The Rover-DogVacay Merger (with Rover CEO Aaron Easterly)

Acquired wraps up Season 2 with our first “elusive” private-private merger: Rover.com http://Rover.com and its 2017 combination with rival pet care marketplace DogVacay. We’re joined by Rover CEO Aaron Easterly to dive into the full history of how the crazy idea of “Airbnb for dogs” not only became a billion-dollar company, but also brought our heroes together for the first time and led to the founding of Acquired! 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 Links:The original Rover pitch from Startup Weekend https://www.geekwire.com/2011/airbnb-pet-introducing-place-rover/

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

• 0:00Speaker 00

  You know, and I've experienced dogs eating stuff that they shouldn't eat, dogs jumping over fences you didn't think it would be possible for them to jump over.

• 0:18Ben Gilbert?

  Welcome to season two, episode nine of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:25David Rosenthal?

  I'm David Rosenthal.

• 0:27Ben Gilbert?

  And we are your hosts. Today, we are talking about a very important company. Without this company existing, there would be no Acquired, and it's likely that David and I never would have met. Today's episode is about Rover.com and their merger with Dog Vacay to consolidate the grand rivals of the dog sitting wars. And we're super fortunate to have with us today the founder and CEO of Rover.com, Aaron Easterly.

• 0:50Speaker 00

  Well, thanks for having me. Glad to be here.

• 0:52Ben Gilbert?

  Yeah, we're super pumped. So Aaron, this is the part where we introduce the guest, and I was going to do it from memory, but I wanted to make sure that I nailed the details. So I tried to find a bio for you online, which is harder than most folks. You're not exactly a bio person.

• 1:08Speaker 00

  I spend exactly zero minutes managing my reputation.

• 1:12David Rosenthal?

  As will become clear throughout the show.

• 1:15Ben Gilbert?

  The one I did manage to find is from Crunchbase and lists you as Rover's top dog. So Rover's big on puns, and we'll revisit that many times throughout the episode. But listeners, to give you a sense of Aaron's background, he was an entrepreneur in residence at Madrona Venture Group, sort of during the genesis and formation of Rover, and as a key part of that. And Aaron was the, before that, the general manager of network strategy and monetization within Microsoft's advertiser publisher solutions group. Now, Aaron, there are many rumors circulating that you were the youngest GM ever in the history of Microsoft at age 29. Can you confirm?

• 1:50Speaker 00

  Actually, I can't. I don't know if that's true or not. I was a very young GM for Microsoft at the time, and there's no one that's younger than I'm aware of, but I don't know if that's true.

• 2:01Ben Gilbert?

  And Aaron, of course, came into Microsoft through the acquisition of a Quantive Avenue A Atlas, and it was a huge ad tech acquisition of that era. So to start the show-

• 2:12David Rosenthal?

  You forgot the most important thing, though.

• 2:13Ben Gilbert?

  Oh, that is true.

• 2:14David Rosenthal?

  Which is that through your whole life, Aaron has been a lover of dogs.

• 2:20Ben Gilbert?

  Pomeranians.

• 2:21David Rosenthal?

  One dog in particular, more than anything else.

• 2:24Speaker 00

  Yeah, I love all animals, but I'm very partial to dogs. And I was owned for 14 years by a four-pound fluff ball named Caramel.

• 2:33David Rosenthal?

  And we are sitting here in the Rover office in Caramel's den, named for caramel, with a portrait of caramel up above Aaron on the wall here.

• 2:41Ben Gilbert?

  Very sweet. 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.

• 3:02David 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.

• 3:23Ben 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.

• 3:45David 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.

• 4:03Ben 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. All right, David, all the hard stuff is out of the way.

• 4:34David Rosenthal?

  Now for the fun stuff.

• 4:35Ben Gilbert?

  Yeah.

• 4:36David Rosenthal?

  It's really fun to have Aaron with us because not only is Aaron a great friend of all of ours and we've spent lots of time together, but literally this story is the story of, you know, why we're all here today. As Ben said, I don't think we would have met without it. Certainly there would be no Wave, no PSL.

• 4:53Ben Gilbert?

  Nope.

• 4:54David Rosenthal?

  None of it. It all comes from the top dog. So thanks, Aaron.

• 4:59Ben Gilbert?

  Yeah.

• 5:00David Rosenthal?

  To set the stage on the Rover origin story and well, Aaron will, will come in here throughout, but there are really three, three pieces that I want to dive into. And so first, setting the background, let's go back to summer 2011 here in Seattle. It's summertime in Seattle, which is the best time in Seattle. We're, we're just entering into it again here now. There's a company based here, high growth, high flying company, goes by the name of Amazon, which we've covered on this show before. And the stock price is at astronomical heights.

• 5:34Ben Gilbert?

  All time high.

• 5:35David Rosenthal?

  All time high, $200 a share. And people are wondering, can this go on? Can this hype continue? Things are going so well, the company, which had heretofore had just one office, had an old hospital building up on Beacon Hill. They've actually purchased from Paul Allen and started constructing a brand new campus in South Lake Union.

• 5:55Ben Gilbert?

  Wait, in 2011, Amazon was still in PacMed?

• 5:58David Rosenthal?

  Yep.

• 5:59Ben Gilbert?

  My God.

• 5:59David Rosenthal?

  Beginning of 2011, Amazon is still on Beacon Hill.

• 6:03Ben Gilbert?

  Wow. And listeners, there's a crazy story about that building. It's a little dovetail, but that was a hospital that Amazon converted into their, their first large, major office before effectively colonizing all of downtown Seattle now. And it is now back to a hospital.

• 6:17David Rosenthal?

  Totally crazy. But people are wondering, you know, what's going on? They're starting to construct these new buildings. They've just constructed their, their new headquarters in South Lake Union, uh, here in Seattle. We're going to come back to that. And as part of that's sort of the, the tech and venture funding thaw after the financial crisis is, is starting to thaw. Optimism is returning to the tech world and to Seattle. And there's this other interesting thing happening in the world right now, which is this concept called the sharing economy is taking off. For me personally, I had just moved to Seattle the fall before in September of 2010, uh, to take a job at Madrona. And I had, for the first time, stayed in an Airbnb in September of 2010. Uh, and I knew about it because

• 7:01David Rosenthal?

  my then-girlfriend, now-wife, Jenny, her best friend, had just started dating one of the early employees at Airbnb, now my partner Riley at Wave. Uh, and so I heard about Airbnb is where I stayed when I moved here to Seattle. So this is all percolating. They'd raised a seed round from Sequoia. And at the same time, here in Seattle, there is an organization called Startup Weekend. And Startup Weekend was really cool. Ben, you were part of it in the early days, right?

• 7:25Ben Gilbert?

  Yeah, still is very cool. It's an organization that started as a, as a nonprofit and is now part of Techstars that basically gets a bunch of people in a room, most of them having never been involved in startups before, certainly having never founded them before. And it's people pitching ideas and trying to create companies in 48 hours. So you bring together designers, developers, business people, because we never had a better name for business people than business people. And you basically try and come up with a, a pitchable concept that has evidence of traction or belief it will succeed by the Sunday night.

• 7:58David Rosenthal?

  And chief among the useless business people is our partner at Madrona, Greg Gottesman.

• 8:05Ben Gilbert?

  Now, of course, Greg was also on the board of Startup Weekend. I was instrumental in building out that organization, but also happened to be an idea person.

• 8:12David Rosenthal?

