The Starbucks IPO with Dan Levitan

Ben & David "pour over" the 1992 IPO of the legendary Seattle coffee company with the help of Dan Levitan, who served as lead investment banker on the IPO and who would later co-found the venture capital firm Maveron with Starbucks’ CEO Howard Schultz. 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 Topics covered include: The original Starbucks’ founding as a coffee bean roaster, started by three disciples of the legendary coffee roaster Alfred PeetHoward Schultz’s introduction to Starbucks, his joining the team as director of marketing, and inspiration behind his “third place” coffee shop visionHoward’s departure from the original Starbucks, founding of Il Giornale, and subsequent of acquisition the Seattle Starbucks storesStarbucks’ incredible growth following the acquisition and expansion beyond SeattleThe state of raising private capital in the 1980’s/90’s, and the decision to go public (link to the S-1 http://docslide.us/documents/starbucks-ipo.html)Howard’s ambitious goals for the roadshow and investor participation, and subsequent stock performance after the IPOThe narrative and evolution of Starbucks as a technology company, or a consumer company that leverages technology very effectively The Carve Out: Ben: Dan Primack’s new daily newsletter, Pro Rata https://www.axios.com/pro-rata-friday-2336830876.htmlDavid: The Wizard and the Bruiser https://itunes.apple.com/us/podcast/wizard-and-the-bruiser/id1153017150?mt=2 podcast Dan: The Man in the Glass http://www.inspirationpeak.com/cgi-bin/poetry.cgi?record=155

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

• 0:01David Rosenthal?

  Sorry, guys. There are sirens going by my window here.

• 0:04Ben Gilbert?

  That's David's in Europe.

• 0:24Ben Gilbert?

  Welcome back to episode 34 of Acquired, the show about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:31David Rosenthal?

  I'm David Rosenthal.

• 0:32Ben Gilbert?

  And we are your hosts. Today, we'll be talking about one of the great legends of a historically non-tech company in a technology city, Starbucks. And I'm here with Dan Levitan in Seattle, and we are both sipping our Starbucks. So I've got almond milk latte here. Dan, what are you drinking?

• 0:51Speaker 03

  I'm drinking a tall decaf Americano, the why bother drink.

• 0:56Ben Gilbert?

  Seriously, what is the point? Listeners, before we dive into the show, a couple of things I want to cover. If you're new to the show, we've got a great Slack community. So we've got over 500 people discussing mergers, acquisitions, IPOs, tech news, really anything that people want to create rooms for. So you can learn more about that at acquired.fm and join. Hit us up on Twitter, at acquired FM. 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.

• 1:37David Rosenthal?

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• 2:38Ben Gilbert?

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• 3:06David Rosenthal?

  David, can you introduce us to our guest today?

• 3:08David Rosenthal?

  Yeah. So as Ben mentioned, we are covering the landmark Starbucks IPO today and we are lucky to be joined by Dan Levitan, who is the managing partner and co-founder along with the soon to be former and original CEO of Starbucks, Howard Schultz, of the consumer only venture capital firm, Mavron. And Dan and Howard started Mavron in 1998. Since then, Dan has invested and served on the boards of many successful companies, including Zulily, Trupanion, Potbelly and Drugstore.com. Dan and Mavron are great early-stage VC investors and investors both in PSL, where Ben works, and co-investors with many of the companies

• 3:52David Rosenthal?

  I work with at Madrona. They're really delightful folks to work with. But today, we're actually going to be talking about Dan's days before Mavron, when he was an investment banker in New York at a firm called War Time Schroder and Company. And he met a crazy entrepreneur from Seattle who had a little coffee company that was named after a character in Moby Dick. And Dan would go on to serve as that coffee company's lead investment banker on their IPO. And that's the story we're here to tell today. So thank you, Dan, for joining us. Thank you for having me, guys.

• 4:25Ben Gilbert?

  For Acquired listeners out there, we've had founders, we've had M&A professionals, we've had journalists, we even had some executives at companies recently acquired on the show, but we've never had a chance to analyze an IPO before from the perspective of the investment banker that actually took them public and did the deal. So I'm super excited to have a first here on Acquired today. And actually, it's also worth noting, the date works out pretty well because right now happens to be the 25th anniversary of Starbucks going public.

