, and I I think for this business in particular, you know, one bad experience you could lose trust and never um 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 Yeah.

45:20 Y y you can you can blow it with one bad Yeah, customer experience. Yeah. So this going to San Jose Was brilliant. Uh and it works. Amazingly well. So bye.

45:33 They did they did Y C in the summer of twenty thirteen. By the beginning of twenty fourteen. So we're now just about a year since they had that first delivery to the We the People author on Palo Alto Delivery.com. Uh Лишпи. on the San Francisco Bay Peninsula. So not San Francisco itself, but the peninsula below San Jose, Mountain View, Palo Alto, Cupertino. Like there are millions of millions of people that live there.

46:01 Have you used DoorDash? Uh they just ran the table on the market. Very, very quickly. So On the

46:09 Back of this in May. they raise you know, they went from being like middle of the pack in Y C erasing a you know Good seed round from great people, but like clearly not as large as some of their peers. Uh there is a seventeen million dollar series A from Sequoia at a seventy three and a half million dollar post money valuation.

46:29 Led by Friend of the show. Alfred Lynn, former Zappos CO. Uh and uh It's you know, off to the races here. So they say, Okay.

46:38 We're gonna use this money, we're gonna expand out to other markets. Uh later that summer in June they go to LA. 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. Uh that um and Boston's a great city for this'cause it's flat.

47:02 Oh yeah. So you do this in any West Coast city, you're uh you're in a w world to hurt. Yeah, exactly. Exactly. And this is before e bikes uh and scooters of all various types had really become a thing. Um So That's all so it's all going great. Off to the races. This was uh summer

47:23 And into fall of twenty fourteen. By early twenty fifteen, so we're now less than a year after the series A They are live in eight markets. They raise a forty million dollar series B Uh again, we're two years removed from Palo Alto Delivery.com launching, led by Kleiner Perkins.

47:43 At a six hundred million dollar valuation. John Door. basically comes out of retirement. He's ready to uh uh move along. I think he's chairman of the firm at this point. He joins the board. And for folks who 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.

48:03 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 forty million on on six hundred They sold what is that, like eight percent of the company, like less than ten percent of the company in that series B And got freaking John Door John Door to do the deal. So like

48:25 Uh 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's happening within two years of a company's life, raising this amount of money at that valuation with less than 10% dilution. Uh 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

48:52 Or trickled up to the series A and Series B parts of the market yet. This was This was an eye popping. Round. That happened. Um and let's talk about what it takes to launch a city because you know, now they're ubiquitous in the US. They're in, you know, ev like every suburb. It's crazy. Um I think there's something, some stat that it's either eighty five or ninety p five percent of the

49:14 uh US population it lives in an area that has DoorDash at this point. But Uh This time, like what is it? For them to launch any city

49:26 Um Because they haven't really signed a lot of big national chains yet, it's just as hard to launch your eighth city as it is your second city. Cause you need to go get all the restaurants, you need to go get all the drivers, you need to do all the consumer marketing,'cause people don't move that much between cities. So just because you're alive in Palo Alto and Boston doesn't mean that someone in Tallahassee has heard of you. Exactly. So it was actually in July of twenty fifteen. uh shortly after the series B that they signed their first partnership with Yum brands uh to do Taco Bell in the markets uh that they're in and then later the Yum also owns KFC. They had KFC later. Um, Yum brands? Yeah, a great company. It's um it was part of Pepsi. Uh it's but not a Pepsi. It was Pepsi's restaurant brands, Taco Bell and um

50:15 And KFC. Then it spun out now it's an independently traded public company. And I don't remember if it's if there's uh 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 Kentaco huts at uh highway rest stops. I think Pizza Hut is now Independent.

50:31 I'm not a hundred percent sure on that though. Yeah. That's actually w when Acquire drifts into conglomerate land and out of tech, that'll be a fun one to cover. Oh yeah. Uh 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

50:50 crazy business work. Um having these national brands to be able to go in and open markets with like Hey, you've never heard of us, but um do you want Taco Bell and KFC delivered? Like well, especially if you live in the suburbs. Right. I mean, and lots of people want that, but uh It's an appealing enough value proposition even before they sign any local restaurants. Exactly. Exactly. Um So After this round and with this going on this big national partnership.

51:17 They start to attract some attention. And specifically. They attract. Attention from um Well, two audiences, uh, but

51:27 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 um Like puppy hugs or something like that.

51:47 Yeah, with puppies. In twenty fifteen they did Uber Health, so you could get a flu shot. That was uh a a nurse that got Ubered to your office. Um In fact, you s you mentioned the ice cream thing. I remember from that promotion I actually still have the T shirt uh that I got when when I got my Uber ba my Uber delivered ice cream cone. So uh yes, they were they were that must have been a marketing stunt. Totally was. As was Uber Puppies, but the you know, um The they 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.'Cause they also get, you know.

52:22 As much as anyone besides DoorDash at this point, like density is super important. Utilisation of drivers in the network is super important. Um so They're looking at this. And they launch Eats in twenty fifteen. But this is this is how hard what it is that that DoorDash was doing. They

52:42 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 soliciting It was they partner with some restaurants in a city, uh, 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.

53:13 David, yeah, a mutual friend of you and I who who did operations for Uber at this time, um, was telling me about ha 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 thirty 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 Ubers to go and start the delivery routes. Yeah. And of course uh Montre would try similar things as well at dinner. I can't remember if Eats Eats was definitely big 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.

53:56 And was it was the name not Eat? Like the name was something slightly different. Two. I think it was eat they they first had fresh. Uh but fresh I think was more uh groceries and like um drugstore type things.

54:12 Interesting. If I have my history right. So quickly Uber then is like, Wait, actually what people want is what DoorDash is doing and we need to invest in building out the infrastructure to do that too. Well It's interesting. Uh they do get there.

54:25 Um And they they they get there in twenty sixteen. They they realize that pretty quickly. But The narrative shifts so hard on this space here. And I

54:37 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 Yeah. was part of how everything shifted so hard. perception wise against DoorDash. Like here you've got Uber, this Titan, you know, of

54:54 startups along with Airbnb, everybody says, you know, the one of the two canonical at this time, the two canonical next generation uh you know, comp internet companies being built in Silicon Valley. And Uber is basically voting with their feet that you can't Make

55:12 this operate profitably the full logistics network that DoorDash is doing. They're having to resort to Doing this driving food around in cars to make it simpler. Interesting. Meanwhile, DoorDash has raised all this money. They're growing quickly. People, consumers at least love the service.

55:32 They're entering all these markets. There is the forty million dollar series B. Their plan is to Spend the money. They're gonna blow through it and keep raising. Um 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 gotta go acquire the consumers, you gotta acquire the restaurants, you gotta acquire the the dashers. So Then this is another moment of an acquired history,

55:57 Uh in November twenty fifteen. Another blow against the perception of businesses like Dardash. Square goes public. And we covered this on the show. This was such a great one of my favorite all time acquired episodes, our square IPO episode. And I gotta just like

56:14 We don't do this often, but like we nailed that. I I just feel so good about that episode, even today. I mean it was a little bit in our sort of older style. Um so the You know. it it it's not as enjoyable to listen to, I don't think, as more recent ones, but like in in in terms of the analysis. I think

56:31 certainly the market had decided when they IPO'd that it was not a good stock. Um, but for for years afterwards, I think people had a lot of hate toward this company and like They just grew thirty percent year over year over year over year and still are. And I think the narrative have has shifted now where people love Square, especially with, you know, cash. Um, but uh In Bitcoin. Yeah.

56:55 Well yeah to I mean to get metaphor, we were texting Um yesterday about about the store dash dash episode and the Airbnb episode we're gonna do tomorrow. Um, and Ben, I think you had such a good point about us at acquired you're like When we do these live, you know, on the scene episodes, it's actually when we're at our second best. We're 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.

57:22 That Other people don't and don't realize yet. Uh 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 of other great firms, multi-billion dollar valuation. They were in this first group of unicorns talked about alongside Airbnb and Uber and Lyft and the like. Um

57:47 And then they made the crazy decision relative to their peers, uh, to go public. Uh, so they go public in fall of twenty. Fifteen. And the market completely turns against them. This was the down round IPO. Uh they price at nine dollars a share for a less than three billion dollar market cap. Oh my goodness. Today they are trading at two hundred and thirteen dollars a share and a hair under a hundred billion dollar market cap. Um but meme style popping up all over the valley and like Tech Runch and the like about dead unicorns and this is gonna be the reckoning and the bubble has popped and and and the impact on that for employees, there was the that that um price that share price was under the last two

58:29 Um Right. Fire. Stock options in the last like Two and a half years before they went public were completely underwater and and worthless unless you held them all the way through, you know, the the star recovering. People did. Um but yeah, Ratchets too, 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 who would get true up to the new lower share price. So um

58:57 It was just a bloodbath. And I think one of the things that the public markets really Penalized square four. was this question of like Hey this this

59:08 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 MasterCard or MX. This seems bad. You're selling dollars for ninety cents. Uh we're gonna put you in the penalty box. Um And

59:32 Of course now, Tony it. worked at at Square, so there was that connection, but it's a similar sort of story here of like we're serving small businesses. Uh and we are operating this crazy complicated logistics network for them in a way that like Grubhub wasn't doing, just like Square was operating this. this payment rails for them in a way that Visa and MasterCard weren't doing. Um and everybody's like Yeah, you're just giving away free value here. Right. Like this doesn't make sense. In infinite customer demand when you're selling dollars for dimes.

