DoorDash Valuation Nearly Triples to $4B in Six Months(bloomberg.com)
bloomberg.com
DoorDash Valuation Nearly Triples to $4B in Six Months
https://www.bloomberg.com/news/articles/2018-08-16/doordash-raises-250-million-as-delivery-war-with-uber-heats-up
113 comments
This hearsay but I've heard restaurants hate all of the delivery services. They take a cut and decrease walk in traffic which usually buys high profit stuff like alcohol and fountain beverages.
In India, especially bigger cities like Bangalore, this has had a different effect - the rise of the delivery-only restaurant. These places are typically listed only on the delivery apps (Swiggy, Food Panda, Uber Eats), and don't have any other way to sell direct. Some of them are quite good, and we've ended up becoming regular customers.
That said, smaller restaurants in India don't depend as much on beverage revenue to start with - and most places don't serve alcohol.
Also - my father who owns a small resto hates pretty much every delivery service. They refuse to do anything beyond "We can't help you, it's policy", anytime an issue happens. For instance, you can order food with cash on delivery here. The delivery guy is supposed to pay the restaurant before he picks the food up. On one occasion, the delivery guy said that he did not have cash and would pay up once the end customer paid up. At some point, the end customer refused the delivery, so this guy came back, quietly left the parcel on a table and disappeared. The platform of course was of no help.
That said, smaller restaurants in India don't depend as much on beverage revenue to start with - and most places don't serve alcohol.
Also - my father who owns a small resto hates pretty much every delivery service. They refuse to do anything beyond "We can't help you, it's policy", anytime an issue happens. For instance, you can order food with cash on delivery here. The delivery guy is supposed to pay the restaurant before he picks the food up. On one occasion, the delivery guy said that he did not have cash and would pay up once the end customer paid up. At some point, the end customer refused the delivery, so this guy came back, quietly left the parcel on a table and disappeared. The platform of course was of no help.
In London, there are "dark kitchens" -- the take away provider pays for the equipment and the site, and the desirable restaurants provide the staff and skills. This lets the delivery provider optimize for location and services shared between multiple restaurants though the conditions for the cooks are supposedly often even worse than a cramped, hot restaurant kitchen as the dark kitchens are really just a bunch of industrial containers with kitchen in some gritty industrial park.
https://www.ft.com/content/d23c44fe-4b0b-11e7-919a-1e14ce4af...
https://www.ft.com/content/d23c44fe-4b0b-11e7-919a-1e14ce4af...
Yup - one of the companies - Swiggy - operates a few, like The Bowl Company and House of Dabbas
https://timesofindia.indiatimes.com/companies/swiggy-expands...
https://timesofindia.indiatimes.com/companies/swiggy-expands...
I was in a tech meetup with CEO of food delivery in India. They buy directly from "food factories", which are much like "jewellery factories" in spirit - you come in with recipes and they provide. This whole business has a fascinating backend of small city kitchens providing food upstream.
Edit: See Erwin's comment for better phrasing.
Edit: See Erwin's comment for better phrasing.
Yup - if this was Swiggy, they own and operate a few - https://timesofindia.indiatimes.com/companies/swiggy-expands...
Well, considering I can order food and pay practically the same delivery fee/tip that I have to pay for waiter tip + I don't have to pay the ridiculous "alcohol and fountain beverage" since I can drink that at my home that I already purchased: BooHoo. Maybee it is time they reduced their ridiculous "alcohol and fountain beverage" margins.
Those beverage margins are what makes the razor thin food margins tolerable for the business (average restaurant margins are 2-6 percent). If you can’t turn a profit, no point wasting your time being in business (or accepting tech delivery platform orders).
It behooves you for the restaurateurs you enjoy patroning to have healthy financials and not be squeezed, otherwise they can’t continue as a business.
It behooves you for the restaurateurs you enjoy patroning to have healthy financials and not be squeezed, otherwise they can’t continue as a business.
Your comment uses the word 'margin' in two different senses, which makes it hard to evaluate its claims.
When you talk about 'beverage margins' or 'food margins', you must be talking about 'gross margin', i.e. [selling price, less direct costs of good sold] / [selling price]
When you talk about 'restaurant margins' and mention 2-6%, you must be talking about net profit margin (i.e. profit as a percentage of revenue).
It seems like you're comparing gross margin on beverages, with net margin for a restaurant overall. Not apples to apples.
The markup on food (based on ingredients only) and wine is similar (3x). It costs virtually nothing to store wine or to prepare it for sale. But the process to take ingredients and make a meal takes a lot of labour and machines.
When you talk about 'beverage margins' or 'food margins', you must be talking about 'gross margin', i.e. [selling price, less direct costs of good sold] / [selling price]
When you talk about 'restaurant margins' and mention 2-6%, you must be talking about net profit margin (i.e. profit as a percentage of revenue).
It seems like you're comparing gross margin on beverages, with net margin for a restaurant overall. Not apples to apples.
The markup on food (based on ingredients only) and wine is similar (3x). It costs virtually nothing to store wine or to prepare it for sale. But the process to take ingredients and make a meal takes a lot of labour and machines.
>It seems like you're comparing gross margin on beverages, with net margin for a restaurant overall. Not apples to apples.