• 4:54Speaker 03

  Actually, June 26th is the 25th anniversary.

• 4:59David Rosenthal?

  Is the year of the 25th anniversary, but it is also Howard Schultz's last month on the job before he retires.

• 5:06Speaker 03

  True. He's on to his next play.

• 5:08David Rosenthal?

  So with that, let's dive in. I'm going to quickly relate the origins of Starbucks because I think it's actually something probably, definitely many of our listeners, but most people don't know. And then we're going to dive into the IPO with Dan. But the original Starbucks company, not the Starbucks Coffee Company, but the original Starbucks, was founded in Seattle in 1971 by three friends, Jerry Baldwin, Zev Siegel, and Gordon Baucher, who had met in San Francisco as students at the University of San Francisco. And they had become acquaintances of the legendary Berkeley, California, coffee roasting entrepreneur, Alfred Peet. Folks might know Peet's Coffee. And the three friends had become sort of

• 5:51David Rosenthal?

  disciples of Alfred's. And after college, they moved up to Seattle and they wanted to get into coffee roasting themselves. So they started a company, decided to name it after Starbucks from Moby Dick. And they set up shop in Seattle, but they were just a roaster. They roasted beans and they sold beans. They did not brew coffee. And it becomes a nice, small, local business in Seattle. And then we fast forward 10 years to the early 1980s.

• 6:17Ben Gilbert?

  And David, it's important to know they didn't brew coffee. And that's not just because they were drawing some hard line in the sand like you could see today of, we're not going to be like that every other street corner that you see that has a coffee shop on it where people are brewing coffee and sitting there and drinking. Many of our listeners are familiar with the idea, but that didn't exist. That was a thing that Starbucks would later kind of create.

• 6:38David Rosenthal?

  Yeah, that's right. They didn't brew coffee because nobody brewed coffee. That was what you did at home with your Folgers or your beans that you bought from Starbucks or somewhere similar. So we fast forward 10 years to the early 1980s when a young Howard Schultz, who had been in a earlier life, a sales executive for Xerox Corporation. He was working as the general manager of a Swedish company named Hammerplast that made coffee machines. And he heard about these guys out in Starbucks, heard they roasted good coffee. And he went out to see them and he was actually really impressed. And he was so impressed that he spoke to them and sort of begged joining the company. And he got a job and so he became the director of marketing for Starbucks. And this was in 1982.

• 7:23David Rosenthal?

  So Howard is director of marketing, working for these three founders. And he goes on a buying trip to Milan, Italy. And he notices something different about Milan versus the streets of Seattle or any other American city. And that's that there are these coffee bars everywhere throughout the city. And they serve coffee and people go and they meet there and they hang out there. And they're not just places to buy beans or buy coffee to take away. It's actually a place where you sit and you talk to people. And so he's really taken by this idea. He comes back to Seattle and he tries to persuade the original Starbucks founders that this is something that they should start doing in Seattle, start doing themselves, open up cafes in the city. But the founders, they actually have something else going on at the time.

• 8:04David Rosenthal?

  And that's that their original mentor, Alfred Peet, is retiring down in San Francisco. And he wants to sell his business to the three founders, his disciples. So they say, you know, Howard, that's nice. If you want to do that, why don't you go do that yourself? We're actually in the midst of buying Peet's and we're going to move back to San Francisco and we're going to do that.

• 8:24Ben Gilbert?

  Yeah, it's hilarious to think about like today, given where both companies are like, yeah, you know, we've got Starbucks, but nah, we're not going to do the whole coffee shop thing. We're going to go do Peet's.

• 8:34David Rosenthal?