1:00:05 I don't I don't doubt you can grow fast. Uh so meanwhile, well the other um Uh, the other thing that happens here is the first big lawsuit hits DoorDash. They had been Delivering in and out. in California without In N Out's permission. They didn't have a deal with In N Out, but they were didn't pick the argument if it's like people want to order the non partner restaurants. So In and Out sued them in November twenty fifteen. Um and then there would be many other lawsuits along the way uh with DoorDash. Um

1:00:37 So you've got you've got Uber and Square that are like creating these really bad public narratives for DoorDash for their prospects. And you've got lawsuits hitting Uh. Meanwhile, through all this, um DoorDash's investing capital, they phrase. They're growing super fast. Clearly, consumers like this.

1:00:56 Sequoia and Alfred say to the team. Things are going great. Um You're gonna need to raise another round. Uh we're in. Uh we're in for you know our parada, we're even in for more than our parada in the next round. We're

1:01:11 that will do up to forty million dollars in your next round. Um at up to a billion dollar valuation. Uh, but we want somebody else to come in and price it. And the last round had been that six hundred million. Six hundred million. Um uh the year before. And uh Sequoia's like, We're not gonna lead, but we're not gonna lead. But but we're you know our money's good.

1:01:34 And I gotta imagine this is gonna be this was a huge lesson for Sequoia as well. This is before the Global Growth Fund. You know, it was later after this that they just said, like, we're not gonna mess around with anybody else, we'll lead the rounds, but they said we're not gonna lead. And Tony goes out to fundraise and it is just like a slog. Uh nobody wants to lead this around. and invest in this company. Um and I remember this so well. I graduated from TSP at this point. I was back at Madrona talking with all my other VC friends. Tony didn't come pitch us at Madrona. We were only did early stage at the time and uh wouldn't have led this round anyway, but uh Uh everybody was like

1:02:12 Yeah, DoorDash came to see us. Unit economics are terrible. Doesn't make sense. I can't believe Sequoia's putting their money in here. So what was it that Sequoia saw then if if the if people believe that unit economics were terrible?'Cause what we can kinda see now is like cohorts over time And we'll we'll touch on this later, but basically When people retain

1:02:32 Like they start spending more and make this irregular and need less incentives. Yeah. Um I don't know. It's a good question. I mean it's hard to tell. Uh certainly we don't have that time frame uh in the S one.

1:02:44 Um'cause the t the only time frame disclosed is like the last eighteen. Two years. Yeah. Twenty four minutes. But uh But for whatever reason, um You know, whether it was blind faith or actually based on the numbers, knowing Alfred and Scoy, I think was probably based on the numbers. Um They did really believe in the company.

1:03:04 Um So the net of it is Tony's out there fundraising for like six months. He doesn't he can't find a lead. uh nobody wants to invest in the company. So ultimately in march of twenty sixteen

1:03:17 Um, even though Sequoia had said they didn't want to lead, they do lead. The round. They lead a hundred and twenty seven million dollar series C Uh they bring in the GI C, the sovereign wealth fund from Singapore, comes in as part of the round as well.

1:03:34 And they bring in some of Sequoia's LPs. Yeah. Um And it happens at a seven hundred million. Post money valuation. So one twenty seven at seven post. A little down. Down. So the share price is actually down.

1:03:52 Um, this is a down round that happens. And this was So hard. Uh I mean, for all of this, uh Uh I don't really know uh Tony personally at all. I haven't spoken to him since

1:04:04 T S B, but I just have to imagine. Uh this was Crushing. Um And Just complete.

1:04:12 Uh says so much about him that he persevered through all of this. Uh company. And the whole team that stuck with'cause at that point, you know you're you're starting to see stars in your eyes because the all the internal numbers are going up. You know, you hold a 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 gonna get, you know, diluted down over time, but you sort of in your head you're like, well, not that much. And then something like this happens and you're like, oh Wow, I can get deleted down a lot.

1:04:42 Yeah, the Della and and we're just getting started here. We're only in act two. Um So Tony writes on on the company's medium. uh 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 DoorDash 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 uh other VCs must have just been like laughing in their shoes reading this. Uh

1:05:13 In twenty fifteen, we added nineteen markets to DoorDash, 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. Uh 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.

1:05:39 Without resorting to valuation gimmicks. And employee unfriendly terms is a testament to the incredible team technology and opportunity at Doardash. Oh man,'cause 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 Um

1:06:02 Yeah, I I basically really high liquidation preferences, like the the ultimate downside protection many rounds before you would have that sort of downside protection built in. Yep. Uh really private equity style. capital coming in. And it was private equity farms. Like it was TPG was doing this. You know, you saw uh 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. Uh

1:06:27 So that you can write your medium post and say you're a unicorn. Yeah. Um They have this capital though. Uh

1:06:35 they pull back on market growth. So um they finished twenty sixteen with twenty eight markets that they're in broader markets. So they're individual cities and towns within the broad geographic market. Um they only add six that year, even though what did Tony say they added nineteen the previous year. Um so clearly they're trying to conserve cash. Um Same deal in twenty seventeen. Uh and actually in in twenty seventeen, uh towards the end of twenty seventeen, they signed their next

1:07:05 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 there, um, or three words where Tony talks about the economic climate. It is worth remembering that there was a macroeconomic stock market hiccup. in I think Q one twenty sixteen. 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 the S P's at an all time high and like tech's a bubble and like there there was a moment where like peop you know the market got scared

1:07:39 Um and obviously came roaring back and then even through a global pandemic came roaring back again. Um But I just wanna like I the first time I read that medium post I was a little confused.

1:07:53 by the economic climate d term that he referenced. And then I was like, you know, you go back and you look at Stock tickers and like, Oh yeah, I forgot about that. Okay, so by end of twenty seventeen, even with Slowing market expansion, trying to conserve cash. It is still incredibly capital intensive to run. Yeah.

1:08:11 Um And so they're out of cash. At the end of twenty seventeen. Um And they can't.

1:08:17 Raise money. So they do they this was not announced. Uh we only found out about this by going through the S one. Uh it's in the S one. They do a sixty million dollar Inside Bridge Round. Uh just to keep the company alive at the end of

1:08:32 twenty seventeen. Um that was led by Existing investors and one New investor according to D S one. Not Sure who that was.

1:08:40 Think it was Softbank yet, but it's not a good thing. Uh uh. D B D. Um I'm sure that was uh I'm sure one of the existing investors, at least, was Sequoia, uh, stepping up to keep this company alive. Uh that's that's I mean, uh 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

1:09:00 Sequoia owns how much of this company at IPO? Like eighteen percent or something like that. And like you you you're seeing in the narrative here how they sort of built that position over time, especially having conviction when others didn't. And and yeah, as you alluded to At the top of the episode, everybody else who had invest along the way. They're not in the S one'cause they got massively diluted here. Um

1:09:23 So Uh then meanwhile, just one more quick comparison. Uber in its private lifetime. raise something like eight billion dollars and were like Well I they IPO'd in twenty eighteen, so by twenty seventeen they had already raised the majority of that so this is like

1:09:39 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 jug or not. Um, also has this other business, other uh synergistic business to what they're doing. We'll get into it. Yeah. Um End of twenty seventeen. We're now Uh, you know, remember it was March twenty sixteen when Sequoia stepped up to lead that inside round. We're now into twenty seventeen.

1:10:13 eighteen plus months later. Companies out of cash have to do a bridge round. Uh I mean it looks like Like Deathstore here. And

1:10:23 Yeah. Yeah. History turns. I would say on a knife point.

1:10:29 In this case it turns on a Singular man and his Vision. One might say. Yes.

1:10:37 We're now in March twenty eighteen. And Dorda dash's fortunes change. This one wasn't quite in the back of a taxicab like Adam Newman's was but uh

1:10:50 You know, that I don't I I don't think uh the this one doesn't have quite the same story to it around like Massa telling Adam that um the crazy man beats the smart man or whatever it is in the in the fight. Um but kind of the same approach. Well it's it it's funny. It's the same app you know, I love the So the quote is, you know, Masa Masa Yoshi Shon, of course, of Softbank and the Vision Fund, which is what we're talking about here. When they invest in WeWork, there's the story of, you know, back of the ta back of the Uber, 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

1:11:28 Proving South Bank 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 a I don't know the answer to that. I mean, I guess the answer is DoorDash was desperate for cash. Um but uh and SoftBank was already a big investor in Uber at this point. Yes, I believe this is twenty eighteen. I bel I'm pretty sure at this point, yes, they're already of the largest investor in Uber, I think, at this point. Yeah. Um So they come in.

1:12:04 And do a Five hundred and thirty five million dollar Series D. In the company. That's check size.

1:12:14 Not valuation. So this company has raised like, yeah, what do we what did we say, like a little over two hundred million. Previously in all the capital that they've raised. Softbank comes in over five hundred million dollars. Pumped into The company.

1:12:29 So I said. A minute ago, That I thought this was the smart move, not the crazy move. W why would Softbank do this? Like were they just being cowboys? Uh maybe, maybe and they had some dumb luck here. But I don't think so. Um They did certainly do plenty of nutty stuff.

1:12:45 But There's You know remember, South Bank 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.

1:12:57 And They are not investors. in a company in this company in China, in Maituan. uh which had at this point merged with Dian Ping and was Maiton Bian Ping. But they were active investors in the Chinese ecosystem, and I think maybe in one of the competitors.

1:13:12 But May Twan is food delivery? Well, Ma Tw has a very interesting story of its own that we need to tell one day on Acquired. But At this point, Maiton has become food delivery. And they are starting to dominate The Chinese. Food delivery market.

1:13:29 They clear path to becoming the winner. This is the dream. This is what everybody was chasing with Uber and Lyft. 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 and growing the market. But at a certain point. you're gonna get to a spot where you have enough density that you can have

1:13:53 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 a marginal profit at that. while having way lower prices than any competitor, you tip the market, you become A monopoly, essentially.

1:14:09 You win. And this is happening. And China with me. Uh so now Mayton, real quick.

