Meituan

Transcript from https://podmenti.com/t/671190da834b2acc

You've been a V C
In my heart for a long time.

I take offense to that and uh and also thank you.
Welcome to Season 8, Episode 3 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 and managing director of Seattle-based Pioneer Square Labs and our venture fund, PSL Ventures.
And I'm David Rosenthal and I am an angel investor based in San Francisco.
And we
Are your hosts.
Ten.
Yeah.
Bio there. It's a little different this time.
Congratulations, my man.
Thank you. Very long Seattle. Excited for the future of the Pacific Northwest.
It's very exciting. Well, well deserved promotion to managing director.
Well thank you. And I mean frankly it's
most exciting just to have a new hundred million dollar early stage fund to invest in Pacific Northwest entrepreneurs who also might be acquired listeners.
Well today we were talking about a company that
frankly, couldn't be further.
from the Pacific Northwest. Well maybe you could. I suppose if you're on the east coast of the United States
you might be literally halfway around the world.
But today we dive into a Chinese app.
That started as a Groupon clone.
by a founder who had previously started a Facebook clone.
At a Twitter clone.
But this
Bike sharing Yelp esque.
Door dash of China.
Is much more than a clone.
This AI powered delivery company.
is also a ride sharing company.
It's a real world supermarket.
A merchant
Analytics platform.
A fintech platform for those merchants who need loans.
A travel booking app for consumers.
And a way to buy cheap movie tickets.
So what
On earth.
Is going on.
So you're saying it's like DoorDash and Airbnb?
And Square.
And booking dot com and Expedia and Uber
And Instacart.
Yep, Fandango, Safeway. The list goes on and on.
So
Ma Town is what people have dubbed a super app.
And if you're confused.
Well, so were we before we started the research.
So over the course of this episode we will dive in to unpack this curious company.
How it became China's third largest tech company behind only Tencent and Alibaba is.
And it was founded over a decade.
after each of those two companies. It's pretty crazy. It's like
frankly amazing that it's in the same category as those or or quickly rising into that same category.
And uh and of course wildly displacing
Baidu, the classic.
third in the big three Chinese tech companies. Yeah. Alongside
Pin duo duo as well, which we covered last summer.
This story is
Honestly amazing. I mean, we'd heard we'd reference Maitwan on the show. Oh, it's the super app, it's this
Really interesting Chinese thing that is unlike anything in the West.
This story is
Incredible.
Frankly, a shame we haven't told it before now.
Indeed. Well, that's why we have eight seasons of acquired.
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Are you an acquired Slack member?
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You can join at acquire dot fm slash slack if that sounds like your cup of tea.
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. Lagora 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.
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. Legor's bed 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.
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 Ligora 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

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.
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.
Well lastly to keep this short and sweet, if you are not an acquired LP, you should totally become one.
Aside from all the things we tell you about the LPE program on every episode.
We just shipped a killer episode on the state of SAS in twenty twenty one with Emergence Capital's newest general partner, Jake Saper, where he dove deep on their recent investment thesis.
Deep collaboration.
You have to say deep in a deeper voice.
Deep collaboration. I'll t I'll handle deep collaboration.
It's also it's been a big month for um
Acquired guests and hosts in terms of promotions to general partner.
It is. The the wave is upon us.
Well, we of course explored the insane state of tech valuations right now and the frenzied market we are in with Jake as well as deep collaboration. So
Tune in LPs or feel free to join at acquire.fm/slash LP. If you are not.
Yeah, we can't wait to see you there.
Well, David
Before you take us in.
Listeners, as always, this show is not investment advice. David and I may have investments in the companies we discuss on this show.
And it is for educational
And entertainment purposes only.
That's my disclaimer.
It is your show to run now.
Take us in.
Tell us everything. Well, I sure hope it's for
Both of those purposes.
I mean equal measures.
Okay.
Before we dive in, we have to say a big, big thank you to the Tech Buzz China podcast. They did an
Excellent job covering Maitwan and its crazy story.
I think among all
English language reporting on
China Tech for Mayton specifically, they did a fantastic job.
Along with as always the Evolving podcast by G G V and Bernard Leong at Ofreid Analyze Asia. We used all of their work in this podcast.
They're all fantastic.
Definitely go check them out if you follow.
China Tech and
You definitely should be following China Tech, no matter where you live.
Okay.
So May Twine.
We start.
History and facts.
Back in February.
In early March now, so I'm right about the same time of year.
Of nineteen seventy nine.
in Long Yan, China, which is a small
But
China standards at least. City of about two million people.
in the southern part of the Chinese coast, kinda not too far from Hong Kong, about like a and Shenzhen six hour drive sort of north of there if you
A sense of Chinese geography.
Are you like on Google Maps? Yes.
Okay. Like this is uh this is a very descriptive explanation here. Well the more these episodes we do, the more I get to know uh China's geography. But yes, I was on Google Maps. And we start. So in February nineteen seventy nine in Longyan.
With the birth.
Of a baby boy.
Named
Wang Shing.
And
Wang is going to be our protagonist here, one of our protagonists through this story.
And this was a pretty interesting time and family he was born into. So this was right at the beginning of Dang Xiaoping's reform and opening in China that
We talked about on the Alibaba episode a lot. Uh also talked about on the Ten Ten episode.
And Shing's father was one of the very kind of
First early generation of
entrepreneurs in China after the
Reform and opening, you know, part of that let some people get rich first doctrine.
And so his father owned a cement factory. So a long way from uh
Tech entrepreneur.
But he was a real like small business entrepreneur.
In China in the eighties and nineties.
So Shane grows up, you know, in this s sort of new
Middle class, upper middle class.
Family.
And in middle school
He gets
Interested in computers.
Like so many of us, and he convinces his parents to buy him a clone. This is gonna be appropriate of an apple two.
And then shortly thereafter.
He convinces them to upgrade to a PC. Wait, there were Apple II clones? Of course there were. It's China. Uh so I don't know if it actually ran mac OS, but uh it was, you know, some
Like knock off of an apple too.
Wow, crazy. Totally crazy.
So then he upgrades to a PC.
And he also, and this is pretty unique, he convinces his parents to get him a modem.
So this is in like the early nineties.
the internet, you know, is barely a thing
Anywhere, but especially not in China, as we've
Talked about on previous episodes.
So he starts
Going online.
And doing what
early internet users in China did at the time.
was they would go on the kind of proto
Message.
systems, the Bolton board systems in China.
Which literally like
Every future Chinese tech billionaire was hanging out.
on these BB. I know I feel like I'm like, I swear to God, I've heard this story before. It's like, I don't know, like Coupa Cafe in Palo Alto or something. It's like literally all of them. They're all hanging out.
on these BPSs. Pony Ma's there, Jack Ma's there, William Ding from Neddies is there, of course
Colin Huang from

You just named five of the ten most valuable Chinese companies. Totally. Or at least Chinese tech companies.
It's amazing.
So Shings there. He does very well in school.
He ends up going to Tsinghua University in Beijing, which is one of if not the best
University in China.
where he studies electrical engineering. So he's like very much
On the path here.
He graduates in two thousand one.
And he does what
Every
dutiful, you know, future Chinese internet billionaire would do.
He goes to the US for grad school.
Didn't you go to University of Delaware? Yeah. So this is where his path diverges a little bit.
And David, like this is
what, fifteen minutes from the hospital where you and I were both born. Yeah, and it's like probably fifteen minutes from the hospital. I was actually born in Philadelphia. You were born in Christiana, right?
next door neighbor or something was a doctor at the hospital I was born.
It's crazy.
But I went to high school in Wilmington, which is uh the biggest city in
In Delaware. Let me tell you.
Delaware at this time, like you know, I love it. It's a very beautiful place, but like I was there.
Going to high school at the same time as Shang was
Going to grad school at U D, you know
Thirty minutes away.
This was not
An internet hotbed. Far from it
It was an engineering hotbed, interestingly enough, with DuPont and Gore with all the sort of materials and mechanical, but but no. Like it actually a pretty good CS school later down the road, but not at this point. No, like literally nobody is thinking about
Starting.
tech companies in in Delaware in two thousand one, two thousand two, two thousand three. I can guarantee that from firsthand experience.
So y I have to imagine that this was like
Pretty
Serious culture shock for him.
So he stays a couple years
But then unlike
many of the other personalities we just talked about.
He ends up
Dropping out.
Because
He wants to get into
And he thinks, you know, maybe this isn't
the right place to do it. And in
Two thousand
Three.
This
Website.
Does it be a good thing.
Show up.
among students on the University of Delaware campus.
A new kind of hot
Social networking site.
I think they actually raised some money from some pretty prominent
Venture capitalists.
on university campuses.
And Shing is like
This is it.
I have found
My calling. I'm gonna go recreate this in China.
Of course we're talking about
Frenster.
I was gonna say I was I thought was starting in two thousand four. Yes. Yes it was.
Quick diversion down Frenti, isn't there like
some affiliation with like Reed Hoffman and Mark Pincus. Like isn't the Friends story deep into people who went on to build, you know, phenomenally successful social products later?
I think so.
I always get f the friendster story and the friend feed story mixed up. Oh, that was Brett Taylor. Yeah, that was Brett Taylor.
And that was like after Facebook. That was like a two thousand six, seven, eight. It was like an aggregator, right?
Yeah, yeah, yeah.
Let's put a pin in this. I think we owe Friends to an episode or at least an L P episode. Yes, um, we gotta dive into the history there.
Especially'cause it would go on to
Seed May to want.
So leaves Delaware.
It moves.
Back to China, he goes back
to Beijing and he hooks up with some of his former Tsinghua classmates.
And he starts.
Duo Duo U.
Apologies if that's not the
Exact correct pronunciation.
Yeah, we we probably need to say that for several things on this episode. Yeah, several things. We we apologize. We're trying our best.
literally translates as many friends.
And the idea is he's gonna
You know, just like he saw Friendster kind of take hold it.
The UD campus.
He's gonna target
College campuses in China.
Build up the social networking site.
Unfortunately, like France Tair.
It doesn't.
really work. It's probably too early. It's too early for Friends to in the US. In China at the time.
You know, college students, yeah, they probably were using computers, but
You know, your average
person did not have access to a PC
Mobile was still.
Distantly on the horizon.
So he tries

Do a do a U into a
sort of different kind of service still for students for Chinese students studying abroad.
to kinda stay in touch with each other.
That doesn't work either.
But then in two thousand five, badness you said.
Facebook arrives on the scene and so Shega's like, Ah, okay.
I've got it this time.
And he realizes that
Maybe he made a mistake the first time.
And that was that he didn't clone Friendster.
Exactly thoroughly enough. He's not gonna make that mistake this time.
So he and the team
They create a new site.
They call it Xiao Ne.
Which literally means on campus.
And they take Facebook. They take Facebook, the the Facebook dot com.
And they recreate it.
To the exact pixel. Like the same shade of blue, the same text, the same layout, the same everything.
literally the early versions of the site.
had the footer at the bottom a Mark Zuckerberg production.
No way.
How like how do you clone that? Is it like they didn't know what it meant? So they were like, No, we're gonna like'cause people you know, people in China were hearing about Facebook.
And so the I think the idea was like It's like let's convince people this is Facebook.
Fascinating. Amazing. Amazing.
But it works.
A lot of people start using it. A lot of Chinese students start using it.
It works so much that
Just like the real
The Facebook.
They need to start.
buying servers more than they can afford to pay for it themselves.
I feel like I'm watching a knockoff of the social network. It is totally a knockoff of the social network. This is so great.
Even better by the twist that this story is gonna take later on.
So
The
Probably try and go raise money. They can't raise money. I bet VCs at the time are like, This is crazy. You literally say a Mark Zuckerberg production at the bottom. I'm not gonna invest in this.
Well, the Chinese venture ecosystem is also dramatically underdeveloped. I mean you think Sequoia China only started in oh four and like
I think the venture ecosystem before they got there certainly existed, but it wasn't anything like what the US venture ecosystem looked like in the dot com era. No, and I and I don't think it was particularly risk seeking.
We'll get to this later, but yeah.
Dian Ping.
actually was one of Sequoia China's first investments and that wasn't until two thousand six, which is the same time frame.
As this.
And David, you're dropping names we haven't gotten to yet. Maitwan will eventually merge with Dian Ping, become Maituan Dion Ping, and then drop the Diyan Ping. It's cleaner and go just to Maituan.
And that's how we get that. But
Yes, you already are putting in an interesting point that is
The company that they ended up merging with and buying later in a mega crazy merger that'll be a huge point of this episode.
already existed by this point and this guy is working on a Facebook clone.
Totally.
So
What they decide to do, they end up getting an offer from another entrepreneur in China named Zhou Chen.
To buy the company.
So they sell the company to him for two million dollars in October two thousand six.
And Joe obviously wouldn't have bought it if he didn't see the potential for this thing and you know the Facebook of China, that sounds
Like something this could become.
He's like well.
But the name though, you know
Facebook already at this point is starting to expand beyond colleges and
If you really want to go big, you wanna be, you know, the Facebook for
Everything and so this name of on campus. Not so great. Let's
Change it.