  Yeah, fate is and truth is stranger than fiction sometimes. So Howard actually leaves the original Starbucks in 1985. And he starts a new company, pursuing his dream of what he saw in Italy of cafe shops that serve coffee and service meeting places in cities. And he starts a new company, calls it Il Giornale and models it after his Italian experience. So he operates this company for a couple of years, grows it in Seattle, has a fair amount of success. And then in 1987, two years later, he approaches the Starbucks founders again. At this point, they're focused on peats and still in roasting down in San Francisco. And he offers to buy the Seattle retail locations that are still called Starbucks

• 9:18David Rosenthal?

  from them. And he does, and they agree to sell it to him for $3.8 million. Schultz buys these Seattle retail outlets, merges them with Il Giornale and rechristens the company, the Starbucks Coffee Company.

• 9:33Ben Gilbert?

  So David, did he have the 3.8 million liquid to be able to make that purchase? Dan's over here shaking his head.

• 9:38David Rosenthal?

  Yes. So this is where I wanted to bring Dan into the story. How did this transaction, the first one, long before the IPO, come together?

• 9:46Speaker 03

  Well, I didn't actually know Howard until 1991, and that's a story that I should tell. But the way the transaction came together is Howard, at the time, was a 30 something, very determined young man. And he went to, I think the number was about 250 people before they said yes. And that was for Il Giornale. And then it was easier to raise the money for Starbucks. But no, he was a poor kid from Canarsie, Brooklyn. So he went around Seattle and met the angel community, which was obviously very much more focused

• 10:28Speaker 03

  on traditional businesses than tech businesses at the time. And he scraped together the 3.8. In fact, one of the stories that is largely not told was that there was a group of businessmen in Seattle that had seen Starbucks emerge. I think by that time, it had seven stores.

• 10:49Speaker 03

  And they weren't sure that this young thirty something year old kid was the right guy to buy Starbucks. So there was a movement on the side to see if they could put in quote, "an experienced person" and they were gonna have an alternative bid for Starbucks. But as has happened many times in the last forty five years, Howard prevailed and was able to line everybody up and buy the company. And I think Starbucks Coffee Company started with eleven stores in nineteen eighty seven.

• 11:26David Rosenthal?

  Wow. Which is so funny. Speaking as a quote, "young thirty something" myself these days, I feel like now that's old. If you're in your thirties, you have gray hair in the tech world. It's the twenty somethings that are the young entrepreneurs right now.

• 11:41Speaker 03

  But, you know, they were looking for an experienced retail operator, but obviously he proved them wrong.

• 11:47David Rosenthal?

  Obviously he did. So he merged the companies and the growth was pretty incredible. So it was nineteen eighty seven when the merger happened and the Starbucks Coffee Company was born. They did one point two million in revenue that year. The very next year, nineteen eighty eight, they did ten point two million in revenue. So almost ten X in one year.

• 12:11Speaker 03

  But that was because of the combination.

• 12:13David Rosenthal?

  Ah, that was because of the combination. Okay. Still, even then, for the next basically five plus years, they practically double revenue every year, which in a bricks and mortar retail business is hard.

• 12:23Ben Gilbert?

  Yeah. And it looks like eighty nine, they had almost twenty million, ninety, they had thirty five, nineteen ninety one, they were up to fifty seven point six. Dan, how did they do that? What was the driver of the exponential revenue growth for them?

• 12:36Speaker 03

  Well, Howard was, from the very beginning, aware that Starbucks really was in two businesses. One business was operating these retail stores and the other was developing a pipeline of these retail stores. So from very early on, he focused on hiring ahead of the curve and developing a infrastructure to visit and then ultimately build a whole fleet of stores. You know, when I first saw it, I was really struck by the cauldron of consumer passion that people had around Starbucks and he kind of knew that.

• 13:16Speaker 03

  And so his whole mindset was I'm going to build a company that's going to be the development co of Starbucks.

• 13:24Ben Gilbert?

  And was it sort of like a Bezos type mindset of every dollar that comes in, we're going to aggressively reinvest in new store growth? Or how did they so quickly open so many new stores?

• 13:35Speaker 03

  Well, he raised a lot of equity and that was the problem then of retail businesses like that, that they required a lot of equity.

• 13:44David Rosenthal?

  And what's funny now by current standards, he did raise a lot of equity back in those days. He raised over $30 million in equity before going public, which was a lot. But now looking at the tech companies, the Mavron and Madrona and the like fund, that's maybe your series A and your series B.