1:14:17 We'll do a whole episode on them someday. They actually started as a Groupon clone in the early twenty tens in China. Of course they did. Went through a whole long, you know, crazy history. But by this point, they had pivoted into food delivery, uh, merged with their biggest competitor, Dion Ping. Uh 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 twenty eighteen at a fifty billion dollar plus

1:14:45 Market cap. Um And today Maituan, which we'll get into later, is much more. Also then food delivery. Uh

1:14:53 Now the series A investor in Maiton. Sequoia capital, China. So they knew what was going on here, too. So good. So good. Okay, so Softbang comes in. They do this big round. Uh There's a catch though. As they're as we've got. And what's the valuation on the five hundred million they're putting in? Yeah, you'd think, you know, oh man, five hundred million dollar rounds like gotta be like a five billion dollar valuation. Nope.

1:15:16 One point four. Billion dollar. Post money valuation. So selling a company. Yeah, DoorDash is now a unicorn, but that is coming at a very high cost. Thirty

1:15:29 eight percent of the company that they sell. in this round. To Softbank and the other investors. And the crazy here's the really crazy thing. So they raise all this money,$1.4 billion valuation. The actual share price is still lower than the series B.

1:15:47 The Kleiner Lad. At a six hundred post back in the day. Because the dilution is so Large here. Uh that wh while the

1:15:56 Post money valuation is obviously much higher over two X higher. The share price at which Shares are being sold is still lower. Than the series B. That's crazy.

1:16:08 I I did not realize that it was this could possibly be a down round. But yeah, you're right. There were two down rounds that happened. Um okay so Softbank now owns a ton of this company. And still today, uh at IPO the largest shareholder. Well d I I bet. Yep. I mean that hard hard to dilute that down. Now other existing investors uh did come in for Pro Rata as well, it seems to and others in this round. Um But yeah.

1:16:36 But This changes the game. And this it's a new I mean, they're back in it. That's fr it's a new breath. Not only are they back in it. Um

1:16:45 I mean this this deal as costly, literally costly as it was to the company and its its existing shareholders. Um Creates a whole new life. An opportunity here. Uh so DoorDash goes

1:16:59 back on the offensive. We're now in twenty eighteen. 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 perspective public market investors breathing down their neck about profitability, path to profitability. Postmates, which we haven't 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. Um they haven't raised money since twenty fifteen. Remember, capital intensive business. You're three years without raising money. Three years without raising money.

1:17:37 Gonna be pretty hard to uh Uh keep taking. Uh to keep winning share here. DoorDash has all this money. They say we're going big.

1:17:46 Um, they go all in the Literally five X. So multiply by five. the number of markets that they're in during this year in twenty eighteen. By the end of twenty eighteen, they are operating in over three thousand

1:18:01 Towns and cities in America. Uh Enormously wider footprint than certainly Postmates or Caviar or their other independent competitors. Um

1:18:13 And approaching Uh and probably even surpassing in terms of foot footprint Uber at this point. Um And they start taking a ton of share in the market. They quickly become the fastest.

1:18:25 Growing food delivery company. Uh they overtake Uber during this year for the number two spot. behind Grub Hub. Grub Hub is still the biggest in twenty eighteen. And

1:18:37 Um 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, B. unit economics and their attention. starts to work and it starts to play out.

1:18:52 Like things have in China with Maituan, uh, and they build loyalty on the platform. So before the year is even out. in August of twenty eighteen, they raise another two hundred and fifty million dollars from COTU and DST. at a four billion dollar valuation. So we're now six months after less than six months after that. highly dilutive soft bank ground. Now they raise a quarter billion at uh

1:19:20 What is that? Uh five percent, less than five percent deluction. Incredible. Got the leverage back. Got the leverage back. Um

1:19:30 Then in the next year, in March of twenty nineteen They finally pass Grubhub. Uh and become literally the number one player. in North America.

1:19:41 uh summer of twenty nineteen, as we've talked about on the show, they acquire caviar for four hundred million dollars from Square. That adds even more Restaurant supply. And um Uh and order diner. uh demand.

1:19:55 To the platform. Uh so they consolidate there. They raise even more money at increasing valuations by the end of twenty nineteen. They are at a I think they raised six hundred million at a twelve point six billion dollar valuation. So now we're

1:20:12 Ten X. The price of the Soft bank ground already within a little over a year. Um And so what you're doing.

1:20:20 What tip there?'Cause they went from like On the ropes. To I mean being a darling.

1:20:28 Um, 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. One simply Watching Ma Twan in China. Uh and that they are making it work. They are becoming a dominant number one player.

1:20:55 in the public markets at this point in time and their stock is Uh Performing exceedingly well. I think they are now at or over a hundred billion dollar market cap as we record today. Um And

1:21:10 Then Two. All the other players uh have suddenly either shot themselves in the foot or taken themselves out of the game. So Square gives up with caviar uh and sells to DoorDash. Uber is now public and going through all the struggles that we've chronicled on the show. Not to mention prepublic with Travis, you know, that's in the past, but early twenty seventeen was no uh no cakewalk.

1:21:35 either so they've had many self inflicted wounds. Yeah, multiple years now of self inf self inflicted wounds. Postmates can't raise money. Um meanwhile, DoorDash is out there. spending money. They're the only player doing it. Um I I think that's the The window finally opened, I think, to realize or attempt to realize this.

1:21:55 Dream, you know, the Maiton dream of Become a number one player in a highly competitive market. Right. And then then you know A thing that we see in markets is an explosion and then consolidation, especially when they're these low margin, highly competitive ones. Um, and so You're right, as everything started to consolidate around them and they suddenly had a large balance sheet.

1:22:17 it became possible to see how they would be the one left standing who would roll up others rather than um, you know, being forced to, you know, on uh 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 um So by the end of twenty nineteen, uh, they finish with

1:22:44 eight hundred, this is the first year uh or I guess the second year we have full. Financials for them in the S one. Eight hundred and eighty five million in net revenue. Up over

1:22:56 Three X. Year on year. Uh two hundred and sixty three million orders also up over three X. eight billion in total gross order value. Um And this is I thought really interesting too. Sixty percent year over year, same store.

1:23:12 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 Sixty percent more sales.

1:23:27 The next year. In twenty nineteen. And the question you're asking yourself if you're one of those restaurants is is all sixty percent 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.

1:23:42 Yeah. Before we get into that, the other thing that happens in twenty nineteen, which Like we've told uh Hopefully it's come across I'm so uh we're so excited and um You know, laudatory of just this journey that DoorDash has been on because it's they have really faced the fire here and

1:23:59 Pulled out of it. On the other hand, we can't let them off the hook. The other thing that happens in twenty nineteen is tips. Yeah.

1:24:07 So This we're gonna dive into it because it's a really important thing to know about the company. Um, for this may just sound very familiar to lots of you, um I I wanna 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 thought they were doing that was

1:24:33 It 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 um David, what was happening? Well, so what was happening was um Always or at least from the early Post Palo Alto delivery days, early DoorDash days. Um

1:24:52 as a Consumer on the platform. You an order. You would pay for the uh food and then there would be a service charge and then you'd have the option to

1:25:02 And a tip. Four. Your Das sure. Uh

1:25:06 Well, it comes out, I think the New York Times did a big investigative piece in mid twenty it was July twenty nineteen. That That tip. That you assume when you're tipping your courier. That money is going to the courier like it would in a 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 DoorDash.

1:25:29 And DoorDash is combining the tip into the total value of the order. And then they are Splitting up the Economics of the order.

1:25:39 According to their You know there there's fee splits. Right. Basically what they were doing is they were only paying the tip out uh to the driver if The uh driver basically didn't make enough in their base from DoorDash 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 the minimum. But if you did hit the minimum, then DoorDash was keeping the tip.

1:26:00 Yeah, it was like the minimum and the maximum. Yeah. Yeah. So and honestly, like it is it 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. You know, it just goes to illustrate what a f friggin tight margin business this is and what a what a

1:26:30 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 they but they fixed it. They did a complete one eighty. The tips are real tips now, as they needed to do.

1:26:44 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.

1:26:59 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. Um

1:27:13 Basically twenty twenty Has been it. A rough year for a lot of people. It has been the opposite of a rough year for DoorDash. Uh The Yeah, DoorDash had their zoom moment.

1:27:25 Yeah, they basically had their zoom moment in the private markets. Um So when the pandemic hits in March In the US at least. Uh DoorDash grows over twenty percent. that month which was already coming off

1:27:43 An eight billion dollar plus Yeah. Uh Which is pretty Incredible.

1:27:53 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.

1:28:06 And um I actually don't have the stats for the other platforms. Uh handy right now. They grow Two with the pandemic, but nowhere near

1:28:17 The degree that DoorDash grows. So They're share taking of the market just accelerates further. uh throughout Covid such that

1:28:26 By the time the S one hits, uh which we'll get to in a sec, um DoorDash now has fifty percent of the entire food delivery market. In America. Up from twenty something the year before.

1:28:40 Yeah, I mean it was like uh over the year and three quarters bequ between the beginning of twenty nineteen and when the Um IPO uh S one was followed was filed. they just had an extraordinary run of of becoming the dominant player in the space. Um and I

1:28:58 It's a it's actually it's kinda hard to figure out why. Like I don't really know why they smoked Uber Eats so hard. Um and and Uber Eats grew too, but in terms of share, how DoorDash went from like a one of four players with a m you know I twenty something percent share to like Now over fifty percent. If I had to hypothesized, I think it's two things. I think it's one being willing to spend on

1:29:20 Customer acquisition. you know, just in San Francisco at least, I noticed especially at the start of the pandemic, way more billboards for DoorDash. Then. anything else uh than in any of the other I don't think I saw I don't think I've ever seen a Neat's or a Postmates bellboard. Uh I'm sure they exist somewhere.