You know, a a new one that incorporates everybody.
Literally, why don't we call it everybody?
Why don't we call it?
Renren.
So yes.
Unbelievably Renran. This is Renren.
Whoa.
And David, what is RenRun? Renren is the Facebook of China.
I presume.
Many listeners know about Renren. It's a public company.
But yeah, they

Enormously successful.
literally were called the Facebook of China, which is funny given that they started as a Pixel for Pixel clone of the Facebook of China.
And they raised a bunch of money from SouthBank and Massa back in two thousand nine, two thousand ten.
And then they went public on the New York Stock Exchange in twenty eleven before Facebook. They were the Facebook IPO
Before Facebook.
They raised seven hundred and forty million dollars in the IPO at almost a six billion dollar
Market cap.
And Wang Xing created the whole thing.
But he sold it for two.
Million dollars.
Which you could chastise him for.
But
It actually was the right decision if you knew what he was gonna go on and create and how much more valuable that would become. A hundred percent the right decision. I mean, it was either sell it or it was gonna die.
And hey, he's still a kid, right? And he gets two million dollars.
Great.
So what does he do? He says
Does it
I can do this all day.
This is like two thousand seven. I'm just gonna spin a wheel and like roll some dice, pick whichever US internet company
Web two dot oh, you know, hot company I'm gonna I'm gonna recreate.
Let's go on to the next one. So
He sold he sold what will be become Renren at the end of two thousand six.
By the beginning of two thousand seven, he's back in the game.
With Funfo
Which literally means
Have you eaten? But it's a kinda idiom that's more like
Hey, what's up?
In China?
Um, what do you think that is?
What is this the network that people were using to uh send, hey, I'm eating my breakfast and my breakfast is
It's Twitter. It's Twitter. He creates Twitter. Again, it's just like and this one is supposedly um uh I I didn't actually go look at any screenshots or whatnot, but
It was I think even more insidious that you could like uh clever would be another way to put it.
that you could actually think that you were using Twitter based on how they did the domain names and stuff, it also becomes a huge hit.
So we're talking about two thousand seven. Twitter launched in two thousand six out of Odeo, like
Midway through two thousand six.
Funfo gets
Two million users right off the bat. So that may have been more users than Twitter at the point in time.
It unfortunately though for Wang Sing
It's so successful that it attracts the attention of
The C C P.
Because it's you know, it's like Twitter. You can say whatever you want on there and
People are
Spreading political.
Descent on there. So the C C P
Shuts it down.
For a period of time.
I I don't know that this is exactly but I think it might have been like twelve or eighteen months that it was shut down. It's honestly amazing that Renren didn't get shut I mean, I'm sure that the deal was struck there so that hey, you get to exist as long as we get to, you know, have some content moderation on there. But
The fact that he was able to build and sell a successful social media company in China is a kind of amazing. Yeah.
Actually is a good point. I didn't look into this, but maybe
Part of selling it and Joe
Getting involved was maybe around that.
Uh I don't know. That's uh speculating.
So Funfell gets shut down.
And then um
It does eventually reopen and I think it's still live today, but
in the intervening
era Cena Way Bow and Tencent, you know, move into the micro bugging space and
You know, it doesn't become a winner.
But
You know, hey. Among things like well.
Second time I guess that was technically the third time he had Friendster and then he had Facebook and then he had
Twitter.
That didn't work.
Okay.
I'll go on to the next one.
We're in sort of late two thousand nine, early two thousand ten.
And there is a
Very
Particularly.
Obvious.
US tech company.
Tech in quotes company.
That makes sense to clone.
At this point in time.
Am I thinking of the right company they were the fastest ever company to a billion dollars in revenue?
I also thought that billion dollars in revenue, same thing as you. I I went and looked it up. It was fastest ever to a billion dollars in valuation at the time. Very different than revenue. We're talking about Groupon, of course, which
Took the world, took the US.
By Storm in the late O nine.
People are losing their heads in the tech community for this company.
Completely.
Completely go in.
Ga I mean, now it's kinda cute, right? Like companies we we know companies that are valued at a billion dollars they've, you know, come out of stealth. But at the time it was, you know, when series A's were
getting done at like a six million dollar post.
That a company, you know, a year old would be worth a billion dollars.
complete lunacy. And also people were when you say tech company in quotes like
Groupon took.
scores of salesmen pounding the pavements in order to go and convince local businesses to do this thing. Their churn rates were terrible because it was awful for the businesses and they would leave immediately. And so they had this awful cost structure, this awful retention lifecycle problem with customers.
But they had so much capital in relative to other tech companies that like it it was go go time, pump it all in. Yep. Well it was, you know, revenue they probably did hit a billion in revenue pretty quickly.
Because it was one of those things where like you could pump capital in and get revenue.
You just didn't get any profits out of it or anything defensible.
So in March twenty ten
Wang Sing
And the team
Incorporate.
May Tuan, uh coming from May, which means beautiful, and Twan, which means together.
Beautiful together.
And at this point
You know, he's developed
Despite his uh
not yet, you know, hitting it big with his uh cloning factory.
He's developed quite a bit of a reputation in
Chinese tech entrepreneurial and venture capital.
circles and the Chinese V C industry has
mature a lot, by
Two thousand nine, two thousand ten. So
Right off the bat.
They raise twelve million dollars.
from Sequoia China when they launch in early twenty ten.
And then a year later in the beginning of twenty eleven
They raise another fifty dollars
From
Alibaba.
So this is pretty big.
Again, these numbers seem quaint.
Today, but at the time, like
twelve million dollar essentially seed from Sequoia and China, like
That's
Huge. Mm-hmm.
You're entering this
mega hot space, then you raise fifty million bucks for Malibaba
Like this company is
Crushing it.
And we'll talk about this more later, so I just want to tease it here a little bit, but
You know, raising money from
An Alibaba Tencent, I guess we used to say Baidu, but it hasn't come up much in this episode or frankly in recent conversations.
They're a VC and a big tech company. They're you know, they're a FAM company and a VC all in one. And so they give you
A ton of capital'cause they have a ton of capital.
And then they can also really help your business.
I don't want to get too far ahead of my skis, but for anyone wondering Ali Papa, why are they leading the series A
That's how China works.
Very much how China works. So
There's just one problem though, which is that for all of Wang Xing's
You know.
Capability.
vision in a certain sense. It really is vision and knowing what, you know
T.
clone and how to make it adapt it for the Chinese market.
all the capital behind him, all the great resources.
He's not the only one who has this idea that hey, Groupon might work in China too.
In fact he's not
Even one of like a dozen. No. One of like fifty. Or one of a hundred.
He is literally one of five
Thousand.
Entrepreneurs in China.
Who would have the same idea and start group on companies. You think we're exaggerating.
This period is is like known in Chinese tech history as the the period of the quote unquote thousand groupon war.
And thousand is underestimating. There there were. There were five thousand companies. At one point
twenty to thirty new
Group on clones getting started every single time.
Day.
In China.
Including Group on itself, which did a J V with ten cent to enter China, which you know if you're gonna you're gonna enter China, you gotta do it with Tencent.
They do a J View thing if anybody can succeed here, it's Groupon called Gao Pang.
And this just turns into like this becomes a bloodbath on the order that like
It is
Unbelievable people in the US, you know, in Western markets think
Oh man, food delivery in the US. That was a bloodbath. There were like four different players that were going after this.
China scale is all we need to say. It's like, oh, th in that previous uh company you were talking about, it's like, oh, well, they had only two million users. Like everything in China scale is so much bigger and faster and more competitive and
You know, more gritty and
I mean the nine nine six thing is real. Like if you hit onto something
You better be working.
Ninety nine hours a week, six days a week.
Or else someone else is going to with your idea.
Yeah.
Well definitely somebody else is going to.
So
The other thing you know, like you said
B.