  An idea person for sure. And so, all of us, the weekend of June 10th here in Seattle, we de-camp to Amazon's new campus here in South Lake Union for a Startup Weekend hosted by Amazon. Greg and I are participating. Aaron, I can't remember, were you there? You showed up at one point during the weekend, didn't you?

• 8:31Speaker 00

  No, I actually got a call from Greg during the weekend, but I actually didn't show up during the weekend. My girlfriend at the time was there, but I wasn't.

• 8:38David Rosenthal?

  We did a phone a friend to Aaron. The way Startup Weekends work is that on Friday night, anybody who attends can pitch an idea. And so, of course, all the useless business people pitch ideas. And I remember Greg about to go up on stage to pitch his ideas, and he's debating between two ideas. I don't remember what the second one was. I was trying to find it.

• 8:58Ben Gilbert?

  There's another $970 million company lurking in that second idea.

• 9:04David Rosenthal?

  Maybe even bigger. What could have been? What could have been? But one of the ideas is Airbnb for Dogs. And he asked me, which one do you think we should do? And I said, well, I think there's actually something to this Airbnb thing. I mean, my buddy down there is working there. Like, they're doing pretty well. I stayed at one, it's really cool. Okay, we'll do Airbnb for Dogs.

• 9:25Ben Gilbert?

  Wow, David, you should be a venture investor.

• 9:29David Rosenthal?

  And Airbnb for Dogs, it was. Greg pitches the idea, recruits a team, led by all-star developer, and, in his own words, quote unquote, "studly college student."

• 9:41Ben Gilbert?

  The one and only Phil Kimmy.

• 9:43David Rosenthal?

  Home for the summer, who was participating in the Startup Weekend. I believe the direction from Greg during the weekend to Phil heading the development team was, go to Airbnb.com, clone everything on the site, and replace it with dogs.

• 10:01David Rosenthal?

  It should be noted that after the startup weekend, we ended up throwing out everything that was built because it was completely shoddy, but Phil ended up rebuilding it, as we shall see. The company, called A Place For Rover, ends up winning Startup Weekend. It was a little stacked because the judging panel, on the judging panel, was Matt McElwain, one of our other partners at Madrona. But that aside, Rover ends up winning the Startup Weekend. Monday comes around, we're in the Monday meeting at Madrona, and Aaron, of course, is an entrepreneur in residence with us at the time at Madrona. We're discussing the weekend and how things went, and everybody's pretty excited about this idea. So excited

• 10:42David Rosenthal?

  that we call up Phil, the Phil Kimmy, the studly college student who had built things over the weekend, and say, hey, can you come on down? And we want to talk about this a little more and maybe turning this into a real company. God bless everybody at Madrona who had the confidence in all of us to do this crazy idea, because this was before, we were a venture firm. Venture firms didn't start companies. And with all of us there, we started going on that Monday, June 13th. So Aaron, as we mentioned, was an entrepreneur in residence with us at Madrona, and you were working on some new marketplace ideas, right? Because you had been, obviously, a marketplace expert, being at Aquanive, and then at Microsoft. What, I was trying to remember, what were you working on? It was like a local commerce idea, right?

• 11:24Speaker 00

  Well, there's a couple of different marketplace ideas I had around advertising and small businesses as well, but mostly on customer acquisition schemes and marketing things for those types of companies. Of which, I should add, I was totally not excited about. You know, like, I love the digital advertising world. I found it fascinating. The economist in me had a lot of fun with building some of the early online marketplaces. But, you know, after being in it for over a decade, I was having a really tough time gaining passion about throwing myself into another digital marketing startup.

• 12:00David Rosenthal?

  Am I remembering right? Was there something about people in your family had worked in local businesses and had trouble with customer acquisition that you were going to support them with?

• 12:09Speaker 00

  Oh, that problem. My parents had actually decided to open a pizza and wine bar at the time.

• 12:15David Rosenthal?

  In California, right?

• 12:16Speaker 00

  In California. You know, the challenges of people who open businesses like that, actually being able to devote cycles to doing marketing effectively, it's a big problem. They're typically working in the business, not on the business. They don't spend a lot of time thinking around how to make that efficient.

• 12:33Ben Gilbert?

  So that Monday meeting happens and you guys are kind of discussing, hey, this thing happened over the weekend at Startup Weekend. We couldn't get Aaron to come in despite the fact that he's this world-class marketplace expert and economist. He wouldn't drag himself over to South Lake Union, but here we are Monday and we're all looking at each other going, we think we should do this. What does the process look like from there?

• 12:54Speaker 00

  So Greg dragged me to meeting with some of the engineers that were on the team over the weekend that he wanted some help evaluating whether or not he should invite them on to kick off a prototype program. And so day one, I was happy to advise and consult on the project. What Greg didn't know at the time, though, was actually I'm a dog nut and that I had experienced this problem myself for the better part of 12 years, being a single, busy business executive with a dog I absolutely adored, but would not take with me on business trips. So it's a problem that I had like all the time in my personal life and over a little four-pound fluff ball.

• 13:37David Rosenthal?

  Because of course, at the time, if you, before Rover and Dog Vacation, which we will get into in a minute, if you were going on a trip and you were a loving dog owner, you, instead of keeping your dog in this lovely home where he or she lived, it would go to a kennel and be in a cage and locked up. And it was really not a great experience.

• 13:57Speaker 00

  Well, that was actually the debate between Greg and I on basically day one. So Greg, as having been someone who had used a kennel, he had an experience with kennels where it was, you know, overpriced, his dog had gotten mauled, he felt like he had been nickelled and dimed. And the debate was, well, that's all good, Greg, but like... I adore my dog. I know lots of dog owners. I'm not sure I know anyone other than you that has ever used a kennel. And so the, the big debate was, was more the population of dog owners like Greg Gottesman, well, of course, I'm going to go to a high-end kennel, or more like Aaron Easterly, I'm going to go down the Rolodex of friends, family, neighbors, to find someone I can pawn my dog off on.

• 14:41David Rosenthal?

  There are two, in my mind, two super, super key insights that Aaron brought to the business when he finally relented and we convinced him to become the CEO about a month later. And one was that dogs are family now. And this is, was a behavioral change that had happened over the last five to 10 years at that point, where dogs went from being pets to being, you know, almost at the level of children. Aaron, of course, could speak from experience on that. But part two, and operationally, I think this was such an important insight into Rover and what has made it successful, is that people were already doing this. Exactly like you said, Aaron, many people were not using kennels. They were leveraging friends and family, close to them. And so this was

• 15:26David Rosenthal?

  not a new concept, a behavior change that we had to do with consumers. We just had to bring it online into a better experience and a closed-loop marketplace.

• 15:34Ben Gilbert?

  This begs the question, you're starting an early-stage venture. One slide in your pitch deck is market size. How do you figure out the market size of something that's currently not being monetized?

• 15:47Speaker 00

  Poorly, is the honest answer. So, we initially looked at third-party estimates of market size. And the answer there, depending on what you looked at, you could kind of get to three and a half in some sources, maybe six to eight billion in other sources. So it's, it's not small. You know, put that in perspective, you know, that's, you know, about the size of the entire non-search digital advertising industry in the US circa 2008.

• 16:15David Rosenthal?

  I think we had six billion in the pitch deck.

• 16:16Speaker 00

  Yeah.

• 16:18Ben Gilbert?

  And, and does that include kennels, or is that outside of?

• 16:20Speaker 00

  Kennels and private professionals, for the most part. But that was what the industry sat there based on, those segments. And so the, the dilemma was, how do you figure out? How big the friends, family, neighbor segment is, given that these are oftentimes, you know, what we call shadow market transactions. They're people with needs. They have someone meet those needs. More often than not, there actually is a value exchange.