1:29:39 Um Two, though, it is, I think, also related to this being willing to fly low to the ground that DoorDash 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 DoorDash. I am

1:30:05 relatively paying a fair are pretty close to price of the food that I would also pay if I were to go order from the restaurant directly. The tip to the courier to deliver it. Whereas the fees. Yeah. And and the service fee, you know what, but like it's all reasonable and and but there's a delivery fee, there's a s 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. Yeah. And then there's Texas. I think DoorDash just has the

1:30:37 Service fee. Oh w if you're ordering with Dash Pass. Ah, 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. Delivery. Yep, drops to zero. Um Well the other thing that we didn't talk about is they do a deal with Chase and the Sapphire. So wait, but before I d I looked it up because I I h I hate

1:30:59 Just like throwing out wrong numbers on this show. So uh the in the two and three quarters years from January twenty eighteen to October twenty twenty. Um they grew from seventeen percent market share to fifty percent market share. So just an extraordinary Last two and a half years.

1:31:16 Well I guess the To finish the point I was gonna make before, certainly on Postmates and Also, I I again it's a feeling to an extent on your breeds. I've ordered from those platforms And then looked at the bill and been like, This is crazy. How am I paying

1:31:31 Seventy dollars for You know? Two dishes from a Thai 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 it the the prices go down just enough where you're like, okay, it's it's meaningfully cheaper to order than Uber uh compared to Uber Eats. And we should explain what what Dash Pass is. Um you pay ten dollars a month.

1:32:01 Um It's basically Amazon Prime, so they knock off your your some amount of the fees. Um and uh you know it it it makes sense for you if you're ordering a lot of DoorDash. 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

1:32:37 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 conditioned to have a habit of using DoorDash, um, instead of uh Um uh competitors or frankly just making food on your own. You know, I I think the way platform Right. The way Amazon Prime famously works is uh, you know, originally they were like, Well if we can just break even

1:33:07 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, um, because we just know how much more that makes people invest 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 hikes, how they feel about it. I mean it's gotta be the amount of value you get as a consumer out of that But is it a hundred and twenty nine dollars a year? Crazy.

1:33:34 And David, to your comment earlier on Chase Sapphire Reserve, the way that I have DoorDash is not at all because I felt like I should pay ten dollars a month to um have dash pass, it 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 DoorDash customer to the point where I think maybe three times I compared my exact same cart in DoorDash versus Uber Eats, and it was Like five, eight, ten bucks cheaper on DoorDash. So I was like, great, I'll keep it 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 Sapphire Reserve deal is the customer segment they're going after, because the Sapphire Reserve is a fascinating credit card. It's a five hundred and fifty dollar annual fee of which you can get some meaningful amount, three hundred bucks or something back and three fifty back travel credit. But then

1:34:33 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, has a value of a hundred ish dollars a year. Um now they're crediting back your Peloton um uh some amount of your Peloton membership. Yes. 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 picker. So it's this amazing card if you like have a particular lifestyle where you eat out and you travel and you know, frankly, they it was I I think famously a wildly successful program. They ran out of aluminum. They were printing on them on paper for a while and the initial batch and they they couldn't sell enough of these things. Very interesting for DoorDash to say

1:35:27 we want to throw in with um with this lot and and get this crowd to be DoorDash 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, w now we need all customers. And I'll I'll be very curious, uh I don't think they'll ever disclose it, but how many of these five million uh people that are currently using Dash Pass uh are via this Chase Sapphire Reserve program and how many of them are actually paying. And to contextualize that five million number, um how many people are currently DoorDash uh customers, David? Do you have that off the top of your head? Uh eighteen million, I believe.

1:36:10 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 none of all that, you know, in Q one, of which it's only March in Q one that is The pandemic month.

1:36:27 For the company. Uh they became US based. Almost no international pen penetration and Canada and Australia, but very small in each. Right. So it wasn't till J March that they would have seen. Really end of March. Yeah. Um They reach overall.

1:36:46 For the whole company. positive contribution margin in Q one. uh and to define contribution margin for a second why this is so important. Contribution margin is so you've got your Revenue. Their uh, you know, what was it, eight hundred and eighty-five million ish revenue that the net revenue that they did in twenty nineteen.

1:37:05 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 are you doing to 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

1:37:30 Literally giving away dollars for less than a dollar. Ninety and seven cents or something. Yeah. Yep. At this point in Q one it flips. So they're now contribution margin positive. Now they're not. Mm-hmm. either cash flow or net income positive as a company at this point, yet, because they still have their fixed costs, you know, their engineering base, their TNA, their headquarters, their rent. We'll see if they keep that. Uh all that they're paying. Um, but this is a huge moment in any company's life. And

1:37:58 I believe I did some work. Uh. Based on what I could tell from Uber's uh ten K for twenty nineteen. Uber only in twenty nineteen just barely hit this mark. They were essentially contribution

1:38:14 Margin break even. in twenty nineteen. Despite being Way older, way bigger, having multiple products around for a long time. DoorDash hits this.

1:38:24 And Q. One. Um And

1:38:29 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, Q three, and did September thirtieth.

1:38:48 Uh contribution Profit. improved to two hundred and fifteen million. Which a year ago they had lost fifty two million. In Q three.

1:38:58 And I believe the total contribution profit for the nine months of twenty twenty so far is four hundred and thirty three million. So they did half of that. In Q three.

1:39:14 So spread across Q one and Q two, it would obviously be Less. So they're accelerating. Yeah, so their contribution margin was negative seventy percent, then negative twenty percent, then negative twenty, and then exactly what you talked about in Q one, it flipped where they were positive seven percent, then Q three positive twenty nine percent, or I'm sorry, Q two, and then Q three was positive twenty four percent. So like Having twenty five ish percent contribution margin is great.

1:39:39 Um the big question will be will this continue after the pandemic, um, 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 him there. Yep.

1:40:01 Totally. So Then two more things. to wrap up history and facts on election day. November third. twenty twenty.

1:40:10 A Huge. Moment. Yeah. The country, but also for

1:40:16 DoorDash and Uber and The whole gig economy. Prop twenty two passes in California. This was super controversial. We said we would get back to gig labor here. We won't go into all the ins and outs here, but like

1:40:30 Basically the TLDR is California has a really crazy legislative and legal system where citizens actually vote directly on propositions that impact the laws instead of a republican representative type system. And Uber and DoorDash, as well as the other gig economy. companies had put forward this Prop twenty two to basically permanently create space and classify their labor as contractors and gig economy workers, this idea of a third type of work. You have Pure contractors. For ten ninety nine you have pure W two

1:41:03 Employees. And California and other states had been trying to Classified gig workers as Make companies classify them as W two employees.

1:41:11 And Uh Prop Twitter. says no, they are contractors. They will be paid as ten ninety nine. But it's this third class of business and it basically opens the way. For the company's sustainable

1:41:24 economics on there. Labor supply. Uh so that was a Huge win for the companies, w regardless of what you think politically, whether this is good for gig workers or not.

1:41:35 It happened, it removed an existential threat. Yeah. Uh so literally ten days later. On November thirteenth, twenty twenty. DoorDash releases there.

1:41:45 S one. And files to go public. Yep. As we wrap up history and facts here, should we talk about some of the interesting nuggets revealed about their own. So

1:41:57 one thing that I sort of found interesting was trying to put into context the size of their business. And I 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 kinda w 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 twenty nineteen, as we've talked about, which basically means eight billion dollars of food. were paid for, including taxes.

1:42:32 And um of course uh DoorDash kept I 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 11 to 15 percent or 10 to 15 percent um float um thing that starts high and then goes down over time as you receive less incentives. But it anyway, a about all the time. incentives that the consumers are getting, but the Take rate for DoorDash gets higher over time as they're paying out incentives, right? Sorry, yes, I said that backwards.

1:43:11 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. um gross order volume for uh on an annualized basis. So for for twenty twenty, it uh it would seem like they'll probably come in around twenty five billion dollars. in gross order volume. Now how big is$25 billion? To contextualize this at the smallish order values of food delivery as a category compared to, say, travel, which we will cover tomorrow on the Airbnb 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.

1:43:52 Um and those who have done that successfully are in the e commerce vertical. So, you know, DoorDash has twenty five billion ish a year that moves through their platform. Amazon last year had three hundred and thirty five billion. And when you look at Alibaba and China, they had close to a trillion dollars of of gross volume through their platform. And even Pinduo Duo, which we covered uh to start this season, had 150 billion. billion in in GMV or or gross volume. Talk about big number syndrome. That's six X DoorDash's gross order volume. And even crazier to put Pin Duo Duo's growth and scale into context is that they started two years after DoorDash did. But China is like a whole different

1:44:37 Cat you know, the comparing any numbers to US based Which by the way, total sec we've talked about Maiton here and now we're talking about Pintua Duo. Like I mean, China's so different. We need to do more episodes, we need to do Maituan, but like It's just crazy. And Over twenty percent of Both Pinto Duo and Ma Toon.

1:44:55 So you wanna index This. Take a look at Tencent. Yeah. Another uh few interesting things that I thought were were noteworthy from the S one uh were the existence of different products that I did not know that DoorDash had. Uh most notably, so there's DoorDash for work, which is the kind of competing in that market of of office delivery that we talked about. We talked about Dash Pass.

1:45:18 Two things that I didn't know about DoorDash storefront and door dash drive that are worth understanding because Basically, the way you can think about DoorDash is they are Um

1:45:32 The ones who are aggregating all of 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 th they sort of hold the customer hostage. Like they say, I've got this customer, I can send him 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

1:45:59 I got my own customers who love me. Sure, your delivery network's interesting and maybe your little checkout page is interesting. I don't I I'm gonna operate my own business, thank you very much. And I'm gonna pay you sort of piecemeal for for these things. And if I can't get it from Udor Dash, I'm getting it from other people. And so, you know, we had um Nick Kakonis on the LP show to talk about talk, and we had this fun episode we did with him called Arming the Restoratour Rebels. And um You know, that was a really fun dive into basically like if you wanted to not use DoorDash 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 DoorDash then realizes, okay, we gotta 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

1:46:48 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 wanna be in this business, but they kind of have to be, otherwise they're just gonna lose those customers. So this is directly competing with Talk. Talk and um What's the other big online? I think yeah yeah. Uh ordermark federates it out to all the other.