Oh brother. The high gross margins on beverages positively contribute to the net margins. The point is that most restaurants aren't crushing it, margins are thin, and a middle-man taking a cut doesn't help.
on
Oh brother. The high gross margins on beverages positively contribute to the net margins. The point is that most restaurants aren't crushing it, margins are thin, and a middle-man taking a cut doesn't help.
on
"The point is that most restaurants aren't crushing it, margins are thin, and a middle-man taking a cut doesn't help."
Yes, I agree with you. See my other comment:
https://news.ycombinator.com/item?id=17780385
Yes, I agree with you. See my other comment:
https://news.ycombinator.com/item?id=17780385
[deleted]
> It costs virtually nothing to store wine or to prepare it for sale.
Well, except the cost of the space. Oh, and the refrigeration. Oh, and employing a sommelier (if it's a higher end restaurant).
Other than that, virtually nothing.
Well, except the cost of the space. Oh, and the refrigeration. Oh, and employing a sommelier (if it's a higher end restaurant).
Other than that, virtually nothing.
What's the mean time of wine storage for a bottle of wine in a restaurant that delivers via DoorDash? A week? A month?
What is the cost of space and refrigeration for that time? 15 cents? 25 cents?
It's virtually nothing compared with the labour and machine costs of storing and turning ingredients into a meal.
And I'm genuinely curious (DoorDash isn't in my city) what proportion of restaurants that use DoorDash also have one or more sommeliers on site.
What is the cost of space and refrigeration for that time? 15 cents? 25 cents?
It's virtually nothing compared with the labour and machine costs of storing and turning ingredients into a meal.
And I'm genuinely curious (DoorDash isn't in my city) what proportion of restaurants that use DoorDash also have one or more sommeliers on site.
“It costs nothing to store wine”. Well except the amount paid for it and having it sit around not doing anything.
If the margins are on drinks you can be reasonably sure the food is salty instead of healthy.
It's not the customer's fault restaurants decided "lets make all the cash off drinks" was a brilliant business model. It wouldn't be the first time an industry shot itself in the foot with strange pricing strategies.
Yes it is.
Customers are opting to go where the food is cheaper, and the drinks are more expensive. That's why it is that way.
Restaurants would love to have higher margins on food.
Customers are opting to go where the food is cheaper, and the drinks are more expensive. That's why it is that way.
Restaurants would love to have higher margins on food.
Not exactly. There's some minority of customers fooled by that pricing, and that minority is driving that pricing scheme.
The restaurants chose to diverge from the underlying pricing, knowing that there was a risk that people would catch on, or the underlying economics would change.
I'd note that some have given up on it because it stopped working. McDonnalds just charges $1 for any drink, because the customers came to understand it was overpriced, and learned to work around their pricing shenanigans.
The restaurants chose to diverge from the underlying pricing, knowing that there was a risk that people would catch on, or the underlying economics would change.
I'd note that some have given up on it because it stopped working. McDonnalds just charges $1 for any drink, because the customers came to understand it was overpriced, and learned to work around their pricing shenanigans.
"There's some minority of customers fooled by that pricing, and that minority is driving that pricing scheme."
Nobody is fooled by the prices of things, they see it. And a minority wouldn't change pricing schemes.
We look at the food list, then the drink list and that's that.
Nobody is fooled by the prices of things, they see it. And a minority wouldn't change pricing schemes.
We look at the food list, then the drink list and that's that.
The goal of the pricing scheme is to deceive people into thinking they can get their meal cheaply, as the main meal is cheap, and what's advertised. It's 100% about tricking a minority of customers. That's the entire idea.
Food margins are on average consistently > 66% if not more for many types of restaurants. Delivery services usually pass on costs to consumers (delivery fee + tip) which means they are only removing consumers buying alcohol - but that assumes if delivery were not available that I would go to the restaurant which is false. Delivery is not an alternative to going to a restaurant, it's an alternative to cooking at home.
You're right that food margins are typically 66%.
But this considers only the cost of ingredients. So you'd rather sell a bottle of wine for $15 (that cost $5) than sell a meal for $15 (whose ingredients cost $5).
On your final point, I suspect that delivery via Doordash or similar can take margin that a restaurant's own delivery service (via phoning in) would have made, and that Doordash has inserted itself as an intermediary (with a margin) where none was present before. The pie might be bigger but I'm not sure whether Doordash is capturing less than or more than 100% of the increase.
But this considers only the cost of ingredients. So you'd rather sell a bottle of wine for $15 (that cost $5) than sell a meal for $15 (whose ingredients cost $5).
On your final point, I suspect that delivery via Doordash or similar can take margin that a restaurant's own delivery service (via phoning in) would have made, and that Doordash has inserted itself as an intermediary (with a margin) where none was present before. The pie might be bigger but I'm not sure whether Doordash is capturing less than or more than 100% of the increase.
I owned two QSR franchises (Domino's pizza) for many years and our food cost hovered around 33%. Labor cost was about 22% leaving 45% for fixed cost. Once we got the business going (tripled sales after I took over), our profit was 10% on a good week. That meant a slump in sales, leading to overstating and food being just a bit higher than average and we lost money. It's really hard.
Yup, I've heard the restaurant business is hard. I would rather try to run a super-marathon than a restaurant.
I wonder how much time the avg person spends at home now vs the 90s, I'm sure its way more now.
Tyler Cowen goes into this in his book The Conplacent Class. Some interesting data he works into the theory: home interiors have gotten better while exterior architecture has gotten worse and is valued less, fewer teenagers are getting driver’s licenses, lots of recent tech innovation has made staying at home more attractive (on-demand streaming, flat panel TVs, internet in general, food delivery and Amazon).