• 16:47David Rosenthal?

  A bottle of wine.

• 16:48Speaker 00

  Yeah, a bottle of wine. Take your friends to dinner. Quid pro quo. I'll get you next time you need something. So there is a value exchange, but it doesn't get reported in any industry stats, and it may or may not be monetary in nature. A tough challenge and one that we didn't even attempt to solve in the initial Series A pitch. We put in the commercial market and just said, and there's some gravy on top in this shadow market segment, which looking back was just really dumb because as we found out a couple of months later, that gravy on top is actually 10 times the size of the commercial market. So it wasn't so much gravy, it was the entire cake.

• 17:28David Rosenthal?

  Well, and this is so fun because once Aaron joined, you know, we were convinced there was a big opportunity here. If the one of the world's marketplace experts saw the opportunity, we should probably continue to fund this at Madrona. So we were willing to, we were willing to fund this, but we thought there's one person in the world who we should go talk to as well. And maybe we would let them into the round. And that would be someone we've also talked about on this show, Greg McAdoo at Sequoia, because he had just done the Airbnb investment. And so we send Aaron packing down to the valley to go pitch Greg. Greg says, you know, yeah, that's all well and good. And, you know, Airbnb is doing great, but like, it's such a bigger market. Like, look at this market size. Like, this isn't big enough. And of course, it's hilarious because now Greg

• 18:12David Rosenthal?

  is, of course, a good friend and advisor to us at Wave. And he very much regrets passing on the opportunity. But to your point, the market size that was relevant was not the existing market size.

• 18:23Speaker 00

  I'm glad you guys thought, by the way, that the fact I was taking the job as an indicator of the market size. I can tell you, my personal thought process was quite a bit different than that. But I'm glad that that's what you guys believed.

• 18:35Ben Gilbert?

  Aaron, was your thought process, wow, these guys are willing to fund this. There must be something here.

• 18:40Speaker 00

  For me, life in general is about having a fun, challenging experiences that actually have a unique impact where you're contributing something that's different than what other people could contribute. You're not just a cog. So for me, the thought process was this is an opportunity that I think exists, have no clue how big it is, but it exists at some level. There is a chunk of this I think I can help out a lot with, the deep analytics, the marketplace expertise. I love dogs and there's a bunch of this consumer side that I don't have a lot of experience with. I've done most of my marketplace stuff in B2B marketplaces, like search and ad exchanges and things like that. And so I was like,

• 19:23Speaker 00

  God, there's just half of this business I'm going to fall on my face daily. And so for me, like, hey, I'm sure I can add value in some areas and I have no clue what I'm doing in other areas. Plus, I think it's a big enough opportunity to be interesting to throw myself into was basically the extent of the thought process.

• 19:43David Rosenthal?

  It's a good thing you didn't tell us that at the time.

• 19:46Speaker 00

  It totally is.

• 19:50David Rosenthal?

  Well, you know, every startup has to go on a little bit of faith.

• 19:53Ben 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.

• 20:07David 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.

• 20:21Ben 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.

• 20:31David 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.

• 20:49Ben 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.

• 21:05David 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.

• 21:22Ben 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?

• 21:31David 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.

• 21:42Ben Gilbert?

  Okay, so before we dig into the dog vacay side of things, and before we start talking about progression from here and the company's growing, we've got some fun stories that we want to dig into. So one is, the company was originally a place for Rover, and it was aplaceforrover.com.

• 21:58Ben Gilbert?

  How long did that last?

• 22:00Speaker 00

  Actually, about seven years now. Our legal name is still A Place For Rover. So anytime we file a document, file taxes, file Delaware, we're still A Place For Rover, doing business as Rover or Rover.com, but we're still A Place For Rover. And I think at the time, it was Greg's play on A Place For Mom, which was a mechanism to find care for elderly parents typically.

• 22:28David Rosenthal?

  Also a Seattle company.

• 22:29Speaker 00

  And also had a domain name that was available. So A Place For Rover was an available domain name.

• 22:34David Rosenthal?

  Purchased during the startup weekend.

• 22:36Speaker 00

  Purchased during the startup weekend. And so I think it was as simple as that. Domain name available, had a little bit of prior art in terms of being used for certain types of care marketplaces, but Rover at the time was not available.

• 22:53Ben Gilbert?

  And so we had mentioned this a little bit on our last episode in talking about the T-Mobile Sprint merger. Aaron, we'd love to hear the story from you. How did you end up with Rover.com?

• 23:03Speaker 00

  You know, this is just one of those cases where connections matter. So some research was done to figure out who actually owned the Rover.com domain name. And it turned out it was Clearwire. Clearwire had acquired it because I was rolling out a mobile internet puck for wireless internet.

• 23:23David Rosenthal?

  One of the first mobile Wi-Fi hotspots. And they'd actually canceled the product.

• 23:28Speaker 00

  And canceled the product and also may have run into trademark issues with regards to a French company that had a similar offering named like Rover or something like that. So some combination of Clearwire not being able to invest in a new brand slash some long-term concerns around trademark, is my understanding, were doing nothing with it. Had basically decided to put it on the shelf. And as it so happened, one of the other managing directors at Madron at the time sat on the Clearwire board.

• 23:58David Rosenthal?

  Your former boss?

• 23:59Speaker 00

  Former boss from Aquatica. When he found that out, he shepherded a conversation around, hey, so you're not using this domain name. You want to give it to us? And the answer was, no, but since we're not using it, how about we're willing to lease it to you guys for a little while? So we initially leased it for like next to nothing and then bought it pretty cheaply, actually, compared to what five-letter domain names with some level of actually brand equity already go for, we got it super cheap.

• 24:34Ben Gilbert?

  Near palindrome, you know?

• 24:37Speaker 00

  You know, just, you know, in the US at least is this thing that means dog.

• 24:42Ben Gilbert?

  Yeah.

• 24:42Speaker 00

  And we're talking about a service that actually makes it easy to move your dog around when you're traveling. So helping your dog rub around. So it was perfect and cheap and serendipitous.

• 24:55David Rosenthal?

  One other real quick fun story is that for the rest of the summer, as we were building the MVP, based in the Madrona offices, the old Madrona offices at the time, the first dog stay happened in the actual live dog stay happened in the Madrona office. And of course, the dog decided to use the bathroom on the floor in the Madrona office.

• 25:16Ben Gilbert?

  It's gotta make everyone thrilled.

• 25:17David Rosenthal?

  And our awesome, truly, truly awesome and lovely CFO and general counsel at Madrona, Troy Chikis, basically, I don't think I've ever seen him more enraged than at that moment. And he was, he was so skeptical of Rover for years after that. But hopefully everything's, you know, everything's dusted over.

• 25:37Speaker 00

  Oh, it was about a week after that, too, where Troy came to me and said, you know, it's about time you guys find your own place. So we got, we got the boot soon thereafter. Yeah, which was time, you know, we, you know, did have our own funding and we could get our own place. But I'm pretty sure the timing of that was driven by the dog with the explosive bowels.

• 26:00Ben Gilbert?

  Yeah, or at least, you know, like operate a marketplace instead of you yourself sitting the dogs.

• 26:07Speaker 00

  Yeah, which at the time, you know, a lot of us actually engaged in dog care as well on both sides of the marketplace to try and get a sense for what worked and what didn't work. You know, I was an active sitter for the first several years. I think I still have over a hundred reviews on the site. So probably booked close to a thousand nights of care, just as myself as a sitter, you know, experienced a lot of awkward situations. In the early days, a lot of us were doing that to get a sense of what worked and what didn't work for the thing that was inherently somewhat awkward in the early days.