1:47:15 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 tech tech problem to solve and operational problem. They partnered with DoorDash, 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 an order. There's a you know, a some SAS fee that you pay um monthly along with that, but basically it's two bucks out of every order uh go to DoorDash 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?

1:47:51 Might be. I think it probably is. Might be. Okay. And then the second product, I probably the more interesting one, David, the one you're referencing is DoorDash 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 DoorDash Storefront or a competitor or they make their own website. That's seven dollars per order.

1:48:13 And one dollar for every mile after the first. And I was like, Oh, DoorDash 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.

1:48:28 And have never realized that that is actually DoorDash on the back end. A dasher walks into Chipotle, picks it up, brings it to my house. That that is a really interesting business to be in. You get to command obviously less of the economics'cause you don't control the customer relationship if you're the DoorDash 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 base asset that you've created and all the technology to power the whole thing.

1:49:00 And it lets them address a basically a larger market than they would otherwise be able to address with the pure DoorDash marketplace. Yeah, the analogy I've heard here. And I think it's apt. Is

1:49:12 Dur Dash is both the Amazon and the Shopify. in this space. Amazon in that they operate a marketplace that consumers go to, the DoorDash 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. uh FBA or 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're saying, Ben. Um

1:49:39 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 should 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've got our c you know, you probably want access to our customers too, you should also list on the Yeah. Just like lots of D to C brands sell on Amazon and sell directly. Exactly. It's it's the omnichannel strategy for food. All all somehow paying DoorDash along the way. Well, and I think that's like To my mind, that's what I find so we'll get into more nuggets from the S one, but that's what I find so impressive about the company, right? It's like they

1:50:23 Have gone through the slog And built up. this thing that everybody thought was impossible and the thing being a local delivery logistics network. That can operate

1:50:37 Contribution margin. Positive. Yep. And Once you have that Then you can start doing all of these other things.

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1:52:24 Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out service now.com slash acquired and tell them that Ben and David sent you. The last point I wanna make on that is a great point that was done uh in the S one Club. And the S one Club is an an awesome sub stack that uh friends of the show put together that would that you should check out and and you can click the link in the show notes to see that too in our our sources. An Excellent analysis where that basically shows it costs about six dollars for a DoorDash to acquire a customer. And assuming that they stick around for five years, and frankly, we we don't know how long they're gonna stick around, but that seems like a reasonable enough estimate just because the company's so young. that DoorDash can earn about sixty dollars in pure profit from them over those five years. So that's a, you know, ten to one um CAC to LTV ratio. And it takes about sixteen months for them to recover that six dollars. And it sounds like a little bit of money, but when you think about you know you're ordering all this food, DoorDash is only keeping a a small percentage of that, call it 11 to 15%. For most people, you're not ordering every night, you know, from DoorDash, you're ordering a few times a a month or year.

1:53:37 And in addition, they're 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 um the more they're gonna generate and a lot of that profit is actually back weighted for DoorDash. Yeah, and and um I think the other important point here too that um

1:53:55 You know, as as Bill Garley's written about in the past, uh a lot about how Just looking at CAC and LTV and payback mass a lot of complexity and important things about the business, you got to think about what the levers are that DoorDash is 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'cause if you think about what did we say there.

1:54:25 their contribution profit margin is based on gross order value right now. Two percent. Yeah, two two point four percent. Yeah, two point four percent. Did that analysis that shows like a on the average order value of a thirty dollar order including tip after allocating all the variable costs and all the sales and marketing costs and promotions, DoorDash's contribution margin is about eighty cents. So that's how you w w w to to to understand why it takes sixteen months to earn back that six dollars. So so now that so think about that, right? You're gonna earn fifty dollars in contribution margin profit over five years. That means

1:55:00 Consumers are spending twenty five X 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 about flying close to the ground. Pezos is your margin is my opportunity. You're g generating more value for consumers and for the restaurants and the dashers and the platform, presumably too, by keeping that lower. Other people won't be able to match that. You get more density, you grow over time. The flywheel.

1:55:30 Spins here. So like You know, yeah, fifty bucks to you. But what's that, uh twenty five hundred dollars 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 could.

1:55:46 you you better hope if you're a buyer of this stock that it can grow as they add new categories. I mean that David, that this is the best illustration yet of 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 influxes 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.

1:56:13 I if it can be done at all. And the best possible illustration is f for one order, one thirty dollar and thirty six cent order, they get to keep 80 cents. And boy are they working hard to get that 80 cents. So it m 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, Uh I think that brings us to uh uh to our analysis section. So we talk about the price. Yes, just to like contextualize who currently owns this company before it's gonna IPO. Softbank uh the Vision Fund owns about twenty two percent, Sequoia eighteen percent. I think that's very uh evident by the story told of how we sort of got there.

1:57:00 Green View, who we didn't really talk about, but it's nine percent. That's uh G I C. That's Singapore. Oh, I didn't realise. Okay, so I guess we did did talk about it. Got it.

1:57:11 Tony owns five percent, uh co-founders And Andy and Stanley each own four point seven percent. So once upon a time, these guys own the entire company, uh, along with a co a fourth co-founder, and here they are, three of them representing under 15%. That's a story of dilution if I've ever seen one. Kleiner Perkins owns about two point one percent. Uh that was reported, and I don't think that's necessarily in the S one, but I think the number of shares, uh because uh John Doyre's still on the board, so the number sharks. So okay, that's that's who owns this company coming into today. Uh 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 thirteenth from the Wall Street Journal, uh food delivery company expected to fetch valuation of over twenty five

1:57:59 billion dollars in December market debut. So That's not IBM. I we we had talk I mean, I think the biggest number we might have mentioned was thirteen billion. They did raise around at a valuation of sixteen billion. Um so my gosh, that would be awesome if they could fetch a twenty five billion dollar uh valuation. That's a great markup for investors. Yeah, nice mark up. Share price uh for that would have been I'm trying to remember Gosh, I it's hard to remember back that far when the price was so low. Yeah.

1:58:27 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. And then the first range that they filed was seventy five to eighty five bucks a share. I think they upped that to eighty five to ninety-five bucks a share. And then last night. Tuesday, December eighth. twenty twenty. They priced. The idea.

1:58:48 Oof. For a fully diluted market cap of thirty nine billion dollars. Now, to be fair, they so last year net revenue was eight hundred and eighty five Million.

1:59:01 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 um you know, hi we're talking twenty times. Trailing nine months net revenue. So I don't know, you do some math. Extrapolate that out to a year, maybe you're at fifteen times revenue, still high. Still high.

1:59:22 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 for market open. David, let's uh let's Pop open the stuff. Holy crap.

1:59:45 Oh this morning. It opened trading at one hundred and eighty two dollars a share. Which is a market cap of around what, like s seventy ish billion? Wow. David, where are we now? As I look at uh the ticker we're at one seventy seven

2:00:09 And seventy seven cents. Alright, so it dropped a little since the open. Yep. But that is up seventy five percent day one five. And they did the we did I didn't have time to really research this, but uh, maybe you did, Ben, but you know, Goldman was leading this IPO and they had some hybrid system like you know, everybody's like, uh, you know, traditional IPOs, you give up the pop, you leave money on the table. Girly's been crusading against this for years, he gets packs of well not DPOs. Like, oh we got this new system. Not gonna leave money on the table. I don't know about this new system.

2:00:38 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. Yeah. Investment bank's clients.

2:00:57 Yeah. I 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 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 allocation.

2:01:20 I love that. So all our friends at Goldman if you're listening. Yes. We need we need to get Just carve a little client. Yeah, we need allocations. Wow. David, I honestly I I cannot believe this. Uh like if you would have told me a month ago that DoorDash was gonna be uh sixty five seventy billion dollar. Company. Up seventy one and a half percent ish from a thirty nine billion dollar market cap.

2:01:45 Say we're talking at seventy billion ish market cap right now. Somewhere in that neighborhood. Wow. This is gonna be it's kind of a volatile first day, too,'cause it's it's uh You know, if it it opened at one eighty two, it's now down to one let's see, the the low the high point on the day was one eighty seven. The low point so far has been one seventy three. So there's still a good amount of price discovery happening, um, in the public markets right now. Yeah.

2:02:12 Wow Man. So okay, P All right. So what We've got another hour ish to trade here. So okay, over the course of our 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. Um, and I can't think of any better way to do that than heading into our our narrative section, uh, where we um 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 bare case of uh why you should be excited about this company or why you should run from it at all costs and um The market has certainly spoken, but uh David, what was the the sort of biggest ball narrative surrounding the company?

2:03:00 So yeah, I mean the bull narrative I think we've told a lot of it along. the way here and uh I at least mostly subscribe to it. Is They have just like Maituan seems to have done in China,

2:03:14 They have Accomplished the dream. uh or are 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.

2:03:30 Such that There's no viable competition. They have a wide berth to run, both to keep growing And the sector that they're in right now with food delivery to add other products and services into it and become the dominant

2:03:45 You know, May Toine as we'll get into now is Uh, it's not really just food delivery anymore. That's a small part of what they do. They are a super app, just like Ten Ten and and WeChat is the super digital app. Maituan in China is the super physical app. Friend of the show, Rita Yang over at GTV has a really great YouTube walk through that we'll link to in our sources of what it's like to use Maitwan in in China and like You wanna book a massage? You book a massage. You wanna order food, you order food. Do you wanna order flowers? You order flowers. You wanna Like a restaurant reservation, great. Like you order your food from restaurants, you also make restaurant reservations in the app.

