DoorDash

Live from the scene of its blockbuster IPO, we recount the crazy, roller coaster journey of this "Palo Alto delivery company". From Sand Hill darling during their Series A and B fundraises to all but left-for-dead during the great unicorn massacre of 2015/16, DoorDash has clawed their way back from the brink and emerged as America's dominant meal delivery service, and its only unit-economic positive standalone logistics player. Is this the dawn of the next great Amazon-like story, or is the company simply benefiting from temporary tailwinds due to the pandemic? As always, we dive DEEP to find out. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Playbook Themes from this episode are available on our website at https://www.acquired.fm/episodes/doordash Carve Outs: David: Hades on the Nintendo Switch: https://www.nintendo.com/games/detail/hades-switch/Ben: Watchmen on HBO: https://www.hbo.com/watchmenSuccession on HBO: https://www.hbo.com/successionPalm Springs: https://www.imdb.com/title/tt9484998/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  Well, first of all, is there like some rule that the graphics that you put in your S1 have to be just like painfully low resolution?

• 0:19Ben Gilbert?

  Welcome to season seven, episode seven of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle.

• 0:35David Rosenthal?

  And I'm David Rosenthal and I am an angel investor and advisor to startups based in San Francisco.

• 0:41Ben Gilbert?

  And we are your hosts. The year was 2013. Everyone had just finished cracking their jokes about how every startup is just another photo sharing app, but the wave of yet another food delivery app was just getting started. Tony Hsu and his co-founders were launching Palo Alto Delivery.com, which we all know today as DoorDash. On this episode, we'll dive into how these Stanford students became one of the very few winners in the cutthroat food delivery category, how they raised $2.5 billion from VCs, the SoftBank Vision Fund, and even sovereign wealth funds around the world, how they went up against incumbents like Grubhub and Seamless, and the even more well-funded

• 1:24Ben Gilbert?

  startup on a warpath for world domination, Uber. This is the story of insanely fast growth, a company currently tripling year over year. And that's the December 2019 number before the global pandemic created the ultimate tailwind at their back to IPO at the greatest possible time in the business's history.

• 1:45David Rosenthal?

  Yeah, they kind of nailed the timing on this one, didn't they?

• 1:48Ben Gilbert?

  They did, David. Today, we will dive into the question that we're all wondering, is it even possible to build a sustainable business with positive unit economics in this category? And if so, will DoorDash actually be the one to do it? All of this and more coming up on Acquired.

• 2:05David Rosenthal?

  Ben, your hooks and intros are getting so good. Do we even need to do history and facts? I feel like you covered everything there.

• 2:12Ben Gilbert?

  Oh, you know, we didn't.

• 2:16David Rosenthal?

  You mean we should go through these like 15 pages of notes that I have here?

• 2:21Ben Gilbert?

  All right, well, lots to do. Let's get to it. As always, if you love Acquired and want to hone your own craft of company building, you should join us as an Acquired Limited Partner. You'll get access to the LP show where we dive deeper into the fundamentals of company building and investing, in addition to our monthly LP calls where we talk with all of you directly, and of course, our book club and the Zoom calls with the authors. This is really where we have gotten to know so many of you personally. And frankly, this is like the set of people who have most influenced the direction of the show and kind of the set of topics that we want to tackle. So thanks to all of you who are a part of that community and welcome if you're thinking about joining. If you do want to join, you can click the link in the show notes or go

• 3:02Ben Gilbert?

  to acquired.fm/lp and all listeners get a seven day free trial. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 3:28David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 3:49Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 4:10David Rosenthal?

  In half? Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 4:29Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you. David, let's do it.

• 4:58David Rosenthal?

  Let's do it. Okay. So today, in non-typical acquired fashion, we're actually going to start with the founding of the company. I thought about going way back, you know, doing the history of restaurants. It's just, it's too much. We got a lot to get through here.

• 5:12Ben Gilbert?

  All right. Yeah. When was the first restaurant?

• 5:14David Rosenthal?

  I don't even know. That's a good question. But anyway, that is a question for another day because this story in and of itself stands on its own. Okay. So we start, as Ben you alluded to, on the Stanford campus in the fall of 2012. I remember it very vividly and well because I was there. I was starting at GSB that very fall. But unbeknownst to me, right across the, kind of made their two main quads, right across the way in the class was called Startup Garage. And this is kind of a legendary class at GSB. It's co-taught with GSB and the Design School, the D-School. And it's interdisciplinary. It's

• 5:57David Rosenthal?

  a two, two-quarter class. And the idea was you apply as a team, a fully formed team to go build a product or service. And the idea is you're going to like build a company and actually launch a company as part of this class. And so there were four Stanford students, two from GSB, two undergrad computer science students who had applied to the Design Garage class that fall and entered.

• 6:23David Rosenthal?

  Andy Fang and Stanley Tang were the two undergraduate computer science majors. And the two GSB business school students were Evan Moore and Tony Xu. So I think the story behind how they came together is that Evan and Stanley had worked on a project in another class the previous year. Evan and Tony were second years at GSB and Stanley and Andy were, I think, juniors. Yeah, they were juniors undergrad. So they'd worked together in another class and then they brought in their two friends and said, okay, the four of us, we're going to be the stellar team.

• 7:01Ben Gilbert?

  So you have this like good mix of business school students, computer science undergrad.

• 7:05David Rosenthal?

  Yep, the dream team.

• 7:07Ben Gilbert?

  Yeah. And interestingly, I mean, this is a fairly common thing at universities for an entrepreneurship program, the like go start a company class. And it's always the dream if you're the instructor or professor that one of them actually goes on to become this big, successful company, but the vast, vast, vast majority of time, it ends up just being an academic exercise.

• 7:25David Rosenthal?

  Yeah. And the crazy thing at Stanford is like, Design Garage is not the only class that does this. There are like probably 16 classes across campus that all have similar premises. So regardless, here we are. They get into the class and they start thinking about what they're going to focus on. Now, Tony had just finished interning that summer at Square. And Square, of course, that we all know and use and love today, public company, just about $100 billion market cap. When he was there that summer, this would have been the summer of 2012. It was about 30 employees, much, much different. It was just the credit card reader. But it was focused on, as we covered in our episode, this idea of empowering merchants and local businesses to accept credit cards.

• 8:10David Rosenthal?

  And it was clear already, at least for people on the inside like Tony, that this was unlocking a huge amount of commerce and commerce activity for local merchants. So they thought, okay. What else can we build? We know that this is a big opportunity. The internet is coming to all these businesses. Like, most of these places don't even have Wi-Fi.

• 8:35Ben Gilbert?

  Right. And the amazing Square innovation there was like so many of these people that could never take credit cards before. They were like independent merchants that were, you know, selling things at craft fairs and food trucks that were, could only ever be cash businesses, were now, you know, brought online. Like, they were sort of trackable GDP of these categories of now digitally-enabled businesses.

• 8:55David Rosenthal?

  Yep. And we'll, we'll get into this more as we go throughout the episode, but this was a huge insight that was completely not obvious yet to the rest of the world. I remember, like, I was starting at GSP that fall. I had been at Madrona as an associate before that. And every time we looked at a company, a startup, that was gonna sell to smaller local businesses, help them with yadda, it was like, no, this is a bad category, can't invest there. Acquiring these customers is too hard. They're not online. It's not gonna work.

• 9:24Ben Gilbert?

  These, these customers are notoriously difficult to serve because they have razor-thin margins, they have low willingness to pay, they churn like crazy, it is expensive to acquire them, and then they obviously don't retain well because either they, you know, don't know how to use your product well, or in fact, they go out of business. And so you have to reacquire someone else. Like, is notoriously the worst customer segment as a venture capitalist to be investing in.

• 9:48David Rosenthal?

  Yeah. If Tony had gone and pitched this on Sand Hill Road at the time, he definitely would have gotten a lot of rejections. But, as we said, like, Square was starting to change this. And really, what changed it all was the mobile phone and the smartphone that proprietors and managers within stores were using. Okay, so, they come up with a few ideas. As part of the, the vision is, how do we help these local merchants? They go, the class sends them out into the streets, the mean streets of Palo Alto. They go and they have, you know, design conversations with local store owners. They ask them what their problems are. They start thinking about an idea. And the iPad was big at this point. It was about two years old, uh,

• 10:31David Rosenthal?

  two, two and a half years old, and had cellular connectivity. And they're like, huh, well, you know, Square is taking payments, they're using iPads, they're, the store owners are buying iPads, they have them there. What if we had an app also on the iPad that when customers came in the front door, the iPad would be there and it would ask, how'd you hear about us? And they could see, you know, all these.

• 10:57Ben Gilbert?

  Wait, that was the initial business?

• 10:58David Rosenthal?

  That was the initial idea. They had a couple of initial ideas, but this was the one that they were testing. I think they'd actually maybe built an MVP of this app. And then like these, you know, business owners could now track their customers, where they came from, they could market to them more effectively. Yeah, great. So they're doing these design interviews and famously, as the story goes, and by all accounts, this is actually true, they sit down with a woman named Chloe, who owned the Chantal Guian macaroon shop in downtown Palo Alto. I never frequented that, but it was probably too expensive for the, the broke students at the time of serving, serving the VCs in Palo Alto, not the, not the students and the startup founders. And so they sit down with her, they're pitching her this app

• 11:40David Rosenthal?

  and she's like, yeah. And then they're about to leave and she's like, actually, you know, I do have a problem that you guys might want to think about. And they, as they write on their Medium account, when they launched the business, just as we were about to leave, Chloe bursted out, well, there is one thing I wanted to show you. She took out a thick booklet. It was pages and pages of delivery orders. This drives me crazy, she said. I have no drivers to fulfill them and I'm the one doing all of it. She's the proprietor, she's running the store, she's managing the storefront, she's making the macaroons, she can't take time to go out and do these deliveries, even though probably all the

• 12:20David Rosenthal?

  Sand Hill Road venture firms want their macaroons. And so they say like, huh, okay, that's interesting. I wonder if other businesses have the same problems. They go out and interview more restaurants and food businesses and they hear the same thing. All these restaurants, like, you know, the pizza guys are doing delivery, but like, nobody else is, you know, the Thai place isn't doing delivery. Most importantly, Orange Hummus is not doing delivery.

• 12:44Ben Gilbert?

  Most importantly.

• 12:45David Rosenthal?

  And most importantly. And so they say, huh, okay, well, let's spin up a little MVP and see what happens here.

• 12:53Ben Gilbert?

  Which is actually pretty amazing to think about this. Like when I was growing up in Ohio, if you wanted to order delivery, like there was pizza delivery was a category, then takeout food was another category where you'd go and you'd pick it up. And like, maybe there'd be a Chinese restaurant or a Thai restaurant that would have figured out delivery on their own. But like, if you were ordering delivery food, it was pizza.

• 13:14David Rosenthal?

  Yeah, that was it was Domino's, it was Papa John's, it was Pizza Hut. And that's kind of the crazy thing too here. Like they figured it out. And nobody had made the leap yet in the US at least to, hey, people like getting pizza delivery delivered to their house. They might also like other food getting delivered to their house, too.

• 13:32Ben Gilbert?

  And you gotta think like pizza has to lend itself better to like a more regular type of delivery than other sorts of food that with more complex menus and stuff. I mean, I'm sure we'll get into that, but like, it's interesting to just think about like, why, why was this so obvious and prevalent and decades long for pizza companies? And yet no one had really done it for other food categories.

• 13:54David Rosenthal?

  Well, it's good. I think there's a very specific answer about why DoorDash made it work, which we'll get into in a sec, but it's a good question. I mean, in New York, it was happening with Seamless and then Grubhub, which merged with Seamless. And you know, when I lived in New York, yeah, you could use Seamless to get any food you want to deliver it, but it didn't really happen anywhere else in the country. So, okay, so they throw up this MVP, they buy the domain name Palo Alto delivery.com. They take PDF menus of a bunch of the top restaurants in Palo Alto. And they had some really good ones. They had Orange, they had Pachis, the pizza place. I guess Pachis probably didn't deliver. Pachis is really good pizza in the Bay Area. Life Kitchen was great, like a bunch of good places. They

• 14:36David Rosenthal?

  had the Thai place, they had the Indian place. So they put it up and then they have on the website, a phone number. So you can order on the website, it's just on the web. It's a phone number and it's a Google voice number that rings all four of their cell phones when anybody calls it.

• 14:50Ben Gilbert?

  That's awesome.

• 14:51David Rosenthal?

  And so on January 12th, 2013, this would have been the start of the second quarter of the winter quarter at Stanford. It's the second quarter of Design Garage. They'll, they put this up and literally within an hour, they get a call. So they, they put it up and then they put it on a couple, like, uh, they blasted to a couple of email distribution lists on, at Stanford. And within an hour, they get a call from a guy who wants to order, I think it was Thai food. And they're like, wow, holy crap. So they drive over, they get the food, they go and they, uh, they drop it off and they're like, Tony talks about this. He actually gets out his, his phone and they interview him. They want to know like, how'd you hear about us? What's going on? Why'd you order this? And it turns out, it was this guy named

• 15:35David Rosenthal?

  Bruce Barkat, who lives on Bainbridge Island in Seattle. And he works for, uh, for, uh, Leafly, the marijuana company. He had written a book called Weed the People about legalizing marijuana. And, uh, he was a visiting author at Stanford and he was staying, I don't know if it was on Stanford Housing or something over on Alpine Road, which is kind of behind the, the dish, if you know, uh, if you know the Stanford campus. And, um, over there, there's not like, like you're pretty far from University Ave. There's no food over there. And so he was probably like, yeah, I just didn't want to get in my car and drive all the way over to go get this food. This is great.

• 16:14Ben Gilbert?

  Perfect first customer.

• 16:16David Rosenthal?

  Yeah, pretty, uh, pretty great use case. So they do this and they just put it out on the email distribution list. Um, so people start using it like all over the GSP. People are using it. The undergrads are using it. Jenny and I used it. Uh, the total move was get Oren's hummus, especially you're having people over, your big party, get a big thing of Oren's and Palo Alto Delivery will come and, uh, come and make it happen for you. So they were just-

• 16:38Ben Gilbert?

  And like, you remember it being called Palo Alto Delivery?

• 16:41David Rosenthal?

  The, uh, well, I remember, I think by the time- I was trying to recall, I went back and I looked through my email history. I think by the time we actually did our first order, they were in YC and they had, they had changed the name to DoorDash. But everybody knew that this was happening, like people like my classmates, you go to a party and like the food was there from pallet to delivery. So they had hacked it all together. This was total like find a problem, solve the problem, you know, not design focused, you know, design focused just in terms of like solving the problem. So they were using Square to take payments. So you would call the number, it would ring their cell phones via Google Voice. One of them would pick up, they would take your order down, they would then call the restaurant, put the order in with the restaurant.

• 17:27David Rosenthal?

  They would go and pay and then they would drive it over, you know, drop it off. And then they would take out a Square reader and you would swipe your credit card to pay them back for the

• 17:38Ben Gilbert?

  Unreal.

• 17:40David Rosenthal?

  It was totally

• 17:41Ben Gilbert?

  Well, that sounds like a tax and accounting nightmare. Are you basically losing money because you have to pay taxes on the income that you're?

• 17:49David Rosenthal?

  Well, they didn't actually incorporate the company until they applied to YC. So this is all lost to history in terms of the accounting. And it was also super cool. The other really smart thing they did, once they started bringing on some other drivers to do delivery for them. They used Find My Friends on iPhones to track the deliveries in real time.

• 18:10Ben Gilbert?

  So smart.

• 18:10David Rosenthal?

  So they, they could like route people and be like, oh, okay. This courier is closer to this restaurant. We've got the order coming in over there. Like, hey, you, when you finish this, like, go over, grab this, you know?

• 18:19Ben Gilbert?

  It's so crazy thinking, this is probably the first company we've covered on Acquired on the main show here. That is started sort of in this modern, the iPhone is already ubiquitous era. Like you think about Uber's founding or Airbnb, which will do tomorrow, or so many of the companies that we covered in the 2018, 2019 IPO booms. Like all those stories developed like alongside the mobile revolution. And here you are, you already have a very modern set of tools. There's Google Voice, there's Square and there's Find My Friends, all of which were not available to like the previous generation of startups.

• 18:59David Rosenthal?

  Exactly. That, and that was The key point that made this work, even though probably people had tried this in different ways in the past and Grubhub actually notorious, so Grubhub had merged with Seamless. We'll get into their model in a minute. They acquired lots and lots of local delivery companies. And actually, one of them was one of my classmates in the year behind Tony and Evan. He had sold his company in Atlanta, I think, to Grubhub. And so he showed up. He had the second nicest car in the GSP garage behind the guy who had started a Zynga clone in college, but like, didn't raise money and just kept all the cash flow. I feel like there's a lesson in there somewhere, but.

• 19:42Ben Gilbert?

  I don't quite know what, there's many lessons there.

• 19:45David Rosenthal?

  Yeah. We'll unpack that on an LP. So, so anyway.

• 19:50Ben Gilbert?

  With a psychologist.

• 19:51David Rosenthal?

  Yeah. Back to why now with Palo Alto Delivery and, and mobile and these tools, like, it's actually, this Find My Friends thing was really important because unlike Uber, where it was, you know, you just had the consumer, the rider, and you had the driver, you had these two pieces and like, you could give the driver smartphones and like, coordinate everything. With DoorDash, it's like the 3D chess version of ride sharing. You have this third element, which is the restaurant, which is a participant in the system, both from an operations perspective and from a business model perspective. So like, consumers need to be able to place the order easily and efficiently, like, fine, mobile helps with

• 20:35David Rosenthal?

  that. You've got the dashers, right, of what they end up being called, the couriers. They need to be tracked, just like ride share drivers, but they need to be routed to the restaurant and to people's homes. So it's like doubly difficult. Then you've got the restaurants. You gotta know where the restaurants are. You gotta know the status of the food. You gotta have them get the orders coming in, accept them, know that they've gotten it. This is super hard and there's no way any of this could have happened without all of these players having smartphones. Again, restaurants most, still today, most restaurants don't have wifi.

• 21:09Ben Gilbert?

  Right. It's such a good point. And like to flashback to a previous era of businesses working really well now, but failed previously. You look at Instacart, you look at Webvan, like aside from there just weren't enough people on the internet yet, there definitely weren't people doing this on mobile phones yet. And they're the frankly, the technology stack wasn't sophisticated enough in that web 1.0 era to facilitate all this real timiness and keeping everyone in sync at the same time. As you were talking there, David, it hit me that not only, of course, do you have to split the money one additional way in food delivery, because you've got the, you know, in addition to the dasher and the person ordering the food and the company facilitating the transaction, you have the restaurant involved,

• 21:54Ben Gilbert?

  which is different than ride sharing. So there's sort of money has to flow into four different or out of one pocket into three others, instead of out of one pocket and to two others. But there's also an unbelievably operationally complex component here where the timing has to be perfect. Like you're heating food. There's a very narrow window where you can get there too early or too late and that be okay, you know, just in the kitchen, let alone then having it sit out for a while, then having, you know, the right, you know, amount of time that it takes a driver to get to a person's house. Like everyone's very familiar with thinking through this problem from a consumer perspective, but just thinking through the technology infrastructure is really crazy.

• 22:35David Rosenthal?