Well, why not?
I can meet everyone on Tinder, and experience my friends/the town on Facebook just the same! </SARCASM>
I can meet everyone on Tinder, and experience my friends/the town on Facebook just the same! </SARCASM>
/anecdata
My friends and I seem to go out a lot less. It's more fun to 'tailgate' at home with takeout and a nice TV. Going out to the bars is a lot less appealing than hitting up the liquor store. It's so much more fun to get wine drunk and order random stuff on Amazon than it ever was to go to the mall. Going to the nice grocery stores and cooking for each other has pretty much replaced fine dining. We used to hit up the barcade pretty frequently but retropi has got us covered. A lot of spontaneous hangouts take place on Discord where we're not even playing games. Why would we want to go to a movie theater and pay like $28/person when I can make boatloads of fresh popcorn, grab some bulk candy, and make extra plump weenies with our nice TV and surround sound? Video game nights have replaced things like bowling.
It's not that we're being less social, it's just that stuff at home-ish is a lot more worthwhile than the typical canned activities. Plus, doing something in the same room as other groups od strangers wasn't really being all that social anyway.
My friends and I seem to go out a lot less. It's more fun to 'tailgate' at home with takeout and a nice TV. Going out to the bars is a lot less appealing than hitting up the liquor store. It's so much more fun to get wine drunk and order random stuff on Amazon than it ever was to go to the mall. Going to the nice grocery stores and cooking for each other has pretty much replaced fine dining. We used to hit up the barcade pretty frequently but retropi has got us covered. A lot of spontaneous hangouts take place on Discord where we're not even playing games. Why would we want to go to a movie theater and pay like $28/person when I can make boatloads of fresh popcorn, grab some bulk candy, and make extra plump weenies with our nice TV and surround sound? Video game nights have replaced things like bowling.
It's not that we're being less social, it's just that stuff at home-ish is a lot more worthwhile than the typical canned activities. Plus, doing something in the same room as other groups od strangers wasn't really being all that social anyway.
People used to do that with different groups of people every week.
Now, we can't afford the time/money to socialize, and if you get to a particular position in life (usually after University), you're stuck in a rut.
Now, we can't afford the time/money to socialize, and if you get to a particular position in life (usually after University), you're stuck in a rut.
We've had a few coffee shops in our area drop the delivery/mobile purchase (Ritual) apps, perhaps due to this. Or, just the logistics may have been unbearable for them.
Sometimes, I do enjoy walking into a coffee shop and ordering like a human.
Sometimes, I do enjoy walking into a coffee shop and ordering like a human.
Hold on, your door dash coffee to your house? Thank you for this
Ritual is an “order ahead and pick up” app.
Dunkin does this and it can be a little frustrating when you're next in line but they gotta handle like 3 online orders. I wish they'd hire an extra person to mostly handle such heavy load... But I'm not in charge of everything everywhere.. Otherwise I want to say don't do online ordering if you don't have more than enough people to handle both regular customers AND online ones... It just sucks.
The one time I was next in line, there were probably 3 or more orders, and like 5 or more people behind me in line, plus the person in front of me was ordering the whole menu.
The one time I was next in line, there were probably 3 or more orders, and like 5 or more people behind me in line, plus the person in front of me was ordering the whole menu.
We are parents of two small boys and it’s damn near impossible to go out. Ordering DoorDash helps us try different restaurants and not have to deal with the madness of corralling two kids in a busy environment.
Based on my personal experience with this service, I guess two things have happened that would make them profitable:
1. DoorDash has started gouging customers with exorbitant fees - restaurant tip, service charge, delivery fee, driver tip etc. I stopped using service after that. Remaining customers could the true "target demographics" for DoorDash, who might be price insensitive or really busy in their lives, thus improving DoorDash's financials.
2. Softbank betting big and investing lavishly on gig economy companies (see: Uber, Didi, Grub, now DoorDash etc)
1. DoorDash has started gouging customers with exorbitant fees - restaurant tip, service charge, delivery fee, driver tip etc. I stopped using service after that. Remaining customers could the true "target demographics" for DoorDash, who might be price insensitive or really busy in their lives, thus improving DoorDash's financials.
2. Softbank betting big and investing lavishly on gig economy companies (see: Uber, Didi, Grub, now DoorDash etc)
> DoorDash has started gouging customers with exorbitant fees - restaurant tip, service charge, delivery fee, driver tip etc. I stopped using service after that.
This seems to be the case for PostMates, too. I recall being sceptical when they originally were acquiring customers with free (or $1-$3 flat fee) delivery promotions, but I figured it could be worth it even for double that amount.
However, when I next looked, they had quietly [1] implemented fees that are a (high) percentage of total bill in addition to a higher flat delivery fee, that was a dealbreaker.
Distance-based pricing would have been OK, but not percentage of the order on top of a flat fee.
[1] A generous interpretation. Personally, I found it sneaky.
This seems to be the case for PostMates, too. I recall being sceptical when they originally were acquiring customers with free (or $1-$3 flat fee) delivery promotions, but I figured it could be worth it even for double that amount.
However, when I next looked, they had quietly [1] implemented fees that are a (high) percentage of total bill in addition to a higher flat delivery fee, that was a dealbreaker.
Distance-based pricing would have been OK, but not percentage of the order on top of a flat fee.
[1] A generous interpretation. Personally, I found it sneaky.