nature of the group on business is
There's not really any
Tech involved.
website basically, but the
business is local
Salespeople going to merchants, restaurants, karaoke bars, massage parlors, you know, and the like. And um
Walking in the door and signing them up to
Get on Groupon and then running marketing stunts, you know, in local cities, getting users to sign up.
And every city is just as hard to sign up as the previous city. Like you don't really have scale advantages by being already in fifty markets
It's just like, Well, no one's in this market yet, so it's
war to win that market. Yep.
Now
Unlike
Many of the
Other thousands of competitors.
Guangxing figures.
out in this process, you know, people were thinking
Up until this point.
You gotta remember, like
the technology adoption curve, the computing adoption curve
in China look very different than the West.
You know, most
Users in
China never experienced the internet on PCs. They just went right to mobile.
Right. And at this point in time, even that was only just starting to happen. So
The people who did use the internet in China were in the tier one elite coastal cities in Beijing and Shanghai.
In Hangzhou, you know, the big in Hong Kong.
People that had access to computers.
So most
Oh, these startups were focused on those cities.
But
Wang Xing realized.
Hey, the tier two, the tier three
The smaller cities
People are starting to get mobile phones.
Or they have access to the internet in internet cafes.
And
This
Product. The group on product.
Is actually a really good fit for those cities.
Hm. So he
And the company
expanded to many, many more cities. And that was one of the key things that helped them
I won't say win because nobody won here, but survive. Become one of the few remaining last standing. Become one of the few remaining last standing companies. And also, you know, having
Sequoia and particularly Alibaba capital.
And might behind them helps a lot.
But by the end of twenty eleven, so this whole cycle plays out.
In like one year. Maybe eighteen months.
By the end of twenty eleven
There are just a very, very, very small number of these companies left.
There's Mayton.
there's the operations of the BAT themselves, which they have
small operations, but mostly they've invested in companies.
And then
There is a
Very, very
Different company.
That is still left standing.
Called Dian Ping.
That we've referenced. Yeah.
Which is fascinating for them watching
you know, this thousand groupon war come up around them.
They're not in that space really. They had to pivot into that space.
It's so fascinating thinking about if you are running the Dion Ping business.
Like what do you do when all that mean is happening around you in a very near adjacency?
Yeah, it's funny. We'll tell the story now. I mean
I could maybe argue they shouldn't have gotten into this at all'cause they had a great, great business.
But the net result of them getting into it is that they
then become Maitwan Damping and now they're
the fourth largest internet company in China.
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Okay.
So
Unlike Maituan.
And Wang Xing.
Who they weren't just unabashed about copying. It's like that was their thing. They're like, Yeah, we we copy
We do it better. Like that's all we do.
Dan Ping
Which literally means reviews in Chinese.
was actually like a genuine
Innovator.
I don't know if they were unique among Chinese tech companies in this era, but they were certainly special and
We're and are
An incredible
Internet.
Company.
So people
sort of derisively at the time would call Dian Ping the Yelp for China.
But
A
It wasn't his way more than Yelp.
And B.
Yelp was the Dionping for the US because Dionping was founded in two thousand three and Yelp was founded in two thousand five.
Totally. It was crazy realizing that in the research. I'm like, Yelp for China. This company started like when I was entering high school.
Yeah.
Yeah, back when Wang Xing was still at the University of Delaware.
It was when uh
Dumping was founded. So
The founder.
Is this super, super sharp guy?
Named Tao Jung.
And Tao was
Uh so he was on uh the Evolving Billion, then called nine nine six GTV podcast and and talked about his journey. Great episode. We'll link to it in the show notes.
So he had been a consultant in the US and
And then a technology consultant.
And then went to Wharton and did his MBA at Wharton.
And he had been planning he graduated in two thousand three.
And he had been planning
kinda like all the, you know, future internet billionaires at the time, that he was gonna go back to China after doing his MBA at Wharton.
And he would
pick a US tech business bottle to clone and
You know, raise money and run that playbook then.
But unlike Shing who um
You know, it's very confident in his abilities, shall we say.
He kinda looked around at the landscape in two thousand three and he was like I don't know, all the good ideas have already been
cloned already. Like I don't know why I would be able to
do something better that's already being done in the US.
But I do kinda wanna start a company.
You know, I've had all this great experience in the US and
You know, one thing that I really like doing while being an MBA student in Philadelphia
Not far from the University of Delaware.
was I would use this as a gat guide.
when I would go out and, you know, go to restaurants in in Philly.
I wonder if there's some innovation to be done there about bringing basically bringing Zagat online.
And
You know, the thing is in China
Restaurants are kinda different, and there is nothing like the Zagat Guide in print or online.
And it actually would be way
More useful.
Because
In China.
You can order pretty much anything at any restaurant. Like you really
really wanna know what the good stuff is at each restaurant. Otherwise you might order they might have four or five
fantastic dishes that they do better than anywhere else.
But when you get the menu, it's literally a
Chinese menu. They're like it's like a book. You could order anything you want. You don't really know.
I need kind of a guide to all these restaurants. He's okay, well, maybe this could be useful. I'll code it up. So he moves back to China.
After graduating.
And he
moves to Shanghai, which was not a tech hub at the time.
And he codes builds the website himself.
Wow, I didn't realize he was a like technical founder. Yeah. I believe he had done technology consulting before Wharton.
The story is he built it himself.
So like super small scale, small ambition. Like he wants to build a company, but he's not thinking like Wang Xing here.
It takes off like wildfire.
And in contrast to the Groupon business model
Online reviews for restaurants
And in particular for dishes within restaurants.
is actually an amazing
internet native business because of the asset that you build. Yep.
it has an unbelievable moat around it. If you really hit the critical mass of not just restaurants, but then the dishes at each place that are good. Like who can compete with you once you know every restaurant and every dish, especially when those restaurants have a Chinese menu with a zillion options on them, like
This is a pure sort of internet native data play. Yeah. So he does, you know, end up hiring and building a company around this.
Which we'll get into in a sec, but
They come up with a
Bunch of key.
Innovations.
So Yelp hasn't even been started yet.
And they have you know so it's ratings and kind of a guide to restaurants. But like you said, Ben, it's not just the restaurants, it's the
Dishes at each
restaurant that you can individually rate.
You can also rate and see
category ratings for each restaurant, like the food, the decor, the service. You know, you want to know like go on Yelp. The thing that sucks about Yelp is like this is a four star restaurant. Every restaurant is a four star restaurant. Why is it four stars? Is it that like
The food is really good, but the service sucks.
Yeah, and they've tried to get into this, but yeah.
I think it's safe to say Yelp has just not executed well as a public company. I mean, w in the last five to ten years it's just been
Disappointing. Totally. Very disappointing.
Then there's stuff like, you know, on Yelp you see the dollar signs, even in on all US review platforms. It's like, Oh, this is a three out of four dollar sign restaurant.
Well, what does that mean? Like, you know? So on Dian Ping, you see the actual average
Price of checks, of bills.
Uh
Restaurants.
So you can be like, Oh yeah, I know exactly what this price is.
It leads to much, much, much better discovery. They focus on photos and even short video, like way before
Yelp or Google Maps or anybody realized that was important. Yeah, I was reading that Dion Ping
is in some ways a reviews hub like Yelp, but in other ways it's a content business, that they're actually good at sort of building a massive trove of curated content and presenting that in a thoughtful, beautiful way to the user. Yep. Yep. I mean this whole idea of the Instagramming of food.
Uh, it didn't start with Instagram. Uh Dion Ping in no way is is Instagram, but like that's kinda where it starts. Like, oh, I'm gonna take a really nice picture of
This
Meal that I'm about to eat at a restaurant. I'm gonna
Put it in my review on Dion Ping.
They also go much deeper into the value chain. This I think was one of the things that Yelp whiffed on more than anything else.
Was
On Din Ping.
You see the reviews, but you can also book a reservation at a restaurant.
You can
Order ahead what you want to eat at the restaurant.
You can get discounts at the restaurant and they do go
In a small way into delivery from the restaurant. Never made any sense to me why all those are
separate businesses in the US. You got Yelp, you got Open Table, you got Grub Hub.
All the elements were there.
But it's such a bad experience for the consumer to do that across three
Separate apps.
So Dion Ping
Takes off, spreads like wildfire in Shanghai, and then bleeds out to
other kind of tier one coastal elite cities.
Like we said, it becomes one of Sequoia China's very first investments. There is one point five million dollars from Neil Shen in two thousand six.
Do you know what Sequoia China's first fun size was?
I don't know. I can't remember if Doug said on our
Episode.
My sense is it
It was still a large fund.
This million and a half dollar check, I do not think was like a big bet for them. No, no. But this was not a capital intensive business.
And then
Do you know who leads their series B?
Is it Google? It is Google. Yes.
Tech giant strategic investor in China.
Not Baidu, not Alibaba, not Tencent, it's Google.
And Google who can't do business in China at this point. So
At least I don't think they were. I think this was right before
They got kicked out of China.
So how did this happen?'Cause I remember seeing this and
I sort of just like accepted it at face value,'cause like, yeah, Google G V or Google Capital or Capital G has been investors in all these companies, but like
Right. This was what, two thousand five, six, somewhere in the seven.
What was going on?
I don't know. I don't know exactly how it came to be other than
You know, the nature and dynamics of
The Tian Ping business was very much like Google. Like they sold advertising, much in the same way that Google sells advertising. It was an educational, high touch, very high margin experience. You know, they didn't have
Feet on the street at local stores.
all the assets, you know, it was it was it was an internet business. It was great.
Hm.
And was Google investing in other Chinese companies at this point? Not that I know of. I don't know how the relationship came about. Ma maybe perhaps through Sequoia, because of course Sequoia was along with Klein Airware.
One of the T V Cs in Google and on the board and
Perhaps that's how it came about.
So Dionping goes along, it's doing great, building a wonderful high margin internet business.
And then twenty eleven hits and the Thousand Groupon War era.
And so
Then all of a sudden, you know, they've had
The
food and restaurant market in China, at least in Tier One Cities.
the internet food and restaurant market completely to themselves with this wonderful business.
That market didn't even exist in Tier Two and Tier Three cities. And now you've got five thousand competitors, including this crazy Wang Shingai, backed by Alibaba, also backed by Sequoia.
Going around with these foot soldiers
That's literally what they call them. The you know, they're like armies.
Going into these restaurants and being like Hey
Sign up for these groupons.
So crazy. Such a terrible, terrible business model. Terrible business model.
So Jian Ping's trying to
Like
Gosh, what are we gonna do? How are we gonna compete?
With this.
They know they realize that this is a completely different company, completely different
DNA much worse business.
Yeah.
Not to mention
They're not even in the tier two and tier three cities.
But they kinda decide like well
Crap.
We gotta play the game on the field.
Right, is this the wave? Is this the technology shift? And interestingly, it wasn't a technology shift, it was like a societal behavior shift.
the technology shift was to mobile at this point, which is crazy to think about for the first six, seven years of Dion Ping.
six years people were just using it on PCs. Totally. Yeah, and mobile wasn't really a thing yet, or at least not in the smartphone way that we know it today.
But yeah, what they chose to sort of react to was
Ooh, there's this big business model transformation going on that we need to be a part of. And other companies are going to steal our customers. And and I think the
the really strategic insight that they have, which'cause they do, despite having much less capitalization and a different business model, it's them and Maiton at the end of us that are left standing.
Yeah.
Strategic insight they have is that
Because we have this other
Yeah.
For lack of a better term, Yelp like business.
our Dion Ping business,'cause that's what it is. Yelp is the Dion Ping like business. The inferior clone.
We have more
A touch points with consumers. So we can
in theory acquire consumers
better. They're coming in through multiple front doors.
We'll have to go spend and subsidize to get them in through the front door for our group on product.
You know, for new customers in new cities.
But for our existing customers that are already using us, you know, we've got the free real estate right in front of us. Every time they want to go out to eat
They're going on Dunping. It's like
Okay, great. They've got an advantage.
There.
They also have a
in the medium to long term capital advantage in that
The
Dion Ping business is a
Great.
cash flow dynamic, you know, high margin business.
Which can be used to fund in a non dilutive way, whereas everyone else has just taken on as much capital as they possibly can to compete with us. Exactly.
And then finally
At this point I don't know how much this was
The case certainly it is the case today.
They have this huge data asset, right? Like they know
What
Consumers like'cause literally the customers tell them.
And then if you've been a Dion Ping user for a long time, they know which restaurants which
karaoke bars, which massage power, which you know, experiences you like.
And then for new users, you can do collaborative filtering and AI and whatnot and like predict
Pretty well.
What people are gonna like. That's a huge advantage in this business.
Yeah, if you can structure
data that was previously unstructured. There are so much more interesting things you can do with it.
like understand what people's preferences are in order to target them with different offers.
Yep.
Yep, yeah.
So by the end of the
Doesn't group on war. It's Maituan, it's Dion Ping.
Left.
But they're kinda sitting there looking at each other and you know
Both of them obviously were very smart in their own ways.
And they're like huh.
This whole
Group buying business.
You know, we've won, we've gotten a scale, our revenue numbers are much bigger than they used to be.
But like
We're not getting any technology leverage out of this business.
Uh I mean literally it is a discounts business. We add another hundred million dollars in revenue.
very little of that is flowing to our bottom line and our cost structure margins are not improving. We need
Every new restaurant we sign up, we need more
People in our sales army.
Every new customer literally the whole business is we're subsidizing customer experiences.
Tao actually says publicly at this point that he predicts, even at the end of this, that he predicts the entire group buying space is just gonna die, that there's no
feature in it.
And Groupon had gone public. Oh my gosh. Doing this research just brought back so many memories. Remember when Groupon went public?
And that was like
Literally the high water mark. They never traded above their IPO.
Price.
I remember when they fired the CEO and they f when Andrew Mason one you know left to go spend more time with his family just kidding the board fired me.
That moment sticks in time for me as a pivotal moment in tech history. Such a character. And so like
Not his
fault too. Like it was just a bad business.
So their market cap was down ninety percent from IPO price within like eight to ten months.
Wow. And so that's the moment that we're sitting in.
Yeah.
And
This is now
Late.
twenty
Twelve.
And there is this interesting thing going on.
I had thought before doing the research that
the whole food delivery online to offline, you know, sort of is which is the tiny sort of version of talking about this.
Originated in China.
And that it was DoorDash.
And Uber Eats and Postmates that sort of copied it here in the US.
It basically emerged at the same time in both places. So
right around the same time as Tony and Stanley and the Indian crew and Evan at Stanford.
We're starting to think about food delivery and door dash.
Was the same time that Ma Twan and Dion Ping are kinda looking around and be like
Hm.
We have all these restaurant customers, we have all these people who visit our properties who are consumers
Is there something better we can do here? Is there something better we can do here.
And D
Of course.
Existed at this point.
In China and and Uber in the US.
And so you have this whole new, you know, the it's like burned in my memory of like the great why now of DoorDash of like
Hey.
It's about the labor supply.
That has mobile phones.
that we can now bring on these gig economy laborers and direct them and coordinate them in a way that was completely impossible before.
Well, this is existing in China too now, with ride sharing and D D.
So
They both go hard into
Basically converting this
failed group buying business.
into a food delivery business.
And so did Dion Ping still have sort of a successful Yelp like business going on at this point? That has continued
From two thousand three all the way through twenty twenty one in the future. And it's arguably one of if not
the most important linchpin of the whole combined company.
Yeah.
It's fascinating,'cause as you just repainted there, you know, it's it was Tony and company at DoorDash thinking about this.
If you rewind further back, of course you have Grubhub and Seamless and I think Just Eat in the UK exists already at this point. And there was a player in China that we'll get to in a minute.
Oh, interesting. But of course they didn't actually have the delivery fleet themselves. They were just the you can order with us and then it'll be on the restaurant to take care of whatever they want to do.
It's also worth noting, you know, h in the US how quickly we forget that
Uber Eats totally stole DoorDash's business model.
Door dash.
came up with something, Uber Eats was doing something completely different and then they were like, Oh no, shoot that.
And that's actually even better for us given the the fact that we already have all these drivers. So all this to say, I think you are totally right to say
the discovery sort of happened simultaneously with DoorDash and Maitwan and Dian Ping.
But it totally is worth noting that like food delivery wasn't new. It was organizing food delivery in this way that was new.
And
You hit on
One really important thing and then a another one that is a
totally the same dynamic with these companies.
Well the one that's most the save is
You know, Tony and teams.
Court.
Insight.
With DoorDash, one of their core insights was
Suburbs.
Like hey, y you might think that this
Food delivery would only work in a dense city like New York City, like Galfred was talking about on the special episode we did with them.
But no, actually there's huge to there's even more demand for this product in suburbs where they're not great.
Food options.
And logistically it's easier too because you can park and you can move around easier as a courier and whatnot. So wait, was that the case also in China?
It was. So of course food delivery works great in the tier one dense cities.
But remember, because of this group buying craze, Maituan and then Dion Ping
had expanded out to hundreds of cities across
All of China.
And similarly, you know, if you live in Shanghai or
They say
Well, nowadays you use Maitwan and it's great for food delivery, but even before that
You could get anything you wanted, anytime you wanted.
With minimal effort.
If you live in it.
Tier two or tier three city.
And you're just getting a mobile phone for the first time.
Yeah you were not having that experience.
You don't even have e commerce'cause Alibaba doesn't serve you, Pinduo Duo doesn't exist yet. Yep.
Exactly, exactly. So
It's not quite suburbs versus urban versus cities in China. It's more tier one versus
Lower tier cities.