• 26:38David Rosenthal?

  I mean, one might call it eating one's own dog food.

• 26:41Speaker 00

  Ew.

• 26:43David Rosenthal?

  Okay, moving on.

• 26:44Ben Gilbert?

  Before, real quick, before transitioning to Dog Vacay, it's worth mentioning to listeners, we've touched on sort of how David and I know each other, but Rover is really to thank for many, many things that have happened in David and my life since meeting. The genesis of Madrona Labs, a group that we had started inside of Madrona years later to be a startup studio inside of a venture firm, was really, the reason why we justified, hey, we think there's a chance we could do this, is because of Aaron and Rover. Because Greg was able to point to that and say, look, we did it in a super ad hoc way. What if we systematize the process? And so I left Microsoft and went to Madrona and met David. And of course, that's the exact same thesis that we have now at sort of this broader

• 27:28Ben Gilbert?

  scale and outside of a single firm with PSL. And David, obviously instrumental for your marketplace thesis, too.

• 27:34David Rosenthal?

  Absolutely. I mean, at Wave, it's a combination of both of the aspects of Rover, of starting companies and investing in companies at the very beginning, before there's a product, as we just talked about, can work, and also in the disruptive power of marketplace businesses.

• 27:51Ben Gilbert?

  Thanks, Aaron.

• 27:54Speaker 00

  You're welcome. Glad I didn't screw it up and perpetually ruin your guys' careers.

• 28:01Speaker 00

  Happy with that?

• 28:03David Rosenthal?

  So, speaking of dad jokes, essentially, at the same time, not quite the same time, but slightly after, as this is all going on, and we made no secrets about what we were doing up here in Seattle, and in fact, much of the tech press pilloried us, called this a sign of, second sign of the tech apocalypse, pets.com take two. But, you know, as Jeff Bezos says, if, well, it's the willing to, the Washington Post is willing to put body parts through the wringer, but. If you're not doing something that people make fun of, you're probably not doing something interesting.

• 28:34Speaker 00

  You know, I think we made a list of the top five worst ideas that are VC funded in that year.

• 28:41David Rosenthal?

  Ah, yeah.

• 28:41Speaker 00

  It was fun for us to get. And, you know, the, the fine thing about the same time that people are like, I can't believe this is a thing. This is embarrassing. Why would anyone ever invest money? At the same time that was going on, that like the next three or so startup weekends, the idea that was pitched and won was the same damn idea.

• 28:59David Rosenthal?

  That's what the copycats started popping up.

• 29:03Ben Gilbert?

  Wait, so people pitched like literally the same Airbnb for dogs again?

• 29:08Speaker 00

  Literally pitched the exact same idea. And the people who run the startup weekend event were like, hey, guys, this won last week or one last two weeks. And the judges are like, I don't care. It's cool. I like it. And because in every town, there's a different set of judges that are local and weren't in the last one. So it was new to them. And so we went from kind of, oh my God, this is almost laughably bad idea. To at the same time, having like 10 companies announced that they were going to do it. So it's kind of like the worst of all worlds where you have now like 10 potential competitors for an idea that everyone thinks is awful.

• 29:43Ben Gilbert?

  Seems like there may be something to it then.

• 29:44David Rosenthal?

  Human psychology is so fascinating. So among the competitors that pop up, the most credible by far is a company based in Los Angeles called Dog Vacay. And Dog Vacay was started in the fall of 2012 as part of the incubator down there, the well-known incubator science, started by Mike Jones, formerly of MySpace and Peter Pham. And it was started by Aaron Herschorn and his wife, Corinne. And they were dog owners and Aaron had been a confusing, was confusing for many, many years. We have Aaron E. up here in Seattle and Aaron H. down in Los Angeles. But Aaron H. had been a consultant for many years and had actually worked at a venture fund.

• 30:26David Rosenthal?

  He was among the minority of people who realized that this was not a bad idea, but actually a great idea. So they started the company and then in the spring of 2012, they raise a seed round, led by First Round Capital and Jeff Jordan from Andreessen Horowitz. From then, that point on, really, the race was on. And it was later that year that Bill Gurley at Benchmark would lead their Series A. And he correctly identified the massive marketplace opportunity here. And Bill had already was famous for many marketplace investments, including the Series A of Uber. And he wrote a canonical blog post called "Not All Marketplaces Are Created Equal." He put forth his framework for evaluating marketplaces and then wrote a sidecar,

• 31:09David Rosenthal?

  essentially investment memo that he published for Dog Vacay about all the marketplace dynamics and why this made for such a great investment. And he was completely correct.

• 31:18Ben Gilbert?

  Yeah, and Bill's set of posts on this are biblical. For listeners that are thinking about a marketplace business, and in fact, David and I were talking about a concept yesterday where we're like, "We should probably put it through Bill's framework." Like, this is sort of the way to think about marketplace businesses. And I, in doing research for this episode, just found out it was modeled after the Dog Vacay investment.

• 31:36David Rosenthal?

  Yeah. And so that happened. And then, right around the same time, we raised the technically Series Bs, since Madrona had done the A, but effectively the same amount of money from Brad Feld at Foundry Group here at Rover. So I'm curious, we on the Madrona and Venture side had lots of thoughts as all of this was happening. But how did you feel, Aaron, when these competitive financings were happening?

• 31:57Speaker 00

  You know, I think all this stuff matters a lot more to VCs than it does to me. You know, at the time, there was a lot of marketplace orthodoxy around every marketplace is winner takes all. And every marketplace is, you know, first to scale wins. And we have to be super aggressive because no one can ever come back from being a little bit behind. And so if you believe this, and if you spend a lot of time being a VC and you care a lot about other VCs' track records and who are the big names, you care about this stuff. If you don't... You don't. And I probably fell in the category of not caring. Now, eventually I did care when

• 32:40Speaker 00

  it affected whether or not other people were willing to give us money and had to figure out how to speak to it. But it's definitely one of those things where Greg and others at Medrona, you know, were a lot more intrigued and concerned around who might be investing in Dog Vacay than I was.

• 32:59Ben Gilbert?

  It's one of these classic things, too. The operator mentality that makes people so good is being able to shut out a lot of the noise and a lot of the things other than put your head down and focus on the business because you're probably going to make missteps and kill yourself long before your competitors will kill you.

• 33:20Ben Gilbert?

  Obviously, not the case here. Both companies pushed on and were successful for a long time, so.

• 33:24David Rosenthal?

  I'm just going to refrain from all the tail chasing analogies.

• 33:32David Rosenthal?

  And basically, listeners, what happens is that was the end of 2012. From the end of 2012 until the merger happens in the beginning of 2017, Rover and Dog Vacay are in lockstep in terms of growth, in terms of fundraising, at least to the outside and VC perspective worlds. But underneath the covers, we were doing a lot of really interesting things at Rover. And I'm curious to your perspective. What were the things that we decided to invest in that helped us in the long run?

• 33:59Speaker 00

  Ultimately, you know, we thought that this business was going to come down to marketplace mechanics and how you make use of data. One of the things that a lot of people believe about marketplaces is that they can have great economies of scale. But sometimes people forget to ask the question of where those economies of scale are coming from and whether they happen naturally or they actually have to be earned. And so there are certain cases, like in Uber, that the economies of scale can happen naturally. So, for example, you just get more drivers on the road relative to the demand and all of a sudden your wait time after you hit the button is less. And it happens, for the most part, somewhat naturally. And you can improve and optimize it, but it just happens.