  Yeah. I was talking about this with some friends in doing research for this episode who are former Uber employees. And the thing is like, you know, Uber and Lyft and ride sharing, right? You know, canonically, everybody found like, hey, once you get the wait times down to, you know, five, maybe 10 minutes, like, that's fine. It's all good. But to your point with food, it's not all good. Like, the degree of diminishing returns is much, much higher for food delivery, because like, I want it fast, but it also needs to be high quality and like, still good. If it's fast, but it's only halfway cooked, like, I'm never going to use your service again, you know?

• 23:13Ben Gilbert?

  Yeah. And the far more forgiving side is it took too long. And, you know, the food can stay, you know, warmish under a heat lamp for a while. But like, I think everybody knows when they've gotten food that's been sitting under a heat lamp for too long.

• 23:25David Rosenthal?

  Yep, totally. So, okay. So like, they're, they're hacking these pieces together. This is kind of cool. From the beginning. The business model was was basically already there and they haven't they haven't changed it much since. Under the hood, a lot has changed. But so initially, it was a flat $6 delivery charge to the consumer for getting your food delivered. And obviously, that is changed since then in terms of how it's calculated. But Jenny and I ordered Chinese food last last night from Mama G's here in San Francisco. Great Chinese place. They're on Dash Pass. We paid a $7 tip to the dasher and got our food. Like, it was basically the

• 24:05David Rosenthal?

  same from our perspective. They also started going to the restaurants really early on. This is even, I think, during the Palo Alto food delivery days and said, hey, we're bringing you these incremental orders. Will you pay us a cut of the revenue so that we can make this work? The $6, $7, you know, delivery fee, that'll go to paying the couriers. And then we're bringing this revenue to you. We'll take a little bit of cut of the food. And the restaurants said, yeah, I mean, Tony's talked about this, like, they they basically never had a problem with it. And I think it was because there, for many restaurants, this behavior had already kind of been established with the Grubhub and Seamless model. So this

• 24:50David Rosenthal?

  is probably a good time to take a step back and say, like, okay, what's what is unique and different here? Because I think we were texting before the show, like, most people, I think, don't understand the difference between Grubhub, Seamless, and and what DoorDash and Eats are doing.

• 25:05Ben Gilbert?

  I mean, it took me until actually diving in and doing the research to realize, like, and I'll just spoil one little bit here, that it was only pretty recently that Grubhub started actually having fulfillment, like, drivers as a part of the thing and not just, you know, dumb pipes that you order through.

• 25:22David Rosenthal?

  Yep. So, okay, we rerun back. Grubhub, I think Grubhub was started maybe like early 2000s. Seamless, Brad Stone writes about this in The Upstarts, had been started in 1999 in New York. And they were the same thing. They merged in 2010, maybe, I want to say. But their models were you could go to their websites or you could call them in the early days. It was calling Seamless, it was calling Grubhub, just like Palo Alto Delivery. They would take down your order. They would call the restaurant, just like Tony and team were doing in the early days. But then they'd stop at that. They'd just say like, hey, you know, Ben wants, Ben wants pad thai, go ahead, go for it.

• 26:06Ben Gilbert?

  And so then the restaurant, by was 2013. So then the restaurant, the onus was on them to have a driver that could actually get the order to you.

• 26:14David Rosenthal?

  To have a courier, a driver and do the fulfillment. Yeah. And in many ways.

• 26:19Ben Gilbert?

  Courier, yeah. New York is probably a, you know, bike messenger type person.

• 26:22David Rosenthal?

  Exactly. So this is why this has caught on so, so well in New York. And then other cities, this existed, you know, restaurants were on, it was mostly Grubhub outside of New York. And then they acquired all these small local players. This was a pretty good model and Grubhub went public. Was a well-regarded internet stock because this was a super capital light model. They just.

• 26:46Ben Gilbert?

  Notably, they're a very profitable business.

• 26:48David Rosenthal?

  Yeah, very profitable. They acquire customers and they did all sorts of interesting things, shall we say, to acquire customers via some SEO hacks. And then they would pass on the orders. Restaurants would pay them a commission fee on the orders for bringing the orders. And then, and then call it a day. And so this worked super, super well. Now, what Tony DoorDash is doing is obviously very different. And the downside of the Grubhub model is that most restaurants don't wanna, aren't equipped or aren't even thinking about doing the logistics. And even if you were thinking about this, you're saying, okay, great. I'm gonna hire a courier.

• 27:31David Rosenthal?

  Okay, you're gonna hire one, maybe two couriers. You're gonna use those heavily during the rush hours for eating or whatever your type of food is that you're preparing, you know, whether that's breakfast, lunch or dinner, probably lunch or dinner. The rest of the day, they're gonna sit around, but then when you need them, you're only gonna be able to fulfill a couple of delivery orders. Like this is a nightmare.

• 27:54Ben Gilbert?

  Right. And probably not fair of me earlier to use the term dumb pipes, but I guess more to say what they really were, were a demand aggregation company where their primary, you know, business activity was consumer marketing and retention. You keep the people, you are the mechanism by which they, they order, but then the market is still constrained to the set of restaurants who are willing to take on this delivery stuff on their own.

• 28:21David Rosenthal?

  And in a place like Palo Alto, which is not a very dense city, even though there are a lot of people that live on the San Francisco peninsula, it really doesn't make sense. And so you didn't have any of this really operating, again, outside of the Domino's, the Pizza Hut's and the Papa John's. So this is another super cool thing that Tony and team do. They realize as they get going on this, like, hey, we're not building Grubhub and Seamless, we're building Domino's, we're building FedEx and we're just taking it to every, we're building a logistics network, we're taking it to every business. So what do they do? They go and they work for Domino's and FedEx for a couple of weeks just to like learn how their logistics systems operate.

• 29:06Ben Gilbert?

  Oh, no way.

• 29:07David Rosenthal?

  Yeah. So they sign up, Tony was the driver for Domino's, delivered pizza for a week or two and took notes on how everything worked. And, and he talks about this, he was really surprised, like, well, A, these are world-class operations. And so you learn a lot and realize like, hey, this is a complex business that we're going to have to build and delivery times are super important, density is super important, you know, like to make this work. But these aren't tech businesses. So like Tony talks about Domino's being run on, you know, paper and not on, not with Find My Friends and not with, you know, smartphone technologies and mobile ordering systems and mobile app logistics at the endpoints. And so he's like, oh, okay.

• 29:52David Rosenthal?

  This is really interesting. And so that he then he talks about like, it's basically during this period that there were three questions that they wanted to answer. One of which was just simply like, do people want this? Is there a reason on the demand side where food delivery of non pizza restaurants doesn't exist really outside of big cities? And the answer to that was like a resounding yes, like everybody in Palo Alto and Mountain View wanted this. Two was can they find a way to do this to pay the drivers enough and keep them utilized enough with making trips that they look more like Domino's and FedEx

• 30:33David Rosenthal?

  than they would like a restaurant trying to do this themselves and not being able to utilize their drivers enough to make it worth it. That clearly is a yes.

• 30:44Ben Gilbert?

  Well, and how, well, how do they do that? Like, so people want food from 12 to two and from, you know, 5:30 to 8:00. Like, how do they handle off peak?

• 30:55David Rosenthal?

  Ah, well, you're coming to, this is gonna show up later in the story, but this is the gig economy that makes this work.

• 31:02Ben Gilbert?

  Oh, I see. So since there are variable expenses, it's not, you know, the business doesn't have to worry about paying people during the hours when there's no demand.

• 31:10David Rosenthal?

  Yeah, exactly. Like you can, you can do this as 1099 contractors. You don't have to go, I don't know what Domino's and FedEx was, was doing in those days if they were W2ing their employees or if they were 1099s. But Uber, it clearly, you know, already started to pave the way for

• 31:27Ben Gilbert?

  Right. So this was ostensibly legal.

• 31:31David Rosenthal?

  Yeah, exactly. Ostensibly legal. And now, post Prop 22 in California, definitely legal. So that makes it work on the driver's side. And then on the restaurant side, would the restaurants be happy to pay us for these incremental orders that we're generating for them? And again, like, yeah, apparently it was super easy. They were all willing to pay them.

• 31:56Ben Gilbert?

  And so do you know at this point had they started thinking about getting back to my question on like, what if, you know, people do want to work between 2:00 PM and 5:30? Like, were they already thinking about non-food options at this point in order to sort of utilize that workforce over more hours?

• 32:13David Rosenthal?

  I think they were. You're going back to the original macaroon shop, Chloe, at Chantal Macaroons. You know, that's not a, that's not a meal.

• 32:25Ben Gilbert?

  Not a meal, yeah.

• 32:27David Rosenthal?

  But I suspect what happened was just that the food, the meal delivery became so big and like clearly had product market fit that that just became all consuming. But now you read the S1 and they talk about, hey, we do want to be the local, the on-demand delivery, local logistics network, FedEx for small local businesses. We want to do flowers. We want to do groceries. We're already experimenting with that. But it's a small, small percentage of the business.

• 32:55Ben Gilbert?

  Okay, so question number one is, do consumers want this? Question number two is about-

• 33:01David Rosenthal?

  Can we make this work for drivers?

• 33:03Ben Gilbert?

  Yep. And question number three then-

• 33:05David Rosenthal?

  Is the restaurants?

• 33:06Ben Gilbert?

  Is the restaurants. And so, yeah, so then, at this point, how were they thinking about, like, how much can we take from restaurants without them, A, getting mad, or B, having an unsustainable business? And then how little can we take and still have a business ourselves?

• 33:25David Rosenthal?

  That's a good question. I don't know. But I do think, as we'll get into as we go along the story, one thing, similar to Bezos and Amazon in their early days, one thing about DoorDash is they've been willing to fly very low to the ground, so to, so to speak, on this. And Tony talks about this a lot, though, like, hey, by us improving our density and being able to do more, fulfill more orders more, more quickly, that improves the economics in the system. If we can give that back to consumers, they've definitely given it back to consumers. I mean, it's crazy that you pay $5, $6, $7 to get somebody

• 34:08David Rosenthal?

  to drive across the city and deliver food for you. And we also give it back to restaurants that'll allow us to grow the market more.

• 34:15Ben Gilbert?

  Yep.

• 34:16David Rosenthal?

  Or grow our share more. Okay, so they figure all this out in the Palo Alto delivery days and then the school year is coming to an end. They apply to Y Combinator. They get in and say, okay, we're gonna go do for, do this for real now. They ditch the Palo Alto delivery name because, you know, it's hard to, uh, hard to imagine that playing well in Wichita.

• 34:40Ben Gilbert?

  By the way, do you know the other famous example of someone that had to do this, but took a little bit of a different track? Also in the restaurant space, also in the food delivery space.

• 34:49David Rosenthal?

  Ooh, I don't know.

• 34:52Ben Gilbert?

  People from St. Louis will know what I'm talking about, if that's a clue. Panera Bread.

• 34:57David Rosenthal?

  Oh, Panera Bread. Wow.

• 34:59Ben Gilbert?

  To this day, in St. Louis, is called the St. Louis Baking Company, St. Louis Bread Company, something like that. But I remember my first trip to St. Louis, I was like, what? That's the Panera logo. And it's like, called the St. Louis, what is this? And when they expanded outside of that region, they just decided, we're gonna leave the ones locally here, the same, uh, with the same name. And, you know, everywhere else, it'll just be called Panera. And just to wrap this full circle, they actually went it alone and they basically run their own single client DoorDash and are sort of the black sheep that created their own version of a full end-to-end fulfillment system order on their website and app and they deliver to you. I think they're one of the few restaurants who actually does that independently.

• 35:43David Rosenthal?

  Interesting, even to this day.

• 35:45Ben Gilbert?

  I think so. It was true as of Q1 2019.

• 35:51David Rosenthal?

  Interesting. There's, um, there is this other, I guess, category of restaurants that have done this historically, which is the kind of lunch catering, office catering, sandwich type shops of which Panera is obviously consumer facing, but I think about like specialties, right? I think they're in a bunch of cities. You know, you're doing a lunch business meeting.

• 36:12Ben Gilbert?

  Yep.

• 36:12David Rosenthal?

  They'll deliver and cater that for you.

• 36:14Ben Gilbert?

  That's true. That, that, that has totally been a market that has existed for a long time. And there's a different set of startups going after that. And obviously DoorDash and these folks are sort of trying to create an offering for those business customers too. But, um, yeah, that, that's, that's a little bit of a different market.

• 36:30David Rosenthal?

  Yep, yep. Okay, so they do YC. Coming out of YC, they raise a $2.4 million seed round in the fall of 2013, which, you know, was like, good, great seed round, but nothing crazy here. Like, at the same time, there were companies coming out of YC raising five, six, seven million dollar seed rounds already. This is, you know, the go-go days. And it's led by, interestingly, Keith Raboy, who had just joined COSLA. Now Keith, before that, of course PayPal Mafia member, and now partner at Founders Fund, he had been the COO of Square while Tony was there over the summer. So I'm sure

• 37:14Ben Gilbert?

  Yeah, did he know Tony from, I guess it was only 30 people, so they had to.

• 37:17David Rosenthal?

  I'm sure they knew each other. So that was, and would have also explained why he probably was more likely to get this than other VCs at the time.

• 37:30Ben Gilbert?

  Right. You saw the sort of like online-ification of independent merchants and particularly around food.

• 37:37David Rosenthal?

  Yep. So he leads the seed. CRV, SB Angel and Pear also come in, in the seed. And, you know, to this question of, that you said about like, what types of delivery are they doing? What types of logistics? They write a Medium post at the time saying, ultimately, our vision is to become the local on-demand FedEx. We are a logistics company, more so than a food company. We help small businesses grow. We give underemployed people meaningful work and we offer affordable convenience to consumers. We're tackling some of the most difficult logistical challenges that come with on-demand delivery. True, both in engineering and operations. So, and I think as Tony tells

• 38:17David Rosenthal?

  the story, that was also part of what helped them raise coming out of YC was pitching this bigger vision of like, hey, this isn't just, you know, meal delivery. You've already heard of this. Grubhub exists, but like, this is actually a logistics network and this is something different.

• 38:34Ben Gilbert?

  Yep. Okay, I want you to name those, all those investment firms again that participated in this, this initial round. So it was COSLA.

• 38:43David Rosenthal?

  CRV.

• 38:44Ben Gilbert?

  Yep.

• 38:45David Rosenthal?

  SB Angel and Pear.

• 38:48Ben Gilbert?

  None of those appear in the S1. Those are all below 5% shareholders. And as we will talk about later, this company underwent a tremendous amount of dilution in order to scale the way that they did.

• 39:00David Rosenthal?

  Oh, yeah, we're, uh, we are still in act one of this story here.

• 39:04Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 39:18David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 39:32Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI control tower.

• 39:42David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 40:00Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 40:16David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 40:32Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 40:42David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. Okay, let's wrap up act one. There is this, there is this seed, 2.4 million, and they realized, okay, we're gonna change the name to DoorDash, we're gonna expand beyond Palo Alto. Let's, let's go, you know, to our first bigger market. Now, the natural thing to do that all the ride sharing guys did was go to San Francisco. And you think like, hey, city, like, natural use case for food delivery, like it was for ride sharing, you should go there. Tony had the insight, he had, he grew up in Illinois, in Champaign-Urbana,

• 41:27David Rosenthal?

  but in high school, his family moved to San Jose. So like, you know, Champaign-Urbana and San Jose, like, these are, while San Jose is a big metropolitan area, it's much more suburban and feel than it is dense like a city. Tony said, you know, actually, like, the mass market is out there. It's not in San Francisco, it's not in cities. They launched in San Jose and in East San Jose, specifically, as their first market. And this was just brilliant. It's been talked about elsewhere, but going to the suburbs versus the cities, there was no competition, like, it was Domino's or DoorDash.

• 42:03Ben Gilbert?

  Yeah, it's really interesting thinking about, and much ink has been spilled on this concept, but I think it's really worth diving into here. Intuitively, you would think launching in cities is better because there's much more density. It's been working in New York for a long time. People really value convenience there. It's sort of the convenience economy. People have lots of disposable income. But what that meant was, number one, they didn't have any competition in the suburbs in terms of other mechanisms of, of delivery. Number two, drivers were much easier to come by in the suburbs because everyone has a car, whereas in cities, like, 10 to 15% of people have a car. So there's much more available

• 42:45Ben Gilbert?

  sort of dasher supply. And on top of all of that, there's no traffic and parking's not an issue. And so you can actually deliver a higher quality of service at a lower price point with greater supply of dashers. Like, there's all sorts of reasons why it was actually great to be out there. And they had a wide open lane to themselves because these incumbents weren't playing there at all.

• 43:08David Rosenthal?

  Well, that's the thing, you did the One of DoorDash's core values, which usually core values are a bunch of baloney, but in this case, I think actually makes sense is operate at the lowest level of detail. And Tony talks about this, like, yeah, in cities, you've got this density, but like, think about what that means. You know, this is not ride sharing where you pull up to the curb, somebody gets in and you drive off. You pull up to the curb, you gotta park, you gotta get out, you gotta go get the order. And if you're getting the order at the restaurant and there's a queue, you gotta wait in the queue and then get the order. And then you gotta go drive and then you gotta drop it off. And you might be dropping it off at a 12th floor apartment building. You know, in New York, this can work. Okay. Because everybody's couriers are on bicycles.

• 43:49David Rosenthal?

  And as we'll talk about later, DoorDash did really embrace different forms of vehicles for dense cities. But in the early days, like even bicycle, even in San Francisco, are you going to bike around and do this? Like, no, you need cars and motorcycles.

• 44:03Ben Gilbert?

  Yeah, this operate at the lowest level of detail thing is really, I think one of the things that makes this, this company special, I think the quote is averages in our industry are meaningless. It's the distribution that matters. No consumers care if our average delivery time is 35 minutes if they receive their food in 53 minutes. And it's such a great point. It's a very Amazonian way of looking at it where you're obsessed with every customer on an individual basis rather than rolled up metrics. And I think for this business in particular, you know, one bad experience, you could lose trust and never rely on them to deliver your dinner again, especially if you have company over or you're really hungry

• 44:43Ben Gilbert?

  or whatever the thing is, like it, you can, you can blow it with one bad customer experience.

• 44:51David Rosenthal?

  Yeah. So this going to San Jose was brilliant and it works amazingly well. So by they did, they did Y C in the summer of 2013. By the beginning of 2014, so we're now just about a year since they had that first delivery to the weed the people author on Palo Alto delivery.com. Literally one in six people on the San Francisco Bay Peninsula. So not San Francisco itself, but the peninsula below San Jose, Mountain View, Palo Alto, Cupertino, like there are millions and millions of people that live there have used DoorDash. They just ran the table on the market very, very quickly.

• 45:32David Rosenthal?

  So on the back of this in May, they raise, you know, they went from being like middle of the pack in Y C raising a, you know, good seed round from great people, but like clearly not as large as some of their peers. Uh, there is a $17 million Series A from Sequoia at a 73 and a half million dollar post-money valuation led by friend of the show, Alfred Lynn, former Zappos COO. Uh, and, uh, it's, you know, off to the races here. So they say, okay, we're going to use this money. We're going to expand out to other markets. Uh, later that summer in June, they go to LA, they run the same playbook in the suburbs there. And then they go to Boston next, which was interesting. I assume

• 46:16David Rosenthal?

  also in the suburbs, but they also go into the urban core in Boston with cyclists. Uh, so that, um, and Boston's a great city for this because it's flat.