Don’t forget in most cases the tips don’t actually go to the drivers. Doordash may guarantee the driver will make $7 for a delivery, then if you tip anything under $7 doordash will just pocket it. Seems like a good business model.
I found a blog post that details the practice, including pointing out how misleading it is to the customer.
https://doordashdriver.blogspot.com/2018/01/what-exactly-is-... https://news.ycombinator.com/item?id=17789958
If I were to use DoorDash, this would actually give me an incentive to tip $0 via the app, since, otherwise, $6 of my fees+tips would be going to the company instead of the Dasher. I'd rather tip in cash (which I do have on hand at home, though I'd expect not everyone does, especially their target market).
Personally, I'd much rather have a delivery fee that translated to fair pay for the delivery personnel, instead of using tipping as an unreliable replacement for for/minimum wage. (At the risk of going off on a tangent, I'm OK with tipping for exceptional service/circumstances or for where there might be an extended/recurring service interaction, but I just don't expect that to be the case with "gig" delivery like this, unlike with traditional pizza delivery).
https://doordashdriver.blogspot.com/2018/01/what-exactly-is-... https://news.ycombinator.com/item?id=17789958
If I were to use DoorDash, this would actually give me an incentive to tip $0 via the app, since, otherwise, $6 of my fees+tips would be going to the company instead of the Dasher. I'd rather tip in cash (which I do have on hand at home, though I'd expect not everyone does, especially their target market).
Personally, I'd much rather have a delivery fee that translated to fair pay for the delivery personnel, instead of using tipping as an unreliable replacement for for/minimum wage. (At the risk of going off on a tangent, I'm OK with tipping for exceptional service/circumstances or for where there might be an extended/recurring service interaction, but I just don't expect that to be the case with "gig" delivery like this, unlike with traditional pizza delivery).
The UI I just looked at said something like "100% to the Dasher" under the tip selection.
Do you have evidence that they're lying about that (which might be outright fraud and thereby a risky move)?
Or are you saying something different, that if a customer tips $0, DoorDash has to pay $7 (or DoorDash pays $4 to make up for a $3 tip, etc), but if a customer tips $7 or more, DoorDash has to pay $0?
Do you have evidence that they're lying about that (which might be outright fraud and thereby a risky move)?
Or are you saying something different, that if a customer tips $0, DoorDash has to pay $7 (or DoorDash pays $4 to make up for a $3 tip, etc), but if a customer tips $7 or more, DoorDash has to pay $0?
Yeah that second part is how it works according to people on the doordash subreddit.
Yep. Postmates pricing got real absurd, real fast. It almost felt like it happened, even if you had premium.
DoorDash, I should pay closer attention to. My wife usually orders, and she’s way too price insensitive for my taste at times. I at least insisted on one of the zero delivery fee restaurants last night, but don’t know what that actually means.
DoorDash, I should pay closer attention to. My wife usually orders, and she’s way too price insensitive for my taste at times. I at least insisted on one of the zero delivery fee restaurants last night, but don’t know what that actually means.
Looks like here in the SFBA it's "This 11% service fee helps us operate DoorDash" which they bundle with sales tax under the "Taxes and Fees" line item during checkout.
I find that practice to be paricularly objectionable, since it would be more honest to bundle it with the delivery fee, if the point were something like UI brevity. Instead, it feels deceptive, as if to imply that money they have to pay to the restaurant because the restaurant has to pay it the state is in some way related to their operating costs.
I could probably accept a variable fee of less than 3% under the assumption that their payment costs are higher than the restaurant due to card-not-present. I could even accept variable-by-my-location (i.e. distance-based) delivery pricing. However, both of these would need to be clear and up front. Seeing an inflated total only at checkout make me feel cheated, and I cancel the transaction.
In my suburban setting, a restaurant far enough away is maybe $3 in incremental driving costs plus 30 minutes of my time. In a dense, urban setting, presumably everything is much closer [1]. The time savings could be worth it, but the benefits of going myself are a much higher incentive to make sure my order is correct and a much lower latency (i.e. higher freshness).
[1] And places like Manhattan have had delivery services, sometimes done by individual establishments themselves, for ages.
I find that practice to be paricularly objectionable, since it would be more honest to bundle it with the delivery fee, if the point were something like UI brevity. Instead, it feels deceptive, as if to imply that money they have to pay to the restaurant because the restaurant has to pay it the state is in some way related to their operating costs.
I could probably accept a variable fee of less than 3% under the assumption that their payment costs are higher than the restaurant due to card-not-present. I could even accept variable-by-my-location (i.e. distance-based) delivery pricing. However, both of these would need to be clear and up front. Seeing an inflated total only at checkout make me feel cheated, and I cancel the transaction.
In my suburban setting, a restaurant far enough away is maybe $3 in incremental driving costs plus 30 minutes of my time. In a dense, urban setting, presumably everything is much closer [1]. The time savings could be worth it, but the benefits of going myself are a much higher incentive to make sure my order is correct and a much lower latency (i.e. higher freshness).
[1] And places like Manhattan have had delivery services, sometimes done by individual establishments themselves, for ages.
I decided to stop using them after two specific incidents.
A 30% charge appeared on my bill that wasn't explained anywhere in the app or on their website.
They canceled an item off of my order because the menu was inaccurate, and tried to refund me in delivery credit.
A 30% charge appeared on my bill that wasn't explained anywhere in the app or on their website.