• 34:41David Rosenthal?

  Or Airbnb, more people in more cities come on the platform and now you can travel to more cities and it becomes more a part of your life and you book more and then that brings more supply.

• 34:49Speaker 00

  Our view, though, is that most of the economies of scale in this business weren't going to just, weren't going to come from just pure scale. It was going to come from the use of data on the backend. That there's a big difference in the performance of sitters. There's a big difference in the desirability of certain sitters. There's a lot of subtle micro-differentiation. And so the design of the marketplace mechanics, design of the backend data would matter a lot more than any short-term advantage in scale. And one of the other things that actually gave us conviction around that was that this business was about the shadow market. It was about the people that were using friends, family, neighbors.

• 35:30Speaker 00

  Businesses that are free to use, I think social media can kind of spring up almost overnight. Businesses that have a large existing market, where a better version or a cheaper version comes along, can kind of spring up overnight. But businesses that are mostly about changing fundamental consumer behavior and not the existing commercial market and aren't free to use, those are grinds. You know, they play out over time. Behavior fundamentally changes. There's a limit to kind of how fast you can go in those businesses because you actually have to adopt, consumers have to change their behavior. And something like travel, people on average travel 27 nights a year away from home.

• 36:15Speaker 00

  So at any point in time, like, very few people actually have a travel-related need. So there was an inherent speed limit on this business. So you couldn't just pump a lot of PR, pump a lot of marketing, and somehow create an insurmountable lead. Our view is that it is always going to come down more to the backend piece.

• 36:34David Rosenthal?

  I remember you talking about and giving me and Riley the advice as we were starting Wave, that these speed bumps at first blush can seem to be negative factors in markets. But if you believe in the ultimate market size enough, they become a competitive mode.

• 36:51Ben Gilbert?

  This is certainly an outsider's perspective, but what I think was held to be true in the industry was Rover's really, really good at engineering, at data science, at operations, at like really aggressive segmentation of their customer base and understanding exactly what drives behavior and narrowing funnel, like being really crisp on your funnel and removing leakiness wherever possible and in the most aggressive ways. Like if there was a dollar that Rover could spend on a brand advertisement versus a way to further decrease, a drop off in a funnel step, it was absolutely going into that funnel step every single time. How do you sort of look at the way that you guys did that and how it showed up in short term versus long term? So listeners have a little bit of visibility

• 37:36Ben Gilbert?

  on this. I don't think Rover was leapt out to a lead in the early days. Correct me if I'm wrong, but I think in that 2012 to 2014, there's a lot of metrics you could look at where it looked like Dog Vacay was really out in the lead.

• 37:49Speaker 00

  No doubt about it. Dog Vacay got a much faster start, did a much better job with initial PR and marketing and graphic design, had a group of well-known valley investors and got out to a fast start. At one time, LA and New York, which are large markets, Dog Vacay was six times our size in both of those markets. When we ended up doing a deal with Dog Vacay, we were materially larger in both of those markets than they were. So kind of came back from a six to one deficit to be a clear leader in those markets. But we got our butt kicked in the early days.

• 38:27Ben Gilbert?

  It's just interesting to hear stories like that and try and draw inspiration for future times when you're getting your butt kicked.

• 38:33Speaker 00

  Well, it was an interesting conversation because going back to tuning out noise thing, love Greg. Greg is super helpful about the company. But probably multiple times a week, I'd get calls around how frustrating he found it that he was reading Dog Vacay's PR all the time and they were in the press all the time and had all this buzz all the time.

• 38:53Ben Gilbert?

  And those things work. Clearly, in LA and New York is great examples. Get a bunch of sitters, get a bunch of customers.

• 39:00Speaker 00

  Yeah, and it definitely helped get the business off the ground. And I would say it was also helpful to create an awareness for the category, which had a follow-on benefit to Rover. Looking back, ultimately, I wish we had done a little bit more in PR in the early days. It took us a while to make up the ground on SEO, for example, and domain authority. So we could have been a little bit more balanced. I think on the net-net, it was the right overall prioritization, but we could have been more balanced in our approach.

• 39:28David Rosenthal?

  And to put some more specifics on this, for listeners who aren't necessarily experts in marketplaces, for me, this was like an education on the fly in how to manage these things. It ultimately kind of came down to all the dynamics and investment on data science and the backend and funnels and analytics that we did at Rover meant that our conversion rates, as new customers, new needs were hitting the marketplace, ended up being much higher over time than our competitors. And then, not just the conversion rates, but also, most importantly, our repeat booking rates. Because as we were acquiring folks, the lifetime value of those people, because they would convert at higher rates, but then repeat much more often,

• 40:10David Rosenthal?

  just ended up that even though we had a slower ramp, the exponential kink in the curve was that much steeper.

• 40:17Ben Gilbert?

  And the important thing to note here, as you think about the equation of cost to acquire a customer versus the customer lifetime value, and trying to make that delta as wide as possible, or that multiple as wide as possible, is they're not a customer until they actually book in a marketplace business. And so, the more funnel optimization you can do, where you increase the rate of signup to booking, the more you can spend, and the broader you can spend on getting new people in the door.

• 40:45David Rosenthal?

  I think they're not actually a customer until they complete the transaction.

• 40:49Ben Gilbert?

  Yeah, yeah, yeah. If you think about, if you're twice as good at turning someone who hits your site into someone that completes a transaction, then if you're competing over the same ad words, keywords, you can outspend, because you know that you're going to be able to more profitably move those customers through your process.

• 41:07David Rosenthal?

  Indeed. I think the other thing that cannot be understated, I'm sure Aaron would agree, is a major moment in Rover's history, which was the hiring of Brent Turner in January, January 2014, as Rover's COO.

• 41:20Ben Gilbert?

  Yeah, so Aaron, who is Brent, and how did that all go down?

• 41:24Speaker 00

  Brent has been my companion for most of the last 20 years in Seattle. Brent and I met in the early days of the pre-public days of Avenue A, which later became Aquaniff. We've worked together for something like 17 in the last 20 years. There have been times where I've reported to him, times when we've been peers, times when he's reported to me, but the vision of labor was kind of always the same. So it took about three years of effort for me to get Brent to become involved in Rover. I tried to get him as an angel investor in the early days.

• 41:58Ben Gilbert?

  Rover is like a war of attrition of people convincing each other to do things.

• 42:01David Rosenthal?

  For a company founded on love of family members.

• 42:06Speaker 00

  There are some funny stories with people who, when I left Microsoft, were like, hey, just tell me what you're doing next. Whatever you do, I'll invest in. And then I go to them with Rover and they're like, accept that. I'm not going to invest in that business, including people at the VC world.

• 42:25Ben Gilbert?

  Very well-known venture firms that you flew down to the Valley to have meetings with were like, oh, actually, not, sorry, not that thing.

• 42:32Speaker 00

  Yeah, I would invest in anything but this. Or like, so what are you doing with your career? This seems like the worst idea ever and you're throwing away your career. Do you know you're doing that? And so Brent wasn't being someone who I'm also friends with and cares a lot about. He was more diplomatic than that, but basically he was just like, dude, I'm not giving you angel dollars for this. I'm not sure there's a business here. I'm not sure. And so like I kept on for a couple of years and it was kind of like, okay, well, here's how we're doing. And each time was like, wow, that's a bigger opportunity here than I thought. So eventually convinced him to join Rover and in a lot of ways Brent's a co-CEO, but

• 43:17Speaker 00

  the best manager I've ever met, the best developer of talent I've ever met, the best operator I've ever met, kind of rounding out the diversity of skillsets in the Rover executive team.