2:04:21 And you're open 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 bull case to me. Yeah, it it it's Boiled down to

2:04:34 They are the last mile near real time logistics company. Like they're the local on demand. FedEx. Um to get anything to you. And then in that

2:04:47 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 they're 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 bullcase.

2:05:08 Yes. It has to be a yes and, right? I think it's everything you just said. But it's also this, you know, what May Twan has become in China, which is and and Tony talks about this and they talk about it in the S one. And this is part of what DashPass 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. Um the example of restaurant reservations. Well, what if it's, you know, you can make restaurant reservations. But you also get special

2:05:42 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 a big business, uh 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 am opening this

2:06:12 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 to name the company DoorDash and not like Door Food Dash. Uh and uh It's also smart to to introduce Dash Pass. Yeah, sort of a

2:06:30 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. Yep. And I think so look, this is the Super Bowl case. Uh Lots of questions about whether This can happen when, how

2:06:55 There is another way to paint the bull case too, which is basically like that this company is an optimization machine and they will run at fully uh fully utilized optimization. It's kind of like a factory floor. Like All those machines are really expensive, so you better run'em at the most perfect harmonious

2:07:15 capacity 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 a a restaurant. Once you onboard a restaurant, can you keep them for a long time? Can you be profitable on them? It's 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 customer is going worth going after, what restaurants worth going after, what product at what time. Like it's a in a lot of ways

2:08:01 It's basically a bet on data and data science being able to be the way that you can do this thing profitably. Yep. Not to mention even just the fixed costs, so to speak, although it's they're variable costs, but it's a it's a fixed set of variable costs of having the dashers operating, right? Like you have capital in the system. All day every day. With the

2:08:24 Dashers that are operating on the platform, right? And so like how do you leverage 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 Mm.

2:08:39 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 it's it's variable, but it's not totally variable. It's variable costs. It's a fixed varia it's a fixed set of variable costs in the network. Uh 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 uh the most simple way to look at the pandemic related bear case is this is the best it's ever gonna be for this business. And after this, there's gonna be way less demand than there previously was.

2:09:15 The other, I think a little bit more nuanced way to look at it is Mm. 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 their most recent cohorts are looking great right now. Because of the pandemic.

2:09:36 Right. You know, I personally think the way it will play out is that all the new customers they did acquire have pseudo permanently change their behavior. Like I think once you make a behavior shift, um, and I just know this from, you know, myself, like Uh d DoorDash has sort of won 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

2:10:02 metered bear case on on the I would say also too, even on that. You know, one thing we don't get delivery often. I've done it the last couple of nights in research for this episode. But what we do do often is is takeout. And I think this is one of the things that's really smart that DoorDash has invested in is making that a a feature on the platform too. Like

2:10:23 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 tie place. via an app rather than calling them and tying up the phone lines. And Doardash has found a way to enable that and get paid for it. Yeah.

2:10:40 Yep, I think that pretty well. Uh Anyway, th 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 gonna continue to be a razor thin, highly competitive business. And they're just never gonna be able to sort of take all the investment that they've made and actually get to benefit from an immensely cash flow positive um output on the other side.

2:11:05 Yep, that makes sense to me. 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.

2:11:18 And like obviously it's big. But how big is it? Now in the S one they talk about What is it? I wanna say. Something like six hundred billion ish. Of off premise restaurant.

2:11:31 food annually US. Yeah, that sounds right. Okay. Uh, w now what percentage of that is actually addressable by DoorDash. So last year they did eight billion uh in GMV out of that. Six hundred. But like You know, a bunch of that is dominoes.

2:11:49 A bunch of that is catering businesses, which obviously DoorDash is getting into that, but like They're not gonna be able to address all of that. By the way, it's only three hundred billion. The off premise spend. Night uh twenty nineteen's off premise spend at restaurants and other food service in the United States. Three hundred billion. Okay. Yeah. So now you're like, wait a minute. So say even you get the whole market three hundred billion dollars in gross order value. You said we said we have a two point five percent contribution margin, let's say

2:12:19 Ten percent revenue. Let's let's just even use revenue. Ten percent. revenue margin. See, now you're talking about a thirty billion dollar net revenue company. Um Yeah, that's great. That's super impressive, but like that's not Amazon.

2:12:35 Right. And that's if you address a hundred percent of it. And e even Amazon only addresses uh What is it? Fifty percent of ecom, but um ecom is only f twenty ish percent of commerce. So yeah, the the way they define their market, just to make sure I actually understand this well, is they they say Americans spend one and a half trillion dollars a year on food, six hundred billion of that is spent on restaurants, and then three hundred billion is off premise. Uh, that's what I was thinking the six hundred. The six hundred is also dining in. Right, right. So the y you could imagine

2:13:08 I don't know. I don't know how that diet is addressable for them. Man. So okay, at this valuation, not only do you have to not Bear case. You have to believe the ball case.

2:13:19 that they are going to Expand outside of just The off premise food delivery market. Yep. Absolutely.

2:13:29 Well um This is a really actually uh we decided to do Power on this episode as well, in a um 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 enab the business to achieve persistent differential returns. Or put another way, uh how do you be profitable and more profitable than your closest competitor and do so sustainably over a long period of time.

2:14:02 And um 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 uh do they actually have here?

2:14:20 Yeah. Well, it's interesting. Before we get to us, um It seems pretty clear to me that uh Tony and the team at DoorDash are probably also Hamilton Helmer fans, because if you read the S one, 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

2:14:42 Local network effects, economies of scale, and increasing brand affinity. So three up to seven. Gotta imagine that uh Hamilton as he has so many uh uh as his work has influenced so many people here in Silicon Valley has also influenced them. So that's what they they think. Narc effects. Economies of scale. uh scale economies and brand.

2:15:02 And we could talk about how they think about them. To me the biggest one right now is is is economies of scale. Hundred percent. I I think it's actually the only legitimate one because I I I I think it's pretty easy to hop for b for any net or m any participant in the ecosystem, it's very easy to multi home and it's very easy to choose. The next best competitor.

2:15:25 Like it's easy to order food, it's easy deliver food, and it's easy to as a restaurant also list on Uber Eats no problem at all. So I think the n I think any defense ability that comes from a network effect is not really real. Yep. Yeah, no, I was gonna say That it's related to order times intensity, but that's

2:15:44 That's a that's scale economies. So Yeah, I think it's I think scale economies is the big one. I think and and there's something to brand, but it's always hard to actually know. how much to sort of chalk up to brand.

2:15:57 I mean w one thing is really true, uh, and and rings really, really true to me, which is like the whole end game is aggregat the consumer attention. And this is the Ben Thomson 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 f especially if you start introducing an advertising business model into this too. Uh absolutely. And I think about as you think about the far future of like what is the how does the world of restaurants reorganize

2:16:37 given you now have this participant in the system or the set of participants in the system that are a you know uh gobbling up all the consumer attention and the the default way to order food. As the default shifts from that real world to online, whether it's DoorDash or you're using Prime now to have stuff delivered. they're gonna 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.

2:17:08 DoorDash will totally eat them. And they'll actually eat their back end too, in the same way that Prime now has a warehouse, like DoorDash 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 gonna happen in food. Yeah. I agree with all that. I don't think this is brand power in the

2:17:42 Hamilton says like I don't think this this is th 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, that more of a network effect as they have all the consumers and all the restaurants for now, but let's say suppliers, writ 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 where like

2:18:11 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 DoorDash. Like no way if Eats gave it to me cheaper. Or for the same price like Yeah. Yeah, you're absolutely right on that. Yeah.

2:18:28 So that's that's pretty aspirational. Nice one, Tony. We we appreciate that. Good drive, but Well, Uh, 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 20 seven and eight and twenty eighteen. Um, would we be here today? And I I think

2:18:54 You know, that that gave in the ride sharing market lift a new breath where they were basically dead until Uber, you know, imploded. Um And are now a quite formidable competitor. Well Twenty I don't know if I can cemidable when like no one's ride share. They exist and there's not like a

2:19:13 It doesn't seem like they're about to like in twenty seventeen 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. Uh Uber was gonna win. And then they haven't and now it's stabilized into more of a duopoly type structure.

2:19:28 Yeah. So uh What would have happened to DoorDash if Uber hadn't gone through their twenty seventeen and eighteen Um, and as we know, like twenty sixteen wasn't looking so good for DoorDash. early twenty seventeen they could have died. Um so how much of

2:19:45 Uber fumbling had to do with DoorDash. Having a breath. Well this is I think this is really One of the most interesting questions on this episode because

2:19:56 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.

2:20:10 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't use their supply for food delivery. DoorDash is Pure play.

2:20:27 Food delivery. They don't do ride sharing. Thus We should, you know, the thesis, the the narrative that um they and lots of other people have believed over time is We should be able to win both markets. because we will be you know, we'll have better essentially two X the scale economy than any

2:20:44 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 that dashers are actually different than rideshare drivers. So like that all sounds great. And until I was doing the research, I was like, How did Uber not win here? They already had all the drivers. Like all I had to do was tell them to deliver food instead of people. But like according to Tony, at least, the average dasher is in their mid twenties and the average rideshare driver is in their early forties. And women are willing to be dashers. There's forty uh forty percent of dashers are female, whereas only fifteen percent of rideshare drivers are women, uh I mean largely because of the safety concern. So this has been this like

2:21:26 you know, common observation, common belief. Well, I think there's an even more important so I totally agree. Um I think on the what would have happened otherwise, I think it would have been 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

2:21:45 How would well would they have done with maybe being less having their eye taken off the ball here. Cause I Totally agree. With Tony on this one.

2:21:55 that the nature of the supply for food delivery is quite different across many dimensions versus rideshare. 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 gonna do ride share in a city, you need to have a nice late model.

2:22:19 Or access to one. That Immediately segments out a huge portion of your addressable gig labor.