• 46:27Ben Gilbert?

  Oh yeah. So you do this in any West Coast city, you're, uh, you're in a world of hurt.

• 46:32David Rosenthal?

  Yeah, exactly. Exactly. And this is before e-bikes, uh, and scooters of all various types had really become a thing. Um, so that's all. So it's all going great. Off to the races. This was, uh, summer and into fall of 2014. By early 2015, so we're now less than a year after the Series A, they are live in eight markets. They raise a $40 million Series B. Uh, again, we're two years removed from Palo Alto delivery.com launching, led by Kleiner Perkins at a $600 million valuation.

• 47:11Ben Gilbert?

  Holy crap.

• 47:12David Rosenthal?

  John Doerr basically comes out of retirement. He's ready to, uh, uh, move along. I think he's chairman of the firm at this point. He joins the board.

• 47:20Ben Gilbert?

  And for folks who don't, I mean, if you've listened to the show for a long time, you know the name John Doerr, but like Google.

• 47:26David Rosenthal?

  Amazon.

• 47:27Ben Gilbert?

  Amazon. The point to drive home here is John is arguably the greatest venture capitalist of all time. And he came in, personally did this deal. If you think about that 40 million on, on 600, they sold, what is that? Like 8% of the company? Like less than 10% of the company in that Series B and got freaking John Doerr, John Doerr to do the deal. So like, uh,

• 47:52Ben Gilbert?

  The what to read into this is like, the company is going gangbusters and has a lot of leverage at this point.

• 47:57David Rosenthal?

  Absolutely. I mean, today, it's not uncommon to see series Bs happening within two years of a company's life, raising this amount of money at that valuation with less than 10% dilution. This was not common back in in those days. Like, yes, seed rounds were happening at expensive prices already, but this hadn't trickled down, or trickled up to the series A and series B parts of the market yet. This was, this was an eye-popping round that happened.

• 48:26Ben Gilbert?

  And let's talk about what it takes to launch a city, because you know, now they're ubiquitous in the US. They're in, you know, like every suburb. It's crazy. I think there's something, some stat that it's either 85 or 95% of the US population, it lives in an area that has DoorDash at this point. But at this time, like, what is it for them to launch any city?

• 48:53Ben Gilbert?

  Because they haven't really signed a lot of big national chains yet. It's just as hard to launch your eighth city as it is your second city. Because you need to go get all the restaurants, you need to go get all the drivers, you need to do all the consumer marketing, because people don't move that much between cities. So just because you're live in Palo Alto in Boston, doesn't mean that someone in Tallahassee has heard of you.

• 49:13David Rosenthal?

  Exactly. So it was actually in July of 2015, shortly after the series B, that they signed their first partnership with Yum Brands to do Taco Bell in the markets that they're in. And then later, Yum also owns KFC. They had KFC later. This was another.

• 49:31Ben Gilbert?

  Yum Brands?

• 49:32David Rosenthal?

  Yeah, great company. It's, it was part of Pepsi. It spun out of Pepsi. It was Pepsi's restaurant brands, Taco Bell and, and KFC that spun out. Now it's an independently traded public company.

• 49:44Ben Gilbert?

  And I don't remember if it's, if there's, if it was, if it's still this way, but at some point Pizza Hut was sort of lumped in there. And that's why you had those K-Taco Huts at highway rest stops.

• 49:53David Rosenthal?

  I think Pizza Hut is now independent. I'm not 100% sure on that, though.

• 49:58Ben Gilbert?

  Yeah, that's actually, when a choir drifts into conglomerate land and out of tech, that'll be a fun one to cover.

• 50:03David Rosenthal?

  Oh, yeah. But that's a good point that they start, you know, again, like, the theme here is these guys figure out what it takes to operate at the lowest level of detail and make these launches and this crazy business work. Having these national brands to be able to go in and open markets with like, "Hey, you've never heard of us, but do you want Taco Bell and KFC delivered?" Like, especially if you live in the suburbs.

• 50:28Ben Gilbert?

  Right.

• 50:29David Rosenthal?

  I mean, and lots of people want that, but.

• 50:31Ben Gilbert?

  It's an appealing enough value proposition even before they sign any local restaurants.

• 50:35David Rosenthal?

  Exactly, exactly. So after this round and with this going on, this big national partnership, they start to attract some attention. And specifically, they attract attention from, well, two audiences. But first, Uber. Pretty early on in Uber's life, I think we talked about this on the Uber episode. They started experimenting with other things. They had Uber everything. They were delivering ice cream. They were, I remember one, one year early on, they had like, like puppy hugs or something like that. They had like cars to, yeah, drive around with puppies.

• 51:14Ben Gilbert?

  In 2015, they did Uber Health. So you get a flu shot. That was a nurse that got Ubered to your office.

• 51:23Ben Gilbert?

  In fact, you, you mentioned the ice cream thing. I remember from that promotion, I actually still have the T-shirt that I got when, when I got my Uber, my Uber delivered ice cream cone. So, yes, they were.

• 51:34David Rosenthal?

  That must have been a marketing stunt.

• 51:35Ben Gilbert?

  Totally was, as was Uber puppies. But the, you know, they, they definitely were experimenting a lot with like, well, what else could take an Uber to your house or your office besides a person?

• 51:45David Rosenthal?

  Yep, because they also get, you know, as much as anyone besides DoorDash at this point, like, density is super important. Utilization of drivers in the network is super important. So they're looking at this and they launch Eats in 2015. But this is, this is how hard what it is that DoorDash was doing. They, Uber said, like, I don't, I don't think we can really make this work in the same way, because this is so hard, all the reasons that we said. So the first version of Eats that they launched, I don't know if you remember this, listeners.

• 52:20Ben Gilbert?

  Oh, yeah.

• 52:21David Rosenthal?

  It was they partner with some restaurants in a city, a small number of them. And they load up in like the late morning, food in heaters in the back of Uber drivers and have the Uber cars just driving around the city, waiting for orders to come in for like salads or, you know, hot meals.

• 52:39Ben Gilbert?

  David, yeah, a mutual friend of you and I who who did operations for Uber at this time was telling me about the massive industrial strength refrigerators that they had purchased and kept in the Uber engineering office because they didn't have a separate facility for this yet. And so like the mad rush at like 10:30 was all of the Uber drivers showing up to get the food out of the refrigerators and that had been like heated up and then put into the heaters in the back of the Ubers to go and start the delivery routes.

• 53:09David Rosenthal?

  Yeah. And of course, uh, Montreal would try similar things as well at dinner. I can't remember if eats eats was definitely the first version of eats was big at lunch. I don't know if they did dinner as well. They probably added it at some point.

• 53:22Ben Gilbert?

  And was it was the name not eats? Like, the name was something slightly different, too.

• 53:27David Rosenthal?

  I think it was eats. They they first had fresh, uh, but fresh, I think, was more groceries and like, um, drugstore type things.

• 53:37Ben Gilbert?

  Interesting.

• 53:38David Rosenthal?

  If I have my history right.

• 53:39Ben Gilbert?

  So quickly Uber then is like, wait, actually, what people want is what DoorDash is doing, and we need to invest in building out the infrastructure to do that, too.

• 53:47David Rosenthal?

  Well, it's interesting. They do get there. Um, and they they they get there in 2016. They they realized that pretty quickly. But the narrative shifts so hard on this space here. And I think, I don't know if this is true, but as I look, looking back on this now with the historical perspective, I wonder if what Uber did here was part of how everything shifted so hard perception wise against DoorDash. Like, here you've got Uber, this Titan, you know, of startups, along with Airbnb, everybody says, you know, the one of the two canonical at this time, the two canonical next generation, uh, you know, company,

• 54:29David Rosenthal?

  internet companies being built in Silicon Valley. And Uber is basically voting with their feet that you can't make this operate profitably, the full logistics network that DoorDash is doing. They're having to resort to doing this driving food around in cars to make it simpler. Interesting. Meanwhile, DoorDash has raised all this money. They're growing quickly. People, consumers at least, love the service. They're entering all these markets. They raised the $40 million Series B. Their plan is to. Spend the money. They're gonna blow through it and keep raising. And to do that, of course, as you're launching these markets, it does take a huge amount of capital.

• 55:13David Rosenthal?

  As you're saying, Ben, you gotta go acquire the consumers, you gotta acquire the restaurants, you gotta acquire the dashers. So then, this is another moment of an acquired history. In November 2015, another blow against the perception of businesses like DoorDash. Square goes public and we covered this on the show. This was such a great, one of my favorite all time acquired episodes, our Square IPO episode.

• 55:38Ben Gilbert?

  And I gotta just like, we don't do this often, but like, we nailed that. I just feel so good about that episode, even today. I mean, it was a little bit in our sort of older style. So the, you know, it's not as enjoyable to listen to, I don't think, as more recent ones, but like in terms of the analysis. I think certainly the market had decided when they IPO'd that it was not a good stock. But for years afterwards, I think people had a lot of hate toward this company. And like, they just grew 30% year over year over year over year and still are. And I think the narrative has shifted now where people love Square, especially with, you know, cash. But.

• 56:19David Rosenthal?

  And Bitcoin.

• 56:20Ben Gilbert?

  Yeah.

• 56:21David Rosenthal?

  Well, yeah, I mean, to get meta for a moment, we were texting yesterday about, about the DoorDash episode and the Airbnb episode we're gonna do tomorrow. And Ben, I think you had such a good point about us at Acquired. You're like, when we do these live, you know, on the scene episodes, it's actually when we're at our second best. We're still good. Like they're better than the average acquired episode. Not that the average one is bad, hopefully. But our best acquired episodes are when we have a view on a company that other people don't and don't realize yet. And that was the case with Square. So what all are we talking about for people who don't remember the history? Square had been also a Silicon Valley darling, raised money from Sequoia, plenty of other great firms.

• 57:03David Rosenthal?

  Multi-billion dollar valuation. They were in this first group of unicorns talked about alongside Airbnb and Uber and Lyft and the like. And then they made the crazy decision relative to their peers to go public. So they go public in fall of 2015.

• 57:22David Rosenthal?

  And the market completely turns against them. This was the down round IPO. They priced at $9 a share for a less than $3 billion market cap. Oh, my goodness. Today, they are trading at $213 a share and a hair under $100 billion market cap. But memes start popping up all over the valley and like TechCrunch and the like about dead unicorns and this is going to be the reckoning and the bubble has popped and

• 57:47Ben Gilbert?

  And the impact on that for employees, there was that that price, that share price was under the last two rounds. So anybody who got stock options in the last like two and a half years before they went public were completely underwater and worthless unless you held them all the way through, you know, the stock recovering.

• 58:08David Rosenthal?

  People did. But yeah, ratchets too, which those private rounds have been at high valuations, but had terms in there that if the company were to go public at a lower share price, they would get, those investors would get trued up to the new lower share price. So it was just a bloodbath. And I think one of the things that the public markets really penalized Square for was this question of like, hey, this, this payments business looks like a bad business. It looks like poor unit economics on like, you're basically operating these payment rails for your small business customers at lower margins than say Visa or Mastercard or MX. This seems bad.

• 58:52David Rosenthal?

  You're selling dollars for 90 cents. We're going to put you in the penalty box. And of course, now Tony had worked at Square, so there was that connection. But it's a similar sort of story here of like, we're serving small businesses and we are operating this crazy, complicated logistics network for them in a way that like Grubhub wasn't doing, just like Square was operating this, this payment rails for them in a way that Visa and Mastercard weren't doing. And everybody's like, yeah, you're just giving away free value here. Right. Like this doesn't make sense.

• 59:27Ben Gilbert?

  In infinite customer demand, when you're selling dollars for dimes. Like I don't doubt you can grow fast.

• 59:34David Rosenthal?

  So meanwhile, well, the other, the other thing that happens here is the first big lawsuit hits DoorDash. They had been delivering In-N-Out in California without In-N-Out's permission. They didn't have a deal with In-N-Out, but they were picking the argument of like, hey, people want to order it, we'll come in. The non-partner restaurants. So In-N-Out sued them in November 2015. And then there would be many other lawsuits along the way with DoorDash. So

• 1:00:03Ben Gilbert?

  Okay, so you've got, you've got Uber and Square that are like creating these really bad public narratives for DoorDash for their prospects.

• 1:00:10David Rosenthal?

  And you've got lawsuits hitting. Meanwhile, through all of this, DoorDash is investing capital they've raised. They're growing super fast. Clearly, consumers like this. Sequoia and Alfred say to the team, things are going great. You're going to need to raise another round. We're in. We're in for our prada. We're even in for more than our prada in the next round. We're going to commit that we'll do up to $40 million in your next round at up to a billion dollar valuation. But we want somebody else to come in and price it.

• 1:00:47Ben Gilbert?

  And the last round had been that 600 million?

• 1:00:49David Rosenthal?

  600 million the year before. And

• 1:00:54Ben Gilbert?

  Okay, so Sequoia is like, we're not going to lead, but

• 1:00:56David Rosenthal?

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

• 1:01:36David Rosenthal?

  Everybody was like, man, DoorDash came to see us. Unit economics are terrible. It doesn't make sense. I can't believe Sequoia is putting their money in here.

• 1:01:45Ben Gilbert?

  So what was it that Sequoia saw then if the, if people believe that unit economics were terrible? Cause what we can kind of see now is like cohorts over time and we'll, we'll touch on this later. But basically when people retain, like they start spending more and make this a regular behavior and need less incentives.

• 1:02:01David Rosenthal?

  Yeah. Um, I don't know. It's a good question. I mean, it's hard to tell. Certainly we don't have that timeframe in the S1.

• 1:02:10Ben Gilbert?

  Cause the only timeframe disclosed is like the last 18.

• 1:02:13David Rosenthal?

  Two years.

• 1:02:14Ben Gilbert?

  Yeah.

• 1:02:17David Rosenthal?

  But, uh, but for whatever reason, um, you know, whether it was blind faith or actually based on the numbers, knowing Alfred and Sequoia, I think it was probably based on the numbers. They did really believe in the company. Um, so the net of it is Tony's out there fundraising for like six months. He doesn't, he can't find a lead. Uh, nobody wants to invest in the company. So ultimately in March of 2016, um, even though Sequoia had said they didn't want to lead, they do lead the round. They lead a hundred and $27 million Series C. They bring in the GIC, the Sovereign Wealth Fund from Singapore comes in as part of the round as well.

• 1:03:00David Rosenthal?

  And they bring in some of Sequoia's LPs as well to bolster the round.

• 1:03:07David Rosenthal?

  And it happens at a 700 million post money valuation. So 127 at seven post.

• 1:03:14Ben Gilbert?

  Flat, a little down.

• 1:03:15David Rosenthal?

  Down. So the share price is actually down. Um, this is a down round that happens and this was so hard. I mean, for all of this, uh, uh, I don't really know, uh, Tony personally at all. I haven't spoken to him since GSB, but I just have to imagine, uh, this was. Crushing and just complete says so much about him that he persevered through all of this.

• 1:03:42Ben Gilbert?

  Right. And, and, and the whole team that stuck with, because at that point, you know, you're, you're starting to see stars in your eyes because the, all the internal numbers are going up, you know, you hold a number of shares and the way people probably think about it is really, I hold this percentage of the company and you're told it's going to get, you know, diluted down over time, but you sort of in your head, you're like, well, not that much. And then something like this happens and you're like, oh, wow, I can get diluted down a lot.

• 1:04:08David Rosenthal?

  Yeah. And we're just getting started here. We're only in act two. So Tony writes on, on the company's medium, medium account announcing the round, it's easy, he says, it's easy to look at the landscape over the past few months and think that the technology industry has had its best days behind it. However, at DoorDash, at least I take the contrarian view. We are growing fast while building a scalable business that is built to last. I mean, people must, other VCs must've just been like laughing in their shoes reading this. In 2015, we added 19 markets to DoorDash, including two in Canada, and have completed millions of deliveries across our footprint. We've built a business based on first principles that is helping grow local businesses across North America, and we have more than doubled

• 1:04:52David Rosenthal?

  our staff by recruiting great, you know, blah, blah, blah. The fact that we were able to raise, the fact that in a tough economic market and in a crowded space, we were able to raise more than 125 million, here we go, without resorting to valuation gimmicks and employee unfriendly terms, is a testament to the incredible team, technology and opportunity at DoorDash.

• 1:05:14Ben Gilbert?

  Oh, man. Cause yeah, that's right. At this time, everyone was so obsessed with being a unicorn and being a billion dollar company that people were taking crazy, like participating preferred terms and like, um, yeah.

• 1:05:28David Rosenthal?

  Basically saying like.

• 1:05:29Ben Gilbert?

  Really high liquidation preferences, like the ultimate downside protection, many rounds before you would have that sort of downside protection built in.

• 1:05:36David Rosenthal?

  Yep, really private equity style capital coming in and it was private equity firms like it was TPG was doing this, you know, you saw a big traditional private equity firms come in and say, oh yeah, I'll make that trade. You're basically guaranteeing me my money with some upside.

• 1:05:53Ben Gilbert?

  So that you can write your medium post and say you're a unicorn.

• 1:05:56David Rosenthal?

  Yeah, they have this capital, though. They pull back on market growth. So they finished 2016 with 28 markets that they're in broader markets. So they're individual cities and towns within the broad geographic market. They only add six that year, even though, what did Tony say? They added 19 the previous year. So clearly they're trying to conserve cash. Same deal in 2017. And actually, in 2017, towards the end of 2017, they signed their next really big national distribution deal with Wendy's.

• 1:06:33Ben Gilbert?

  Yeah, before we move on to it is worth, in the blog post, there's two words in there or three words where Tony talks about the economic climate. It is worth remembering that there was a macroeconomic stock market hiccup in, I think, Q1 2016. I'm trying to remember exactly when that hiccup was, but there was all this like narrative around like the longest bull run in history and the S and P is at an all time high and like tech's a bubble. And like, there was a moment where like, you know, the market got scared and obviously came roaring back and then even through a global pandemic came roaring back again. But the, I just want to like, the first time I read that medium post, I

• 1:07:17Ben Gilbert?

  was a little confused by the economic climate term that he referenced. And then I was like, you know, you go back and you look at stock tickets, you're like, oh yeah, I forgot about that.

• 1:07:26David Rosenthal?

  Okay, so by end of 2017, even with slowing market expansion, trying to conserve cash, it is still incredibly capital intensive to run this business. And so they're out of cash at the end of 2017.

• 1:07:42David Rosenthal?

  And they can't raise money. So they do, they, this was not announced. Uh, we only found out about this by going through the S1, uh, it's in the S1. They do a $60 million inside bridge round, uh, just to keep the company alive at the end of 2017. Um, that was led by existing investors and one new investor, according to the S1. Not sure who that was. I don't think it was SoftBank yet, but, uh, TBD. Um, I'm sure that was, uh, I'm sure one of the existing investors at least was Sequoia, uh, stepping up to keep this company alive.

• 1:08:17Ben Gilbert?

  And that's, that's, I mean, what you hear Sequoia doing here over and over again, that's how you build a position in a company, especially if you have a big fund. Like Sequoia owns how much of this company at IPO, like 18% or something like that? And like you, you're seeing in the narrative here how they sort of built that position over time, especially having conviction when others didn't.