• 43:29David Rosenthal?

  And we were, we were having drinks last night with, with Phil Kimmy, who of course is still lead developer for Rover and the studly college student that. Separate.

• 43:38Ben Gilbert?

  Oh, yeah, we should, we should, we should tell a little of Phil's story. So after staying the summer, then Aaron and Greg lobbied him to not go back to school.

• 43:45David Rosenthal?

  Including calling his parents.

• 43:47Ben Gilbert?

  Including calling his parents and convincing them, which didn't go over well then and continued to not go over well for, for.

• 43:52Speaker 00

  Years.

• 43:53Ben Gilbert?

  Years. Well, you know, so Phil, Phil, of course, did drop out and, and as a co-founder of Rover, built the engineering side of the business with, with a great engineering team into what it is today. And only recently have, have, you know, Phil's parents started to come around on, uh, they're, they're, okay, there's something to it.

• 44:08Speaker 00

  Well, I think they're both doctors. So, you know, both your parents are doctors and you decide, hey, I'm dropping out to go do Doc City. You know, you can imagine why that might be met with a little bit of skepticism.

• 44:22David Rosenthal?

  But Phil's point, of course, having been along the ride for, for all this journey as well, was that, just like we were talking about, you know, if you had to choose a dollar to invest in the early days in your backend and data science and analytics for a marketplace versus, uh, marketing and growth, you would, you should for sure choose the backend every time. However, ultimately you need to do both. And that it was Brent's coming on board in 2014 that really built the muscle in the company to be able to do both and be world-class in both. Cannot understate the impact there.

• 44:55Ben Gilbert?

  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.

• 45:08David 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?

• 45:25Ben 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.

• 45:40David 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. Legora'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.

• 46:04Ben Gilbert?

  And they recently launched Legora 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.

• 46:23David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora 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.

• 46:53Ben 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 legora.com/acquired and just tell them that Ben and David sent you. Well, David, do you want to bring us to kind of the year leading up to the merger?

• 47:21David Rosenthal?

  Yes. So as all this was happening, I believe Rover and Dog Vac raised four rounds of fundraising in lockstep, three or four rounds.

• 47:33Speaker 00

  For the most part, our A was kind of their seed, our B was kind of their A, you know, our C was kind of their B and we were in touch with them during that time.

• 47:45David Rosenthal?

  Yep. So all along, there's a little bit of a dance going on and, and of course, you know, on their side, on the VC side, which is more what I had exposure to, Bill Gurley had lived through a very similar dynamic with Grubhub and Seamless in the food delivery space, being two competitors in a market, both private companies, both scaling nicely, who you could see a path to being large public companies someday in a difficult manner, but ultimately affecting a merger between the two of them, becoming Grubhub, Seamless, one company before going public and that really being a great value accretion event for all shareholders. Bill really started lobbying the investor base, first within Dogback, but then

• 48:26David Rosenthal?

  on the Rover side to consider following a similar playbook in this space. And it ended up taking, gosh, it was, I mean, it was over a year, well over a year of lobbying and negotiations before we really.

• 48:41Speaker 00

  Many years, actually.

• 48:42David Rosenthal?

  Many years, yes.

• 48:44Speaker 00

  We actually, the conversation around putting the companies together actually started in year one. Aaron Herschel and I actually had a pretty healthy relationship and I actually brought this up with him around the time of the A, series A round and said, hey, seems like the companies are on to the same thing. You guys seem to be a lot more competent on the marketing, the PR side. Think we have a lot of advantages on the backend and the analytics and the marketplace side. I think how this is going to play out is you guys are going to get off to a fast start. The R advantages will matter more over time and then we'll like pass you over time. But, you know, do you want to consider putting the companies together now?

• 49:27Speaker 00

  Given that we don't have a lot of overlapping executives, we haven't raised too much money. It'll just get harder over time. So that's the conversation I actually had with Aaron H. in year one.

• 49:38David Rosenthal?

  Wow, I didn't realize it was that early.

• 49:40Speaker 00

  Yes, I don't think Greg was super excited about the idea, but it was a year one that I had that conversation and it generally turned out to be true. I said, hey, you guys are going to raise some money, we're going to raise some money, you're going to raise some money, we're going to raise some money. And that played out and it also played out that it was more difficult as time went on to have the discussion, more investors at the table, more decision makers, more overlapping functions, more overlapping exacts, it just becomes hard.

• 50:10David Rosenthal?

  It really, it really did. And this was a lesson to me, you know, as over the sort of year and a half, almost two years, that it was really active leading up to the actual merger of how hard it is to affect these things, particularly with, with private companies. And I remember my wife Jenny and I used to joke that Bill, Bill Gurley had like a knack of just calling it the most inopportune times. And there was one, one time in particular where we were, we were on vacation, we were in, Bill doesn't know this, but we were in, in Cambridge in England and we were going to Even Song at King's College Chapel, which is this amazing, you know, very solemn event.

• 50:53David Rosenthal?

  We were in line, they just opened the doors to the chapel, hundreds of people are filing in, you know, you have to turn your phone off when you, when you enter the chapel and my phone buzzes, I look down and it's like, of course it's Bill Gurley calling. So I said, hold on a minute, but it was, it was hard work getting it done. And which I'm sure you will, on the operating side, agree with as well.

• 51:14Ben Gilbert?

  Aaron, take us through, what did the process look like to everyone look around the table and say, yeah, we're going to do this. And then after that, the integration.

• 51:22Speaker 00

  There were several overtures made over the years and including people cornering our investors at conferences and saying, you guys should do this. We'd get that over time and, you know, there's a couple of times where Aaron and I talked around, you know, how we might engage in a process and, you know, it was tough to get agreement. You know, at a high level, there's a bunch of things that make getting to agreement difficult on these. And the first is that entrepreneurs by their nature, especially in tech, have to be a little delusional in order to take on the risk of starting a business that most of the time is going to make a, lose a lot of money before it ever makes money.

• 52:03Speaker 00

  The odds are stacked against you, lots of risk, lots of complexity. But for you to say, you know what, like this is a good decision with my life and my career. You, you just have to be a little delusional.

• 52:15David Rosenthal?

  Well, it's news to me, you didn't believe in the market size in the beginning.

• 52:22Speaker 00

  Or yeah, a little delusional or during the job for different reasons.

• 52:28Speaker 00

  And, and so because of that dynamic, that kind of confidence, faith, commitment, like we can figure this out. We'll get it done. It also can make negotiating terms challenging because entrepreneurs typically have a, a pretty high faith in themselves and they're able to get it done.

• 52:48David Rosenthal?

  And when companies are both private, you know, there's no stock market. That's a third party validation you can point to for relative value and share price.

• 52:57Speaker 00

  Totally. Yeah. Stock market would be like, okay, here are our stock. Here's what the markets think. You can debate around the edges a little bit, but most of the time it's, you know, relative to that. With private companies, you don't have it. Most of the time they're not making money at the time, so you can't look at profit multiples. So you gotta look at some combination of revenue, unit economics, relative growth rates.

• 53:22David Rosenthal?

  Not to mention more important on the investor's side, but, but also equally relevant on the entrepreneur's side. There are two preference stacks for each of these separate companies in terms of the money that each has raised. And it's challenging to figure out how to combine those.