2:22:28 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 DoorDat came along and said, This is why I think the bicycles were so brilliant in the early days in in Boston. And then that grew into e-bikes, then that grew into Scooters of all different types, but the powered, you know, motorcycle like scooters and

2:22:54 Bird like scooters. I think that opened up A lot more addressable supply for them that Uber was never gonna be able to multi home across their two products. It's a really great point.

2:23:07 Yeah. It's d 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 Lisa Carter from one of our F one of our partners.

2:23:22 I I actually think this gets to the fact that the the way that people plug into DoorDash is pretty different than the way that people plug into ride sharing. I 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

2:23:46 true with DoorDash. 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 a an actual realization of the sharing economy. As opposed to what Uber turned into. Yeah.

2:24:04 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 shot themselves in the foot, they would have won here. Things would have been different. Well, certainly it w it became possible for DoorDash to raise money in a climate that would have been too hostile had Uber continued to be a a juggernaut. Yep. And raise money from Uber's largest shareholder. Still so crazy to me that that happened. It did. All right.

2:24:32 Playbook? Playbook. Let's do it. Oh man. So many things so many things we've already talked about, but the like the 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 in to try and take it all, but that pot of gold has totally not materialized. Like in twenty eighteen they lost two hundred million dollars and then just like their growth, they tripled it to over six hundred and sixty million dollar loss in twenty nineteen. And of course the losses are shrinking in the pandemic. Um they've only lost$150 million so far this year, but

2:25:08 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 over time when you're a you know a monopoly. But I think I think this is the uh

2:25:38 You know, this is like the bear case on this whole ecosystem or 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 wanna say as people thought. And it it continues to take longer and longer and longer to be able to realize that end state where you actually can um realize all the fruits of your labor, or not really labor, but actually capital that has gone in. Yep.

2:26:05 So to me that's like that's the biggest playbook theme here is they're they're running the playbook that is The winter 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. Yep. Yeah, I think that's

2:26:19 I think that's true. Although I think coronavirus Um Was a huge accelerant to them.

2:26:28 Vastly improved their chances. And also. stepping on the gas and continue to run this playbook while their competitors pulled back vastly improved their chances. So, you know, whereas the narrative has shifted on this, where in twenty thirteen, twenty fourteen.

2:26:45 It was Run this playbook, there is the pot of gold. In twenty sixteen, seventeen, eighteen, it was there's no pot of gold at all. This is all a mirage. Now the question is

2:26:59 Well, there may be a pot of gold. Right. 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.

2:27:18 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 Mm. I don't know. Uh DoorDash is 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

2:27:47 I actually don't think there are any meaningful cross geography network effects other than the national chains. Which DoorDash has done 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 Airbnb, which has an unbelievable cross-jeographic network effect. Probably the best.

2:28:13 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

2:28:22 It's yeah. I I I don't think I don't think you need a national brand or an international brand in order to to win the I think that's fair, but I think you're you're upside his cap. Like you're never gonna build an Epic Games type size company If you don't take the go big approach in a capital intensive market like this. Yes. Great point. Great point. I guess it really comes down to capital intensity.

2:28:44 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.

2:28:56 Okay, great. That's one for me. The other one I I wanna uh highlight again'cause I think it uh it's very Amazonian. It's very aptin to me just Sums up. Door dash. Exquisitely well.

2:29:08 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 the 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

2:29:35 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 twenty minute car ride away in the city.

2:29:58 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 dasher parking spots? Great. You know? Uh that only happens when you you can't do that when you're sitting in a um Uh when you're sitting in an office writing code.

2:30:32 Right, and and only paying attention to averages. I think another great embodiment of this is uh um I think it's Michael Block is how you pronounce his his name, um uh on Twitter, talked about how uh and he's an early employee. In in food delivery you can compete on four things price, speed, selection, and quality. And they sort of like looked around, realized that they they weren't necessarily gonna beat Uber on price um 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 is 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 forty two minute ETAs. As long as deliveries were sub forty-two minute, customers didn't really care how long they took. And it's just this like amazing light bulb that by diving into it. This flies in the face of what I said a moment ago,'cause 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 forty-two 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

2:31:47 five minutes away versus fifteen minutes away. That's a those are very different things. Um and I think That you know, when they were competing against Uber, Uber was in a Constant.

2:32:01 optimization race to get the food to you faster. And DoorDash was kind of realizing actually that that might be a waste of resources. Hm. Yeah. Yeah. So anyway.

2:32:13 It's 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 the value that the company creates? So, you know, are the is it like Wikipedia where they capture a a tiny little percentage and could be capturing way more? Or are they capturing, 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

2:32:53 You know, how does the value created for the world, not just for shareholders, uh compare 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 forty percent markup on your food in order to pay uh DoorDash and then to pay the dasher and like Uh the market actually feels relatively constrained to me of people who will are willing to pay forty percent more for their food to have that sort of convenience. So like I don't think they could be extracting any more. And so that's any more from consumers, any more on the restaurant side and the restaurants probably couldn't keep their doors open. Like I think DoorDash does a lot of research on 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.

2:33:45 Um either'cause they don't like us or'cause 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 business is like this business model is is there actually enough dollars to go around um 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

2:34:19 you know, actual dollars to go to go around here. So tha that's sort of how I would describe I think Companies doing a bang up job of capturing. Um Uh how does the value created for the world compare to value destroyed for the world? I mean I think there's a strong case to be made around

2:34:39 uh exploitation of gig workers not nearly as strong as like Uh ride sharing. Um I I actually think that they're uh this seems to be a much friendlier company to Dasher than um ride sharing tends to be to to drivers. But I agree and I think that

2:34:56 The big 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 DoorDash, you're probably also incurring depreciation. But

2:35:17 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 uh there's value destruction happening for the world is on the the restaurant side. As much as DoorDash wants to sell a story around

2:35:34 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 merch, 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 head in 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 ten years from now is empowering local businesses.

2:36:06 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 a a lot of sentiment

2:36:20 Among restauranters. And often justifiably so, that Door dash. And other platforms take way too much of the order. Eating their cost, their cost the restaurants' cost structures are not sustainable uh profit margins with w ha when selling on these platforms. They can't

2:36:37 make things work. I think there probably is some truth to that. On the other hand, I think they're 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 clo kitchens, ghost kitchens, other food related businesses get built that are gonna be more of scale

2:37:11 Businesses. As opposed to local. Yeah. Restaurants. And my question is, well, how does how do they just not end up combining? Like

2:37:19 Uh uh and and how does DoorDash not build this themselves? I think they are. Uh I think they're working on it internally. I think there are 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 gonna be more scale businesses and some of them are gonna partner with local restaurants, like Virtual Virtual Kitchen Company partners with local brands and helps them and includes them in the economics. And then I think others are going to just be like, No, we're doing this ourselves, we're vertically integrated. And you're gonna 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.

2:38:02 Yeah. It's gonna be more important than ever for restaurants to create customer love. Yeah. And and not in a begging way, not in a 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 an 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 r running a restaurant right now. Um but I think the most successful path forward for the future is look at something like DoorDash Drive and be like

2:38:35 Okay. Great. We're gonna use them for the delivery network. Awesome. Let's not list on DoorDash the marketplace. Try and r aggressively start building my direct email list. Figure out how to do all sorts of segmentation on like

2:38:51 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 y 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 Canis's book. And Coconus and Talk, too. They've done in a Linea and with next, like Yeah, they they've executed this playbook to a T. How do you do this stuff creatively, cleverly, digitally, cheaply, um, you know, without being a fine dining experience? And then use use DoorDash 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 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.

2:39:43 And otherwise I think it's gonna be it actually looks a lot like the travel market, where like once OTAs 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 it it feels like that's a playbook that's a being run in restaurants right now. Yeah.

2:40:05 Totally. Which I think, you know, then the question is for value creation value capture here for DoorDash. Question is was that gonna happen anyway? Like is DoorDash causing this? Or they

2:40:16 You know, participating in it also arming the rebels like It's kind of merely an inevitability. Yeah. Like in the same way that like was Facebook an inevitability. Yeah. For for the publishing world. Yeah.

2:40:29 'Cause again, Tony. DoorDash, the team. These are amazing, they persevered. They had really great insights that 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 to doing it. They built a good sustainable business. At the same time, like

2:40:49 This was gonna happen'cause this is happening in China. Like the the the this moment was if it wasn't them Would have been somebody else. Uh 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 of the marketplace. It was gonna happen. Yeah. All right listeners.

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2:42:11 So Yeah. For uh for the the new influx of folks joining uh 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 acquirer's company was for the acquiree to to to basically for Facebook to buy Instagram, you know, in hindsight, how good of a use of capital was that. On this episode, the way that we're gonna do that is Collectively. How good of a use of 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.

2:42:45 in this way over the last five years. And everyone bought in at a different share price. So uh 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 a 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.

2:43:09 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 raced after this opportunity and will will that eventually yield a very profitable business?

2:43:47 Yeah. Such a good way to frame it. Um So glad you had this idea to do it this way on this episode. Um

2:43:54 Yeah. I think my answer is uh It was a Not in the very beginning. Not in the seed A or B.

2:44:04 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 the you know, they've had a couple uh contribution positive contribution margin positive quarters. During the greatest tailwind to their business that they could ever experience.

2:44:27 But Uh Given that and given now this uh the reward along the way in this IPO, uh and the seventy billion dollar market cap journey outcome, temporary outcome here. Gosh, I gotta think it's an an A to make this decision. Like it's so high stakes, though. It it reminds me I had in the notes and didn't say, but it reminds me of um in a very different way of Sante at emergence and the Zoom investment. I mean, like this was a for a

2:44:55 a lot of people and specifically for Sequoia, and I have to imagine Alfred at Sequoia, uh, this was a bet 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 I give it a an A.

2:45:15 I g and uh I 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 w have your shares appreciated in value. Cause like of yeah of freaking course. Like there's a hype train, you know.