• 1:08:37David Rosenthal?

  And, and yeah, as you alluded to at the top of the episode, everybody else who had invested along the way, they're not in the S1 because they got massively diluted here. Um, so, uh, then-

• 1:08:51Ben Gilbert?

  Meanwhile, just one more quick comparison. Uber in its private lifetime raised something like $8 billion and we're like, they IPO'd in 2018. So by 2017, they had already raised the majority of that. So this is like, you know, DoorDash is a company that's raised in the low hundreds of millions at this point and their biggest competitor is a better part of $8 billion funded, you know, uh, juggernaut.

• 1:09:18David Rosenthal?

  Yep. That also has this other business, other synergistic business to finance what they're doing.

• 1:09:24Ben Gilbert?

  Theoretically synergistic.

• 1:09:25David Rosenthal?

  Theoretically synergistic business. We'll get into it.

• 1:09:26Ben Gilbert?

  Yeah.

• 1:09:28David Rosenthal?

  Okay. So end of 2017, we're now, uh, you know, remember it was March 2016 when Sequoia stepped up to lead that inside round. We're now end of 2017, 18 plus months later, companies out of cash have to do a bridge round. Uh, I mean, it looks like, like death door here. And then-

• 1:09:51David Rosenthal?

  History turns. Well, I would say on a knife point, in this case, it turns on a singular man and his vision, one might say.

• 1:10:01Ben Gilbert?

  Yes.

• 1:10:03David Rosenthal?

  We're now in March 2018 and Dord Dash's fortunes change. The big deal.

• 1:10:11Ben Gilbert?

  This one wasn't quite in the back of a taxi cab like Adam Newman's was, but you know, I don't think, this one doesn't have quite the same story to it around like Masa telling Adam that the crazy man beats the smart man or whatever it is in the, in the fight. But kind of the same approach.

• 1:10:29David Rosenthal?

  Well, it's, it's funny. It's the same, you know, I love the, so the quote is, you know, Masa, Masa Oshishon, of course of SoftBank and the Vision Fund, which is what we're talking about here. When they invest in WeWork, there's the story of, you know, back at the, back of the Uber, I think, or taxi with Adam Newman and says, crazy man beats the smart man. And obviously that went horribly wrong. In this case, actually, I'm going to make the argument and the markets are proving SoftBank right here today. This was the smart, not the crazy bet.

• 1:10:58Ben Gilbert?

  Yeah. I mean, SoftBank is looking like a genius out of all this. So David, how, how did this deal go down? And then more importantly, how did they do this and Uber?

• 1:11:09David Rosenthal?

  Yeah. Oh, boy. Well, that's a, I don't know the answer to that. I mean, I guess the answer is DoorDash was desperate for cash. But.

• 1:11:17Ben Gilbert?

  And SoftBank was already a big investor in Uber at this point.

• 1:11:19David Rosenthal?

  Yes, I believe this is 2018. I'm pretty sure at this point, yes, they're already of the largest investor in Uber, I think, at this point.

• 1:11:27Ben Gilbert?

  Yep.

• 1:11:28David Rosenthal?

  So they come in and do a $535 million Series D in the company. That's check size, not valuation. So this company has raised like, yeah, what do we, what did we say? Like a little over 200 million previously in all the capital that they've raised. SoftBank comes in over $500 million pumped into the company. So I said a minute ago that I thought this was the smart move, not the crazy move. Why would SoftBank do this? Like, were they just being cowboys? Maybe, maybe, and they had some dumb luck here, but I don't think so. They did certainly do plenty of nutty stuff, but there's, you know, remember SoftBank

• 1:12:13David Rosenthal?

  is basically investing in, they're investing globally, but most of their dollars are going into two markets at this point. The US and North America and China. And they are not investors in a company, in this company in China, in Meituan, which had at this point merged with Yanping, it was Meituan Yanping. But they were active investors in the Chinese ecosystem. And I think maybe in one of the competitors.

• 1:12:38Ben Gilbert?

  And Meituan is food delivery?

• 1:12:40David Rosenthal?

  Well, Meituan has a very interesting story of its own that we need to tell one day on Acquired. But at this point, Meituan has become food delivery. And they are starting to dominate the Chinese food delivery market. They are on a clear path to becoming the winner. This is the dream. This is what everybody was chasing with Uber and Lyft. And in theory, the same thing here with food delivery was, yeah, you might have competition. Yeah, you might have bad unit economics that you, while you're investing and growing the market. But at a certain point, you're going to get to a spot where you have enough density that you can have low enough prices to all participants in the ecosystem

• 1:13:22David Rosenthal?

  and just have enough volume of transactions going through that you're still able to eke out a marginal profit at that. While having way lower prices than any competitor, you tip the market. You become a monopoly, essentially. You win. And this is happening in China with Meituan. So now Meituan, real quick, we'll do a whole episode on them someday. They actually started as a Groupon clone in the early 2010s.

• 1:13:48Ben Gilbert?

  Of course they did.

• 1:13:49David Rosenthal?

  Of course they did. Went through a whole long, you know, crazy history. But by this point, they had pivoted into food delivery, merged with their biggest competitor, Yanping. And they were dominating the food delivery market in China, which is even bigger than the food delivery market in the US. They went public later that year in 2018 at a $50 billion plus market cap. And today, Meituan, which we'll get into later, is much more also than food delivery. Now, this here is a investor in Meituan. Sequoia Capital China. So they knew what was going on here too.

• 1:14:24Ben Gilbert?

  So good.

• 1:14:24David Rosenthal?

  So good. Okay. So SoftBank comes in. They do this big round.

• 1:14:30David Rosenthal?

  There's a catch though, as they're, as we've

• 1:14:33Ben Gilbert?

  And what's the valuation on the 500 million they're putting in?

• 1:14:35David Rosenthal?

  Yeah. You'd think, you know, oh man, $500 million round, like gotta be like a $5 billion valuation. Nope. 1.4 billion dollar post-money valuation.

• 1:14:47Ben Gilbert?

  So selling over a third of the company.

• 1:14:49David Rosenthal?

  Yeah. DoorDash is now a unicorn, but that is coming at a very high cost. 38% of the company that they sell in this round to SoftBank and the other investors. And the crazy, here's the really crazy thing. So they raise all this money, 1.4 billion dollar valuation. The actual share price is still lower than the Series B that Kleiner led at a 600 post back in the day. Because the dilution is so large here that while the post-money valuation is obviously much higher, over 2X higher, the share price at which shares are being sold is still lower than the Series B.

• 1:15:32Ben Gilbert?

  That's crazy. I did not realize that this could possibly be a down round, but yeah, you're right.

• 1:15:39David Rosenthal?

  There were two down rounds that happened.

• 1:15:42Ben Gilbert?

  Okay. So SoftBank now owns a ton of this company.

• 1:15:45David Rosenthal?

  And still today at IPO, the largest shareholder.

• 1:15:48Ben Gilbert?

  Well, I bet.

• 1:15:50David Rosenthal?

  Yep.

• 1:15:51Ben Gilbert?

  I mean, hard to dilute that down.

• 1:15:54David Rosenthal?

  Now, other existing investors did come in for Prorata as well, I assume, and others in this round. But yeah, but this changes the game and this

• 1:16:05Ben Gilbert?

  It's a new, I mean, they're back in it. It's a new breath.

• 1:16:08David Rosenthal?

  Not only are they back in it, I mean, this, this deal as costly, literally costly as it was to the company and its, its existing shareholders,

• 1:16:20David Rosenthal?

  creates a whole new life and opportunity here. So DoorDash goes back on the offensive. We're now in 2018. Remember Uber is getting ready to go public on their own. They've got the new CEO Dara. They're going through all of this stuff. They've got their own investors and prospective public market investors breathing down their neck about profitability, path to profitability.

• 1:16:43David Rosenthal?

  Postmates, which we haven't talked-

• 1:16:45Ben Gilbert?

  They certainly had their own challenges aside from that, too.

• 1:16:47David Rosenthal?

  Exactly. We haven't talked about Postmates yet on this episode, but they're struggling. They haven't raised money since 2015. Remember, capital intensive business.

• 1:16:59Ben Gilbert?

  Three years without raising-

• 1:17:00David Rosenthal?

  Three years without raising money. Gonna be pretty hard to keep taking, to keep winning share here. DoorDash has all this money. They say, "We're going big." They go all in. They literally 5X. So multiply by 5 the number of markets that they're in during this year in 2018. By the end of 2018, they are operating in over 3,000 towns and cities in America.

• 1:17:31David Rosenthal?

  Enormously wider footprint than certainly Postmates or Kavi or their other independent competitors. And approaching, and probably even surpassing in terms of footprint Uber at this point.

• 1:17:45David Rosenthal?

  And they start taking a ton of share in the market. They quickly become the fastest growing food delivery company. They overtake Uber during this year for the number two spot behind Grubhub. Grubhub is still the biggest in 2018. And on the back of this, presumably, we don't have access to the data, but as they get this density, even though they're spending all this money to acquire new customers through promotions, the unit economics and their retention starts to work and it starts to play out like things have in China with Meituan. And they build loyalty on the platform. So before the year is even out,

• 1:18:26David Rosenthal?

  in August of 2018, they raise another $250 million from Cotu and DST at a $4 billion valuation. So we're now-

• 1:18:36Ben Gilbert?

  They're failing themselves again.

• 1:18:37David Rosenthal?

  Yeah, there's six months after, less than six months after that highly dilutive SoftBank round, now they raise a quarter billion at, what is that, 5%, less than 5% dilution?

• 1:18:51Ben Gilbert?

  Yeah.

• 1:18:51David Rosenthal?

  Incredible.

• 1:18:52Ben Gilbert?

  Got the leverage back.

• 1:18:53David Rosenthal?

  Got the leverage back.

• 1:18:56David Rosenthal?

  Then in the next year, in March of 2019, they finally pass Grubhub and become literally the number one player in North America. Summer of 2019, as we've talked about on the show, they acquire Caviar for $400 million from Square. That adds even more restaurant supply and order diner demand to the platform. So they consolidate there. They raise even more money at increasing valuations by the end of 2019. They are at a, I think they raised 600 million at a $12.6 billion valuation.

• 1:19:37David Rosenthal?

  So now we're 10x the price of the SoftBank round already within a little over a year.

• 1:19:44Ben Gilbert?

  And so what, what tipped there? Cause they went from like on the ropes to, I mean, being a darling. Obviously having $500 million to spend can give you the opportunity to do a lot of growth quickly, which we saw in the new markets. But like, what was changing around the company that would change people's opinions on why they're willing to bet on this thing and so heavily?

• 1:20:10David Rosenthal?

  The two hypotheses I would have are, one, simply watching Meituan in China and that they are making it work. They are becoming a dominant number one player in the public markets at this point in time. And their stock is performing exceedingly well. I think they are now at or over $100 billion market cap as we record today.

• 1:20:34David Rosenthal?

  And then two, all the other players have suddenly either shot themselves in the foot or taken themselves out of the game. So Square gives up with Caviar and sells to DoorDash. Uber is now public and going through all the struggles that we've chronicled on the show, not to mention pre-public with Travis, you know, that's in the past, but.

• 1:20:57Ben Gilbert?

  Early 2017 was no, no cakewalk for them.

• 1:21:00David Rosenthal?

  Either so they've had multiple

• 1:21:02Ben Gilbert?

  Many self inflicted wounds.

• 1:21:02David Rosenthal?

  Yeah, multiple years now of self inflicted wounds. Postmates can't raise money. Meanwhile, DoorDash is out there spending money. They're the only player doing it. I think that's the the window finally opened, I think, to realize or attempt to realize this dream, you know, the Meituan dream of become a number one player in a highly competitive market.

• 1:21:26Ben Gilbert?

  Right, and then, you know, a thing that we see in markets is an explosion and then consolidation, especially when they're these low margin, highly competitive ones. And so you're right, as everything started to consolidate around them and they suddenly had a large balance sheet, it became possible to see how they would be the one left standing who would roll up others rather than, you know, being forced to, you know, join one of the big guys on unfavorable terms.

• 1:21:54David Rosenthal?

  Yeah, and as we've seen, I mean, I think it's even become a question of, do they need to roll up anymore or are they just gonna

• 1:22:02Ben Gilbert?

  Right.

• 1:22:02David Rosenthal?

  take so much share, it doesn't matter.

• 1:22:04Ben Gilbert?

  Yeah.

• 1:22:05David Rosenthal?

  So by the end of 2019, they finish with 800, this is the first year, or I guess the second year, we have full financials for them in the S1, 885 million in net revenue, up over 3X year on year, 263 million orders, also up over 3X, 8 billion in total gross order value. And this is, I thought, really interesting, too, 60% year over year same store sales growth on the platform. So taking out new market launches, taking out new restaurants added to the platform

• 1:22:45David Rosenthal?

  just for existing restaurants that were on the platform last year, doing 60% more sales the next year in 2019.

• 1:22:55Ben Gilbert?

  And the question you're asking yourself if you're one of those restaurants is, is all 60% of that new customers or is that some of my old customers shifting their behavior toward ordering through this thing where I don't make as much profit?

• 1:23:08David Rosenthal?

  Yeah, before we get into that, the other thing that happens in 2019, which, like we've told, hopefully it's come across, I'm so, we're so excited and, you know, laudatory of just this journey that DoorDash has been on because it's, they have really faced the fire here and pulled out of it. On the other hand, we can't let them off the hook. The other thing that happens in 2019 is tips.

• 1:23:32Ben Gilbert?

  Yeah. So this, we're going to dive into it because it's a really important thing to know about the company. For this may just sound very familiar to lots of you. I, I want to open this by saying the company's response to their tipping scandal is completely nonsensical. Like I have listened and watched and read many interviews with people at the company trying to explain what they thought they were doing that was right here. It was, it is like just absolutely predatory and wrong. And, and honestly, none of the, none of the explanations make any sense to me. But David, what was happening?

• 1:24:08David Rosenthal?

  Well, so what was happening was always, or at least from the early post Palo Alto delivery days, early DoorDash days. As a consumer on the platform, you would order, you would pay for the food. And then there would be a service charge and then you have the option to add a tip for your dasher. Well, it comes out, I think the New York Times did a big investigative piece in mid 20, it was July 2019, that that tip that you assume when you're tipping your courier, that money is going to the courier like it would in a restaurant when you tip the waiter and it goes to the waitstaff and the, and the cooks in the kitchen and you know, maybe there's a tip pool, but it's all split between the employees.

• 1:24:53David Rosenthal?

  That tip is going to DoorDash and DoorDash is combining the tip into the total value of the order. And then they are splitting up the economics of the order according to their, you know, their, their fee splits.

• 1:25:08Ben Gilbert?

  Right. Basically what they were doing is they were only paying the tip out to the driver. If the driver basically didn't make enough in their base from DoorDash, from the order that they delivered. And they're like, oh, I guess we have to give you some of your tip because you didn't hit the minimum. But if you did hit the minimum, then DoorDash was keeping the tip.

• 1:25:26David Rosenthal?

  Yeah. It was like the minimum and the maximum. Yeah. Yeah. So that's not a good look.

• 1:25:31Ben Gilbert?

  For anybody who wants to listen to like the company's response to this, it kind of like sounds good and you're nodding your head until you're like, wait, I, that literally doesn't make any sense. Like they, they try and blame it on a UX issue. Sometimes they try and blame it on, it's actually originally intended to help the Dasher. And you're like, how could it possibly have been trying to help the Dasher? Um, you know, it just goes to illustrate what a frigging tight margin business this is and what a, what a, you know, tight rope they're walking to make this thing profitable.

• 1:25:59David Rosenthal?

  Yep. That said, there's no excuse for it.

• 1:26:03Ben Gilbert?

  Nope. So they, they fixed it. They did a complete 180. The tips are real tips now as they needed to do.

• 1:26:09David Rosenthal?

  Exactly. Uh, and I think that's interesting. Like it was, um, maybe it was, there's no way to know. Maybe it was part of what helped make the unit economics work during this period. That doesn't make it right to do it. It makes it wrong, uh, still, but now they fixed it. And now the business is unit economic positive, even with, uh, not stealing the tips. Uh, so let's pick back up. How does this happen? Um, basically 2020 has been a rough year for a lot of people. It has been the opposite of a rough year for DoorDash. The

• 1:26:49Ben Gilbert?

  Yeah. DoorDash had their Zoom moment.

• 1:26:51David Rosenthal?

  Yeah. They basically had their Zoom moment in the private markets. Um, so when the pandemic hits in March, in the U S at least, uh, DoorDash grows over 20% that month, which was already coming off an $8 billion plus base, uh, which is pretty incredible.

• 1:27:15Ben Gilbert?

  Right. Like for, for context, a company growing 20% in a month is like way, it's like what a really good seed stage company with product market fit can do. And this is a company that did $8 billion the previous year in gross order volume.

• 1:27:31David Rosenthal?

  Yeah. And I actually don't have the stats for the other platforms handy right now. They grow two with the pandemic, but nowhere near the degree that DoorDash grows. So their share taking of the market just accelerates further throughout COVID, such that by the time the S1 hits, which we'll get to in a sec, DoorDash now has 50% of the entire food delivery market in America, up from 20 something the year before.

• 1:28:06Ben Gilbert?

  Yeah, I mean, it was like, uh, over the year and three quarters between the beginning of 2019 and when the IPO, the S1 was followed, was filed, they just had an extraordinary run of, of becoming the dominant player in the space. And I, it's, it's actually, it's kind of hard to figure out why. Like, I don't really know why they smoked Uber Eats so hard. And Uber Eats grew too, but in terms of share, how DoorDash went from like a one of four players with a, you know, 20 something percent share to like now over 50%.

• 1:28:42David Rosenthal?

  If I had to hypothesize, I think it's two things. I think it's one, being willing to spend on customer acquisition. You know, just in San Francisco, at least I noticed, especially at the start of the pandemic, way more billboards for DoorDash than anything else than any of the other. I don't think I saw, like I've ever seen an Eats or a Postmates billboard. Uh, I'm sure they exist somewhere.

• 1:29:06David Rosenthal?

  Two, though, it is, I think, also related to this being willing to fly low to the ground that DoorDash has always operated with. The prices that you are paying as a consumer are notoriously opaque in this space. But I do generally think this is a feeling more than any data that I have, that generally ordering on DoorDash, I am relatively paying a fair or pretty close to price of the food that I would also pay if I were to go order from the restaurant directly. Now I'm also paying the, the tip to the courier to deliver it. Whereas

• 1:29:44Ben Gilbert?

  And the additional fees.

• 1:29:45David Rosenthal?

  Yeah. And, and the service fee, you know, whatever. But like, it's all reasonable and, and DoorDash.

• 1:29:50Ben Gilbert?

  But there's a delivery fee, there's a, so the food may or may not cost more. You're saying it doesn't. There's a delivery fee, there's a service fee, there's a tip.

• 1:29:59David Rosenthal?

  Yep.

• 1:29:59Ben Gilbert?

  And then there's tax.

• 1:30:00David Rosenthal?

  I think DoorDash just has the service fee. If you're ordering with DashPass.

• 1:30:06Ben Gilbert?

  Ah, so that's, yes, that's the important distinction is that the deliver, one of the fees drops to zero and one of them gets shaved by like three bucks.

• 1:30:13David Rosenthal?