They canceled an item off of my order because the menu was inaccurate, and tried to refund me in delivery credit.
This is why the best time to join a startup is increasingly at the post $1B mark. Significantly derisked with product and economics proven, solid comp, crazy upside.
The unicorn is a silly designation, but it also isn’t. There are exceptions of course as it is not zero risk.
The unicorn is a silly designation, but it also isn’t. There are exceptions of course as it is not zero risk.
I disagree about joining a startup worth over $1B. First, compare it something that actually is de-risked, a big company. Amazon has grown 6.5x in the past 5 years. Google has grown nearly 3x in that period. So in addition to have basically no risk of failure, you get high compensation, fully liquid stock and pretty decent growth if you are lucky.
Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock. I'm not saying the valuation is made up, but I certainly wouldn't say anything is de-risked. Taking a lot of money in investment just means the outcome is expected to be bigger and bigger. It doesn't mean less risk and it doesn't mean more liquidity.
If you want upside, there is just going to be so much more potential if you join a really early company. If you want to de-risk, join a big company.
Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock. I'm not saying the valuation is made up, but I certainly wouldn't say anything is de-risked. Taking a lot of money in investment just means the outcome is expected to be bigger and bigger. It doesn't mean less risk and it doesn't mean more liquidity.
If you want upside, there is just going to be so much more potential if you join a really early company. If you want to de-risk, join a big company.
The valuation increase in the FAANGs are a historical anomaly. I’ll bet you that Amazon will not 6.5x in the next 5 years.
I am not saying that Amazon is a bad company, or working there is a bad idea. Just that reversion to the mean is a powerful force.
I am not saying that Amazon is a bad company, or working there is a bad idea. Just that reversion to the mean is a powerful force.
Maybe it an anomaly and maybe it isn't (I can't predict the future), but I know the growth was real. If I bought stock 5 years ago and sold it today, I could pocket those gains.
That is the problem with looking at private company valuations and trying to decide if they are good investments or not. You don't know how the story is going to end for the common shareholders and what the overall return is going to look like. I'm not saying the upside wont be there, it very will could be, but the level of risk is still much much higher than the big public tech companies.
That is the problem with looking at private company valuations and trying to decide if they are good investments or not. You don't know how the story is going to end for the common shareholders and what the overall return is going to look like. I'm not saying the upside wont be there, it very will could be, but the level of risk is still much much higher than the big public tech companies.
6.5x is big but not that crazy when you consider they are growing at %40+ YOY (even more in the past).
How long that continues is anyone's guess but I can see them gaining just as much if we don't have a recession between then.
How long that continues is anyone's guess but I can see them gaining just as much if we don't have a recession between then.
AMZN’s current valuation does not assume 0% future growth. It already assumes exceptional growth and expanding margins. Amazon has to do better than that for the valuation to increase.
Doesn't it just assume that people have to put their pension fund in something?
This is a really interesting phenomenon. There is crazy irrational illiquidity on mid/late-stage startup equity. Right now the conventional wisdom is that it's better to go to Google & co because startup equity is all flickers on a wall because you can't sell. I bet in 5 years there will be a thriving private market for mid-stage company common and junior preferred.
I'd be really interested in to learn more about which "unicorn" you hold stock in and whether you're interested in selling some (as you seem to imply). I've been thinking a while about buying this type of thing (or even setting up a fund to do it). I think there is a lot of value to be had in providing liquidity to employees of these types of companies. There are a few reasons this isn't done much today, but I'm 95% sure they can be overcome. My email is in my profile if you're interested.
I'd be really interested in to learn more about which "unicorn" you hold stock in and whether you're interested in selling some (as you seem to imply). I've been thinking a while about buying this type of thing (or even setting up a fund to do it). I think there is a lot of value to be had in providing liquidity to employees of these types of companies. There are a few reasons this isn't done much today, but I'm 95% sure they can be overcome. My email is in my profile if you're interested.
"right of first refusal" prevents a burgeoning secondary market from forming
but yes, there is ESO Fund and other companies which you can basically become a debtor to in the event that you become liquid. you get cash and also get to potentially share in the upside.
but yes, there is ESO Fund and other companies which you can basically become a debtor to in the event that you become liquid. you get cash and also get to potentially share in the upside.
There are a bunch of hurdles to clear: the ROFR, usually a co-sale agreement, there may even just be outright restrictions on transfer. But these can usually be worked through by simply talking to the company. If they want to exercise their ROFR, cool, the employee still gets liquidity. If others want to co-sell, I might buy more or you might have to prorate. Transfer restrictions are usually just about the company not wanting a ton of randos on their cap table they don't know, and can often be talked through.
If you got 100 shares every year as an Amazon employee, your 500 shares would be worth close to a million.
I know some friends who've been able to buy houses in places like London simply because of their Amazon shares
I know some friends who've been able to buy houses in places like London simply because of their Amazon shares
>>> Let's compare that to unicorns. I own some shares in a unicorn that has been worth over $1B for nearly 3 years. In that time myself and all the other shareholders have had exactly 0 opportunities to sell the stock.
I've seen liquidity events at smaller companies. VC offered to buy back shares from employees, at roughly 1/4th of what they would be worth if the company could IPO overnight.
Point being. You will NEVER be able to sell your shares unless a company is public.
I've seen liquidity events at smaller companies. VC offered to buy back shares from employees, at roughly 1/4th of what they would be worth if the company could IPO overnight.