• 53:35Ben Gilbert?

  Yeah. And for folks listening who aren't familiar sort of with preference stacks, basically the, when an investor comes in and does the most recent round, they have the preference in case that it's basically downside protection. If the, the company ends up selling for sort of less or in a, in a downside, they're sort of the first to get their money back. And that continues in a waterfall on down to the earliest investors and then to the common stock. Of course, the issue David raises is now you've got two sets of those. What do you do?

• 54:02Speaker 00

  Yeah, like do they, both investors get to keep them and you burden the company with the combined preference? So like if there's been $300 million in total invested, and that definitely wasn't the case in this case, but do you say, okay, there's going to be $300 million of preference and so none of the employees are going to get anything until you get well above that point? It can create some pretty perverse incentives? Do you eliminate the preferences? If you eliminate them, how do you get someone to agree to eliminate their rights to that? And how do you figure out how much of that reduction is eaten by side A versus side B? And related to the preference tax, it's

• 54:45Speaker 00

  slightly different, is sometimes there are also different control or voting rights attached to each round of financing someone has done. So in some cases, just the investors in the last round have a right to veto certain decisions. So it becomes a very complicated decision process with a lot of stakeholders, all in the context of entrepreneurs feeling optimistic about the go-to-loan approach, all in a context of a lot of uncertainty. And that's just getting the deal terms, which for me is half the battle. People have very complicated ways to think about M&A acquisitions, mergers. You know, for me, there's two simple questions. Do you have conviction on the deal terms? Like, is it good deal terms?

• 55:30Speaker 00

  Like, do you think there's going to be more value than what you're paying, whether you're paying in equity, cash, whatever? And the second is, is do you have conviction around the post-close plan? Can you actually execute it? And the second one is often forgotten about. It's tough to get to terms. But in the tech world, if you look at the history of M&A, most people, including third parties, would say that the vast majority of acquisitions are failures. The basis for this show. The vast majority are failures. The reason why they're failures is not because they were off slightly on the negotiated terms. The reason why they're failures is because the execution post-close destroyed a bunch of value.

• 56:12Speaker 00

  If you don't have conviction in the execution plan, regardless of how good a negotiator you are, it's not going to work. It's not going to work.

• 56:21Ben Gilbert?

  And so, Aaron, what was the execution plan then, coming out of the merger?

• 56:25Speaker 00

  You know, in this case, we decided to do what's called, what we called a hard cutover. So basically, we're going to migrate all Dog Vac customers on the demand side, all their sitters on the supply side, over to the Rover platform and basically execute a shutdown of the Dog Vac technology and, you know, probably the office. We were going to offer some jobs to people to move to Seattle. In some cases, we may allow people to work remote, but we decided to do a hard cutover.

• 56:55David Rosenthal?

  And again, that made so much sense because of all the dynamics we talked about before. Just the marketplace of Rover converted at a much higher efficiency and then repeated at a much higher efficiency. So again, it's in everybody's best interest to add in all of this new liquidity into the marketplace.

• 57:12Ben Gilbert?

  There's new supply, there's new demand, it's suddenly easier to find a sitter near you. It's you're finding higher quality sitters or better matched sitters. All the benefits of having a lot more people on the platform. David, I'm going to say the word again, and I think now it's actually a thing that I say on the show, which is unfortunate, like legitimate, actual synergy.

• 57:33Speaker 00

  It's actually, it's true. And, you know, how much of that's realizable versus in theory? You know, but I'd say it, you know, it's easy to say, oh, this clearly made sense. There are compelling alternatives that smart people can rationalize. You know, in marketplaces, sometimes there's the, hey, let's have two independent brands. You know, if you're dependent upon.

• 57:59David Rosenthal?

  Trulia and Zillow, which we've covered.

• 58:01Speaker 00

  A trillion Zillow, if you're, if you're to pimp on SEO or SEM, why remove one of your slots from Google if you think that there are different consumer segments? So the different brands may actually attract different people and end up specializing in different things. So for us, you know, the, the options we considered is, you know, two brands and two backends. So there's two frontends, two backends, two frontends, but one backend or one frontend, one backend. And the challenge with this is like, there's pretty compelling rationales for each of the three. And if you look at how a lot of the marketplace businesses have managed this, not everyone goes aggressively to the one frontend, one backend.

• 58:46Speaker 00

  Very few actually have. But we were at a stage where we thought that slowing down for two years while a bunch of internal lobbying went on around this, a bunch of systems integration with different tech stacks, different coding languages, different skillsets, different architecture. We just thought it'd be a disaster to lose two years in that type of integration. You know, that if we were further along, you know, if we were already a public company, you know, or soon to be like Grubhub and Seamless, maybe we could have made a different choice. But we just thought it would, slows down quite a bit for uncertain benefit of keeping the brand.

• 59:31Speaker 00

  But it's also the most offensive thing to propose to another company. Hey, um, we want to do this deal. We're excited about it. And by the way, we're going to quickly throw out everything you've done. It's just really, really hard. And yet if you don't get that agreement in advance, your chance of successfully executing a deal post-close is like nil. Or at least it'll drag out for a really long time. We thought all this through in advance and we got agreement from Dog Vacay that we weren't going to close on the deal unless both sides could mutually agree upon the

• 1:00:11Speaker 00

  post-close plan, execution plan, integration plan. And so, kudos to the Dog Vacay senior leadership team. Their executives came up, met with us, we kind of laid out each of the three scenarios, said, you know, here's what we think the advantages and disadvantages of each one. You tell us which one you think makes sense. We didn't even offer our own opinion and we didn't bias the conversation. And unanimously, their executive team said, hard cut over, go to the Rover platform, which, you know, probably took a lot of courage. Yeah, rational as that may be, there's huge emotional, you know, attachment to it. Not only what you've built, but the dream of what could be. Totally. And then it creates a bunch of uncertainty. Well, God, if the platform's

• 1:00:53Speaker 00

  going to be Rover, then what happens to the Santa Monica office? What happens to my personal job? I have a lot of expertise on how our system works and our system's not going to be relevant. You know, I was very proud of the Dog Vacay team for being consummate professionals, you know, the right call. But we were unique. If you look at Odesk, Elance, if you look at Grubhub, Seamless.

• 1:01:17David Rosenthal?

  Zillow Trulia as well.

• 1:01:19Speaker 00

  Zillow Trulia. None of those companies had attempted to be as aggressive with the plan as us. We wanted to be done in six months and not two years, not three years, not a year. So, kudos to the team for being able to take that on with such passion.

• 1:01:37David Rosenthal?

  This might be among many lessons, you know, for listeners in this episode and for all of us personally living it. I mean, this is, ranks right up there. As hard as it was in terms of, as we were talking about, all the stakeholders on the investor operational side, taking, taking years to get to a point to want to do a merger. The speed and effectiveness of the integration and the vast outperformance of it and the combined company. I mean, I remember we were all, both sides, putting together spreadsheets throughout the negotiation process of what we thought the combined value could be and growth thereafter. The company has far exceeded that on all levels. And I think

• 1:02:19David Rosenthal?

  it's a testament to all of this and the team and the Doug Vacay team for suggesting this and the Rover team and everybody combined executing on it. It has definitely been the best thing for the company.

• 1:02:30Ben Gilbert?

  And for the companies, for shareholders in both companies?

• 1:02:34Speaker 00

  Yeah, I think it turned out to be the right plan, executed well. We got done in about half the time and exceeded.

• 1:02:42David Rosenthal?

  It was three months, right?