  Delivery, yup, drops to zero. Well, the other thing that we didn't talk about is they do a deal with Chase and Sapphire.

• 1:30:21Ben Gilbert?

  So wait, but before I looked it up, cause I hate just like throwing out wrong numbers on this show. So in the two and three quarters years from January 2018 to October 2020, they grew from 17% market share to 50% market share. So just an extraordinary last two and a half years.

• 1:30:42David Rosenthal?

  Well, I guess the, to finish the point I was going to make before, certainly on Postmates. And also, again, it's a feeling to an extent on Uber Eats. I've ordered from those platforms and then looked at the bill and been like, this is crazy. How am I paying $70 for, you know, two dishes from a Thai restaurant? Just from all the markups that they were doing on the food.

• 1:31:06Ben Gilbert?

  Yeah, I think that's really fair. I think it's totally fair. I will say it feels nicer as a DashPass member, the prices do somehow feel more reasonable at the end of the day. Like the prices go down just enough where you're like, okay, it's meaningfully cheaper to order than Uber, compared to Uber Eats. And we should explain what DashPass is. You pay $10 a month. It's basically Amazon Prime, so they knock off your, some amount of the fees. And, you know, it makes sense for you if you're ordering a lot of DoorDash.

• 1:31:38Ben Gilbert?

  Some numbers on that, and they do call this, they call it a membership program to the physical world, which I think is an interesting way to spell it.

• 1:31:46David Rosenthal?

  We're going to get into discussing that when we get to narratives.

• 1:31:48Ben Gilbert?

  Yes, so they've got 5 million customers on DashPass. So if you actually, you know, if everyone paid for that, it would be a $600 million revenue business on its own. Just DashPass. Now, obviously there's some internal accounting there because they are losing the fees that they would be making if you weren't on DashPass. But much like Amazon Prime, I'm sure they make up for it in the amount that you are now loyal to and conditioned to have a habit of using DoorDash instead of.

• 1:32:20Ben Gilbert?

  Competitors, or frankly, just making food on your own. You know, I think the way

• 1:32:25David Rosenthal?

  I mean, they're retaining you on the platform.

• 1:32:26Ben Gilbert?

  Right. The way Amazon Prime famously works is, you know, originally, they were like, well, if we can just break even, then it'll be nice to be able to increase the number of orders people make. And now I think it's very much the mindset of, we actually don't need to break even, because we just know how much more that makes people invested in the Amazon ecosystem. People can correct me if I'm, I'm wrong on that, but that's my impression of despite the price hikes, how they feel about it.

• 1:32:53David Rosenthal?

  I mean, it's gotta be, the amount of value you get as a consumer out of that, what is it, $129 a year?

• 1:32:58Ben Gilbert?

  Crazy. And David, to your comment earlier on Chase Sapphire Reserve, the way that I have DoorDash is not at all because I felt like I should pay $10 a month to have Dash Pass, is because my credit card came with it for free this year. And so, interestingly enough, I do think it worked, at least for me personally, wildly anecdotal, this is not data. It did make me a more loyal DoorDash customer, to the point where I think maybe three times I compared my exact same cart in DoorDash versus Uber Eats, and it was like five, eight, 10 bucks cheaper on DoorDash. So I was like, great, I'll keep, and I don't check anymore, in the same way that I don't price check Amazon anymore. So that totally worked.

• 1:33:40Ben Gilbert?

  And the thing that is interesting to me about that Chase Sapphire Reserve deal is the customer segment they're going after. Because the Sapphire Reserve, it's a fascinating credit card. It's a $550 annual fee, of which you can get some meaningful amount, 300 bucks or something back.

• 1:33:56David Rosenthal?

  350 back.

• 1:33:57Ben Gilbert?

  Travel credit, but then you can basically get the rest of it back in these other benefits. In Lyft Pink, which is the same thing as Dash Pass, but for Lyft. In the Dash Pass, which, you know, has a value of 100-ish dollars a year. Now they're crediting back your Peloton, some amount of your Peloton membership. Yes. There, were we still flying, you effectively get a, it's like an effective 7% back, as long as you redeem it for travel, because you get the, what is it, 5%? But then it has the 50% kicker.

• 1:34:32David Rosenthal?

  The kicker on travel.

• 1:34:33Ben Gilbert?

  So it's this amazing card. If you like have a particular lifestyle where you eat out and you travel and you know, frankly, they it was I think famously wildly successful program. They ran out of aluminum. They were printing them on paper for a while in the initial batch, and they couldn't sell enough of these things. Very interesting for DoorDash to say, we want to throw in with with this lot and get this crowd to be DoorDash customers. Because I do think it probably skews a little bit more city than so like the suburb strategy was a great go to market. And now they're, I think, saying like, okay, now we need all customers. And I'll be very curious. I don't think they'll ever disclose it, but

• 1:35:15Ben Gilbert?

  how many of these 5 million people that are currently using DashPass are via this Chase Sapphire Reserve program? And how many of them are actually paying? And to contextualize that 5 million number, how many people are currently DoorDash customers? David, do you have that off the top of your head?

• 1:35:34David Rosenthal?

  18 million, I believe.

• 1:35:36Ben Gilbert?

  So that's a meaningful chunk. I mean, that's a little under a third of their total customer base are on this, you know, reduced fee program.

• 1:35:45David Rosenthal?

  Yeah. So the net of all that, you know, in Q1, of which it's only March in Q1, that is the pandemic month for the company.

• 1:35:55Ben Gilbert?

  Because they're so US-based, like they have almost no international penetration.

• 1:36:00David Rosenthal?

  Canada and Australia, but very small in each.

• 1:36:03Ben Gilbert?

  Right. So it wasn't till March that they would have seen anything.

• 1:36:06David Rosenthal?

  Really the end of March. Yeah.

• 1:36:09David Rosenthal?

  They reach overall, for the whole company, positive contribution margin in Q1. And to define contribution margin for a second, why this is so important, contribution margin is, so you've got your Revenue, their, you know, what was it 885 million-ish revenue that the net revenue that they did in 2019. If you take out all of the variable costs associated with that revenue, cost to serve, support, and most importantly, sales and marketing, how much sales and marketing spend, how much, how many promos are you doing to acquire all the customers and retain all the customers that goes into generating that revenue base? Take that all out for the whole rest of the company's life, up until this point, they were losing money

• 1:36:54David Rosenthal?

  at this point. Like, they were literally giving away dollars for less than a dollar.

• 1:36:59Ben Gilbert?

  97 cents or something. Yeah.

• 1:37:01David Rosenthal?

  Yep. At this point in Q1, it flips. So they're now contribution margin positive. Now, they're not either cash flow or net income positive as a company at this point yet, because they still have their fixed costs, you know, their engineering base, their GNA, their headquarters, their rent. We'll see if they keep that, all that they're paying. But this is a huge moment in any company's life. And I believe I did some work, based on what I could tell from Uber's 10K for 2019, Uber only in 2019 just barely hit this mark. They were essentially contribution margin breakeven in 2019, despite being way

• 1:37:45David Rosenthal?

  older, way bigger, having multiple products around for a long time. DoorDash hits this in Q1, and then continues to accelerate throughout the pandemic and the rest of the year.

• 1:38:01Ben Gilbert?

  Accelerate in growth or get more contribution margin positive?

• 1:38:04David Rosenthal?

  Well, the answer is both. Definitely growth and contribution margin. So in the last quarter, Q3 ended September 30th, contribution profit improved to 215 million, which a year ago, they had lost 52 million in Q3. And I believe the total contribution profit for the nine months of 2020 so far is 433 million. So they did half of that in Q3. So spread across Q1 and Q2, it would obviously be less. So they're accelerating.

• 1:38:44Ben Gilbert?

  Yeah. So their contribution margin was negative 70%, then negative 20%, then negative 20%, and then exactly what you're talking about in Q1, it flipped where they were positive 7%. Then Q3, positive 29%, or I'm sorry, Q2, and then Q3 was positive 24%. So like, having 25-ish% contribution margin is great. The big question will be, will this continue after the pandemic? After they have, I think I was in one of the sources that you can check out in the show notes. I remember reading that someone was like, they're effectively essential infrastructure for the country right now. I sure hope they can be profitable with that kind of demand. But yeah, I mean, all power to them there.

• 1:39:25David Rosenthal?

  Yep, totally. So then two more things to wrap up History and Facts. On Election Day, November 3rd, 2020, a huge moment for the country, but also for DoorDash and Uber and the whole gig economy. Prop 22 passes in California. This was super controversial. We said we would get back to gig labor here. We won't go into all the ins and outs here, but like, basically the TLDR is California has a really crazy legislative and legal system where citizens actually vote directly on propositions that impact the laws instead of a Republican representative type system.

• 1:40:07David Rosenthal?

  And Uber and DoorDash, as well as the other gig economy companies, had put forward this Prop 22 to basically permanently create space and classify their labor as contractors and gig economy workers. This idea of a third type of work. You have pure contractors who are 1099, you have pure W2 employees. And California and other states had been trying to classify gig workers as, make companies classify them as W2 employees. And Prop 22 says, no, they are contractors. They will be paid as 1099s, but it's this third class of business. And it basically opens the way for the companies' sustainable economics on their labor supply.

• 1:40:53David Rosenthal?

  So that was a huge win for the companies, regardless of what you think politically, whether this is good for. Gig workers or not, it happened. It removed an existential threat to the business. So literally 10 days later, on November 13th, 2020, DoorDash releases their S1 and files to go public.

• 1:41:13Ben Gilbert?

  Yep. As we wrap up history and facts here, should we talk about some of the interesting nuggets revealed about their

• 1:41:20David Rosenthal?

  Absolutely.

• 1:41:21Ben Gilbert?

  All right. So one thing that I sort of found interesting was trying to put into context the size of their business. And I think that this was useful for for me because we talk about all these different companies and numbers. Once you get to a certain level of big number, there's like big number syndrome that takes over where you're like, I don't even understand like what what kind of how many billions are normal, you know, like you get into this weird headspace.

• 1:41:46David Rosenthal?

  Yeah.

• 1:41:46Ben Gilbert?

  So there was $8 billion in gross order volume in 2019, as we've talked about, which basically means $8 billion of food were paid for, including taxes. And of course, DoorDash kept, I think it was 880 million of that as revenue. So that's an effective take rate of like 11%. When you think about it of like, you know, all their cohorts have different take rates. They started at different take rates. There's different incentives applied to each one. So it's kind of this like 11 to 15% or 10 to 15% floating thing that starts high and then goes down over time as you receive less incentives. But anyway, about

• 1:42:26David Rosenthal?

  In terms of what the incentives that the consumers are getting, but the take rate for DoorDash gets higher over time as they're paying less incentives, right?

• 1:42:35Ben Gilbert?

  Sorry. Yes, I said that backwards. So then, of course, they had monumental growth. You can sort of back into depending on how their Q4 goes, that their run rate right now is something like a $22 to $25 billion gross order volume for on an annualized basis. So for 2020, it would seem like they'll probably come in around $25 billion in gross order volume. Now, how big is $25 billion? To contextualize this, at the smallish order values of food delivery as a category compared to, say, travel, which we We'll cover tomorrow on the Airbnb episode. It's actually kind of hard to stack all those purchases on top of each other to get to a truly huge gross business.

• 1:43:18Ben Gilbert?

  And those who have done that successfully are in the e-commerce vertical. So, you know, DoorDash has 25 billion ish a year that moves through their platform. Amazon last year had 335 billion. And when you look at Alibaba in China, they had close to a trillion dollars of gross volume through their platform. And even Pinduoduo, which we covered to start this season, had 150 billion in GMV or gross volume.

• 1:43:47David Rosenthal?

  Man, talk about big number syndrome.

• 1:43:49Ben Gilbert?

  That's 6X DoorDash's gross order volume. And even crazier to put Pinduoduo's growth and scale into context is that they started two years after DoorDash did. But China is like a whole different category, you know, comparing any numbers to US-based.

• 1:44:06David Rosenthal?

  Which, by the way, total sex, we've talked about Meituan here and now we're talking about Pinduoduo. Like, I mean, China is so different. We need to do more episodes. We need to do Meituan. But like, it's just crazy. Tencent owns over 20% of both Pinduoduo and Meituan. So you want to index this? Take a look at Tencent.

• 1:44:26Ben Gilbert?

  Yeah. Another few interesting things that I thought were noteworthy from the S1 were the existence of different products that I did not know that DoorDash had. Most notably, so there's DoorDash for Work, which is the kind of competing in that market of office delivery that we talked about. We talked about DashPass. There's these two things that I didn't know about, DoorDash Storefront and DoorDash Drive, that are worth understanding. Because basically, the way you can think about DoorDash is they are

• 1:44:58Ben Gilbert?

  the ones who are aggregating all of the customer demand. And then they are putting massive amounts of pressure on the sort of backend of the supply chain, the person delivering it to you and the restaurant, because they sort of hold the customer hostage. Like, they say, I've got this customer, I can send them wherever I want, therefore I get to have outsized economics in this transaction. And for some restaurants, that's a bummer. For other restaurants, they say, I got my own customers who love me. Sure, your delivery network's interesting and maybe your little checkout page is interesting. I don't, I'm gonna operate my own business. Thank you very much. And I'm gonna pay you sort of piecemeal for, for these things. And if I can't get it from you DoorDash, I'm getting it from other people. And so, you know, we had Nick Kekonas on the LP show to talk about

• 1:45:43Ben Gilbert?

  Toc and we had this fun episode we did with him called arming the restaurateur rebels. And, you know, that was a really fun dive into basically like if you wanted to not use DoorDash and you felt like you had a strong brand and customer relationships and a big email list, whatever, how do you do that yourself? So of course, DoorDash then realizes, okay, we, we gotta compete. If people are unbundling us, we have to be able to offer our services piecemeal in order to compete with those who are building their own restaurant stack. And so storefront is an interesting version where they basically say, look, you don't want to build your own complicated ordering website. So it's a white label ordering solution. They launched it in July. I don't think they want to be in this business, but they kind of have to be. Otherwise,

• 1:46:27Ben Gilbert?

  they're just gonna lose those customers.

• 1:46:29David Rosenthal?

  So this is directly competing with Toc?

• 1:46:32Ben Gilbert?

  Toc and what's the other big online?

• 1:46:36David Rosenthal?

  Ordermark?

• 1:46:37Ben Gilbert?

  I think, yeah, yeah. Ordermark federates it out to all the other services.

• 1:46:40David Rosenthal?

  All the others.

• 1:46:41Ben Gilbert?

  But there's a handful of players.

• 1:46:42David Rosenthal?

  Toast.

• 1:46:43Ben Gilbert?

  Yes. They're letting you stand up your own, you know, checkout page.

• 1:46:47David Rosenthal?

  Yep.

• 1:46:47Ben Gilbert?

  Most of those don't offer the delivery because as we talked about, that's a very difficult tech, tech problem to solve and operational problem.

• 1:46:53David Rosenthal?

  They partnered with DoorDash, I assume with the Drive product to do the logistics and delivery.

• 1:46:58Ben Gilbert?

  Right. So it's interesting. The storefront ends up being two bucks an order. There's a, you know, some SaaS fee that you pay monthly along with that. But basically it's two bucks out of every order. Go to DoorDash just for operating the little website that you drive your own customers to.

• 1:47:13David Rosenthal?

  I think is, now is that covering the payment fees though?

• 1:47:17Ben Gilbert?

  Might be.

• 1:47:17David Rosenthal?

  I think it probably is.

• 1:47:19Ben Gilbert?

  Might be. Okay. And then the second product is probably the more interesting one, David, the one you're referencing is DoorDash Drive, which is the white label logistics service where restaurants can have food delivered. From orders that they generate through their own owned and operated channels like the telephone, maybe they use DoorDash storefront or a competitor or they make their own website. That's $7 per order and $1 for every mile after the first. And I was like, oh, DoorDash Drive, that's interesting. I wonder like if any, like, does anyone use that? I have gotten Chipotle delivered from my Chipotle app many, many, many times. And have never realized that that is actually DoorDash on the backend. A dasher walks into Chipotle, picks it up, brings it to my house. That, that is a really interesting business to be in.

• 1:48:03Ben Gilbert?

  You get to command, obviously, less of the economics because you don't control the customer relationship. If you're the DoorDash in this case that we're talking about. But it lets them leverage this asset that they've built for customers who say like, hey, I do have my own customer relationships. I still want to pay you to use this driver base asset that you've created and all the technology to power the whole thing. And it lets them address basically a larger market than they would otherwise be able to address with the pure DoorDash marketplace.

• 1:48:32David Rosenthal?

  Yeah, the analogy I've heard here, and I think it's apt, is DoorDash is both the Amazon and the Shopify in this space. Amazon in that day operating marketplace that consumers go to, the DoorDash app. And they'll generate the demand and they'll, you know, send you marketplace orders, fulfill it with their logistics, just like, you know, FBA or just like Amazon does. And they'll take a cut of the transaction for doing that. And they're also the Shopify where like, hey, you got your own demand, just like you're saying, Ben. That's cool. Do that. We'll give you the tools to service your demand and you'll pay us for the tools.

• 1:49:09Ben Gilbert?

  Yep. And they actually encourage their customers, if it's like a Chipotle, to do a list. They say, look, you have your customers, like you have an app, you should do that. We should only extract seven-ish dollars of value from you if you've got your own customers. If you've got our, you know, you probably want access to our customers too. You should also list on the

• 1:49:28David Rosenthal?

  Yeah, why stop there?

• 1:49:29Ben Gilbert?

  Yeah.

• 1:49:29David Rosenthal?

  Just like lots of D to C brands sell on Amazon and sell direct.

• 1:49:33Ben Gilbert?

  Exactly. It's, it's the omni-tranal strategy for food.

• 1:49:36David Rosenthal?

  Yeah.

• 1:49:37Ben Gilbert?

  All somehow paying DoorDash along the way.

• 1:49:40David Rosenthal?

  Well, and I think that's like, to my mind, that's what I find. So we'll get into more nuggets from the S1. But that's what I find so impressive about the company, right? It's like they. Have gone through the slog and built up this thing that everybody thought was impossible. And the thing being a local delivery logistics network that can operate contribution margin positive.

• 1:50:05Ben Gilbert?

  Yep.

• 1:50:06David Rosenthal?

  And once you have that, then you can start doing all of these other things.

• 1:50:13Ben Gilbert?

  Yep. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:50:27David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:50:44Ben Gilbert?

  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.

• 1:50:59David Rosenthal?

  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. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:51:22Ben Gilbert?

  And they recently launched Logora 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.

• 1:51:41David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:52:11Ben Gilbert?

  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/acquired and just tell them that Ben and David sent you. The last point I want to make on that is a great point that was done in the S1 Club, and the S1 Club is an awesome Substack that friends of the show put together that you should check out, and you can click the link in the show notes to see that too, and our sources.

• 1:52:51Ben Gilbert?

  An excellent analysis that basically shows it costs about $6 for DoorDash to acquire a customer, and assuming that they stick around for five years, and frankly, we don't know how long they're going to stick around, but that seems like a reasonable enough estimate just because the company's so young, that DoorDash can earn about $60 in pure profit from them over those five years. So that's a 10 to 1, CAC to LTV ratio, and it takes about 16 months for them to recover that $6. And it sounds like a little bit of money, but when you think about, you're ordering all this food, DoorDash is only keeping a small percentage of that, call it 11 to 15%. For most people, you're not ordering every night from DoorDash, you're ordering a few

• 1:53:35Ben Gilbert?

  times a month or year. And in addition, they're doing a lot of incentive-based, like little subsidies that are trying to get you to get you an order. So the longer someone sticks around, the more they're going to generate, and a lot of that profit is actually back weighted for DoorDash.