the driver. So unless you know, DoorDash had to build up their driver, their courier staff from scratch.
Both
Ma Tuan and and Dian Ping, but especially Maituan.
They just recruited this massive army.
Of
foot soldiers to go do
Door to door
Group on sales to merchants.
It's not that hard to give those folks a cheap Android phone.
And a scooter.
And convert'em into couriers.
Huh, smart.
And not only that, but they had the whole management organization structure built out as well.
Around that. So wait, were they employees?
Is there the same sort of like concern over the delineation in China that there is in the US? That's a good question. I don't know.
I think it is different.
But it doesn't seem to be as much of a big deal.
The US it was like
The biggest
Issue was
Well yeah, sure, mobile's here.
But
They also can't be full time employees'cause that won't work into our cost structure. They have to be only paid for the time that, you know, the phone tells them, Okay, now in order.
And in China I I do wonder.
Maybe we should do a this feels like a good sort of LP topic to dive into worker classification in China and understand that better.
Yeah, I have no idea. That would be fascinating to understand better.
So
In May of twenty fourteen.
Meetwan goes out.
Wang Shen goes out.
And raises three hundred million dollars.
From
Alibaba, Sequoia, his existing investors, and General Atlantic, new investor.
And rolls out this food delivery thing.
From the get go in a hundred cities across China.
So let's review investors here real quick. So Maitwan has Sequoia, China.
They have Alibaba.
And they got Alibaba to double down in a big way.
And then they got General Atlantic.
Yep.
And Dian Ping has
Still at this point.
Fairly little capital.
Because they've been living off the cash flow from the Dian Ping product. And they've been around ten years. They've been around ten years.
From also Sequoia China.
And
Google.
But Google's tapped out at this point. They're not gonna invest any more in China.
But not ten cent or
Alibaba or Baidu. Like they're uninvolved at this point.
To this point.
So Ten Cent being the
Brilliant folks they are, and seeing everything going on in the country through
There are
ownership and operation of WeChat.
Which we'll talk about more in a minute.
They see this dynamic too, and they approach
Tian Ping.
And they invest an undisclosed amount in Dion Ping.
But
Must have been a very large amount of capital.
into the company in early twenty fourteen. So right around
The same time. So now we got ten cent.
Backing.
Yeah, and of course, Tencent and Alibaba are
Brutal rivals and Baidu too, but you know.
Poor by you. We'll get to them in a minute.
So
They dump all this money into Dian Ping.
But Tao and Dian Ping, you know, they know they see they're building up their own food delivery operations.
But
They're not moving as fast as Maituan and Wang Shing.
They still have the internet company DNA, not the
you know, Wong Shing DNA.
So
At ten cents.
Urging.
Jian Ping goes out.
And leads a
Eighty million dollar strategic investment.
In another
Company in the space.
In fact, in the OG.
Company.
In the food delivery space.
In China.
A company called
Ulama.
Uh, which I I think I'm saying that right. It is spelled E L E.
Yeah
And this is gonna become a very important player in the story, but I think it's pronounced Ulama.
And what they do is
basically create what Ma Toin is today.
So they integrate the
Ulama
Delivery courier network.
Into the Dion Ping experience.
So you're in the dumping out.
And you know, you're looking at reviews, you're choosing where to go to eat.
And you've got right there.
Integrated food delivery.
From these restaurants.
That you can, you know, see what dishes are great.
you might experience when you're going out to eat.
You'll see the
calls to action in the app to go do
Ulama food delivery next time instead of going to eat.
It's a pretty powerful combination.
So wait, who led the investment in Ulama?
Tian Ping did.
So they're still a private company. So Dion Ping
raised money from ten cent.
And they had to obviously like cash flows that generated big profit on their balance sheet. And they invested some eighty million of that.
into Ulama.
So now it's unclear how much that was
I think it was probably a joint.
And knowing a little bit about Tencent, they operate very collaboratively, like a joint
Hey, you know, Tencent probably thought this was a good idea.
Town Jian Ping, we're like, Yeah, this is a good idea. This will be a great way to learn. We can partner, you know, maybe this leads to an acquisition. We'll also be building this up on our own.
Et cetera.
Okay, so we're like totally in ten cent Dian Ping land here. Yeah.
while Alibaba is doubling down on Maitwan. So we're setting this up that this is gonna be uh it's like a two on one fight.
Of
Jianping and Ulama.
Together, united.
Against the
Made one.
Clever.
Very clever. So
A little bit of brief history on on them. They're actually kinda like the real DoorDash story of China. So it was started
in a college dorm room by college students in Shanghai.
In two thousand eight. So like way back.
And so that's what, two two and a half years or so before
Uh Ma To one is founded. Yeah. So before the whole group buying craze, like it was they were way too early to this space.
And uh the story is that they were like big PC gamers in college, the founders.
And they didn't want to leave their dorm rooms to go get food and you know, so they started a food delivery business just like Dodi back at Stanford. They're running around campus delivering food themselves.
The CEO
Uh Mark Young
he actually goes to work as a delivery courier for restaurants that do it themselves, just like Tony went and worked for like FedEx and stuff.
Like there's so many of these China stories that are like
I feel like I'm listening to an old version like an old episode that we did. I know, I know. Going through'em.
Uh, so they bootstrap for a couple of years again. They're too early to the space.
There is a little bit of money from GSR.
And then from Matrix China in early twenty thirteen. That was a very pression investment, kinda right at the right time.
And then later in twenty thirteen
Once you
it starts becoming clear that hey
Group buying.
Kinda sucks.
This online to offline food delivery thing is the next wave.
Ulama raises
A big new round, a series C.
From a new financial investor.
Who has a very
Well honed and educated.
point of view, shall we say, on the space.
Who do you think that investor is, Ben? Is this before the ten cent Dion Ping round or after?
Before.
Before okay. Not Tencent, not Alibaba, financial investor.
So that eighty that came in from them was after this. So this is the round immediately preceding.
Yep.
Pure financial investor.
They really see where this space is going.
Uh let's see I see where the space is going. So someone else in food delivery.
Uh, who bet big on I don't know.
Sequoya China.
How gangster is that? So Sequoia, they are in Maiton.
They are in Dion Fan. They got eyes everywhere. They are in Ulama. Neil Shen, you dog. Oh my gosh.
That's crazy. Legend.
I thought was like oh that's too easy. It's gonna be like a Nasper's or like a Fidelity or like this is just another one of those, like
The China ecosystem is so different. That could never happen in the US. Could you imagine
Being an Uber in Lyft.
Yeah, and Postmates and Dorde like
Right. Right that's crazy.
Totally crazy.
So quickly after that.
Then the
Dian Ping slash ten cent eighty million dollar.
Round happens in Ulema.
And then
Shortly after that, Tencent is like Oh yeah.
This thing is working.
We'll back up the truck. How about another three hundred and fifty million dollars from us? Uh so this is where
Things get nuts.
Dian Ping, I believe, is still running their own
food delivery operations in some cities, but like the strategic weight is behind Ulema at this point.
We should say too, listeners, we're speaking in dollars here,'cause that's the best way that David and I can compare apples to apples to everything going on in the US and of course previous episodes too, but of course this is
All actually happening in R and B.
Yes, yes, of course.
So this is where things just go like completely off the rails. So
Maton.
Couriers.
And Ulama slash Dianfang couriers.
Literally start fighting in the streets.
Like there's blood in the streets. So there are viral videos that start going around in China. The government gets involved. They have to like broker piece here.
Like videos of like gangs.
Getting into brawls on the streets and like turf wars. Oh, that's crazy. Over restaurants and delivery routes. What incentives do they possibly have? It's not like they have huge upside in the company. Like why are you fighting for your tribe? I think the culture, you know, I I mentioned a little bit ago that like
The management.
structure and culture from the group buying days, uh
It's a very militaristic culture. So if you go on Maton's website
Now and go on there.
English language investor relations, they have a video, an amazing video, kinda showing
the operations of the company and the super app and everything you can do with it.
But when they show the courier network, it's like military style like lines and rows of couriers with like a commander out in front giving the orders and crazy. It's interesting. It's not quite like the independent gig laborers in the US.
No.
So it doesn't sound like it. So it feels to me like they're they're employees and they found some way to make that work.
Yeah.
So throughout four twenty fourteen, twenty fifteen, the two, you know, camps are sort of neck and neck
By the way, also we should have said
This market is exploding. So
The food delivery market in China is about four times bigger
Than the food delivery market.
in North America.
And it is growing at a thirty percent annual
Kaker.
The whole market.
So
Both.
of these two camps are kinda neck and neck in fourteen fifteen. They each have about thirty percent market share
And then
in August twenty fifteen.
Ulema raises another six hundred and thirty million dollars.
Maytoon had raised in January of that year another seven hundred million dollars. So like
Huge, huge, huge amounts of capital.
Pouring in.
Yeah.
And that UMR raise comes in August of twenty fifteen.
And that's
Right before
The shoe drops on October eighth.
twenty fifteen.
The announcement
Of the center. I mean, I remember reading about this when it happened.
here in the US and thinking like, Oh wow, that's interesting.
But now knowing all the context behind this
Ma Tuan and Dian Ping.
announced that they're merging.
So
You've got
These two rivals, but it's almost like a prox war with Dian Ping and Maiton.
And you say proxy war'cause it's between Tencent and Alibaba. Well it's between Tencent and Alibaba, but it's also between Maiton and on the streets. Literally on the streets, it's between Maitwan and Ulema.
And then
In terms of capital, it's between Tencent and Alibaba with Sequoia also on both sides. Sequoia on all three sides here. David, I need a diagram. I know, I know. Oh my gosh. Uh
Wars in China.
And then Maituan and Tian Ping are merging.
So poor Ulama.
Their whole
strategic advantage was the product integration with Dion Ping.
And they just raised their new investors, they just raised six hundred and thirty million dollars of capital.
Two months later.
their main strategic partner, their product advantage.
Not only goes away.
Goes away.
To their direct competitor.
Oof.
Brutal. Wow. So without spoiling it for the audience, I only know of Ulama because of how they come into play later in this story, and knowing all of this
history about them, that they were actually a ten cent investment, that they were actually a Dion Ping investment and partner
is going to be astonishing given where they end up in this war. What's about to happen.
So supposedly
Once the Ma Twan and Dion Ping merger happens.
Ten and Sequoia.
Supposedly go to
Ulama and say'cause remember they're investors in Ulema and they're like
Hey, look.
Writing's on the wall here.
I think what makes sense is
Why don't you sell your assets to this new
You know, combined company.
Clearly they're gonna be the winner here.
Like let's all just consolidate. You'll get some small piece of this.
Well I'll be.
Happy.
And of course Tencent and
And Sequoia are going to be very happy if this happens. Right,'cause they're now they're the largest shareholders in what is a company that just has room to run, that no longer is just gonna be a monopoly at this point. Competing, yeah. So
To his eternal credit.
Mark, the CO of Ulva is like screw you guys. No way am I gonna do that.
And fortunately he has one strategic option.
Left on the table.
Is it the party who just sold their entire stake in Maituan in this merger?
It's Ali Baba.
So walk us through this.
For folks listening.
One thing that happened at the as a result of this
Alibaba backed Maituan.
and Tencent backed Dian Ping merging is that in a part of that merger where I think Ma Twan was
slightly the larger shareholder. And it was kind of a merger of equals, but Ma Toon won out a little bit.
Alibaba decides now's the time to get out. And not only do they decide now's the time to get out, they back
The like scrappy smaller
party who we all thought was kinda screwed in this whole thing.
Not necessarily smaller, but definitely they were at a strategic mega disadvantage.
Now, yeah.
How does Alibaba decide to sell their stake in the combined May Tuan Dionping? So I think
This is my interpretation here.
I think what happened is Alibaba must have been so pissed.
At this because
Remember, Alibaba is like
You know, they're like the
grossly put like the Amazon, you know, and like e commerce is their thing. Taubao, T mall
Like that is their home turf and financial services.
around that, whereas ten cent
You know
Despite red and red. Games, social networking. So networking, you know, education. While they're bitter rivals.
They can kinda coexist, you know, in separate spheres here.
But now you've got this
Hyper strategic.
a new market developing where they each have these investments
But it's encroaching much more on Alibaba's space than it is on Tencent's space. Like Tencent getting into
local commerce food delivery is just purely additive to them.
It's offense.
Whereas for Alibaba, this is defense, like'cause it's not a big leap to think, Oh, I could deliver food, well, I could deliver like e commerce stuff too. Totally.
It's like if you're an e commerce player, this w emerging world of online to offline, or as people sort of refer to it the the
sort of Amazon of services. This local so it's cut it sort of like the Amazon Prime.
That is going to encroach someday on Amazon because if you think about the US, like
Right now we have a difference between Amazon and Amazon Prime. At some point everything will just be two hours. And so you have to imagine that if you're Alibaba, you're like, whoa, this fleet of people delivering stuff super fast.
In every city in China.
That is where we need to be at some point.
Yeah, and now all of a sudden tense like we can't hold on. We can't stay involved in
Ma Tuan Dian Ping.
Because Tencent, our bitter enemy, is now right here alongside us as fellow twenty percent shareholder in this company, learning everything and just getting all this upside.
While we're you know
This is like strategically very threatening to us.
And so why wouldn't you try and box Tencent out? Like my sense here is like look
Alibaba bet right on the larger surviving
company of the two. I mean of the two it was
Dian Ping that merged into Maitwan. And so
If I'm Alibaba I'm like
Get the hell out of here, Tencent.
Yeah.
Well and what was Sequoia's role in all this? Totally. We'll never know, but super untold here. Totally.
I completely agree. I would love to have been a fly on the wall for
Those conversations. Someone I mean the dollar sign got to the place where Alibaba was down to sell their stake.
Yep.
That happening, that just had to be what happened. Yeah.
So Alibaba sells their entire stake in Maiton Dionping.
For nine hundred million dollars.
And Mark from Ulema turns around.
And you know, enemy of my enemy is now my friend.
Alibaba
Invests one and a quarter billion dollars into Ulema.
For a twenty five percent
Steak. Right off the bat.
And then they don't stop.
In twenty seventeen they put another billion dollars into OMA.
So Baidu.
Had a poor Baidu.
did have the number three player in the space. They had home grown built up a
food delivery business. It had like it had like fifteen percent ish market share.
fifteen, twenty percent market share. So less than
Ulama and and May Tuan Dian Ping.
But they bought it.
Consolidated that into Lam.
And then in April twenty eighteen
Alibaba
buys the rest of the company, does a wholesale acquisition of Ulama.
for nine and a half billion dollars.
Which was until that point and I think may still be
The largest
Dollar size China tech acquisition in history. Wow.
Crazy. All in this sort of same market.
Yep. Like we haven't even gotten all the crazy stuff that Maitwan does these days, but this is purely the like food delivery.
And restaurant recommendations and reviews and
You know, kind of
deadish group on corner of the business. Yep.
And at this point Alibaba's pumped.
More than ten billion dollars.
Into this business.
'But they bought
Lumov. Outright for nine point something billion. Outright for nine point five. And they had invested
A billion five or something. Billion five plus the money they had invested into um
Into Ma Twan back in the day.
Plus they had their own internal operations that they were spinning up to. Yeah.
It's insane.
I want to talk for a minute about the attractiveness of the opportunity to be the winner in this space.