• 14:02Speaker 03

  The scale has changed dramatically. I think Starbucks raised about 250 or 300 million in equity in total before it kind of flipped around and the cash flow generation of the existing store base was greater than the incremental amount of cash required to build new stores.

• 14:19Ben Gilbert?

  Huh, and that's including the IPO?

• 14:21Speaker 03

  That's including the IPO.

• 14:23Ben Gilbert?

  Wow.

• 14:24Speaker 03

  But no, Howard, I would say was very, very different than Bezos. At the start, one of Howard's key constituencies was his employees and that came from Howard's background with his dad and the fact that his dad didn't have health insurance. And so as a result of that, Howard was fortunate enough to have a business model where he invested in his people and his people nurtured relationships with customers.

• 14:52Speaker 03

  And so, yes, there was a ton of money invested in the new stores, but things like healthcare for, they called it bean stock back then.

• 15:02David Rosenthal?

  Yeah, and this was amazing. I mean, every employee in the company, from part-time baristas on up, not only got health insurance, but also got stock options, got equity in the company.

• 15:13Speaker 03

  And one free pound of coffee per week. Still happens today.

• 15:18Ben Gilbert?

  It is really incredible that they've managed to preserve that at scale. I mean, when they announced things, I think it was two, maybe three years ago, but announcing the program for all partners, Starbucks doesn't refer to them as baristas, but every employee is a partner, for all partners to be able to attend an online university, ASU, and opening that up to say, you know what? For all of our partners, we're here for your continued growth in education and we're going to continue to reinvest in you. That's one thing that's really nice to say and very possible not at scale. And it's just incredible at the scale that they're doing it to keep it up.

• 15:48Speaker 03

  Particularly when companies go through traumatic periods where everyone questions, what are the values of the company?

• 15:55Ben Gilbert?

  Which Starbucks had, right? I mean, I don't want to jump way ahead too much, but Starbucks hasn't always been the absolute behemoth that we know it today.

• 16:04Speaker 03

  Hundred percent. I think that is the story of resiliency, tenacity, whether or not it's Apple or Starbucks, these are not straight lines.

• 16:13David Rosenthal?

  Or Amazon, from our episode with Tom talking about Amazon. And after the IPO and during the post-internet bubble crash, I mean, you could have bought Amazon for the equivalent of five bucks a share. Incredible.

• 16:26Ben Gilbert?

  Yeah.

• 16:27David Rosenthal?

  Dan, I wanted to bring you in here. So the company's growing incredibly fast, leading up to the IPO, for any company, tech or otherwise. So you met Howard in 1991. How did you, in New York, hear about what was going on out here in Seattle? And how did you meet Howard and this relationship start that would lead to so many things over the years?

• 16:49Speaker 03

  Well, as it turned out, I was working in our Los Angeles office at the time. And a partner of mine from New York called up and said, there's this coffee company and we have to go visit it in Seattle. And I said, coffee? You know, what are you talking about? How could that be a fast growth business? Because in those days, Folgers and Maxwell House and those branded cans of coffee. Just terrible. Was a declining business. And this guy named Bob Israel said to me, Dan, trust me, let's go to Seattle. And I kept struggling to try and understand how this could be a growth business.

• 17:31Speaker 03

  When I first heard him talk about it, the only frame of reference I had for coffee retailers was those Greek coffee shops on the corner in Manhattan that served those blue and white cups of coffee. And anyhow, I came up to Seattle and I will never forget the time. It was an August day in 1991 and I took a cab in from Sea-Tac. And by the way, everyone in the audience might be puzzled that, you know, how could you not check out a company? There was no internet then. You had to literally come to Seattle. Exactly. And unless you knew people in Seattle, it was super hard to experience the visual

• 18:16Speaker 03

  or the, what Starbucks was. So you literally had to come to Seattle. At the time, I think they were in Seattle, Portland and Vancouver. But anyhow, I remember getting in the taxi vividly from Sea-Tac and taking a ride to the hotel and me asking the guy, I hear there's a lot of coffee in this town. Which coffee shop do you go to? And he said, oh, there's a ton of coffee in this town. And probably versus today, there's one twentieth of the number of coffee stores. But he says, there's a lot of options, but I always go to Starbucks and it's the best. And then I check into the hotel and before I go upstairs to my room, I asked the woman behind the counter, I gotta get a cup of coffee tomorrow. Where do you recommend?