• 1:53:50David Rosenthal?

  Yeah, and I think the other important point here too, that, as Bill Gurley's written about in the past a lot, about how just looking at CAC and LTV and payback masks a lot of complexity and important things about the business, you've got to think about what the levers are that DoorDash is pulling here. They certainly could do things to generate more profits out of every order that they're getting from customers through raising prices, and that would make those numbers go up, and that would make payback happen faster. But because if you think about, what did we say there? Their contribution profit margin is based on gross order value right now. 2%, 3%?

• 1:54:32Ben Gilbert?

  Oh, yeah, 2.4%.

• 1:54:34David Rosenthal?

  2.4%.

• 1:54:35Ben Gilbert?

  You did that analysis that shows like on the average order value of a $30 order, including tip, after allocating all the variable costs and all the sales and marketing costs and promotions, DoorDash's contribution margin is about 80 cents. So that's how you, to, to, to understand why it takes 16 months to earn back that $6.

• 1:54:53David Rosenthal?

  So, so now, so think about that, right? You're going to earn $50 in contribution margin profit over five years. That means consumers are spending 25x that in terms of the dollars they're spending on the platform. That's, that's huge amount of economic activity you're generating, right? And so by keeping those margins lower, this is the whole thing about flying close to the ground, Bezos is your margin is my opportunity. You're generating more value for consumers and for the restaurants and the dashers and the platform, presumably too, by keeping that lower. Other people won't be able to match that. You get more density, you grow over time, the flywheel spins here.

• 1:55:31David Rosenthal?

  So like, you know, yeah, 50 bucks to you, but what's that $2,500 in spend that the customers are doing over, over five years? And, you know, can that grow as you add new categories? I think it could.

• 1:55:46Ben Gilbert?

  You, you better hope if you're a buyer of the stock that it can grow as they add new categories. I mean, David, this is the best illustration yet of the whole point we've been trying to make on this episode, which is in order to try and be profitable and grow without massive investor influxes of cash. So in order to be a cash flow positive company who is profitable and growing in this category, you have to fly so freaking close to the wire, if it can be done at all. And the best possible illustration is for one order, one $30 and 36 cent order, they get to keep 80 cents. And boy, are they working hard to get that 80 cents. So it, they have to believe that they're providing tons of value all around the ecosystem

• 1:56:30Ben Gilbert?

  and betting that there's going to be a crap ton of those transactions in order for you to believe that this business can eventually spit off a lot of cash.

• 1:56:38David Rosenthal?

  Indeed. Well.

• 1:56:41Ben Gilbert?

  I think that brings us to our analysis section.

• 1:56:45David Rosenthal?

  Should we talk about the price?

• 1:56:46Ben Gilbert?

  Yes, just to like contextualize who currently owns this company before it's going to IPO. SoftBank, the Vision Fund owns about 22%, Sequoia 18%. I think that's very evident by the story told of how we sort of got there. Greenview, who we didn't really talk about, owns 9%.

• 1:57:02David Rosenthal?

  That's GIC, that's Singapore.

• 1:57:04Ben Gilbert?

  Oh, I didn't realize. Okay, so I guess we did talk about them.

• 1:57:07David Rosenthal?

  GIC stands for Greenview Investment Capital or something like that.

• 1:57:10Ben Gilbert?

  Got it. Tony owns 5%, co-founders Andy and Stanley each own 4.7%. So, once upon a time, these guys owned the entire company, along with a fourth co-founder. And here they are, three of them representing under 15%. That's a story of dilution if I've ever seen one. Kleiner Perkins owns about 2.1%. That was reported, and I don't think that's necessarily in the S1, but.

• 1:57:33David Rosenthal?

  I think the number of shares, because John Doerr is still on the board, so the number of shares.

• 1:57:37Ben Gilbert?

  Right, so that's how that was disclosed. So, okay, that's who owns this company coming into today. I sent David an article last night, just to take a trip down memory lane. I should look up the date on this. I think it was November 13th from the Wall Street Journal. Food delivery company expected to fetch valuation of over $25 billion in December market debut. So.

• 1:58:03David Rosenthal?

  That sounds high, Ben.

• 1:58:05Ben Gilbert?

  We had talked, I mean, I think the biggest number we might have mentioned was 13 billion. They did raise a rounded valuation of 16 billion. So, my gosh, that would be awesome if they could fetch a $25 billion valuation. That's a great markup for investors.

• 1:58:18David Rosenthal?

  Yeah, nice markup.

• 1:58:19Ben Gilbert?

  Share price for that would have been, I'm trying to remember. Gosh, it's hard to remember back that far when the price was so low. Yeah. What were some of the different ranges that then were given in the ensuing weeks?

• 1:58:31David Rosenthal?

  So, when they filed the S1, like all companies, I think the range was blank. And then the first range that they filed was 75 to 85 bucks a share. I think they upped that to 85 to 95 bucks a share. And then last night, Tuesday, December 8th, 2020, they priced the IPO.

• 1:58:48Ben Gilbert?

  Woo, for a fully diluted market cap of $39 billion. It's a lot higher than 16.

• 1:58:55David Rosenthal?

  Now, to be fair, they, so last year, net revenue was 885 million. So just under a billion. So far in the first nine months of 2020, they've done almost 2 billion, 1.9 billion in net revenue. So, um, you know, hi, we're talking 20 times trailing nine months net revenue. So I don't know, you do some math, extrapolate that out to a year, maybe you're at 15 times revenue, still high.

• 1:59:21Ben Gilbert?

  Still high. So, uh, David and I have not refreshed our browsers yet, but, uh, as of, you know, we started this episode, it had not, uh, it had priced and sold it at, um, $102, but price discovery was still happening for market open. David, let's, uh, let's pop open the stock and see where it's trading now. Holy crap.

• 1:59:45David Rosenthal?

  I mean, I don't have it yet. Hang on.

• 1:59:47Ben Gilbert?

  I have, I'll tell you the price that it opened at this morning. It opened trading at $182 a share, which is a market cap of around, what, like 70 ish billion?

• 2:00:03David Rosenthal?

  Wow.

• 2:00:04Ben Gilbert?

  David, where are we now?

• 2:00:05David Rosenthal?

  As I look at, uh, the ticker, we're at 177 and 77 cents.

• 2:00:11Ben Gilbert?

  All right. So it dropped a little since the open.

• 2:00:12David Rosenthal?

  Yep. But that is up 75%. Take one five and they did, we did, oh, you know, time to really research this, but maybe you did, Ben, but you know, Goldman is leading this IPO and they had some hybrid system. And they're like, you know, everybody's like, ah, you know, traditional IPOs, you give up the pop, you leave money on the table. Girlie's been crusading against this for years. He gets back some, well, the odd DPOs. Like, oh, we got this new system, not going to leave money on the table.

• 2:00:36David Rosenthal?

  I don't know about this new system.

• 2:00:38Ben Gilbert?

  This, I mean, this is one of the most egregious offenders of leaving money on the table. Like, this is probably close to a $3 billion wealth transfer from, you know, employees and investors of this company to the people who bought the IPO last night.

• 2:00:55David Rosenthal?

  The investment banks' clients.

• 2:00:57Ben Gilbert?

  Yeah.

• 2:00:58David Rosenthal?

  All right, here's the thing, though. Like, I think it's been proven over the last five-plus years that people have been talking about this, that you can't beat them. You can't, you can't stop this from happening. So I think what we need to do is we need to find a way for the acquired community to get

• 2:01:15Ben Gilbert?

  To get in on, that's right.

• 2:01:16David Rosenthal?

  That we gotta join. We can't beat them. We're gonna join.

• 2:01:20Ben Gilbert?

  I love that.

• 2:01:21David Rosenthal?

  So all our friends at Goldman, if you're listening.

• 2:01:23Ben Gilbert?

  Yes.

• 2:01:23David Rosenthal?

  We need to get acquired as a client.

• 2:01:26Ben Gilbert?

  Little alow.

• 2:01:26David Rosenthal?

  We need allocations.

• 2:01:29David Rosenthal?

  Wow.

• 2:01:29Ben Gilbert?

  David, I honestly, I cannot believe this. Like, if you would have told me a month ago that DoorDash was gonna be a $65, $70 billion company.

• 2:01:39David Rosenthal?

  Up 71.5% ish from a $39 billion market cap. Say we're talking a $70 billion ish market cap right now, somewhere in that neighborhood.

• 2:01:51Ben Gilbert?

  Wow. This is gonna be, it's kind of a volatile first day, too, because it's, it's, you know, if it opened at 182, it's now down to 1. Let's see, the, the, the high point on the day was 187. The low point so far has been 173. So there's still a good amount of price discovery happening in the public markets right now.

• 2:02:10David Rosenthal?

  Yep.

• 2:02:12David Rosenthal?

  Wow.

• 2:02:12Ben Gilbert?

  Man, so, okay, all right, so what?

• 2:02:14David Rosenthal?

  We've got another hour-ish to trade here.

• 2:02:17Ben Gilbert?

  So, okay, over the course of our, the next several sections, all these analysis sections, I think the question that we have to keep in the back of our minds is, what is the things you have to believe about their future growth and about their future profitability in order to, in some way, justify the value of this company right now? And I can't think of any better way to do that than heading into our, our narrative section, where we, for folks who are new to the show, this section, we try and paint the media narratives over the last few months for the bull case and the bear case of why you should be excited about this company, or why you should run from it at all costs. And the market has certainly spoken. But, David, what was the, the sort of biggest bull narrative surrounding the company?

• 2:03:00David Rosenthal?

  So yeah, I mean, the bull narrative, I think we've told a lot of it along the way here. And I at least mostly subscribe to it is they have, just like Meituan seems to have done in China, they have accomplished the dream or in the process of accomplishing the dream and taking a market like this, a highly competitive, local network effect market and tipped it in their favor such that there's no viable competition. They have a wide berth to run, both to keep growing in the sector that they're in right now with food delivery, to add other products and services into it and become the dominant,

• 2:03:45David Rosenthal?

  you know, Meituan, as we'll get into now, is it's not really just food delivery anymore. That's a small part of what they do. They are a super app, just like Tencent and WeChat is the super digital app. Meituan in China is the super physical app. Friend of the show, Rida Yang, over at GGV, has a really great YouTube walkthrough that we'll link to in our sources of what it's like to use Meituan in China. And like, you want to book a massage? You book a massage. You want to order food? You order food. You want to order flowers? You order flowers. You want to make a restaurant reservation? Great. Like you order your food from restaurants. You also make restaurant reservations in the app and you're opening it all the time. And it's how you interact with your physical world and local businesses around you. I think that's probably the bull case to me.

• 2:04:31Ben Gilbert?

  Yeah, it's boiled down to they are the last mile near real time logistics company. Like they're the local on demand FedEx to get anything to you. And then in that, then you just have to let your mind wander on what are all the things that you could want at your door in a moment's notice. And really that starts to shift your mindset to like, oh, so they're actually a competitor of Amazon Prime now, less so a food delivery company.

• 2:05:02David Rosenthal?

  Well, I think what's interesting is I think it's a yes and on the real bull case. Yes.

• 2:05:08Ben Gilbert?

  I mean, at this market cap, it has to be.

• 2:05:11David Rosenthal?

  It has to be a yes and, right? I think it's everything you just said, but it's also this, you know, what Meituan has become in China, which is, and Tony talks about this and they talk about it in the S1. And this is part of what Dash Pass is. It is your way that you interact with all local businesses in your area, whether that's bringing stuff to you or you going to them or even other interactions. So, you know, the example of restaurant reservations. Well, what if it's, you know, you can make restaurant reservations, but you also get special offers at the restaurant. You can book things, you can book special experiences. And because you're a Dash Pass member, you might get some discounts on that.

• 2:05:52David Rosenthal?

  Well, and then just like Amazon has made a big business, a big high margin business in advertising on Amazon.

• 2:05:58Ben Gilbert?

  Well, right. Once you have that traffic, there's lots of ways to.

• 2:06:01David Rosenthal?

  Not hard to believe you could have sponsored listings for food delivery or for other things within the app. And if I, as a consumer, am opening this three, four, five, six, 10 times a week to interact with things and I'm getting all this stuff put in front of me. That's pretty interesting.

• 2:06:20Ben Gilbert?

  Right. Yeah, Smarts named the company DoorDash and not like Door Food Dash. And it's also smart to introduce Dash Pass in sort of a, like even pulling the door away from it. You know, because then Dash Pass, you could, you could imagine applying that brand to you. Get special discounts and special relationships with merchants that aren't necessarily being delivered to your house, but you're just transacting through the app.

• 2:06:45David Rosenthal?

  Yep. And I think, so look, this is the Super Bowl case. Lots of questions about whether this can happen, when, how.

• 2:06:54Ben Gilbert?

  There is another way to paint the bull case too, which is basically like that this company is an optimization machine and they will run at fully utilized optimization. It's kind of like a factory floor, like all those machines are really expensive. So you better run them at the most perfect harmonious capacity so that you can be profitable on that, you know, high amount of fixed costs. And the, the way to think about that in this sense is like, there's a lot of different ways in which they can optimize, but like the biggest one is, once you've acquired a customer, can you get the most amount of profitable transactions out of them over time? And obviously like big performance marketing angle to this company, similar to like a

• 2:07:39Ben Gilbert?

  restaurant, once you onboard a restaurant, can you keep them for a long time? Can you be profitable on them? It's, it's, it's all about like getting to not only the scale, but the sort of internal data that the company has so they know exactly how to price every component, what customers go, worth going after, what restaurants worth going after, what product at what time? Like it's in a lot of ways, it's basically a bet on data and data science being able to be the way that you can do this thing profitably.

• 2:08:09David Rosenthal?

  Yep. Not to mention even just the fixed cost, so to speak, although they're variable costs, but it's a, it's a fixed set of variable costs of having the dashers operating, right? Like you have capital in the system all day, every day with the dashers that are operating on the platform, right? And so like, how do you lever, the fact that they're getting paid to be doing the fulfillment on the platform? How do you get more leverage out of that? Meaning make them do more deliveries more efficiently during the time that they're working for you. It's almost like the gig economy. It's a third way to think about costs. It's, it's not, it's, it's variable, but it's not totally variable.

• 2:08:51David Rosenthal?

  It's a fixed, it's a fixed set of variable costs in the network. And how much leverage can you get out of that?

• 2:08:58Ben Gilbert?

  Yeah. Okay. So then that goes to the bear case, which is actually one of them is pandemic related, which is the most simple way to look at the pandemic related bear case is this is the best it's ever going to be for this business. And after this, there's going to be way less demand than there previously was. The other, I think, a little bit more nuanced way to look at it is the data that they're getting right now may not inform consumer behavior in the future. And so it will be hard to trust the guardrails for this cohort.

• 2:09:29David Rosenthal?

  Yeah, of course, all their most recent cohorts are looking great right now because of the pandemic.

• 2:09:35Ben Gilbert?

  Right. You know, I personally think the way it will play out is that all the new customers they did acquire have pseudo permanently changed their behavior. Like, I think, once you make a behavior shift, and I just know this from, you know, myself, like, DoorDash has sort of won me over as a customer. And I don't think I will sort of change behavior after this, but they're certainly not going to acquire customers with the ease that they did during the pandemic. So that's sort of my like metered bear case on the.

• 2:10:04David Rosenthal?

  I would say also too, even on that, you know, one thing, we don't get delivery often. I've done it the last couple of nights in research for this episode. But what we do do often is, is takeout. And I think this is one of the things that's really smart that DoorDash has invested in is making that a feature on the platform, too. Like, yeah, it's way more, I vastly prefer, and probably the restaurant vastly prefers me to place my takeout order to walk over and pick up from my local Thai place via an app rather than calling them and tying up the phone lines. And DoorDash has found a way to enable that and get paid for it.

• 2:10:38Ben Gilbert?

  Yep. Yep. I think that pretty well. Anyway, the biggest bear case I think you can make is that they're not going to be able to make the leap out of this restaurant category. And this is going to continue to be a razor thin, highly competitive business. And they're just never going to be able to sort of take all the investment that they've made and actually get to benefit from an immensely cash flow positive output on the other side.

• 2:11:05David Rosenthal?

  Yep, that makes sense. I guess maybe, maybe there is one more legitimate argument you could make on the bear case, especially at this valuation, which is this TAM is maybe not as big as you think. And like, obviously it's big, but how big is it now in the S1? They talk about, what is it? I want to say something like 600 billion ish of off-premise restaurant food annually.

• 2:11:32Ben Gilbert?

  Oh, yeah. Yeah, that sounds right.

• 2:11:34David Rosenthal?

  Okay. Uh, now what percentage of that is actually addressable by DoorDash? So last year they did eight billion in GMV out of that 600. But like, you know, a bunch of that is Domino's. A bunch of that is catering businesses, which obviously DoorDash is getting into that. But like, they're not going to be able to address all of that.

• 2:11:57Ben Gilbert?

  By the way, it's only 300 billion. The off-premise spend, 2019's off-premise spend at restaurants and other food service in the United States.

• 2:12:06David Rosenthal?

  300 billion. Okay. Yeah. So now you're like, wait a minute. So say even you get the whole market, $300 billion in gross order value. You said, we said, we have a 2.5% contribution margin. Let's say 10% revenue. Well, let's just even use revenue, 10% revenue margin. So now you're talking about a $30 billion net revenue company. Yeah, that's great. That's super impressive, but like, that's not Amazon.

• 2:12:35Ben Gilbert?

  Right. And that's if you address 100% of it. And yeah, like even Amazon only addresses, uh, what is it 50% of e-comm? But e-comm is only 20 ish percent of commerce. So yeah, the, the way they define their market, just make sure I actually understand this well is that they say Americans spend one and a half trillion dollars a year on food. 600 billion of that has been on restaurants and then 300 billion is off-premise.

• 2:13:01David Rosenthal?

  Ah, that's what I was thinking, the 600, the 600 is also tiding in.

• 2:13:04Ben Gilbert?

  Right, right. So that you could imagine.

• 2:13:08Ben Gilbert?

  I don't know. I don't know how that diet is addressable for them.

• 2:13:11David Rosenthal?

  Man. So, okay, at this valuation, not only do you have to not believe the bare case, you have to believe the bull case that they are going to expand outside of just the off-premise food delivery market.

• 2:13:26Ben Gilbert?

  Yep, absolutely. Well, this is a really, actually, we decided to do power on this episode as well, in a section where we normally trade it off with narratives, but I think it's actually very appropriate to do both of them. So this comes from friend of the show, Hamilton Helmer's book, Seven Powers. And power is defined as what enables the business to achieve persistent differential returns. Or put another way, how do you be profitable and more profitable than your closest competitor and do so sustainably over a long period of time? And the options for this are counter positioning, scale economies, switching costs, network economies,

• 2:14:09Ben Gilbert?

  process power, branding, and cornered resource. And David, I'm curious where you come down on what power do they actually have here?

• 2:14:20David Rosenthal?