And there's two quotes that I want to bring up from Tao Jung that he had on the great Next Billion podcast by GGV Capital.
The first one is
If you have three or even two players in a market like this, nobody's gonna make any money.
The second one is even more damning, which is in this kind of business, the only rational way is to merge, unless you think you can kill the other guy.
And he had sort of described that
Donping had been talking with Maitwan about merging for two years.
you can sort of understand why when you flash forward to today and look at how freaking profitable
the combined company has gotten
But at this time no one's making any money and it's just a knife fight of investors pouring money in, much like
DoorDash and Uber Eats fighting for market share, subsidizing customers.
It is a a complete race to the bottom.
Yeah.
And what's so wild about these betrayals, double crosses, triple crosses
And the end state of Alibaba and Tencent being on separate sides here is like there is never going to be a merger.
Another merger between
Maituan Dian Ping and Ulama. Like it is now a fight to the death.
Unfortunately for Alibaba
And I think I mean there's a lot of stuff going on.
around commerce in China and Alibaba with Pinto O and J D and everything we've talked about in previous episodes, but
Yeah, Alibaba share price has not done well over the past
Couple of years. Especially in comparison to Tencent and others and and
May Tuan and and Piduo Duo.
This is a big reason.
They are losing big time in this space to Maiton.
So
Twenty sixteen.
when Ulama bought Baidu's business, the they then became larger than Maituan Dianping.
So they had the upper hand.
Twenty seventeen though.
They
lose Maytoon grows hugely, the combined company
Ulama Alibaba
Lose majority market share.
And then by twenty eighteen. So we're like two years in here.
Maiton now has sixty percent
market share.
Ulema's down to thirty eight percent.
And then by twenty nineteen
Maiton's just further pulling ahead. They have sixty seven percent market share.
Almost down to thirty percent.
So this is Ma Tuan Dian Ping.
with that line of unless you think you can kill the other guy, which they're doing. Which they're killing Ulama. Yeah, yeah. So we've talked about this a little bit already, but why are they doing it? It's the Dian Ping part of the business that's so strategic. Like consumers have this reason
To come to the
Up.
And engage with it much more.
deeply than you would if you're just ordering food delivery. So this is where
You know, the whole super app side of the thing really
Yeah.
In the
I mean, if you think about it, it makes so much sense. Like the amount of time that I waste flipping back and forth between I look at stuff on DoorDash, I'm like, Oh, that looks good.
Can't really trust the reviews.
So I flip over to Yelp, which is my like source of truth for reviews. I'm like, How many stars do they have on Yelp? And you can't really trust those either, but Totally. And they're like I'm like, Ooh, three and a half stars? So zero stars. Okay. Skip
But like I am bouncing back and forth between the two. It makes so much sense for that to be one platform. Totally. It's such a horrible product experience. Like same deal. I'm sure everybody has this. Like
Yeah, I wanna order something.
But I wanna try something new that's not in my usual list of restaurants.
I have no fricking clue.
You know, I look on DoorDash, I look on Yelp, I can't figure it out. Right. And
Door Dash and Uber Eats.
have every incentive to push me to click buy because they participate in the transaction. Yelp's incentives are actually the pure one here, because they're just an advertising based business. They don't care if I actually dine at that restaurant.
they're more neutral in this party. So I you know, you can sort of trust their reviews more. That that's why I always feel like I'm looking at these reviews and in
You know, Uber Eats and DoorDash and I'm like, uh, I don't know. Yep.
Totally.
And based on you know,
I've talked to people in the past that
Both of those companies and I'm like
Guys.
I need reviews.
Why don't you give me reviews. Just give me reviews in the product. And they're like, Well, it's complicated'cause you know
The restaurants are our partners and like we wanna like yeah.
Yeah, I'm curious how Maithwan gets around it or how Maitwan has has sort of dealt with that.
Well, I think it's because the Dion Ping assets
You know, there's millions of reviews in the system.
And very detailed granular down to the dish level.
That are just already built in in there. They're there.
It's not like they're you know, they're creating new ones, but it already exists.
So Wang Xing and Bei Twan.
He's not satisfied with just that. He's like, I'm gonna press the advantage here.
I've got people coming to my app. What else can I do with them in the app to sort of increase the cross sell opportunity?
Increase my customer acquisition, front doors, increase the value I'm customers are getting out of using my app.
They get into travel.
This is crazy. They get into hotels. They get into the street. Do you know how they know about the travel industry? Well, because Neil Shen started C Trip. C Trip, yep, exactly. Which was the dominant and primarily B to B focused, but the dominant player in Chinese travel. Yeah, C Trip was the booking dot com of China. Like
They w they were dominant, like all travel hotels, flights domestically in China you were doing on C trip.
And still huge. It's still huge, but they only have twenty percent market share now.
And Mayuan has forty six percent market share of travel
In China.
Unbelievable. Which they launched five years ago.
Yeah, or less.
It's as if like an Expedia launched four or five years ago and then boom has
Close to a third of the market share. Yep. So travel is huge for them and
Importantly
has a much better margin structure than food delivery. So
They're getting a huge portion of the
contribution margin in the company is coming from this travel business, which is getting traffic from the food delivery business and the reviews business.
You can start to see the flywheel go in here.
They get into local services. So, you know, this is very adjacent to restaurants and to all the reviews in the platform. Massages, karaoke, local events, experiences, ticketing.
Just book all that right on the app.
Hm. They get into home services. You want your dry cleaning done. You want your laundry done. You want your house cleaned. Stuff that you would use like
Thumbtack for in the US.
Great. Bring it all in the app.
It's so fascinating.
They get into transportation. They start
Competing with D D and then I think they
partner with D D later they get out of the
Right, chair and game directly. They buy Mo Bikes, so there you can book bikes on the app. Uh they get into groceries. So like the Instacart type business. You want groceries delivered, great. You want to shop in person in a grocery store and pick out your items.
Great, just scan'em right there in the grocery store on the Maiton app and pay and walk out the store and have somebody a courier come and bring'em and deliver'em to you.
It's so fascinating because if you would have told me before starting the research on this company
the Chinese super app, I would have been like
Oh, we chat.
But we chat
You know, it's kind of like
The app store launcher.
Or like the app launcher. Like it's your home screen in a way where it's like oh here's a bunch of different apps.
That
integrate, you know, that that I can get to from my chat experience and integrate with my chat. This one's like
An app that
Enables you to do anything in the physical world. Yep.
Well
It's funny you say that, Ben.
Because both of these things are true.
A lot of people use the Meton.
Up.
that you can download from whatever app store you're using on whatever phone you're on.
Just as many, if not more, people.
used the Maitwan mini program on WeChat. So this is why Ten Set is just so
Dominant. Like A
They invest in the best companies on the platform because they see the usage on WeChat. They did this with Pindu Aduo, they've done this with Maitwan, they put their hand on the scale, you know, either in in light touch ways.
But
Many programs on WeChat
Is it's a full fledged app experience right there within WeChat. So Tencent and the WeChat
ecosystem is getting all the benefits out of this. So like
Tencent is a major e commerce player in China without having to build any of their own e commerce
Yeah.
And they're just like
it would be an exaggeration to say they're eating Alibaba's lunch at this point, but between Pinjoduo and Maiton
They've got these huge monster players that they're invested in.
and are being used through their ecosystem on WeChat and Alibaba's boxed out.
Yeah, it's crazy. From a capital allocator perspective.
Ten cent is like
Berkshire Hathaway.
Like they don't care about
owning these companies. They don't want to control them, as Warren said in his most recent letter to shareholders.
Th they they're indifferent to whether they control them or not.
But
you know, they they look at great businesses and say, We want to own some of that. So they're they're like Berkshire in that way.
They're like Facebook in that they own the most dominant messaging and and social network app.
So they're sort of like they're a fang company.
Their Berkshire.
But they're also Sequoia. And they're like Apple in the App Store.
They're they're like Apple and the App Store, but they're also like Sequoia. Like they're one of the best pure sort of financial investors who also then
puts their hand on the scale to send you traffic. Like they're a highly trafficked destination with WeChat, and then they just decide who to open that up to. And of course, like you said, in light touch ways. But undeniably
People decide
to take money from them because that opportunity is available.
Oh, and by the way, they might do it to your competitor if you don't take their money.
Right. As we've seen.
It's crazy. It's just it's incredible. So
September twenty sixteen.
Ma Toon hits five million transactions.
A day.
that they're doing across all of their verticals on the platform.
March twenty seventeen, so like what's that, six months later, they hit ten million transactions a day.
on the platform.
By
Twenty eighteen, they have six hundred million active users. They have over fifty percent market share of food delivery. They're crushing Ulama.
They do over ten billion dollars in revenue growing a hundred percent year over year.
God, doubling at that scale.
Unbelievable.
And that's when they launch their IPO.
So
They go public in September
twenty eighteen.
And this was a big IPO, big China I IPO at the time, but
Like so many things that it's like Oh wow, like that's impressive, but
At least I was.
I didn't understand the extent.
Of all of this.
Me neither.
So they raise about three billion dollars at a fifty billion dollar market cap when they
Go public.
Which is up from thirty in their last round that they did. Yep.
And then in twenty nineteen
they grow another fifty percent. So they do fifteen billion dollars in revenue.
They turn profitable. They do a billion dollars in operating cash flow. They're net income positive. And then COVID hits.
And and this is interesting. I think unlike
Dory Dash where
Covid was an unallowed
Good for
Door dash. It's a little more complicated for me, Twan.
Ultimately I think it was good.
But remember their hotel business and their travel business is also a big
part of the platform. So
That
Got crushed, as you might imagine.
And the highest margin part of the platform. And the highest margin. Yeah. It accounts for a smaller part of their revenue, but a big part of their profits. Big, big part of the profits. So
Q one twenty twenty.
Their
total revenue is down twelve percent across the company and
Hotel and travel is like
Crushed.
And Q one of twenty twenty in China is like Q two of twenty twenty in the US. Right. It was all
The it all hit in in December, January.
Yeah.
By Q two of twenty twenty, though.
Revenue is back.
Up total revenue up nine percent year over year for the company.
And
People are starting to wake up, you know, around the world at this point, they're like, Oh wow, wait, Covet is
Good for tech companies and good for these next generation.
Commerce and delivery platforms.
So the stock starts to
Go on it.
Tear.
In May of
Twenty twenty.
The stock
Goes from
a sixty five billion dollar market cap at the beginning of the month. So you know, up
modestly from the IPO at the end of twenty eighteen, but
you know, flat ish.
to hits a hundred billion market cap by the end of May twenty twenty.
By October it hits
Two hundred billion dollars market cap.
By February of this year, just a couple weeks ago,
It's
three hundred billion dollar market gap.
Becomes
The
Third.
Largest.
Market cap.
tech company in China.
behind Tencent and Alibaba.
And it's traded down a little bit since then. It's now at a two hundred and seventy billion dollar market cap as we record this, but uh
Wow.
What a story.
Absolutely. I mean
There is a stock market story going on here. There is a pandemic story going on here.
There is an execution machine story going on here and I think the
Yeah.
That I want to talk about in a minute.
Is
a business model and profitability story.
Going on here.
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Well, David, I want to sit with some of these numbers from today and and like unpack them a little bit and understand the company's position and how much it has changed in the last year.
Because if we look at this, let's talk about the largest tech companies in China right now.
There's ten cent, number one, the eight hundred and fifty billion dollar market cap. So worth understanding for those out there, China doesn't have a trillion dollar tech company, though that is a strictly US phenomenon right now.
I bet it'll change soon.
But
That is what it is today.
Alibaba hasn't seen the sort of reward that Tencent has. It's sitting there around six seventy five billion.
Ma Toon, where we just talked about between two seventy and and three hundred billion.
It's a pretty steep drop, sort of uh obviously between Alibaba and Maitwan, so they're not yet in the league.
of that sort of company, but they're right there neck and neck with Pinduo Duo. It's a$200 billion company, which we've covered. Byte Dance, the uh parent company of TikTok.
And what's the other.
Uh Do Yin. Well Do Yin and To Tiao.
And Tot Yao.
uh with 180 billion dollars. So the list sort of turns quickly into these hundred billion to two hundred billion. And actually lots of private companies, you know, Byte Dance is private.
You know, who would be in here
But is not publicly traded as Huawei.
Yeah, right. That we've covered before. Right, of course.
So you've got you know, Pinduo Duo, Bite Dance, then Kwai Shao, J D Baidu, Xiaomi down from there.
So May Toan is in sort of rare air here.
And a lot of that, of course, is because of the stock run up from the last year.
But the growth story
in terms of profitability for this company is absolutely insane.
So as Dave had mentioned
They've been profitable since uh Q two, I believe it was, of twenty nineteen.
But then in the last year, they grew their profits, their sort of operating profit line from two hundred and twenty five million dollars a quarter.
to a billions a quarter.
So like they just kind of figured out, oh, there's where the operating leverage is in our business.
It's when we tack on a bunch of other businesses that we can amortize the cost of acquiring these customers over all these different revenue streams and we can get them to
I think that now it's twenty seven transactions per user per year across four hundred and seventy five million transacting users.
So you just have this situation where like bananas.
Totally. Like your Airbnb, you get half a transaction a year.
Your DoorDash. I can't remember what their number of transactions is per year, but whatever this is, this super app, it's DoorDash.
Plus it's fandango.
Plus it's I don't think ride hailing is included in here.
'Cause like you said, they're they're more of a partner in that now. But like
they just own this big basket of transactions that they've already acquired you for.
So that's thirty transactions a year.
Across a user an active user base.
That is roughly the size of
I'm guessing like the population of all of North America.
I don't know what the population of Mexico is.
Right,'cause the US is what, three sixty or something? Three and sixty million? Yeah, th I thought it was like three thirty or three forty, but and then Canada's at another thirty million to that.
I don't know what the population of Mexico like let's more than the whole population of the US and Canada.
Yep.
It's wild.
it's a huge number of users transacting with I think six and a half million merchants.
twenty seven times per year.
Then when we go into segments, the largest segment of that growth was food delivery.
But obviously they had lots of growth in hotel and travel and would have had even more sans pandemic in the last year.
Which I
do think will rebound in a big way, you know, over the next couple of years.
Uh, new initiatives has actually been a huge uh revenue driver for them, has yet to be a big source of profitability, but that's things like
actually setting up grocery stores. Like they're they're really going hard. They're they're doing things like local flour delivery, local medicine delivery, uh, and having these hubs of actual grocery stores. Yeah, when you hear Tony at DoorDash talk about all the things DoorDash can do in the future.
Just look on over at May Toan and like
Take whatever they're doing today and cut it by three quarters and that's like the vision for DoorDash.
That's such a good way of putting it. And DoorDash