Point being. You will NEVER be able to sell your shares unless a company is public.
Outside Silicon Valley, a company with a $1 billion market valuation isn't a startup...
For example in the UK a company of that size is Balfour Beatty, an enormous construction and services company established in 1909
For example in the UK a company of that size is Balfour Beatty, an enormous construction and services company established in 1909
> an enormous construction an enormous construction
OOPS sounds like they have tangible hardware and operating costs.
tech companies get to that point, but they can offer services with very little overhead for a very long time until they scale to the point that they have to build their own hardware infrastructure to support them. and then they also resell/rent out that hardware infrastructure to smaller tech companies and everyone else.
OOPS sounds like they have tangible hardware and operating costs.
tech companies get to that point, but they can offer services with very little overhead for a very long time until they scale to the point that they have to build their own hardware infrastructure to support them. and then they also resell/rent out that hardware infrastructure to smaller tech companies and everyone else.
The above is pretty good advice (except for DoorDash) and is what VCs are doing these days - piling on after a company is a runaway success.
In other words, if it's a small startup, do it as a founder.
Otherwise, stick to BigCo and Unicorns.
In other words, if it's a small startup, do it as a founder.
Otherwise, stick to BigCo and Unicorns.
I'm not sure - as a common stockholder, I'd be very worried about the liquidation prefs on a lot of these high flying companies. If we see their valuations come back to earth even a relatively modest amount, common shares become worthless. Also, unlike a BigCo, it can be very hard to get any liquidity unless they're friendly to secondaries.
What’s ycombinator’s policy in their startups, is it friendly to secondaries ?
aren’t the founders common stockholders ?
aren’t the founders common stockholders ?
I don't know the policy on secondaries. But yeah, founders are almost always common stockholders in my experience, and they certainly don't want a preference overhang.
And to be clear wrt my original comment, I think DoorDash is an excellent business, and I have no reason to believe that the valuation isn't fully justified, I'm just speaking more generally about the funding environment of companies doing large rounds at high valuations, and if a macro trend pushes startup valuations in the other direction.
And to be clear wrt my original comment, I think DoorDash is an excellent business, and I have no reason to believe that the valuation isn't fully justified, I'm just speaking more generally about the funding environment of companies doing large rounds at high valuations, and if a macro trend pushes startup valuations in the other direction.
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I believe founders have preferred shares, and employees have common shares.
Edit: Above can be disregarded, see below replies, I misremembered my options paperwork.
Edit: Above can be disregarded, see below replies, I misremembered my options paperwork.
>Significantly derisked with product and economics proven, solid comp, crazy upside.
What, exactly, is "proven" about this model? It's food delivery. Smells like late stage bull market to me.
What, exactly, is "proven" about this model? It's food delivery. Smells like late stage bull market to me.
> with product proven
Sure, but that doesn't mean it has a viable business.
> and economics proven
Says who? Uber still doesn't have positive unit economics and its valued at $60B+
> solid comp, crazy upside.
Base comp? Sure. Options (upside), no. Liquidation preferences wipe these out if the company doesn't meet it's valuation in a liquidity event.
One thing that is (almost) for sure - it looks good on your resume.
Sure, but that doesn't mean it has a viable business.
> and economics proven
Says who? Uber still doesn't have positive unit economics and its valued at $60B+
> solid comp, crazy upside.
Base comp? Sure. Options (upside), no. Liquidation preferences wipe these out if the company doesn't meet it's valuation in a liquidity event.
One thing that is (almost) for sure - it looks good on your resume.
Good for them. And by "them" I mean the founders and investors. Employees may make some money if the company exits, but not much relative to time/sweat investment, certainly several orders of magnitude lower than the guys up top, and probably comparable to or worse than FANG compensation (even disregarding RSUs).
This isn't unique to DoorDash, but it's what comes to mind when a pre-exit company's valuation is being marketed in public. It's meant in part to entice eager recruits, but they don't realize that money is never meant for them.
This isn't unique to DoorDash, but it's what comes to mind when a pre-exit company's valuation is being marketed in public. It's meant in part to entice eager recruits, but they don't realize that money is never meant for them.
Are their employees not paid a salary like everyone else?
If they are like a standard SV startup, they are indeed receiving salary, plus equity many orders of magnitude smaller than founders.
tldr: capitalism
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The unit economics in the US just don't quite add up. Assuming in a rational market a driver has to make about the equivalent of minimum wage (or else they'd take a less taxing minimum wage job) they need to make say $15 an hour in SF. So if I order a Cheesecake Factory from Union Square to the Marina, they arguably will take 30-40 mins roundtrip, so even at full utilization, the delivery is costing nearly $8. Unless the delivery fee is > $8 then the margin on food subsidizes the delivery which seems like a pretty rotten strategy to lower margins even further. Theoretically I guess they could do point to point delivery where they then pickup in Marina but that seems far more difficult and anecdotally never the case when I ask a driver. In that case you could assume a one way takes say 20-25 mins (waiting on delivery probably adds 5 to each order), then that's still a $7 delivery cost at the margin.
One can make the case this can be made to work in dense cities say 1m or more with a density over X people/p. sq. ft. like in Europe/Asia. But I don't think there are many US cities with this kind of density to support.
One can make the case this can be made to work in dense cities say 1m or more with a density over X people/p. sq. ft. like in Europe/Asia. But I don't think there are many US cities with this kind of density to support.