  Well, it's interesting. Before we get to us, it seems pretty clear to me that Tony and the team at DoorDash are probably also Hamilton Helmer fans, because if you read the S1, they have this handy little flywheel diagram, three noted flywheel. And then they also talk about what they view as their defensibility, and they list local network effects, economies of scale, and increasing brand affinity. So three of the seven. Got to imagine that Hamilton, as he has so many, as his work has influenced so many people here in Silicon Valley, has also influenced them. So that's what they think. Network effects, economies of scale, scale economies, and brand. And we could talk about how they think about

• 2:15:04David Rosenthal?

  them. To me, the biggest one right now is economies of scale.

• 2:15:09Ben Gilbert?

  Hundred percent. I think it's actually the only legitimate one, because I think it's pretty easy to hop for any network, any participant in the ecosystem. It's very easy to multi-home, and it's very easy to choose the next best competitor. Like it's easy to order food, it's easy to deliver food and it's easy to, as a restaurant, also list on Uber Eats, no problem at all. So I think that, I think any defensibility that comes from a network effect is not really real.

• 2:15:38David Rosenthal?

  Yep. Yeah, no, I was gonna say that it's related to order times and density, but that's, that's, that's scale economies. So yeah, I think it's, I think scale economies is the big one.

• 2:15:50Ben Gilbert?

  I think, and there's something to brand, but it's always hard to actually know how much to sort of chalk up to brand. I mean, one thing is really true and rings really, really true to me, which is like, the whole end game is aggregating the consumer attention. And this is the Ben Thompson aggregation theory concept applied to food where if, if you're the way that people think to order food, like you're the destination site, they're the front door to someone's purchase, you're going to get superior economics on that transaction. And I think like, as you think about the far

• 2:16:25David Rosenthal?

  Especially if you start introducing an advertising business model into this too.

• 2:16:30Ben Gilbert?

  Absolutely. And I think about, as you think about the far future of like, what is the, how does the world of restaurants reorganize, given you now have this participant in the system or the setup participants in the system that are, you know, gobbling up all the consumer attention and the default way to order food. As the default shifts from that real world to online, whether it's DoorDash or you're using Prime Now to have stuff delivered, they're going to start eating, or they already are eating the profit of that local business or store. And for the vast majority of local businesses, without a differentiated offering, other than store location, which is how most businesses use to differentiate, DoorDash will totally eat them and they'll actually eat their backend too. In the same way that Prime Now has a warehouse, like DoorDash will eventually

• 2:17:15Ben Gilbert?

  have warehouses for the most commonly purchased things and be able to capture some more of that margin. So then only the restaurants who deliver unique product or a unique experience will actually be in a good position as the world continues to, to reorganize. Like it's the same thing Amazon did to e-commerce is going to happen in food.

• 2:17:38David Rosenthal?

  I agree with all that. I don't think this is brand power in the Hamilton sense. Like, I don't think this is, that is a consequence of economies of scale and then growing into network economies, which I think they, you know, they maybe have a little bit of now. But I do think as what you're saying happens, that'll grow more, that more of a network effect as they have all the consumers and all the restaurants for now, but let's say suppliers, writ lars, local businesses on the other end. Brand though, to me, brand like, for brand to be a power, it has to be like Tiffany's, you know, that's the canonical thing where like, I'm willing to pay more for this exact same commoditized thing, simply because of the brand name on it.

• 2:18:17David Rosenthal?

  And there's no way that that applies to DoorDash. Like, no way. If eats gave it to be cheaper or for the same, like.

• 2:18:25Ben Gilbert?

  Yep. Yeah, you're absolutely right on that. Yep.

• 2:18:28David Rosenthal?

  So that's, that's pretty aspirational. Nice one, Tony. We appreciate that. Good try, but.

• 2:18:34Ben Gilbert?

  Well, listeners, for what would have happened otherwise, our sort of section where we, in a traditional acquired episode, would talk about what would happen if this transaction didn't happen. We thought it'd be fun on this episode to dive into what would have happened if Uber hadn't imploded during their 27 and 2018, would we be here today? And I think, you know, that, that gave in the ride sharing market, Lyft a new breath where they were basically dead until Uber, you know, imploded and are now a quite formidable competitor. Well, 20, I don't know if I can call them formidable when like, no one's ride sharing.

• 2:19:10David Rosenthal?

  They, they exist and there's not like, uh, it doesn't seem like they're about, like in 2017, it seemed like they were about to die. And indeed, as we've talked about on the Lyft and Uber episodes, they were about to die. Uber was gonna win and then they haven't. And now it's stabilized into more of a duopoly type structure.

• 2:19:28Ben Gilbert?

  Yep. So what would have happened to DoorDash if Uber hadn't gone through their 2017 and 18? And as we know, like 2016 wasn't looking so good for DoorDash. Early 2017, they could have died. So how much of Uber fumbling had to do with DoorDash having a breath?

• 2:19:50David Rosenthal?

  Well, this is, I think this is really one of the most interesting questions on this episode because part of the narrative around this whole space and Uber's role in it particularly that we haven't yet talked about on this episode is what Uber would say, which is we have a structural advantage in both of the main core products that we markets that we operate in, rideshare and food delivery, because we can use our supply of drivers across both of these products. Lyft is a pure play ridesharing. They can't use their supply for food delivery. DoorDash is pure play food delivery. They don't do ridesharing. Thus, we should, you

• 2:20:32David Rosenthal?

  know, the thesis, the narrative that they and lots of other people have believed over time is we should be able to win both markets because we will be, you know, we'll have better, essentially 2X the scale economy that any pure play player could have.

• 2:20:46Ben Gilbert?

  Yep.

• 2:20:47David Rosenthal?

  That has not played out. Interesting question is-

• 2:20:50Ben Gilbert?

  I do want to say like that, that actually, according to Tony, is not true. Like that-

• 2:20:55David Rosenthal?

  Well, right, yeah.

• 2:20:56Ben Gilbert?

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

• 2:21:28David Rosenthal?

  Well, I think there's an even more important, so I totally agree. I think on the what would have happened otherwise, I think it would have been interesting. So I think Uber got lazy and relied on this idea. And I think it would have been interesting if they weren't going through everything that they went through to see like, would they have, how would, well, would they have done with maybe being less having their eye taken off the ball here? Because I totally agree with Tony on this one. That the nature of the supply for food delivery is quite different across many dimensions versus rideshare. And in particular, so there's all the demographics that you mentioned, I think perhaps especially in cities, the more important one is vehicle

• 2:22:13David Rosenthal?

  type. So if you're going to do rideshare in a city, you need to have a nice late model car or access to one. That immediately segments out a huge portion of your addressable gig labor economy, your gig labor force there. There are a whole lot more people who either don't have a car at all, or have a car that doesn't meet the standards of Uber and Lyft. And DoorDash came along and said, this is why I think bicycles were so brilliant in the early days in in Boston. And then that grew into e-bikes, then that grew into scooters of all different types, but the powered, you know, motorcycle like scooters and bird

• 2:22:55David Rosenthal?

  like scooters. And I think that opened up a lot more addressable supply for them that Uber was never going to be able to multi-home across their two products.

• 2:23:04Ben Gilbert?

  It's a really great point. Yeah, it's, yeah, it's, it's a larger potential supply base than than Uber has. And the way Uber solves that problem is like, oh, well, that person can lease a car from us. But like, if you're a person who, or lease a car from one of our, one of our partners, I actually think this gets to the fact that the, the way that people plug into DoorDash is pretty different than the way that people plug into ride sharing. I think Uber would like to continue the narrative that it's largely the sharing economy. But I think the professionalization of supply is pretty clear at this point. The majority of Uber drivers, their full time job is to drive Uber. I actually don't know if that's true with DoorDash. I think it is much more like a younger crowd with

• 2:23:49Ben Gilbert?

  a different job that is using this to make a little bit of money on the side in order to do something else. And like, it feels to me much more like an actual realization of the sharing economy, as opposed to what Uber turned into.

• 2:24:03David Rosenthal?

  Yeah, I would agree with that. So yeah, I actually don't know what would have happened otherwise is not clear. It's not like we can crystal clear say like, oh, yeah, Uber shot themselves in the foot. They would have won here. Things would have been different.

• 2:24:15Ben Gilbert?

  Well, certainly, it became possible for DoorDash to raise money in a climate that would have been too hostile had Uber continued to be a juggernaut.

• 2:24:23David Rosenthal?

  Yep. And raise money from Uber's largest shareholder.

• 2:24:28Ben Gilbert?

  Still so crazy to me that that happened.

• 2:24:30David Rosenthal?

  Indeed. All right.

• 2:24:32Ben Gilbert?

  Playbook.

• 2:24:33David Rosenthal?

  Playbook. Let's do it. Oh, man.

• 2:24:37Ben Gilbert?

  So many things, so many things we've already talked about, but the like the headline of this needs to be winner take all markets do indeed have a pot of gold at the end. But so far, we have just seen cash flooding in to try and take it all, but that pot of gold has totally not materialized. Like in 2018, they lost $200 million and then just like their growth, they tripled it to over $660 million loss in 2019. And of course, the losses are shrinking in the pandemic. They've only lost $150 million so far this year. But I mean, this is the classic modern embodiment of a venture capital business where capital floods in because the perception is

• 2:25:17Ben Gilbert?

  that when you're at the biggest scale, then even if you stay small margin, all those little margins across all those little purchases add up. And maybe, maybe people can take that next leap and believe that you have pricing power. So then actually you can make more money per, per order over time when you're, you know, a monopoly. But I think, I think this is the, you know, this is like the bear case on this whole ecosystem that we're in right now. The winner take all effects may not be as strong as people thought. And the lock-in and moat may not be as, as deep or wide, or whatever you want to say, as people thought. And it continues to take longer and longer and longer to be able to realize that end state where you actually can

• 2:25:59Ben Gilbert?

  realize all the fruits of your labor or not really labor, but actually capital that has gone in.

• 2:26:04David Rosenthal?

  Yep.

• 2:26:05Ben Gilbert?

  So to me, that's like, that's the biggest playbook theme here is there, they're running the playbook that is.

• 2:26:12David Rosenthal?

  The winner take all.

• 2:26:12Ben Gilbert?

  Capture a winner take all market, but we're, we're in the middle of the story. We're not at the end of it yet.

• 2:26:17David Rosenthal?

  Yep. Yep. I think that's, I think that's true. Although.

• 2:26:23David Rosenthal?

  I think coronavirus was a huge accelerant to them, vastly improved their chances. And also stepping on the gas and continue to run this playbook while their competitors pulled back vastly improved their chances. So, you know, whereas the narrative has shifted on this, where in 2013, 2014, it was run this playbook, there is the pot of gold. In 2016, 17, 18, it was there's no pot of gold at all. This is all a mirage. Now, the question is, well, there may be a pot of gold.

• 2:27:00Ben Gilbert?

  Right. I think it's a good way.

• 2:27:01David Rosenthal?

  I think a related corollary playbook theme to that for me, that we've seen across this season at Acquired and some of the other episodes we've done recently, focusing on more bootstrap businesses and just businesses with different histories. I mean, even I would put Epic Games in this category too. Different markets are different, right? Like, and if you're gonna go after a market like this, you stand no shot unless you raise a lot of money. Like, you're gonna get torched. But that's not the case in other markets.

• 2:27:32Ben Gilbert?

  Sort of. If you, it depends if you want to compete nationally or globally or not. Like, I don't know. DoorDash is probably gonna win if you're trying to operate just in one city. And then they come in and compete against you in that city. But I actually don't think there are any meaningful cross geography network effects other than the national chains, which DoorDash has done better at than Uber. But like, if you're Uber Eats, like, really, what are the cross geography network effects between your Uber Eats business? Basically, nothing. Like, you get to reuse the same technology on the backend, great. Customers know of your brand, great. But like, compared to Airbnb, which has an unbelievable cross geography network effect.

• 2:28:11David Rosenthal?

  Probably the best ever.

• 2:28:14Ben Gilbert?

  Right. Like, I only live in one place. And if word gets around pretty quick that all the restaurants are on one app. So it's, yeah, I don't think, I don't think you need a national brand or an international brand in order to win.

• 2:28:29David Rosenthal?

  I think that's fair, but I think your upside is capped. Like, you're never gonna build an Epic Games type size company if you don't take the go big approach in a capital intensive market like this.

• 2:28:39Ben Gilbert?

  Yes. Great point. Great point.

• 2:28:42David Rosenthal?

  I guess it really comes down to capital intensity. Like if you're operating in a capital intensive market, good luck if you don't have capital. But as we've seen on this, on this season, there are lots of other markets that are not capital intensive.

• 2:28:56Ben Gilbert?

  Yep.

• 2:28:56David Rosenthal?

  Okay, great. That's one for me. The other one I want to highlight again because I think it's very Amazonian. It's very apt and to me just sums up DoorDash exquisitely well. Is their value of operating at the lowest level of detail. And I think it's, it's one of those things that like people say is like, oh yeah, like, you know, like people talk about the Amazon.

• 2:29:20Ben Gilbert?

  Leadership principles.

• 2:29:21David Rosenthal?

  The leadership principles. Yeah, exactly. But I think understanding what that really means. Tony talks a lot about this in interviews and he uses the example of the Cheesecake Factory in San Francisco, which is in Union Square. And the Cheesecake Factory is on the sixth floor of a mall in Union Square. There's no dedicated parking out front. You need to take an elevator to get up there. And they have a bunch of different serving stations. And you've got customers, even in San Francisco, who like to order from Cheesecake Factory. And they live, you know, a 20 minute car ride away in the city. So how are you gonna get them the, get them their cheesecake in a high quality, timely manner?

• 2:30:06David Rosenthal?

  Well, the only way you can do that is by doing things like he talks about like, well, okay, we went to the mall and we're like, can we get a dedicated elevator shaft for us? Great. We went to the restaurant and we were like, can you give us a dedicated serving station? Great. They went to the parking garage there and they're like, can we get dedicated dasher parking spots? Great. You know, that only happens when, you can't do that when you're sitting in a, when you're sitting in an office writing code.

• 2:30:32Ben Gilbert?

  Right, and only paying attention to averages. I think another great embodiment of this is, I think it's Michael Block is how you pronounce his name, on Twitter, talked about how, and he's an early employee, in food delivery, you can compete on four things: price, speed, selection, and quality. And they sort of like looked around, realized that they weren't necessarily going to beat Uber on price or speed because they didn't have the density yet that was in cities. They didn't have the broadest selection yet. They did have high-quality restaurants. And one of the very interesting things that they zeroed in on is speed. They're like, well, how fast do we need to be? And he says, "Our analysis showed that there was a limited marginal benefit to customer conversion or retention rates under 42-minute ETAs.

• 2:31:16Ben Gilbert?

  As long as deliveries were sub-42-minute, customers didn't really care how long they took." And it's just this like amazing light bulb that by diving into it, this flies in the face of what I said a moment ago because this is an average number and not a sort of like per customer, per location, per type of food tail number. But then the idea that like they can learn that 42 minutes is their food delivery equivalent of that sort of magic five-minute mark for Uber, where like I don't care if an Uber's two minutes away or five minutes away, it's the same thing. I do care if it's five minutes away versus 15 minutes away. Those are very different things. And I think his point in his Twitter thread, which again, we'll link in the show notes,

• 2:31:55Ben Gilbert?

  is that, you know, when they were competing against Uber, Uber was in a constant optimization race to get the food to you faster. And DoorDash was kind of realizing, actually, that that might be a waste of resources.

• 2:32:09David Rosenthal?

  Hmm. Yep. Yep.

• 2:32:12Ben Gilbert?

  So anyway, it's the Amazon leadership principle, dive deep, like being deeply analytical, which they need to be to be able to operate at the margins that they're operating at. All right. Last section before grading is value creation and value capture. And this is a section that we started doing based on actually a lot of listener demand that has two parts. The first part is how does the value that they are capturing compare to the value that the company creates? So, you know, is it like Wikipedia where they capture a tiny little percentage and could be capturing way more? Or are they capturing plenty like Google who makes a ton of money from the value that they create in the world? So there's that that component. And the second is, you know, how does the value created for the world,

• 2:32:56Ben Gilbert?

  not just for shareholders, compare to any value destruction that they've done in the world? And I think let's, let's address these in order. So on that first one, they seem to be capturing basically the maximum amount that they possibly could. Any more and consumers probably wouldn't buy. I mean, it's effectively a 40% markup on your food in order to pay DoorDash and then to pay the Dasher. And like, the market actually feels relatively constrained to me of people who are willing to pay 40% more for their food to have that sort of convenience. So like, I don't think they could be extracting anymore. So that's any more from consumers, any more on the restaurant side, and the restaurants probably couldn't keep their doors open. Like, I think DoorDash does a lot of research on figuring out like, how much of the drip do we need to give to restaurants so they'll continue

• 2:33:41Ben Gilbert?

  to be our suppliers and not, you know, churn off the platform, either because they don't like us or because they just can't operate at all. So I think they're, they're doing a reasonably good job of maximizing the value that they possibly can take.

• 2:33:55David Rosenthal?

  Well, then there's the Dasher side, too. Yeah. Of are they earning enough on the platform?

• 2:34:01Ben Gilbert?

  Right. And, and, you know, the knock on this whole freaking business is like, this business model is, is there actually enough dollars to go around? As you start to get to more and more customers versus a smaller set of customers who are willing to pay a larger markup in order to have more, you know, actual dollars to go to go around here? So that's sort of how I would describe, I think, companies doing a bang up job of capturing value. How does the value created for the world compare to value destroyed for the world? I mean,

• 2:34:36Ben Gilbert?

  I think there's a strong case to be made around exploitation of gig workers, not nearly as strong as like ride sharing. I actually think that there, this seems to be a much friendlier company to dashers than ride sharing tends to be to drivers, but.

• 2:34:55David Rosenthal?

  I agree. And I think that the big, the biggest reason for that, I think, is structural. We were talking about a minute ago in terms of vehicle types, the depreciation on ride sharing on the vehicles is a huge hidden cost that the laborers bear. And of course, depending on what vehicle you're driving with for DoorDash, you're probably also incurring depreciation, but potentially way less.

• 2:35:18Ben Gilbert?

  Right. And a lot of them are leases. So it's sort of like built into the cost of the lease. But yeah, I think the bigger case to make that, you know, it's, there's value destruction happening for the world is on the restaurant side. As much as DoorDash wants to sell a story around we empower local businesses and, you know, I would hate to live in a world where those businesses didn't thrive and people only bought stuff through us and we're not the merchant, or merchants are the merchant and we're just the platform. I just don't think that's where this business is really going. I think that's a wolf in sheep's clothing or fox in the hen house, or whatever you want to say, especially now that they have the market cap that they do and they're publicly traded and they have the shareholders that they do.

• 2:35:59Ben Gilbert?

  Like, I just don't see a world where what they're actually doing 10 years from now is empowering local businesses.

• 2:36:06David Rosenthal?