Already priced.
as if this is going to happen for them. Like Ma Toon here is trading at fourteen X revenue.
And
DoorDash is trading somewhere in that same neighborhood, around fifteen, sixteen X. And so investors have sort of decided that this phenomena that happened when you win food delivery and you can tackle these other businesses on too is just like
going to go well for DoorDash, which
It's totally fascinating.
I wanna get into the product aspects of this, but one of the big things
For me in this story is like
The primacy of the

And the fact that it is a

Yeah.
Product.
DoorDash may be able to recreate this.
And whatnot, but like
They don't
have the benefit of an existing front door type product. Compounding moat type product.
And they've got
business model, you know, orthogonalism here.
Where their restaurant
partners don't really want
the level of granularity of reviews that you would need.
Right. You know, the only way to arrive at the end point that Maituan has arrived at is by inheriting fifteen plus years of
these existing relationships and data with restaurants.
Yeah.
In this particular way.
One other
Well t two other things I want to put in context here.
For
Ma Toine and and it's
Current.
So
on a
Scale of
the business. Let's just take revenue.
As opposed to GMV or or profits, but which we should say revenue is only growing like thirty percent per year, not the monster three to four hundred percent that we're seeing in profits. Yep.
But
on a size, on a scale versus door dash.
We don't yet have full year numbers for twenty twenty for Maitwan,'cause they haven't reported Q four yet.
But let's just take twenty nineteen, full year twenty nineteen numbers.
As we said, they did about fifteen
billion in USD.
of net revenue in twenty nineteen.
And net revenue being that is all their take of all the food delivery plus all their just like revenue from all their other businesses selling movie tickets and book and travel and all that stuff. Yep.
DoorDash in twenty twenty.
So with the benefit of COVID, which accelerated their business.
I forget exactly the numbers. Three X. Yeah, they three X revenue in in twenty twenty.
Even with that three X in twenty twenty, a year later for DoorDash
They did two point nine billion dollars in net revenue. So we're talking about a business that is at least five X the scale.
Already of Door Damage. Likely six to seven. Likely six to seven X the scale.
Now let's turn to the profitability side of
of the equation here.
So
Like we said, they generated a
billion dollars in
Twenty nineteen.
Again, sticking to twenty nineteen in operating cash flow.
Zoom.
Which obviously is a completely different business and much higher margin, you know, incredible gross margins.
Incredible business on every dimension.
They just reported
The other day.
Twenty twenty numbers, key four twenty twenty and full year twenty twenty numbers.
And
They did one point.
five billion dollars of operating cash flow in twenty twenty. So like already Mayton is doing more operating cash flow likely than Zoom.
That's a really good guy,'cause I've never thought to compare those. That's a really good obviously completely different businesses, but Zoom in my mind is like the canonical
Pure software margin.
Incredible cash flow monster.
Yeah. And just the scale of Maiton. Like I think of Zoom and DoorDash on opposite ends of the spectrum.
And here's Maiton that's doing
six seven X the scale of revenue of DoorDash and more
Cash flow dollars than Zoom.
Yeah, there's so many dimensions of business model awesomeness that is accruing to them. I mean, one is like they've squashed their competitors, so they have pricing power.
The
other that we talked about is that just they're layering on all these other sources of revenue on top of CAC they've already paid.
Um, or at least for new customers that they're acquiring, you know, they're able to spread that across so many different transaction types that they'll do.
Another one that we haven't talked about.
Is that like Amazon, they're now making a lot of money on online marketing services, which is pure profit revenue.
You have users
buying stuff on your property, as soon as you introduce
the ability to advertise to them.
You get to keep one hundred percent of those dollars that the merchants are paying you.
Like it's unbelievable gross march in business. As good as it gets.
And so sixteen percent of revenue
is now the ads business that they've layered on top, which is a business that you only get to earn the right to have when you have a scale business where people are coming to your destination and buying things on it.
So there's like yet that other level of just leaning into
operating leverage there.
Well then there's there's even another level beyond that.
Of
They're also selling B2B SaaS to merchants.
On every type on their platform.
So, you know, you're a you're a restaurant, right? Like all the services that Square provides you, except for the core payments infrastructure. But like, you know, managing your inventory, doing your booking system, like all all that stuff, your payroll, your HR.
Well.
And Beethoven's happy to sell that to you.
Not to mention that they have your financial data, they're happy to be your lender also. They're pulling the sort of square capital game here.
Where they're given loans to merchants.
Totally.
Which as we've also covered on on many an episode
is an excellent, excellent business to be in.
So
they have figured out how to do food delivery and not lose money and that is a massive understatement.
So all these things point you in a direction of, oh my God, this company is a monster.
Like how could you be short? Like what's the concern here?
maybe travel doesn't come back and that's their highest margin revenue.
So you know, if that doesn't come back, that's a big deal.
Yeah.
Seems unlikely it's not gonna be.
Come.
back though. I don't think it already is coming back.
And it's clear that like
They're taking share in that space. Yep.
So I think
You know, look.
This company is a juggernaut. Like there's just no two ways about it.
I do think
Two
I won't say bear cases, but
Things like to be watchful.