• 1:02:44Speaker 00

  Three months, exceeded the goals on the successful sitter migration, successful owner migration. It was well executed. And we had given stay bonuses to people in Santa Monica because there was uncertainty around whether or not there's still going to be a job after we got done the migration. We accelerated, we gave new grants and accelerated a portion of them. That was kind of based on when the migration was done. Hopefully, people feel really good and felt like they were treated well and appropriately rewarded for what a Herculean job they did in a small amount of time. But it turned out to be the right plan with a better than expected execution.

• 1:03:25David Rosenthal?

  And that kind of brings us to today. Rover just recently announced a combined company, a major new fundraising. Things are going really well. And I think particularly, well, we're expanding internationally, which is wonderful, but particularly not having the distraction, not having the distraction of all that at a moment when we were just starting to layer in all the additional services besides dog boarding, dog walking, daycare, all the other in-home services, which have become huge growth drivers for the business, was critical.

• 1:03:57Speaker 00

  Yeah, I think that's one of the biggest reasons we didn't want to slow down. We view this area as like we're in the second or third inning. We're a small fraction of the size we hope to be long-term. Most of our business was overnight care. We had rolled out dog walking and drop-in visits and in-home daycare. At the exact same time we were doing this migration, we launched our on-demand dog walking effort. Why not? Yeah, why not? And so it was one of our biggest concerns is that it's not like we were a manufacturing plant. And it was like, okay, we're operating at capacity. Now can we squeeze out a little bit more efficiency? Our view is we're nowhere near capacity in terms of what we want to accomplish.

• 1:04:42Speaker 00

  You know, let's not slow down. The speed and minimizing the distraction of the execution plan was super important. So we could launch on-demand dog walking. We could roll out new offerings. We could start to look at aggressive international expansion, which we were kicking off right now in Europe.

• 1:05:01Ben Gilbert?

  Let's do our other sections here real quick and make sure we check a few boxes. Cause a couple of points that I think we haven't quite made yet. Listeners, our next section is acquisition category where we decide whether it was a people, technology, product, business line, asset consolidation, or other type of acquisition. Clear consolidation, I don't think there's anything, we're looking around the room. We're all nodding our heads. There's not that much has been discussed. There's what would have happened otherwise where, you know, one thing that I think we touched on a little bit here is the cost to acquire a customer and the sort of war going on between former Vacay and former Rover. And the dynamic of this type of business, and I'll explain sort of my understanding of it. And Aaron, you can correct me in areas where I don't have enough sort of sophistication

• 1:05:46Ben Gilbert?

  or understanding of it, but this business is a very intent-driven business. So people go to Google and they search on the internet for a solution to a problem that they have, which is I need a dog sitter. So you gotta buy all the keywords to cover all of those things. Now, Google's keyword tool is of course an auction. So with two parties bidding it up, your cost to acquire should Be meaningfully higher if there's two people bidding for it than if there was just one major player. And so then you have both of these companies that are always aggressively bidding on these keywords, driving up the price. And as soon as there's just one party, it should theoretically be much easier and cheaper to acquire that that person who has intent to do the thing that your service provides. Was that a major driver of the acquisition? And have you kind of seen that materialize?

• 1:06:29Speaker 00

  Sure. So I think the question is, is whether or not the savings on the marketing side was a major area of value of the acquisition. The answer is yes. You know, a lot of people suggest, you know, valuing these types of deals, you know, on strategic value, your your multiple as a public company would be higher, you know, with the consolidation. And that's not how we did it. You know, I don't, I struggle with hand wavy things. And I struggle with this assumption that like, there's going to be some long term multiple gain when we live in a highly dynamic area where there are lots of big funds and competitors can get funded. You know, competitive landscape has changed. So we modeled it as basically a cash flow.

• 1:07:12Speaker 00

  Like, what is the amount of incremental revenue minus incremental cost? And the case where there's cost savings and obviously you add the cost savings over some number of years. And that's how we added it. And it turned out that only about 15% of the value of the deal was Dog Vacay's existing revenue stream. The other portions of value came through other forms and savings on the marketing side was a big one. You know, some of the other ones, though, were a better data coverage. So to the degree our marketplace works well, because we do smart things with data. In order to do smart things, you have to kind of, with data, yeah, two things are required.

• 1:07:56Speaker 00

  You have to have data and you have to know what the smart things are. And for the service providers that were on both platforms, it gave us a more holistic picture of how they perform and do people like them? And do they use them again? And how responsive are they? And then for people that are on just one platform, for example, just on Dog Vacay, we were able to use kind of those algorithms that we had invested a little bit more in to help evaluate those people. And so we got a decent amount of value from, call it, the economies of scale on the data side in addition to the marketing savings.

• 1:08:31Ben Gilbert?

  Interesting. Never would have occurred to me. That's cool.

• 1:08:34David Rosenthal?

  Tech themes and then wrap up here?

• 1:08:36Ben Gilbert?

  Sounds good.

• 1:08:37David Rosenthal?

  You want to go first, Ben?

• 1:08:38Ben Gilbert?

  That was my major one was really the era of the fruits of competition lining Google's pockets.

• 1:08:45David Rosenthal?

  I have a couple, but I think the biggest one is something we've talked about a lot on this show. And reliving the story has brought back to mind and recalled for me, the lived experience here. The adage, the two by two matrix of the way you make money investing or starting companies is not just by being correct in your hypothesis, but having a correct non-consensus bet. And I think back to the early days of Rover and the signs of the apocalypse and pet.com. And I will, Aaron, I will give you money to do anything. Oh, you're doing that? I'm not going to give you money to do that. Now, sometimes when you do that, you are wrong and everybody else is right. And then, you know, not only do you not make money, it's not just about making money, but you fail.

• 1:09:27David Rosenthal?

  But the way that you win and that you win really, really big is you do things that are correct and not obvious. And Rover, to me, is just a shining example of that.

• 1:09:37Ben Gilbert?

  And Peter Thiel, zero to one, what's your secret? Aaron's secret was dogs. Dogs are people too.

• 1:09:44David Rosenthal?

  But it was also the thing that like, you know, if you spent 10 minutes and got over the knee jerk reaction, even though, yes, we weren't clear on market size and we've joked throughout the episode, like, we knew there was something here. We knew there was something here. Everything else I think we've covered.

• 1:09:57Ben Gilbert?

  Yep. Grading, I'm going to be quick. This is an A. Nice job.

• 1:10:01Speaker 00

  Thank you for having me on the show today, by the way. Just to be clear, our view is that we're haven't achieved anything yet. You know, we're still a money losing startup that may be more on the late stage side. And there's a lot of work to do. It's nice to be right about some things early in the company's history, but we need to be right about a bunch of things go forward too. But I really appreciate the chance to come on and share a little bit of our story.

• 1:10:27David Rosenthal?

  So if you're in the Seattle area or not in the Seattle area and you want to be part of a great company, that's already great, that still has a long journey ahead of it, come talk to everyone here at Rover.

• 1:10:37Ben Gilbert?

  Yep.

• 1:10:38David Rosenthal?

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

• 1:10:45Ben 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.

• 1:10:56David 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.

• 1:11:16Ben 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.

• 1:11:29David 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.

• 1:11:40Ben Gilbert?

  Let's wrap up. If you like the show and you want to hear more episodes, you can subscribe from your favorite podcast client and come join us in the Slack at acquired.fm. Thanks, everyone.

• 1:11:50David Rosenthal?

  We'll see you next time.

• 1:11:51Ben Gilbert?

  Thanks, guys.