• 18:59Speaker 03

  And she said, oh, there's lots of places, but I always go to Starbucks and here's the spot. So I woke up the next morning and I always had a principle that I would never not visit the company's stores that I was calling on. So they sent me to the kiosk in city center that's still there over on Fifth Avenue. Just a kiosk, not the full store experience? It was a kiosk because there was no store near the hotel. They were so underpenetrated versus now. And so I sat there for about forty five minutes and people were lining up for this coffee. And I was like, you know, why is this coffee so great? And I wasn't a coffee drinker at the time. And it was kind of one of the first times I ever had coffee was that day.

• 19:44Speaker 03

  And so we headed over to Starbucks and for an hour and a half, Howard just talked nonstop. And he was talking about the business model. He was talking about his people. He was talking about his customers and this kind of passion that was completely intoxicating and contagious. But I was an investment banker and investment bankers have to sell. And if I couldn't talk, I couldn't sell. And I was kind of frustrated because at the end of an hour and a half, literally, he looked at his watch and basically he made it clear to me that it was over. He closed up his notebook and started walking me to the door, basically.

• 20:28Speaker 03

  And I had just been overwhelmed by this incredible experience about, that was about passion, but most importantly for me, it was about a guy who understood that his business was more than his shareholders. He talked about his customers and he talked about his people in an incredibly compelling way. And I was just really struck by that and hadn't really heard that prioritization of people first, customers second, shareholders third, from anyone. And so there was a long hallway in the old Starbucks headquarters, which is down near Airport Way South. And he walked me out and in the middle of the hallway, he stopped abruptly, turned around,

• 21:13Speaker 03

  and he said, do you know what the problem with investment bankers are?

• 21:19Ben Gilbert?

  Meanwhile, you haven't gotten a word in, right?

• 21:21Speaker 03

  Where do we begin? I could not have gotten a word in. And I said, excuse me? And he said, do you know what the problem with investment bankers are? And I had no idea where he was going with this. And he said, there are no mensches in investment banking. I love it. And in nineteen ninety one, mensch was not a word in the urban dictionary.

• 21:46Ben Gilbert?

  Just in the Yiddish dictionary?

• 21:48Speaker 03

  It was only in the Yiddish dictionary and that was not widely circulated in 1991. And so I was like, who is this guy saying this? It was really incredible, but to his credit, he gave me, the investment banker, the keys to getting their business.

• 22:04Ben Gilbert?

  Well, wait, so was he implying that you were one? Or was he implying like from there, you had to form some relationships where he could get some data on you? Like, how did that go?

• 22:12Speaker 03

  Well, so he was implying that he hadn't met one as an investment banker and that I had the opportunity. He wasn't convinced yet, but he was gonna give you a shot. He wasn't convinced at all and I wasn't convinced that I was gonna get a shot. But I remember taking a plane back from Seattle, back to LA. And in those days, airphone, it was called, was super expensive. And I spent the whole trip on the airphone, talking to all my colleagues, saying, I had just discovered this incredible company. But what happened, fast forward, is occasionally he came to LA and over time, we just started spending more time together.

• 22:52Speaker 03

  And in those days, it was harder to get references and he spent a bunch of time with a bunch of different firms and kind of narrowed it down. The whole selection of the investment banker is a whole nother story, but it's not really related to tech, it's related to human psychology. But I was particularly fortunate that, you know, our firm, as David said, was part of the IPO, which was an incredibly interesting experience. Basically, the beauty contest went on in the end of March, beginning of April of 92. And the markets were particularly slow back then.

• 23:33Ben Gilbert?

  And when you say the beauty contest, what do you mean by that?