Could see.
One is they obviously have a fantastic relationship with Tencent. Tencent owns twenty percent of the company.
I think everybody's very happy with that.
But
As much of a juggernaut as uh Maytoon is, Ten Sen is even more of a juggernaut as we keep harping on on this episode and frankly on this entire show.
If that relationship were to sour at all, because Tencent is the
ultimate top level
It a source of and control of traffic.
in the Chinese ecosystem right now.
No, we do uh bite dance is is on the rise. There are threats to Tencent and whatnot, but for the time being, Tencent is dominant.
Any
fracture in that relationship would certainly be detrimental to Maiton.
So for the fifty percent of their customers
who use their mini program, do they actually own the customers? Or does Tencent really own the customers and they're just
letting Maituan use them. Like what I guess the true test of this would be
If
Tencent got mad and
punted the mini program, you know, made it hard to find or kicked it off completely, how many of those people would actually go and download Maitwan's app directly?
Right, right.
I mean I think a lot.
Yeah.
There's nobody else out there that has the scale of
different service lines and merchants and reviews.
Most importantly the review database and asset.
As Maytoon. So so I think it's very defensible, but uh it's a dependency of the business.
I think the other this is more forward looking than risks the existing business, but
We didn't
Talk as much about
What's in the new initiatives line.
For Mayton. And th there are a lot of things.
But the biggest and the most important strategically right now.
is community group buying.
Which for those of you who aren't familiar with it.
Despite sharing two words with group buying and the group odd space is quite a different
phenomenon and a uniquely Chinese phenomenon right now.
But it's hugely strategic.
Well, and and just to explain it super quickly, it's group buying in e commerce, not group buying at your favorite local boutique.
Like
It is you inviting your friends in a fun way to shop with you for something that's gonna be shipped to you and the cost structure is totally different to operate that type of business than a group on business. Yeah, and there's that. So what what you're describing is Pinduo Duo's business, which is a competitive front as well. Oh I thought that's what you were alerting alluding to, so No, so it's actually well, that's but that's part of the whole ecosystem, but very
Very specifically around groceries is where the war is the big front is right now.
So Pinto Aduo does as we talked about in our episode and does exactly what you just described, Ben.
Community group.
Buying though is kinda like
A grocery store meets multi level marketing.
Uh and so the idea is that a member of a community
becomes a selling agent for
the goods producers, in this case mostly groceries. So like you're a farmer
You're making
Yeah, producing.
Groceries of the like.
A agent from
Various communities.
brings people into then as a group
buy from you. So you're disintermediating
the whole grocery store value chain.
And this is a a major front that Maitwan has invested in.
hugely in adding to the app. And so you can
as a group leader.
Start a group, build relationships with
Producers.
Yeah.
clients make money, run a business.
Here. And then as
Customers
you get much better produce at a much better price. And a lot of this traffic is flowing through WeChat too.
So the two leading players
right now in this space are
Meetwan.
And Pinterho.
Which is also broadening into this business.
So you weren't really thinking about like, ooh.
Ma Toon's not gonna be successful in taking
PDD's core business, you're thinking is
for the next frontier they're chasing that they're both chasing
And will have overlap. They may not win that. Yeah.
I think one of the themes that I see from this episode is like the more stuff you control, particularly in
China Tech.
Them.
better your company is and the better your economics get and the more your flywheel spins and the more customers you get. Yeah. And so
Part of the thesis is like Maiton, because of their incredible strength already, can keep winning every front.
But if they don't win every front, you know, they could end up like Alibaba, where all of a sudden they're losing on a bunch of fronts.
Right.
Oh man.
There's a big game of King of the Hill going on constantly and you gotta always be defending your turf and uh be trying to find the next one.
Totally.
Now, I guess that's the future. Like I I don't think that's a bear case for a Maytoon right now or Pinto A duo.
Right. Man, it's so funny. Okay, so
We have danced around the idea of power, but we haven't named any yet. So why don't we formalize that?
And get into our power section here. So of the
Seven powers, the Hamilton Helmer, seven powers of
Counter positioning scale economies, switching costs, network economies, process power, branding, or cornered resource.
The first one.
That like
really, really, really hits me here are scale economies.
Where
Ma Toon has been able to
become very profitable very quickly because of scale economies. And I think the way to think about it is sort of the Netflix comparison.
Where because Netflix has the most viewers, they can pay the most for content because they can amortize it across the most viewers. It's like
Hey, there's already four hundred and seventy five million people using Ma Town and transacting. Can we put something else in front of them that they could, you know, potentially also transact with?
And
the fixed costs to stand up whatever that business are.
Are the
cheapest for Maywan relative to anybody who's standing it up and doesn't have all those people they could spread out the fixed cost of standing up that business too.
That's sort of how I think about it. Yeah, they can go invest
You know, I I don't know.
Well they probably have announced how much they're investing in community group buying, but they can go invest billions of dollars into it.
And it's worth it.
Right, because they have
six hundred million users that they're gonna stick that in front of.
Yeah, or if like let's say the business is cheap to stand up but expensive to acquire customers.
Like it's not for me, Twan.
Right. Right.'Cause they already have all the customers and
They just cross sell across Yep, totally.
So that's the big one that hit me like a ton of bricks when I was like, Why is Mage One so freaking profitable?
So the other one that I was thinking about and I'm not
Maybe we can talk through this live.
I don't know what the right taxonomy is here. Whether this is
A cornered resource or switching costs.
But
The power of the review.
database.
But the reviews themselves and then all of the data around it.
For
Recommendations.
Is
Enormous here. And I I think we
showed in the story, like just such a key part.
Of what's become defensible.
In this space.
And
I already thought that Yelp blew it on so many fronts in the US, but like this is just such a stark contrast of like how valuable Yelp could have been and Totally. How
Not valuable they are.
So I think this is switching costs.
Because once you're on the
as a consumer, once you're on the
Dian Ping review.
Platform.
It's I don't think it's necessarily a cornered resource in that like
You could go use another
review platform and somebody else could stand up a review platform and have all the listings.
That Dian Ping has
But
as a consumer, you wouldn't get the benefit of all the
eighteen years worth of review data that's already in there.
Right. Huh.
And you're y the more simplistic angle on that would be well, it is a cornered resource and it's Maitwan's cornered resource and no one else has all those reviews. Yeah, so maybe it's that too.
I was thinking about it like in a
Slack.
context of like
Yeah, I could switch from Slack to some other
uh messaging platform for my company, but then I'd lose all the message history that I have.
Yeah.
Either way, w whatever you want to call it, I think that's a big power.
Yeah, for sure.
What's interesting to me here is they don't
really have network economies.
Like a lot of the times when we do stuff on this show, uh the answer is network economies.
It's like
It's interesting for a ten cent
backed company. It is not a social business.
It's just not. I mean, maybe they will be in this group buying thing, but it's that's not where their power comes from now.
Like if your friend switches to something else, you don't care.
When you care, I suppose, if like your favorite restaurant uh is not on there anymore.
Right, right.
I think there's some lightweight social features of like you can plan trips together.
You can book restaurants together, you can do orders at restaurants together, that kind of stuff.
But I do think there's a two sided network effect of the merchants
And
Which you alluded to the merchants and the consumers that
As a consumer, you want to have all the merchants on there and as a merchant you want to have all the consumers.
But that's not
that defensible. Like there are other platforms like Ulima that have
All the merchants and could have all the consumers too.
Yeah.
So anyway.
I think we're speaking the same language here that
Lots of scale economies.
Maybe a cornered resource and if not a cornered resource, then definitely switching costs.
Yeah.
Is there counter positioning here too?
Versus who.
Well
I'm thinking about C trip.
And I don't know enough of the detail about how they've
won the travel market from C Trip, but
I
would imagine that
They were probably able to
Subsidize the consumer side.
In order to gain share in a way that C Trip.
Couldn't because
Ma Toon has, as we've said, all these other businesses that they're also getting contribution dollars from their customer base.
Maybe
I think the way that I sort of think about counter positioning is why is it that C Trip would be doing something harmful to their own business by chasing this?
And I'm not sure they would. It's just that it would be really expensive for them to go and acquire all these customers. So it's more like scale economies. Yeah.
Yeah, I think you're right.
As always, we feel they're open for uh interpretation.
But we need Hamilton to tell us that's okay.
All right, what would have happened otherwise? The way we want to do this section is what would have happened if they didn't merge.
And the answer is
Only one of them would have been left standing, but
The question just is, how do you get there? They both could have raised one more round of capital and then merged.
Yeah.
one of them could have raised one more round of capital and then they would have squashed the other one.
And I think it just becomes this thing of like
If they both kept raising huge amounts of capital, eventually they both just go out of business because those businesses were not profitable.
And
Arguably there's some point where you've taken on so much capital where
your business can't get valuable enough to justify a combination.
But
I I think it was just kind of like a high stakes game of chicken where, you know, they had been talking for years and when was the right time to merge and you know, how much dilution can we spare before like how many new shareholders do we have to bring on before we actually do get to merge and say, Okay, you own this much, I own this much, and we get profitable.
And Tao Jung talks about this on the
Evolving for the next billion nine nine six podcast that
Yeah, they've been having conversations for years. Maybe Ulama knew about it, maybe they didn't, but yeah, this was gonna happen at some point.
Yep, yep.
Playbook.
Yeah, you said you have a bunch of them, right?
I do have a bunch of'em. So one of'em is the thing we haven't talked about yet, which is the joy of being in a growing market.
So e commerce
In twenty seventeen was a twenty percent
saturation industry. And it had saturated, you know, twenty percent of all commerce.
Real world services.
was only five percent.
So while Alibaba is definitely in this growing, you know
segment where more commerce is shifting to online, there was way more opportunity in the retail services industry.
And
That leads to the sort of
excitement that investors and entrepreneurs had around the
offline to online, or as they refer to it, the O to O business.
Which
ended up actually becoming the key
Two
sort of ascending to become one of the top three Chinese tech companies. You had, you know, an e-commerce company, which was sort of online to offline, but a far less complex version and of a previous generation, Baidu, which is a digital only company with search, and Tencent, which is Gaming and Social, a digital only company. And so your way of
getting to capture enough margin dollars to
become as big and successful a as a business as one of those.
was this offline to online movement.
And they were sort of the ones that emerged successful in that. And it was in this crazy fast growing plenty of headroom ahead of it.
Thing.
Where you had only five percent penetration in twenty seventeen.
It's also a good thing, like
To highlight
In the West
I don't think we think as much about
The fact that like
What this story proves, which is that like everything can come online.
Uh I I think if you were to ask people in China, and certainly if you were to ask Guang Shing
whether there are any category of dollar spend
in China that he could not bring on the platform someday. He would say, Absolutely not, it can all be on the platform.
I mean, literally they're going to f rural farmers.
And they're selling online.
directly to customers facilitated by Maitwan.
You know they're
Karaoke, you know, any any activity you want to do, any store you want to visit.
You pay with Maiton in a store. You go shop you want to go shop in a local grocery store in the equivalent of a safe way. Cool. That's cool. Like do it with the Mayton app while you're there in the store.
And David, I know this is like a personal investment thesis of yours, uh, which is don't, you know, bet on the incumbents to effectively go through digital transformation in the long run. You just bet on tech companies to figure out how to successfully move the needs served by those incumbents online. Yeah.
But I think it's even from
That perspective for me.
This is eye opening.
And only possible because China leapfrogged.
in a very real sense with bringing
their population online.
But just like all these things that you would never even think could be a digital transaction.
can become a digital transaction.
Yeah, it's a great point.
Speaking of things that we don't do as much in the West, I think this thing that Maitwan did
In
amoretizing their customer acquisition costs.
over a crap ton of businesses that they put in front of the customer.
Like American companies don't do this as much. It's like taking our large customer base and
Offering.
completely different things to them. I mean, Amazon's probably the best example by bundling more and more things into Prime to sort of expose you. Like I never would have thought like, oh, this company that
Sells books.
Or let's even say it's further in their journey that like this company that
has the everything store is also going to be one of the top two players in movies, like in streaming movies. Like I wouldn't have bet on that. But Amazon does a really good job of understanding you're our customer and we're gonna put more and more stuff in front of you.
I don't know that other companies do that as much. Like people kinda stick to their lane. Yeah.
This was uh this was my other big playbook theme I really wanted to highlight.
For me, which is
Think about exactly what you said.
Through the lens of how
China and Maiton and and seeing what everything that's going on there.
Amazon's the best at this in the West and they're getting like a C.
On a global scale.
Like Uber really wanted to do it and sold this vision of we're gonna you get there's Uber everything. We're gonna eventually be able to move all this stuff around. And you know, it doesn't matter if you're taking a ride or something's taking a ride to you, you're you're you're gonna get it through Uber. And like it just didn't happen.
And I think what's
Also really interesting for me is that
The product experience is
The customer experience.
It's so much better when it all works together.
And just like the dichotomy of like
how the food ecosystem works on Maituan in China.
Versus the
super crappy that I now see way version it works in the US of like
reviews are disconnected from the food, which is disconnected from the dishes, which is disconnected from how I order it for delivery, which is disconnected from how I order it in the restaurant, which is disconnected from how I book the restaurant.
Like that's a crappy
Custom experience.
Right. I look it up on Yelp and then I book it on
Rezi or Talk or Open Table
And then the billing is completely separated from all those things. But if I order it at home, then actually I should go to DoorDash, even if it's coming from the same restaurant. It's like
It's a nightmare. Total nightmare.
That's a great point. Yeah, the
the vertical integration not only creates a business that can capture more profits
But also
A better consumer experience.
Yeah.
It's like the ultimate irony given that Wang Shing and everything in China started as just copying the US.
And now it's like
Wow, the US is so far behind.
Yes, that's a huge point I want to drive home on this episode is like
The world and we've talked about this on other episodes too, but
China is not the place copying all the American companies at this point. There's so many things, including payments infrastructure and like FinTech generally, social buying. Like the US culturally has not adopted social buying the way that
that it has in China and everything that Ma Twan is doing. It's hard to even put a category on it because it
It's it's offline to online. It it is the services economy and and we don't have a direct comp. We have twenty companies that that roll up to that sort of same thing. And I think that there is a huge point to take home, which is
China is leading.
in innovation on mobile and on the internet in a way that in many categories the US will be years before they come to.
Totally.
Alright, what else you got?
All right. So another big one that we didn't really talk about, which was a secular trend going on in China that enabled
all this to happen was the growth of the middle class.
you know, the the fact that tier two and tier three cities became an addressable population that could spend on things like smartphones and then things that, you know, were apps on smartphones.
Wouldn't have been possible a decade, two decades before this came online. A hundred percent.
So I think that's a big
Realization. And then the continued diffusion of
wealth out from, you know, I feel like a couple of years ago
When all this was getting started.
You know online to offline and Maitwan and Dian Ping.
It was second and third tier cities.
Now
It's fourth tier cities, it's the countryside. It's you know, that's what community group buying is about.
That's a really good point. I hadn't followed the sort of continued dispersion of wealth throughout the
You know, the the lower middle class as much.
I would be remiss if I didn't underscore again Ten Cent's unique strategy of both being a financial investor and a thumb on the scale partner.
You know, it's a little y you gotta make the deal'cause otherwise someone else is going to. It's just a
It's a wild amount of leverage that they have in any deal and then they sort of come through. Like that's just a deep, deep pile of capital available to you to go chase an opportunity and push someone else out of business.
And they'll give you traffic on top of the opportunity. And like
most of what you're spending your capital on is traffic anyway. So Tencent actually can afford to invest less in your company and invest more in the form of
Traffic.
But they don't. They do both. It's huge amounts of capital and huge amounts of traffic. So it's a
It's an unbelievable business and it's something that is not done for one reason or another in the US.
Probably for antitrust concerns. Yeah, probably.
Two quick things on that. One was we didn't talk about the the valuations of the last rounds that
uh Dian Ping and Ma Twan raised before they merged.
But it exactly reflects what you're saying. So
Ma Toine raised seven hundred million at a seven billion dollar valuation.
And Jian Ping raised like three, four hundred at a four billion dollar valuation.
Because ten cents like
We bring the traffic.
Right. You'll sell us ten percent of your company. Yeah. You're not gonna need one. Whereas you have stripe raising, you know, these pittances at a hundred billion dollar valuation. Yep, yep, yep.
And then the other thing is um
I think it was on our Roblox.
DPO preview analysis with
Mario, was it you or Mario who said uh I think it was Mario that was said uh
Tencent is like the most interesting man in the world.
Because Roblox is entering China with a J V but Tencent. It's like I don't always enter China.
But when I do, I enter it with ten cent.
You have to.
I mean it's crazy and Tencent owns
Fifty percent of that or forty nine percent of that J V. It's like for us bringing you into the country and the privilege of uh of that happening, we're gonna take half of your revenue. Bananas.
It's crazy.
So
I brought up antitrust there, and that's a thing that we didn't talk about on this episode at all. What does antitrust look like in China?'Cause if they're able to squeeze Ulema out and really be the only player and really have pricing power over consumers and over restaurants and over all these like
That's something that in the US would
Yeah.
deeply scrutinized in especially in the climate that we're in now. So how does that work in China?
That's a good question. Honestly, that's probably the
Biggest.
risk from like an investment thesis standpoint of anything in China, which is
I don't know, but I think it basically the way it works is whatever the communist party
Wants to do.
Right.
Or allow or not allow.
I have no idea, but yeah, if the business model and free market dynamics are such that you just have as much
room to run as you want on pricing and profitability as you want.
Like
In our system
in the US we would frown upon that.
In another system you could imagine someone saying, Okay, well we just have to have a cut.
Yeah. And I don't really know how it works.
I don't know whether it's a cut or more like a
That's cool.
You keep doing that.
But if stuff starts happening that we don't like politically.
Kinda like
Wang Xing's Twitter clone back in the day.
You know, the the plug gets pulled on you.
And and and we're seeing that risk with Alibaba now with Jack Ma and and the Ant IPO plug
Getting pulled, so
That risk is real.
Yeah.
That's a great point.
Okay, a couple more here.
So
we are seeing food as the go to market strategy.
for a company that is ultimately getting into all consumer services.
You know, we we thought about it in this way of like getting
free profit dollars because you've already paid off your costs and expanding in all these other businesses.
But
What we're actually seeing here is like land and expand.
But in consumer.
It's like this classic B to B concept where you have a go to market wedge, you get embedded, and then you start selling more and more stuff. Like this does exist in the US, but it's what enterprise companies do.
Salesforce.
Oh my gosh, you bet.
You bet.
So there's there's definitely an element there
uh this land and expand leads to, you know, more stickiness, more retention.
Uh, in the very same way that you do in in the enterprise. And David, to your point on switching costs, that's where the real switching costs come from. When you're buying everything from one provider, it's hard to rip that provider out.
Yeah.
Totally.
All right, so that is all I've got for playbook. Do you have any more?
Nope.
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Well value creation and value capture. So long time listeners will know there's two elements to this.
How does the value that they're capturing in the world compare to the value they create? Are they doing a good job of that, like Google, or are they doing a bad job?
Like Wikipedia.
Or uh
Of course not a Groupon Foundation, but Groupon created a lot of value for consumers. Not for merchants.
Unfortunately.
Um and then secondarily, you know, the more altruistic one
Value creation versus value destruction.
So on this first one
They're doing a damn good job capturing value.
I think if they were in a knife fight still, you'd be like
Guys like
You can't seem to turn a profit in this business.
I'm worried about the long term.
That's no longer a concern. So I think kind of a no brainer here on creating a ton of value and capturing their fair share of it. And probably will capture even more in the future.
Uh value creation versus value destruction.
You know, in in the US, we feel a lot of people feel very strongly that these food delivery companies are
not great if you own a restaurant. You know, th that it's
Not great to participate.
But you also kinda have to participate'cause they're aggregating. You know, the Dordache Nuberetes are capturing more and more of the uh
Consumers. And the couriers too. You know, they've been
Strikes, union organizing
For sure. Everyone's getting squeezed.
So
What dynamics.
Carry over to Maiton.
Like is it as gnarly or gnarlier for restaurants?
using Matwan as it is for DoorDash, because you could imagine it's even worse because they also have the platform that says your restaurant's a one star restaurant.
And then they're trying to extract some big percentage of foreigners. Oh, by the way, they have all the customers.
Yeah, I don't know.
I didn't find anything one way or the other in
My research.
And in part it's because like
you know, we're all reading newspapers all the time in the US. There's gonna be many, many people who feel
fine writing a take down piece of some US based tech companies. Like we're not really reading the
Chinese press that's critical of these businesses.
Well, I don't know. This is like way out there at the limb speculation for me, so
Listeners who know much more.
About
China or live in China um
Feel free to c correct me in the Slack or email us at acquired Fm at gmail dot com. But
I think
The government in China.
one of the things that would make them upset.
And come after
a monopoly platform would be
Like I think it's in the government's best interest in China.
For
restaurants and local businesses to
Be successful.
And if Ma Toon were putting them out of business.
I think the C C P would want to go have a chat with Wang Sheng.
That's a great point.
Yeah, so there's a check and a a balance in that way.
Hm.
Well, listeners, if you know more about this, we'd be very, very curious.
Yeah.
Totally. All right.
So grading.
Is there
Any scenario where it was not an A plus for these two companies to merge and for let's define this real quick. If you're a shareholder of Maitwan or a shareholder of Dian Ping in twenty sixteen
Is there any way that you could have had a better return on your dollar than than these companies combining and achieving not only the profit, but the market cap that they have today?
Yes, one hundred percent.
If your name is Alibaba.
This was an
F minus. Oh.
Yeah.
'Cause if you think about it, their cost basis was they invest it at rounds from the valuation of
What, a billion dollars through
Thirty billion dollars? I'm sure way less than a billion. The series B was fifty million dollars.
Mmat, so you know.
I don't know.
Maybe the valuation was three hundred.
Something.
Okay. So they got obviously a very nice markup by these companies merging and at a combined value of
Oh, I guess what would the combined value be?
I don't know. At the at the IPO at least it was fifty four or fifty fifty six billion.
Was the combined value thirty billion?
At the merger, I think I wanna say it was more like fifteen.
Okay.
So you know, nice return.
The downside actually for them well, two downsides. One, their first blunder was getting out.
Uh of something that would then, you know, go stack another three hundred billion dollars of market cap on top of that or just shy of three hundred.
The second mistake was investing in the competitor.
Yeah.
the biggest, biggest overall mistake was allowing this
To happen.
I mean, maybe there was nothing they could a done to avoid it, but now they have an existential threat competitor.
To Alibaba.
that exists out there with Tencent as the primary shareholder
That's just
been destroying them in this market and potentially in many more to come.
Yeah, and they're doubly exposed. I mean, they're exposed in their core business, but they made a huge bet on the rival that didn't pay off. Yep.
Uh we should be clear too.
Ulama still exists.
It's not dead.
The story is not over.
It's a big business. By you know, most standards. Yep. There probably are a lot of listeners in China right now who are screaming at us like
Ulema is not dead, which is totally true.
But May Toine has sixty seven percent market share.
So then the question becomes if you were ten cent, was there any better outcome than these companies merging?
Tencent is just so gangster.
They're like Sequoia China but with traffic.
Yeah.
And that's exactly what they're like Sequoia China is
Only slightly less gangster. I th I think Tencent and Sequoia.
Did
better in this transaction than the company itself.
Hm.
Here's a question. Has Sequoia done better
On May Twan or DoorDash.
That's a good question.
So I pulled up.
At the IPO. Sequoia passed on seed, but they invested in series A and everything afterwards and DoorDash. So according to the Wall Street Journal
Sequoia invested around four hundred million into
Bei Tuan, Dian Ping.
all of them over the years and at IPO
their shares were worth about five billion dollars.
At IPO. So that's a
Four point nine billion dollars. So four point five billion dollar
Return.
at IPO, but then the company is up six X.
Since I P Well just think about it, they own ten percent of a two hundred and seventy billion dollar company. Right.
If they held.
So it's a twenty seven.
twenty I don't know, twenty six, twenty five billion dollar absolute return.
So how much did Sequoia return on DoorDash Ballpark?
So pre IPO Sequoia owned
A little over eighteen percent of DoorDash.
I forget what the dilution was in the IPO, but let's assume
Ten percent.
Seems reasonable.
Okay, so that would take them down to what?
I don't know, let's make it easy. Fifteen percent that they own of which probably a little more than that.
Of Door Dash.
So now fifteen percent of where they're trading today at a market cap of
Fifty ish billion. Yep.
So seven billion.
So yeah, they're doing a lot better on Maidon.
It's no competition.
Way better on Maiton.
Fascinating.
It was closer uh DoorDash when uh uh at the end of IPO day.
But no competition now.
You know what this also makes me think of?
For a long time this rule in venture capital.
I remember it. Madrona, I remember afterwards, like always, you know, ownership, ownership, ownership, ownership. Ownership is paramount.
I wonder if that's
different now. I certainly have a different perspective.
Like eighteen percent ownership in DoorDash. Well, yeah, that I mean that's great, but like
Shoot.
I'd take five percent ownership and matewan over that. Yeah, just
I mean it gets back to the thing that Packie flagged for all of us a few weeks ago, which was
What is the likelihood?
That you could become a
you know, mega, mega outlier, multi hundred billion dollar company.
And
I don't know, David. I th I still think it's important from an early stage investment perspective because
there are still very few matewans. Yeah. Like if the argument was there's more matewans being created than ever, and there are
you know, a dozen, two dozen, three dozen, you know, near trillion dollar or soon to be trillion dollar companies, that'd be one thing.
To me, it's at least the way I sort of rationalized it is sure, all the valuations got bigger, but it's still incredibly rare to be one of those.
Whatever we want to call this class of company.
Yeah, I think that's totally true.
On the other hand, I do think there's some trickle down effect here, where like depending on your fun size,
I think there are a lot more one to ten billion dollar companies out there than people
Imagine.
A few years ago.
Very true.
Order of magnitude if not two more. Yep.
So if you're a fun size of
Call it less than five hundred million dollars.
Ownership maybe isn't quite as important as you thought it was.
Mm.
It's an interesting idea.
Well, I think that about wraps it for grading. We have some good carve outs today. Yeah. That we should hit here before we head home.
Do you want to start?
Yeah, I can start.
So my carve out
Is a
Great.
Short.
book that I just read. I broke my rule about not reading any recent books, but
This one felt like
Not too much of a commitment and just a really interesting, timely topic.
Called extraterrestrial.
By Avi Loeb. Have you heard about this, Ben?
No.
It's great. So Avi is the chair of the Harvard Astronomy Department.
And
The book is about uh do you remember Umuamua the
extra terrestrial, the visitor from the other solar system a few years ago.
That came through.
our solar system. This was all over the news and it was
Picked up by telescopes. It was this very odd
object that entered our solar system.
It's very rare for objects outside our solar system to enter our solar system.
Had all these like really
Interesting properties.
Scientists weren't sure what it was, and there was all this buzz like, Oh, could it be
Like an alien spaceship.
And
Then over the years, you know, the scientific consensus has basically said, like, oh, it was a really flat shaped inner solar system asteroid.