As mentioned in a different subthread [1], their actual delivery fee can easily be above $8 when including their 11% "service fee". (If the "delivery" portion is only $3, the total CCF check would need to be $45.50, which doesn't seem outlandish for that establishment).
Even denser cities are likely to have even more (cheaper) competition.
[1] https://news.ycombinator.com/item?id=17780377
Even denser cities are likely to have even more (cheaper) competition.
[1] https://news.ycombinator.com/item?id=17780377
There are not many cities with $15 minimum wage either.
These valuations are driven by huge liquidation preferences which will totally wipe out common stockholders in any down round or distressed sale.
Nope. We raised on clean terms, 1x liquidation preference, no ratchets. Has been true for every single round —- we have and will never take dirty terms, even if it means a lower valuation
Huh, cool to know. Congratulations and sorry for assuming.
Just a hint for next time, if that's the case then perhaps you should start your comment with "I assume..." instead of stating it as fact.
They have a 1x liquidation preference from what I was told when I was given an offer somewhat recently.
So 1x is standard, and nothing crazy like what you're implying.
So 1x is standard, and nothing crazy like what you're implying.
Given that Stanley just said precisely the opposite, I'm wondering why you made this comment. I'm not being a jerk, but I wonder why you spoke so authoritatively. Do you think that he's lying, or were you just speaking in generalities?
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Its a decent assumption at this stage in the VC cycle, especially when an established player (doordash v postmates) has a surprising multiple - Uber is a great example: https://www.bloomberg.com/view/articles/2017-11-16/softbank-...
Wait, explain the connection between liquidation preferences and valuation?
Or is the argument that these companies get very high nominal valuations but the terms on the rounds they raise include punitive preferences?
Or is the argument that these companies get very high nominal valuations but the terms on the rounds they raise include punitive preferences?
Investors are willing to pay higher prices for less equity for two reasons:
1. Normal investment of $Y at valuation X implies that you, the investor, think that the company is worth more than X. If it exits for more, you'll get more, less you'll get less. But investing $Y at valuation X with a 2x liquidation preference means that you think the company is worth merely Y. The valuation basically doesn't matter any more. If I invest $10 at a $100 valuation and the company exits at a $500 valuation, I get a $40 profit. If it exits at a $50 valuation, I've lost $5. The valuation I invest at makes a big difference for my profitability. But consider the same scenario with a 2x liquidation preference - in the happy case, I get the same profit. In the sad case, I've still doubled my money.
2. Investors in startups are not perfectly rational investors. If I own an existing stake in a company, I would fight tooth and nail to prevent any new money coming in from having a liquidation preference over me. But in truth, if the company can raise money at a $2 billion valuation normally, or a $4 billion valuation with a preference, a fund can report double the gains to the people who actually put money in it. So they stay quiet, show off the impressive paper returns of their current investment fund, and go on raising the next one. This effect is doubly pernicious when the later investors are also earlier investors - they can basically juice their own balance sheet. On paper, the existing stake is worth more because of the inflated valuation, and the new stake is a heads-I-win-tails-you-lose.
And at the lowest preference are all the employees. Founders take money off the table in the inflated new rounds, so while they technically have a lower preference they've still cashed out significantly.
1. Normal investment of $Y at valuation X implies that you, the investor, think that the company is worth more than X. If it exits for more, you'll get more, less you'll get less. But investing $Y at valuation X with a 2x liquidation preference means that you think the company is worth merely Y. The valuation basically doesn't matter any more. If I invest $10 at a $100 valuation and the company exits at a $500 valuation, I get a $40 profit. If it exits at a $50 valuation, I've lost $5. The valuation I invest at makes a big difference for my profitability. But consider the same scenario with a 2x liquidation preference - in the happy case, I get the same profit. In the sad case, I've still doubled my money.
2. Investors in startups are not perfectly rational investors. If I own an existing stake in a company, I would fight tooth and nail to prevent any new money coming in from having a liquidation preference over me. But in truth, if the company can raise money at a $2 billion valuation normally, or a $4 billion valuation with a preference, a fund can report double the gains to the people who actually put money in it. So they stay quiet, show off the impressive paper returns of their current investment fund, and go on raising the next one. This effect is doubly pernicious when the later investors are also earlier investors - they can basically juice their own balance sheet. On paper, the existing stake is worth more because of the inflated valuation, and the new stake is a heads-I-win-tails-you-lose.
And at the lowest preference are all the employees. Founders take money off the table in the inflated new rounds, so while they technically have a lower preference they've still cashed out significantly.
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Liquidation multiples and preference gives the investor protection when things go bad (and also a kicker when it goes well). Let’s say you put in $100M and have a 2x liquidation multiple at a $4B valuation.
Even if the company falls apart and sells for $100M you still get your money back. If it declines to $200M you get all of that before anyone else.
In reality terms vary substantially. In this case, Doordash had just raised and didn’t need to raise again. Depending on how desperate investors were to get in, they might have gotten clean terms.
Even if the company falls apart and sells for $100M you still get your money back. If it declines to $200M you get all of that before anyone else.
In reality terms vary substantially. In this case, Doordash had just raised and didn’t need to raise again. Depending on how desperate investors were to get in, they might have gotten clean terms.
No, I get what a preference is; I'm wondering what the connection between them and valuation is.
I think he's saying that the valuation would be lower if the liquidation preference were lower. This makes sense since a higher liquidation preference reduces the risk of the investment, thus allowing you to grant a higher valuation.