• 23:36Speaker 03

  Over a two-day period, the company invited six investment banks in to, quote, pitch why they should be part of the IPO. And it was always gonna be a small IPO, so it was pretty clear that there were gonna be two investment banks, maybe three, max. And there was a bunch of different vectors off of which they would make their choice. The chemistry with the people, what the industry specialization was of the people, what the track records of the investment bank were, the trading history. They sent us this seven or eight page checklist that we had to submit the answers in advance.

• 24:20Speaker 03

  When we got there, they would take you through a tour of the roasting facilities. And we didn't know it, but we were being judged as to who was really interested in the roasting facility versus who was really just there to pitch the IPO. So Howard's assistant at the time, a woman named Laura Moy. Laura took us around the roasting plant and she was making notes that she then backfed to Howard about this.

• 24:46Ben Gilbert?

  Oh, wow.

• 24:47Speaker 03

  These people are jerks and these people are really interested in what we're doing because they were trying to parse through who had the heart and the passion and the connectivity with the company. And a few months after this, Howard told me that they dinged us because we showed up in a limousine because we had five or six people and there were, there were no Suburbans back then. So we showed up in a limo and that was a negative. Everything was being scripted in this beauty contest, which was really interesting. And it was an hour and a half presentation and it was a committee of Howard, the CFO at the time, Orin Smith, and two directors.

• 25:28Speaker 03

  And it was those four that were going to make the choices to who to pick between the six possible ones and the two they eventually picked. And the company was quite thoughtful and discerning. A company like Goldman Sachs was interested in pitching, but Goldman kind of said, hey, we'd like you to come to New York and meet all of our senior people, but they can't come to Seattle. So boom, they got dinged because they couldn't bring their senior people.

• 26:01Ben Gilbert?

  Not no white glove service there.

• 26:03Speaker 03

  Exactly.

• 26:04Ben Gilbert?

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• 26:18David 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.

• 26:32Ben 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.

• 26:42David Rosenthal?

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• 27:00Ben 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.

• 27:16David Rosenthal?

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• 27:33Ben 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?

• 27:42David 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.

• 27:53David Rosenthal?

  It's hard to imagine today, but you know, as we talked about in sort of the intro to the history and facts, Starbucks today is a verb, it's a noun, it's on every corner in every city in the entire world. But back then, this was small fry, as far as Goldman was concerned, right? I mean, even the IPO, which we'll get into in a sec, prices-

• 28:13Speaker 03

  The IPO priced on June 26, 1992.

• 28:16David Rosenthal?

  At a roughly $225 million market cap, which was more then than it is today. But these were still very, very early days for the company.

• 28:25Speaker 03

  Oh, 100%. I mean, there might have been 80 stores. But the visibility of companies- Was a lot less back then. Again, you don't have the internet. You don't have dedicated news sources about business. So it was harder to discover these companies. You know, something like retailroadshow.com where you can go and see every prospectus, every video of every IPO. That didn't exist. So, you know, the underwriters on Starbucks, the lead underwriters were our firm and Alex Brown. And unless you had accounts there, it was hard to get a prospectus. And so the access to information wasn't what it is today.

• 29:09Speaker 03

  And part of the reason why the company went public, frankly, was the visibility of going to a bigger platform. And in fact, in the months following the IPO, without getting ahead of ourselves, the comp store growth significantly increased because they realized a successful IPO would equate to curiosity amongst customers.

• 29:32Ben Gilbert?

  Yeah, and of course, one of the reasons to IPO, not always the greatest reason, but for the visibility hit that you get from it, you know, along with raising the capital and getting liquidity for your shareholders, you certainly get that buzz for, you know, a few weeks or a month around the IPO like we're seeing with Snap now. Dan, what do you think the competitive moat around Starbucks is? What is the defensibility? Why can't any mom and pop shop knock them out of business?

• 29:55Speaker 03

  I think there are probably two competitive moats that have been around Starbucks since the beginning. The first is Howard. I would say Jeff Bezos is a competitive moat. I would say Steve Jobs is a competitive moat. These companies are willed into existence through ups and downs because of the resilience, the grit, the determination and the ability of these founders. I think that's super important. And then in terms of Starbucks specifically, I frequently talk about the psychological contract that Starbucks has with its employees and how the strength of that psychological

• 30:35Speaker 03

  contract manifests itself in the psychological contract between the employees and the customers. And so Starbucks is an incredibly retail-facing, consumer-facing business with 26,000 points of distribution.