Anyway.
Avi has written this book.
And he's a w widely respected, you know, incredible scientist. He's the chair of the astronomy department.
At Harvard.
And he's like
I don't know what this was.
The properties of this thing.
Are such that
To decide it is a natural phenomenon.
You have to bend over so backwards on so many dimensions.
That like
If you Occam's razor this thing.
Obviously the answer that comes out is this was extraterrestrial technology.
And
He's basically like look, can I prove that? I don't have a photograph of it, but like he goes through all the evidence. Oh, fast. And he's really going against the scientific community here.
And it's popular. It's a
Pop book. This isn't like a scientific article.
But he makes this great point. He's like
You know Pascal's wager.
Uh, which is does God exist? And Pascal's famous wager is like, Well
If you think about the consequences of one or the other,
You're probably better off believing God exists because
You'll be happier probably during life, and then if God does exist, you're better off. Yep, exactly.
And so
Doctor Loeb proposes
What he calls the Umuamua wager.
Of
question is was this alien technology or not.
And
Similar to Pascal's wager.
It's low cost to humanity to

But the upside is
Enormous.
versus the other way around
If you believe it wasn't
There's no upside, it's just status quo.
And the potential cost is enormous.
And so he's like, Well, if we believe and he's and he actually really genuinely believes it was extraterrestrial technology.
Well, what does that open up for humanity?
It opens up our
Minds to think about.
Well, if other civilizations out there
Can traverse.
Light years.
Hm. Well, how could we do that?
That's really cool.
It's really cool.
I should read it just to get my head out of
Just to read something different, you know, I feel like consume a lot of the same media or the media that keeps me in the same head space.
Yeah, it's really and it's like a hundred pages.
That's awesome. All right.
Adding it to the list.
My carve out is my favorite sub stack.
And it is called Luddig's Learnings. And it's a guy named John Luddig, he's a principal at Founders Fund.
And
We actually cited his work on the SPAC episode, the SPAC LP episode that we did.
This
Like his writing spans so many different topics, but every single one I read, I'm like
Oh my god, yeah.
Like wow, that's uh
Huh.
That is really well reasoned, logical
And
The outcome
is a little scary.
And makes me sort of question things. And the first one was I may have even talked about it on the show.
uh around internet tailwinds that are slowing down, mobile tailwinds slowing down, and sort of m moving into a new type of businesses that
will be created in the future that are just less favorable business models than existed over the last twenty years and all these interesting decelerating trends, which for all the conventional tech wisdom around everything continues to accelerate, I found was fascinating.
You know, around like can we possibly have any more time in front of screens? No. So can there be bigger advertising businesses like
Here's the only ways you could make'em bigger.
There's a lot of things like that in the piece that I found was really interesting. The second
most recent one that I thought was great was around um timeless versus timeful advice.
And it was around here's a few examples of sort of five pieces of advice that are generally widely held to be true.
But if you just go to a different part of history.
It would be terrible advice. So why do we hold them to be timeless and maybe
you should do the opposite now. And they're very like they're things that we all take to be like very
Sage pieces of wisdom. I read that that was a really good piece.
That was really good. One of them was home ownership, right? It's a good idea to own a home.
And he was like, if you look at the tax advantages and you look at the massive increase in demand for homes, of course the prices were going up because more people than ever could buy homes, wanted to buy homes. Is that the case now?
There's all these reasons why you should actually examine that.
You know, new tax incentives to all all sorts of stuff. And then the most recent one was around this
Go go time that we're in right now.
Uh that he calls finance as culture.
Which is uh of course everything that we're seeing with stocks only go up.
And everybody you know, pop culture discusses finance and has various
elements of finance that drift in and out of it. Finance has become sports. Finance has become entertainment. Finance has become conversations with friends and examines what are the reasons that this could either
You know
Pop or continue and sort of which camp do you want to believe?
I just find all of his writing so good.
And John, if you're listening, thanks for really writing
really thought provoking work.
Totally. Hundred percent agree.
Uh should we do uh one bonus carve out.
That
relates to both of our carve outs, I think we gotta say today. Yeah. Given the Founders Fund connection.
Is
Starship.
Yeah. Holy smokes. Holy smokes.
Flew, came back, landed and and waited like a whole minute or two before it blew up.
A whole bit. I mean that's enough time for people to
D plane when it lands on Mars.
Totally. If it blows up only a minute afterwards, then we're fine. No, I uh uh it's an unbelievable accomplishment. And actually I was thinking when I watched that video
of it landing earlier today and they have some beautiful footage of it.
I was wondering.
related to your first carve out of like
Well, did we just pass some test? Like in Star Trek there's this thing called the Prime Directive, where you can't interfere with a species who hasn't discovered warp technology yet.
And when it came back and landed, I was like
Do we just hit some threshold? Is there like somebody gonna pop out and
You know, w we get to meet aliens now. And obviously, you know, it's not warp technology.
Uh just a bigger rocket, but
So exciting for what it means for the future of space travel. Oh, on every dimension.
So cool.
Just think about how many Starlink
Satellites they can launch off of a star ship.
I don't know if that's part of the plan or not, but like you they can launch six to seven times as many and is totally part of the plan. Yeah.
Incredible. I think it's sixty in a Falcon nine deployment versus uh
A four hundred in the Starship deployment.
That'd be so cool if like
Two years from now we're all on Starlink internet.
Yeah.
I mean uh I literally had someone in my house today f coming and fixing the internet. So uh if there was a more foolproof system than the um
My decibel readings were off, getting from the pole to the
inside of my house, which then got split, so it increased the decibel readings. Uh I learned a lot. Uh I didn't know decibels were involved with coax cables and sending signal, but uh it is
And uh it was a pain and it would be great if uh I don't know, maybe Starlink has sort of the same way that it ends up getting internet to your router, but
Yes.
a better system than the uh
ISPs we all deal with would be wonderful. That would be wonderful.
All right, listeners.
That's it for today.
Yeah, I think you should join the Slack. I think you should come join us. We want to talk to you about this episode.
we want you to talk to other smart people. I'm I'm defraying from my script here, but David and I just did some research and we realized that over fifty percent of the
messages in the acquired Slack are DMs. And most of them are not to us because like we just don't get that
That many of them. So
Yeah, it's kinda cool. Like we're we're doing more with the Slack and we were
Looking at uh
Slack, the company, actually gives you some cool
Analytics and graphs.
And uh
If you look at the
Daily active usage and and weekly active
User
Graphs for the acquired slack.
It's like at a small level, but like they're on an exponential curve. Like it's super cool. For sure.
For sure. And it's mesh. You know, it's not hub and spoke. So like everyone is talking to each other sometimes with us in channels, but also sometimes, you know, finding co founders and finding investors and
finding customers and making hires. It's just really cool. So I freaking love the community that we've developed here.
And you should join us in the Slack.
If you wanna be a deeper part of what we're doing, join the L P program. We'll be on Zoom calls with you once a month and
L Ps, we've got one of those coming up, so we'll see you soon.
And yeah, then you get to hear Jake
Tell us about SAS in twenty twenty one, which was a privilege to talk to him about.
Such a fun guy. So
All right.
If you like this episode and you're still listening, which would be shocking to me if you made it this far into us just telling you all the different ways that you can be a part of what we're doing.
Well it's like the end of Ferris Buller, you know, and uh when he's like, You're still here. What what are you doing here? Go home. I'm looking at the time count where the uh where we'll cut some of this
That we're recording, but we're at three hours and nine minutes, like
Go home.
All right, I'm cutting us off. Listeners.
Thank you so much.
Share this episode.
We'll see you next time. See you next time.