2:45:33 It's like have you seen Snowpiercer? I imagine the hype train for this is like the train from Snowpiercer. Oh no. And uh I 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 on each customer or get a whole bunch of customers that are contribution margin positive and they can sort of ramp down marketing spend and 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 gonna be

2:46:09 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 gonna be Uber for everything and everyone was like, Oh my God, this is gonna be the most valuable company on earth. I think it sounds better. Because it sounds better than it is,'cause once you start actually getting into it, you're like, Okay, what are they gonna deliver besides food? And you're like, Oh, groceries. But that market, like that adjacency kinda went away. Like Instacart kind of Like that that lane is no longer open for them. Like for Uber, the age adjacency of food was interesting, and there's like other adjacencies that are interesting. I don't think

2:46:46 DoorDash 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 gonna list in like the first two or three. drug stores, like we're already listing stuff from CBS, and you're like, so you're gonna compete head to head with Amazon on Prime now? Okay. Hm. And and I I I think like I think the market that they're actually in here is food delivery.

2:47:14 And I think based on their cohort data. And their return on marketing spend and their CAC to LTV ratio, like this is gonna 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

2:47:31 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. Mm. I totally hear you.

2:47:43 I think Well, I don't know. I think I'm probably maybe a little a little caught up in the The story and the uh the hype trade, the snow piercer hype trade. Uh but I do think I come back to like as I was thinking this morning in the couple hours before we started recording. Uh I went back to Maitwan.

2:48:01 And looking at what that business is, I do think there's an opportunity to Yeah. And be more in a way. Well, tomorrow on the Airbnb episode, we're gonna talk about uh trips. And the uh

2:48:17 Honestly kinda zany. Two thousand four. Sixteen, I think it was, Airbnb open with their dream of Airbnb trips, the products that uh none of us ever used. Yeah, exactly. Experiences, places, reservations, all this. Stuff. I think it could be that like that's just like nobody wants that. Uh it's just a bad product idea, one.

2:48:39 Um More likely though when I look at Maytonin I'm like, Oh wow. That that all lives on Maiton now. Uh I think the issue w was with Airbnb like

2:48:49 You didn't interact with Airbnb every day. You interacted with Airbnb very infrequently for a Travel Use case. With DoorDash if you're opening it multiple times a week. And interacting with it.

2:49:02 I don't know. It is still a stretch. It's not what they're doing today. But uh 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.

2:49:16 Very fair. Well, this'll this'll certainly be a fun one to uh to watch evolve. Indeed. Um, I know we've gone longer than any other acquired episode in history.

2:49:27 But I do think we should do carve outs. I think uh it we haven't done'em in a while and they're fine. I'm curious, uh David, what do you got on Docket? Oh and if you're new to the show, Carve Outs uh are basically where we throw in like Things we're watching, things we're paying attention to, things we're reading, um, that uh have nothing to do with the show, but we think are are interesting to put on y'all's radar.

2:49:48 Yep. I'm so excited we're doing this too. It's been a long time. Uh so I've got a uh 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 uh the game Hades on the Switch. I think it's on PC Switch, might be on PlayStation and Xbox too. It's made by

2:50:15 The guys who made um Bastion and Transistor, uh if you ever played those games. So like indie game developer, but just like super high quality, really well done. And uh This game is so much fun. You play you're the son of Hades, the god of the underworld, and uh you're trying to escape. uh Hades and like all the other Olympi Olympian gods like help you escape and and then so you try and like do these escape runs and then you die like you never make it and so you go through like over and over but they it's so well done. So fun.

2:50:46 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. uh my skill. It's kinda like what um Raul was talking about in game design. Like, you know, uh uh building towards a sense of mastery, like you have this economy, you're getting like Yeah, like

2:51:05 Whatever it is, it's got that magic that I just feel like It's a worthwhile investment. Sweet. Love good game design. Right, I have to get a switch and then I have to get that game and check it out.

2:51:17 Um, I have three Because I was making my list and I was like, you know what, like I I'm just gonna put all three on here. There are all three things you can watch uh while you're looking for some things to stream while you're staying safe this holiday season. Uh the first two I think are the best written, acted, directed. uh TV shows that I've I've streamed pr this year. And like I I have a lot of like

2:51:42 kind of like trashier TV I like to watch. Always Sunny, The League, like a lot of that stuff. Uh but like It it is always jarring when you watch something that is just trem it's a I it's art. And um there's two great pieces of art that I want to talk about in then a movie. So uh if you haven't seen Watchmen on HBO, the series, whether or not you were a big fan of the um 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 um sort of before this summer.

2:52:17 um but it's fun sci-fi, fun social justice, amazingly well produced and written. Um so it's I highly recommend it. The other, I'm sure many people who listen to this show uh have watched uh is Succession. And David, I don't know if you're you've been a fan. I have not uh I've not watched it, but heard Many people told me about it before uh I got a chance to watch. It's basically it's a it's a fictionalization of the effectively the Murdoch family and Newscorp. Um different names, different characters, all that, but uh of just unbelievably well written and acted and it's Like

2:52:51 it's just 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, uh On Hulu, you should go watch Palm Springs is an absolute delight. It's an Andy Sandberg film. I heard 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 while being lighthearted. It's like a It's like a modern groundhog day, right? It's got elements of that, yeah. Um

2:53:17 But I Yeah, it'll leave you thinking. in a different way than the other two, but it's it's also worth your time. So um You know, if you're like me and you're looking for uh

2:53:27 Great stuff to to get into on these streaming services. All all three of those are awesome. Well, you know, before we wrap here, um, David, I know you've got a little tribute that you and I Yeah, one other thing we wanted uh um say you know we didn't want to make a huge deal'cause we didn't know him and uh uh you know, we're more arm's length. But um Tony Shay passed away last week and we just wanna take a moment and uh

2:53:49 Just um reflect on how tragic that was, but also say, you know, just Thank you to everything, the impact that he had on the whole tech Silicon Valley ecosystem. the companies that we're covering, you know, today in in DoorDash indirectly through Alfred uh Lyn, who um was the COO of Zappos, Airbnb tomorrow, Tony had a huge impact on Um just the whole ecosystem and um

2:54:14 you know, tragic he passed away so young, but um Thank you to everything he did do during his life to really push the valley forward. And other communities too. I mean, I remember uh when I was really involved in the startup weekend community, uh, Tony hosted a bunch of us at the downtown project in um um in downtown LA and like what he was doing to revitalize um that area north of the strip. Like it was just really cool. Staying at the container park and Just seeing sort of that that vision come to life. I know the city's much better for it.

2:54:43 Yeah. That's a good point. Not just the valley, but our whole industry and Other things. Yeah. Graduate of uh Same place call as my wife Jenny. Mm-hmm.

2:54:51 In uh in Marin. Well now I know a security question of yours. Yeah. Well, uh for folks who don't know, as we wind down the show here, uh, we have started codifying codifying, I think it's codifying the uh the playbook from each episode. Um so pulling out all of the not only in the actual playbook section that we talk about, but sort of key themes from earlier on if you wanted to run the DoorDash playbook, how would you go about doing it?

2:55:17 And we've we've been pulling those from each episode uh in some written bullet points. And uh we started emailing those to folks uh after we post each episode. So if you want sort of a digestible, consumable way to uh you know share or uh help you sort of understand the points we're making in each episode, you can sign up to receive those playbooks at acquire.f. M. Um anywhere that it allows you to type in your email will We don't we only have one email we send, so you'll get that one. Um and if you join the acquired community Slack at acquire.fm slash slack, you'll be automatically signed up for that as well.

2:55:51 We're going to do those on an ongoing basis. It's totally open to any of you if you want to tackle that, um, for a previous episode because we think it'd be cool to to host more of those on our our website too. We've had some great ones. That community members have done. Yep. Thanks that have have already uh done that. Um if you want to just shoot us a note um acquire at fm at gmail.com or in the Slack if uh if you want to do those. Um

2:56:16 We've talked about the L P show a bunch, um, but I did want to highlight our most recent one uh we just did with uh two of David and my LPs from our current and and past funds uh from uh from Foundry Group. Um Actual LPs. Like actual yes, it was the first time we've heard LPs on the LP show. Investors in venture funds. And it was like amazing to get to

2:56:40 all the things that we talk about more in private with them. Uh uh the the ways that they sort of help guide, especially for me at 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 um sizing the types of investments you want to make, how much do you save for reserves, how much do you do up front? So just really good to dive into and a lot of nitty gritty in a super structured way, in a way that we can share, uh more than just the private conversations we have. So Um that was part four in our V C fundamental series, more uh more good stuff like that to come. But if you wanna be an LP, seven day free trial, acquire.fm slash LP.

2:57:22 Feel free. Yeah. And also two things for the holidays. Mm-hmm. That are important on that front.

2:57:28 One. L P subscriptions make great gifts for The acquired fans in your life. Woo. And two, on an even more important note, we've said before, but it's been a while. Um

2:57:39 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 L P show. So if that is the case for you, for whatever reason.

2:57:54 Just shoot us an email. Hit us up on Slack. uh acquired at fm at mm.com or join the Slack and DM one of us. Um, 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. Um similarly for gifts, it's a little complicated to go through the matinations of uh of making sure to use someone else's email address. So if if you want to give the LP show as a gift, just shoot us a note and uh we will we will send over instructions.

2:58:18 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 too You can share it. From your

2:58:30 favorite social media hilltop or with them one on one directly. We always I think that's probably the best way is 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. Um You know, I I just love the like one to one to one to one to spread that we've had so far. So Feel free to share it. Feel free to sign up for playbooks and uh

2:58:52 Yeah, with that. Everyone, we'll see you next time. Actually tomorrow for everyone. I was gonna say usually we say we'll see you next time. Today we'll say We'll see you tomorrow. See you tomorrow.

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