Exactly. This basically makes later stage investments risk-free (nothing is risk free, but you get my point) while pushing all of the risk to the founders and employees.
The press derived a valuation using valuation = price paid X 100/percent equity
Those liquidation preferences mean that investors will pay more for their equity % than they would have without them which inflates the valuation estimates used by the above formula. The basic idea is that not all % equity is the worth the same amount, but it is assumed to when a valuation number is reported.
Those liquidation preferences mean that investors will pay more for their equity % than they would have without them which inflates the valuation estimates used by the above formula. The basic idea is that not all % equity is the worth the same amount, but it is assumed to when a valuation number is reported.
You're being unusually oblique. It's conventional wisdom that liquidation preference multiples are tied to higher valuation, but you already knew that. Do you disagree with this or have some more interesting theory regarding liquidation preference?
Founders may trade a higher valuations for investor preferences. A Stanford professor of mine who studies VC noted that preferences a few years ago were most prevalent when just pushing startups into unicorn terriory.
Is there a similar interplay between valuation and friendliness to secondary markets for employee shares.
I expect you would see that the value of shares where the stock purchase agreement says the company has the right to block the sale would be lower
My assumption is that you sell a given stock with 1x liquidation preference, and the price of that stock is used to determine the valuation for the company, pretending the price is the same for the common stock as the stock with 1x liquidation?
Higher multiples and preference means that you have less downside and higher upside in the investment -> higher valuation.
Yes, that's the usual case (but not in this case apparently).
If a company has 5 classes of shares (common, A, B, C, D), then it's reasonable to value the company's equity by estimating the value of 1 share of each class, multiplying by the number of shares issued, and summing up these products.
The more common method used by PR folks and journalists is:
[Price at which class D shares were last bought] * [Total number of outstanding common, A, B, C and D shares]
This is incorrect if the rights attached to the different classes are different enough that the values of the shares are different. And that's the usual case.
If a company has 5 classes of shares (common, A, B, C, D), then it's reasonable to value the company's equity by estimating the value of 1 share of each class, multiplying by the number of shares issued, and summing up these products.
The more common method used by PR folks and journalists is:
[Price at which class D shares were last bought] * [Total number of outstanding common, A, B, C and D shares]
This is incorrect if the rights attached to the different classes are different enough that the values of the shares are different. And that's the usual case.
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You're just making up stuff. Why?
It’s not really directly relevant to their valuation but if I can prevent someone else from that experience: DoorDash will happily let you pass your phone around a group browsing and adding things but it’s only during the actual payment attempt that they’ll deny it and inform you that you can’t order more than $50 worth of food. It was (at least at the time) documented nowhere. The app didn’t prevent you from adding more than that amount and their FAQ said nothing. Uber Eats (for better or worse) didn’t have any of those issues.
I don't deny your experience, but it doesn't match mine. I am able to confirm 15 orders over the last two years higher than $50, the highest landing at $73.
Unless we're to believe the app is detecting multiple users surreptitiously and has an opinion on them, group orders / a phone being passed around seems irrelevant, but also not within my personal experience.
(Zip: 94086, and I love Indian leftovers from Ulavacharu, usually individual orders)
Unless we're to believe the app is detecting multiple users surreptitiously and has an opinion on them, group orders / a phone being passed around seems irrelevant, but also not within my personal experience.
(Zip: 94086, and I love Indian leftovers from Ulavacharu, usually individual orders)
Maybe I’ll give it another shot. The app bugged and double charged me for one order and it took a week or so to sort out so maybe they flagged me. That would be bit obnoxious but understandable if they couldn’t differentiate between a bug and fraud.
This could be a bug that you encountered. I've ordered tens of thousands dollar worth of food through their app or website in the last 3 years, often each order is $50-$200 (everyday lunch for our startup). Although, now I only use the 'group order' feature ever since they introduced it, before that it was more like 'passing the phone around' as you mentioned.
I did try different payment methods to no avail. I didn’t know they have a group order feature, that’s actually makes trying it out again tempting.
I imagine they must do this to minimize risk for certain accounts based on factors unknown to me. I don't know what your error message said exactly, but perhaps the restaurant themselves placed an upper limit on delivery orders because they don't like that they are missing out on the tip for large orders. This is purely speculation by me of course.
Some of the fancier places will easily be over $25 of food so if you order for two, $50 is not difficult to reach.
Out of curiosity had you ordered from DoorDash multiple times before you attempted that group order?
Some of the fancier places will easily be over $25 of food so if you order for two, $50 is not difficult to reach.
Out of curiosity had you ordered from DoorDash multiple times before you attempted that group order?
I did order before. I thought it may have been some kind of fraud detection but I’d ordered from them multiple times to the same address. In fact, one of the first times I ordered they double billed me. Took a week or so to straighten that out with support. But even if it was some kind of fraud prevention flag it would have been nice to get stopped at that amount while ordering.
Their app has a ton of bugs in it. A simple bug i came across was by setting an address to a location they don't serve and doing a search. My display left me with
"The operation couldn't be completed. (JSONMapper.MappingError error 2.)"
Displaying an error like that to the end user does not inspire confidence.
"The operation couldn't be completed. (JSONMapper.MappingError error 2.)"
Displaying an error like that to the end user does not inspire confidence.
I got a lot of weird glitches and bugs as well but I chalked it up to it being (I assume) a web view based app without the rough edges smoothed out.