  Yeah, it's interesting. The, it's funny. I think I would maybe push back on that a little bit in the now, in the short term, in that like, yes, there's a lot of, a lot of sentiment among restaurateurs and often justifiably so that DoorDash and other platforms take way too much of the order. It's eating into their cost, their cost, the restaurants' cost structures are not sustainable. Profit margins with, when selling on these platforms, they can't make things work. I think there probably is some truth to that. On the other hand, I think there are also plenty of businesses and restaurants that have figured out how to make it work and it's like incredibly additive to them, being

• 2:36:50David Rosenthal?

  able to have this new delivery channel that honestly, they just, they can't operate this network themselves, as we've talked about in the whole episode. So I think that's today. I do think though, in the future, you're probably, the point you made is going to become more salient. As cloud kitchens, ghost kitchens, other food-related businesses get built that are going to be more of scale businesses as opposed to local

• 2:37:14Ben Gilbert?

  Yeah.

• 2:37:14David Rosenthal?

  Restaurants.

• 2:37:15Ben Gilbert?

  And my question is, how does, how do they just not end up combining? Like, and how does DoorDash not build this themselves?

• 2:37:23David Rosenthal?

  I think they are. I think they're working on it internally. I think there are also a bunch of other startups out there, several that have come out of Uber. One that my brother-in-law works for, a virtual kitchen company. So I think those businesses are going to be more scale businesses. And some of them are going to partner with local restaurants, like virtual kitchen company partners with local brands and helps them and includes them in the economics. And I think others are going to just be like, no, we're doing this ourselves. We're vertically integrated and you're going to move more and more towards an Amazon-type marketplace where you have big players that are large consolidated manufacturers and brands operating in the Amazon marketplace and the small guys get pushed out.

• 2:38:02Ben Gilbert?

  Yeah, it's going to be more important than ever for restaurants to create customer love.

• 2:38:07David Rosenthal?

  Yeah.

• 2:38:07Ben Gilbert?

  And, and not in a begging way, not in a like, please support us versus these bad guys and shop local, but more in like a delight way. Like, I think if I was running a local restaurant right now, what I would try and do is like, and, and I should caveat all this with like, oh my gosh, I can only imagine how hard it must be to be a small, small business entrepreneur running a restaurant right now. But I think the most successful path forward for the future is look at something like DoorDash Drive and be like, okay, great, we're going to use them for the delivery network. Awesome. Let's not list on DoorDash the marketplace. Try and aggressively start building my direct email list. Figure out how to do all sorts of segmentation on like, you know, who loves me the most?

• 2:38:52Ben Gilbert?

  Figure out referral programs, figure out basically how do you run your restaurant? Like a bootstrap web business where you have like really rich CRM information about your customers and then try and, and be creative in ways where you're not just a food experience. Like you have an online component or you, I mean, a lot of this is like pages from Canlis' book.

• 2:39:11David Rosenthal?

  And Coconus and Tach too.

• 2:39:13Ben Gilbert?

  Totally.

• 2:39:13David Rosenthal?

  What they've done at Alinia and with Next, like, you know, they've executed this playbook to a T.

• 2:39:18Ben Gilbert?

  How do you do this stuff creatively, cleverly, digitally, cheaply, you know, without being a fine dining experience? And then use DoorDash for its component parts because it's great that it's built out, but you don't want your customers coming from there. And then you don't want that traffic at the whim of, of someone who's trying to commoditize you. So anyway, I think the restaurants that do have the most differentiated offerings will be able to thrive independently. And otherwise, I think it's going to be, it actually looks a lot like the travel market where like, once OTAs came into the picture, it was really hard for any airline to differentiate. And then they all ended up being a commodity, racing to the bottom, dropping their prices, seeing massive consolidation. Yeah, it feels like that's a playbook that's being run in restaurants right now.

• 2:40:04David Rosenthal?

  Yep, totally. Which I think, you know, then the question is for value creation, value capture here for DoorDash. Question is, was that going to happen anyway? Like, is DoorDash causing this? Or are they, you know, participating in it? They're also arming the rebels, like, it's complicated.

• 2:40:20Ben Gilbert?

  DoorDash merely an inevitability.

• 2:40:22David Rosenthal?

  Yeah.

• 2:40:23Ben Gilbert?

  Like, the same way that like was Facebook an inevitability.

• 2:40:25David Rosenthal?

  Yeah.

• 2:40:26Ben Gilbert?

  For, for the publishing world.

• 2:40:28David Rosenthal?

  Yep. Cause again, Tony, DoorDash, the team, these are amazing. They persevered. They had really great insights that very few other people had at the moment. They persevered through incredibly hard times and they have, against all odds, built, seemingly built, actually, like they're on the path to doing it. They built a good, sustainable business. At the same time, like, this was going to happen because this is happening in China. Like, this moment was, if it wasn't them, would have been somebody else. And again, not to take away from anything that they've done, but like, the timing was right, that why now of like, mobile enabling this for all three sides of the marketplace? It was going to happen.

• 2:41:08Ben Gilbert?

  Yep.

• 2:41:09David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 2:41:15Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 2:41:26David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you ship next.

• 2:41:46Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 2:41:59David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 2:42:10Ben Gilbert?

  Grading. So for the new influx of folks joining for the show, when a company buys another company, what we do is we grade how good of a use of the capital of the acquirer's company was for the acquirer, to basically for Facebook to buy Instagram, you know, in hindsight, how good of a use of capital was that. On this episode, the way that we're going to do that is collectively, how good of a use of capital was it for the company, like all these people's human capital, and for the investors in the monetary capital to go after this business opportunity in this way over the last five years? And everyone bought in at a different share price. So I think it's a little bit of a, it's very different to say how good of a use of it was

• 2:42:55Ben Gilbert?

  was it to buy a share today versus if you're Sequoia. But I think actually what we should do is, in some ways, that's true. In other ways, everyone's all in the same boat now. And it's unlikely that there's any path other than really big success long-term, or kind of going out of business or doing some kind of merger combination. Because at some point,

• 2:43:18Ben Gilbert?

  The market cap is going to reflect the actual long-term cash flows of the business. And that might be a long time from now. So I don't want to talk about like, gosh, if you had gotten in early, what your shares would be worth today. Like, it's just not actually interesting to think about the, the sort of market value of the shares right now. What I think is interesting is to say, should all of these people and all of this capital have raced after this opportunity? And will, will that eventually yield a very profitable business?

• 2:43:47David Rosenthal?

  Yeah, such a good way to frame it. So glad you had this idea to do it this way on this episode.

• 2:43:54David Rosenthal?

  Yeah, I think my answer is it was a, not in the very beginning, not in the seed A or B. But in that period after the B, it was a very contrarian move to keep doing this. The end is not yet written, so we can't like say for sure because the, you know, they've had a couple contribution positive, contribution margin positive quarters during the greatest tailwind to their business that they could ever experience.

• 2:44:27David Rosenthal?

  But given that and given now this, the reward along the way in this IPO and the $70 billion market cap journey outcome, temporary outcome here. Gosh, I gotta think it's an A to make this decision. Like, it's so high stakes, though. It reminds me, I had in the notes and didn't say, but it reminds me of, in a very different way of Santi at emergence and the Zoom investment. Be like, like this was a, for a lot of people and specifically for Sequoia, and I have to imagine Alfred at Sequoia. This was a bet your career moment and for a lot of these people. And, you know, it took a lot of conviction to do, to stick with the company like they did.

• 2:45:10David Rosenthal?

  And, and I think it's, it's paid off so far. So I give it an A.

• 2:45:15Ben Gilbert?

  Again, I see what you're saying, but I guess what I'm saying is we should totally abstract any notion of so far. Like, let's take out the notion of like, have your shares appreciated in value. Cause like a freaking course, like there's a hype train, you know? It's like, have you seen Snowpiercer? I imagine the hype train for this is like the train from Snowpiercer. Oh, no.

• 2:45:41Ben Gilbert?

  And so like the way that I've been thinking about this is basically like, what is the likelihood that they'll actually be able to be very profitable on each customer? Or get a whole bunch of customers that are contribution margin positive? And they can sort of ramp down, marketing spend and ramp down R and D relative to their overall revenue in the future. And like, I think the thesis a few years ago of we're going to be your local real time FedEx. I think it sounds better than it has been true in practice, based on the way the market has evolved. Like, remember when Uber said they were going to be Uber for everything? And everyone was like, oh, my God, this is going to be the most valuable company on earth.

• 2:46:24Ben Gilbert?

  I think it sounds better because it sounds better than it is because once you start actually getting into it, you're like, okay, what are they going to deliver besides food? And you're like, oh, groceries. But that market, like that adjacency kind of went away. Like Instacart kind of like that, that lane is no longer open for them. Like for Uber, the adjacency of food was interesting. And there's like other adjacencies that are interesting. I don't think DoorDash has as rich of an adjacency landscape available to it. Because when you, when pressed, they're like, oh, you know, flower delivery. You're like, that's, that's what you're going to list in like the first two or three. Yeah. Stuff from like drugstores, like we're already listing stuff from CBS. And you're like, so you're going to compete head to head with Amazon on Prime Now? Okay. Huh.

• 2:47:07Ben Gilbert?

  And I, I think like, I think the market that they're actually in here is food delivery. And I think based on their cohort data and their return on marketing spend and their CAC to LTV ratio, like this is going to be a really good food delivery business when they can finally ramp down the marketing spend. But I don't think it's bigger than that. So for me, it's like a B opportunity for everyone to have chased after this. Just because I think it's like a big market, but not an Amazon market.

• 2:47:41David Rosenthal?

  I totally hear you. I think, well, I don't know. I think I'm probably maybe a little caught up in the story and the hype trade, the snowpiercer hype trade. But I do think I come back to like, as I was thinking this morning in the couple hours before we started recording, I went back to Meituan and looking at what that business is, I do think there's an opportunity to be more, and be more in a way, well, tomorrow on the Airbnb episode, we're going to talk about trips. And the, honestly, kind of zany 2016, I think it was Airbnb Open.

• 2:48:21Ben Gilbert?

  Fever dream of Airbnb trips, the products that none of us ever used.

• 2:48:26David Rosenthal?

  Yeah, exactly. Experiences, places, reservations, all this stuff. I think it could be that like, that's just like, nobody wants that. It's just a bad product idea, one. More likely though, when I look at Meituan and I'm like, oh, wow, that all lives on Meituan now. I think the issue was with Airbnb, like, you didn't interact with Airbnb every day. You interacted with Airbnb very infrequently for a travel use case. With DoorDash, if you're opening it multiple times a week and interacting with it, I don't know, it is still a stretch. It's not what they're

• 2:49:05David Rosenthal?

  doing today. But I think there's a good chance that they can add more, just in the same way that Amazon was the book company when they started.

• 2:49:16Ben Gilbert?

  Very fair. Well, this will, this will certainly be a fun one to, to watch evolve.

• 2:49:21David Rosenthal?

  Indeed.

• 2:49:23Ben Gilbert?

  I know we've gone longer than any other acquired episode in history, but I do think we should do carve outs. I think we haven't done them in a while and they're fun. I'm curious, David, what do you got on the docket? Oh, and if you're new to the show, carve outs are basically where we throw in like, things we're watching, things we're paying attention to, things we're reading that have nothing to do with the show, but we think are interesting to put on y'all's radar.

• 2:49:48David Rosenthal?

  Yep, I'm so excited we're doing this too. It's been a long time. So I've got a, I thought about all the like, you know, important erudite stuff I could put in here. I was like, you know what? It's mid-December. We're heading into the holidays. It's been a rough year. My carve-out that I've been getting a lot of fun and joy out of is the game Hades on the Switch. I think it's on PC, Switch, might be on PlayStation and Xbox 2. It's made by the guys who made Bastion and Transistor, if you ever played those games. So like indie game developer, but just like super high quality, really well done. And this game is so much fun. You play, you're the son of Hades, the god of the underworld.

• 2:50:31David Rosenthal?

  And you're trying to escape Hades and like all the other Olympian gods like help you escape. And, and then so you try and like do these escape runs and then you die, like you never make it. And so you go through like over and over, but it's so well done, so fun. Great time suck, but you feel like you're progressing. You get that sense of accomplishment. Like I didn't just like throw, you know, hours down the drain. Like I actually built, you know, my skill. It's kind of like what Rahul was talking about in game design. Like, you know, you're building towards a sense of mastery. Like you have this economy you're getting like, yeah, like whatever it is, it's got that magic that I just feel like it's a worthwhile investment.

• 2:51:11Ben Gilbert?

  Sweet. Love good game design. All right. I have to get a Switch and then I have to get that game and check it out. I have three because I was making my list and I was like, you know what? Like I, I'm just going to put all three on here. They're all three things you can watch while you're looking for some things to stream while you're staying safe this holiday season. The first two I think are the best written, acted, directed TV shows that I've, I've streamed this year. And like, I have a lot of like, kind of like trashier TV I like to watch, Always Sunny, The League, like a lot of that stuff. But like, it is always jarring when you watch something that is just tremendous. It's art.

• 2:51:54Ben Gilbert?

  And there's two great pieces of art that I want to talk about and then a movie. So if you haven't seen Watchmen on HBO, the series, whether or not you were a big fan of the graphic novel or the movie, it is exceptional. And I think it grapples with social justice issues in a really unique and interesting way that was a little ahead of its time since it was sort of before this summer. But it's fun sci fi, fun social justice, amazingly well produced and written. So it's, I highly recommend it. The other, I'm sure many people who listen to this show have watched is Succession. And David, I don't know if you're, you've been a fan.

• 2:52:31David Rosenthal?

  I have not, I have not watched it, but heard.

• 2:52:34Ben Gilbert?

  Many people told me about it before I got a chance to watch. It's basically, it's a, it's a fictionalization of the, effectively the Murdoch family and News Corp. Different names, different characters, all that, but just unbelievably well written and acted. And it's like, it's so easy to get super sucked in and you can't stop thinking about it. So highly recommend both of those. Then for a movie on Hulu, you should go watch Palm Springs is an absolute delight.

• 2:53:02David Rosenthal?

  I've heard this is hilarious.

• 2:53:05Ben Gilbert?

  It's so funny. It's so lighthearted. It's so unexpected. It's in some ways, it's actually a thinker movie while being lighthearted. It's like a.

• 2:53:13David Rosenthal?

  It's like a modern Groundhog Day, right?

• 2:53:15Ben Gilbert?

  It's got elements of that. Yeah. But I, it'll leave you thinking in a different way than the other two, but it's also worth your time. So, you know, if you're like me and you're looking for great stuff to, to get into on these streaming services, all three of those are awesome. Well, you know, before we wrap here, David, I know you've got a little tribute that you wanna, you wanna do.

• 2:53:37David Rosenthal?

  Yeah. One other thing we wanted to say, you know, we didn't want to make a huge deal because we didn't know him and, you know, we're more arm's length, but Tony Shay passed away last week and we just want to take a moment and just reflect on how tragic that was, but also say, you know, just. Thank you to everything, the impact that he had on the whole tech Silicon Valley ecosystem, the companies that were covering today in DoorDash indirectly through Alfred Lin, who was the COO of Zappos, Airbnb Tomorrow, Tony had a huge impact on just the whole ecosystem. And tragic, he passed away so young, but thank you to everything he did do during his life to really push the Valley forward.

• 2:54:22Ben Gilbert?

  And other communities too. I mean, I remember when I was really involved in the Startup Weekend community, Tony hosted a bunch of us at the Downtown Project in downtown LA and like what he was doing to revitalize that area north of the Strip. Like it was just really cool, staying at the Container Park and just seeing sort of that that vision come to life. I know the city is much better for it.

• 2:54:43David Rosenthal?

  Yeah, such a good point. Not just the Valley, but our whole industry and other things. Graduate of same high school as my wife Jenny, Branson in Marin.

• 2:54:53Ben Gilbert?

  Well, now I know a security question of yours.

• 2:54:58Ben Gilbert?

  Well, for folks who don't know, as we wind down the show here, we have started codifying, codifying? I think it's codifying, the playbook from each episode. So pulling out all of the, not only in the actual playbook section that we talk about, but sort of key themes from earlier on. If you wanted to run the DoorDash playbook, how would you go about doing it? And we've been pulling those from each episode in some written bullet points. And we started emailing those to folks after we post each episode. So if you want sort of a digestible, consumable way to share or help you sort of understand the points we're making in each episode, you can sign up to receive those playbooks at acquired.fm, anywhere that it allows you to type in your email. We only have one email we send, so

• 2:55:43Ben Gilbert?

  you'll get that one. And if you join the acquired community Slack at acquired.fm/slash Slack, you'll be automatically signed up for that as well. We're going to do those on an ongoing basis. It's totally open to any of you if you want to tackle that for a previous episode, because we think it'd be cool to host more of those on our website too.

• 2:56:02David Rosenthal?

  We've had some great ones. That community members have done.

• 2:56:05Ben Gilbert?

  Yep. Thanks to the folks that have already done that. If you want to, just shoot us a note, [email protected] or in the Slack if you want to do those.

• 2:56:16Ben Gilbert?

  We've talked about the LP show a bunch, but I did want to highlight our most recent one. We just did with two of David and my LPs from our current and past funds from Foundry Group.

• 2:56:30David Rosenthal?

  Actual LPs.

• 2:56:31Ben Gilbert?

  Like actual, yes. It was the first time having LPs on the LP show.

• 2:56:34David Rosenthal?

  Investors in venture funds.

• 2:56:36Ben Gilbert?

  And it was like amazing to get to kind of like talk about all the things that we talk about more in private with them, the ways that they sort of help guide, especially for me at PSL Ventures, like how to think about our portfolio construction and the ways that we work with the portfolio. And how do you manage your time across all those? And when you're sizing the types of investments you want to make, how much do you save for reserves? How much do you do upfront? So just really good to dive into and a lot of nitty gritty in a super structured way, in a way that we can share more than just the private conversations we have. So that was part four in our VC fundamentals series, more, more good stuff like that to come.

• 2:57:17Ben Gilbert?

  But if you want to be an LP, seven day free trial, acquired.fm/lp, feel free.

• 2:57:23David Rosenthal?

  Yeah. And also two things for the holidays that are important on that front. One, LP subscriptions make great gifts for the acquired fans in your life.

• 2:57:34Ben Gilbert?

  Woo.

• 2:57:35David Rosenthal?

  And two, on an even more important note, we've said before, but it's been a while. We never want financial hardship of any type to be a barrier to someone accessing more acquired content and engaging more deeply with us and getting access to all the stuff we do on the LP show. So if that is the case for you, for whatever reason, just shoot us an email, hit us up on Slack, [email protected] or join the Slack and DM one of us and we will make sure that we take care of you and you get access to an LP subscription, even if you can't afford it.

• 2:58:06Ben Gilbert?

  Yep. Similarly, for gifts, it's a little complicated to go through the machinations of making sure to use someone else's email address. So if you want to give the LP show as a gift, just shoot us a note and we will, we will send over instructions. And with that, if you are not already subscribed and you like what you hear, you totally should subscribe. And if you like this episode and you have a friend that you think would like it too, you can share it from your favorite social media hilltop or with them one-on-one directly. We always, I think that's probably the best way is for any one person to tell a friend personally, like, this was great. You should listen to it too. I think you'll like it for X reason. You know, I just love the like one-to-one-to-one-to-ones spread

• 2:58:46Ben Gilbert?

  that we've had so far. So feel free to share it. Feel free to sign up for Playbooks. And yeah, with that, everyone, we'll see you next time, actually tomorrow.

• 2:58:55David Rosenthal?

  Yeah. I was gonna say, usually we say, we'll see you next time. Today, we'll say, we'll see you tomorrow.

• 2:59:00Ben Gilbert?

  See you tomorrow.