• 30:51Ben Gilbert?

  Wow.

• 30:52Speaker 03

  And even if you're doing the mobile order and pay, you show up and physically see the barista. I think that certainly Howard thinks the product is much better, but I think if you talk to 100 people, some might say yes, some might say no. The real differentiation and how they have withstood the competition is because of the commitment of the people, which then made Starbucks become in customers' mind something bigger than just buying a cup of coffee. And in the annual meeting this week, they talked a little about using their platform and their scale for good. They talked a lot about that, actually.

• 31:34Speaker 03

  And that's just been a theme that Howard has used for a long time.

• 31:40David Rosenthal?

  In just a sec, we'll wrap up the history and facts with the IPO itself and then talk a little bit about Starbucks' evolution after that. But I think this is something that's super clear. Going back and reading the S1, which also was super fun because it came out before the internet. So you have to do some rooting around online to find it. We'll link to it in the show notes. But Dan, you mentioned Howard, Jeff Bezos, Steve Jobs, being moats. I think something that's common to all of them and really comes out reading the S1 is how deeply Howard understood and the company understood customer loyalty. Especially, it seems obvious, but for thinking back to when they started Starbucks or when

• 32:22David Rosenthal?

  Howard started Ogionali, the idea that you would go and buy your coffee either to take away or drink at a store in a city, that was just something nobody had ever thought of. It was just you made it at home. But creating this place and this experience where people are going to come back again and again, that's what enables the business to work, enables them to invest money in opening the store, invest money in marketing. Because when you acquire that customer, they're going to be coming back again and again and again for their lifetime.

• 32:53Speaker 03

  Yeah, and I remember the research at the time of the IPO was that the average engaged Starbucks customer came 18 times a month.

• 33:02Ben Gilbert?

  It's accurate for me.

• 33:03Speaker 03

  Yeah, I mean, that compares favorably with apps today with like Facebook. Exactly, but I think the other thing I would say is if you know you have 18 opportunities to exceed your customers' expectations or flub it, everything matters. And so your attention to detail and your earn it every day attitude becomes present. I'd like to go back before we leave the IPO, just one anecdote. So in an IPO, and it's still remarkably similar today, the management of the company goes around the country and depending upon the size of the IPO, perhaps the world, and pitches to investors.

• 33:47Speaker 03

  And they do it in two formats. One is group breakfasts and lunches, and the other is one-on-ones. And the one-on-ones are for the biggest investors, Fidelity, TRO Price, Capital Research. And so in the Starbucks IPO, there were 60 one-on-one schedules over a two-week period. And it was eight or nine days in the United States and a few days in London, Paris, and Geneva.

• 34:15Ben Gilbert?

  That is a lot of meetings in a short period of time.

• 34:18Speaker 03

  60 one-on-ones. And so Howard said to me before, right as we were starting, he said, "How many of the 60 do you think I'm going to get?" And I said, "What do you mean?" And he said, "Well, of the 60 meetings that we're going to have one-on-one, how many do you think will convert to orders?" And at that time, I had probably done 10 IPOs. And, you know, I said 80 or 90%. And he said, "I'm going to get 60." And I said, "Howard..." Not 60%, 100% get all 60. Exactly. And I said, "You know, Howard, there's lots of reasons why people don't invest, including the fact that the IPO is so popular that they might not get enough stock to be meaningful to them. So don't hold yourself accountable to 100% hit ratio."

• 35:03Speaker 03

  And he said, "I'm going to get 100%."

• 35:05Ben Gilbert?

  And this is only raising $25 million, right?

• 35:08Speaker 03

  No, they raised 40-something million. Part of the offering was a secondary.

• 35:12Ben Gilbert?

  I see.

• 35:13Speaker 03

  Not a good sale.

• 35:16Speaker 03

  No.

• 35:17Ben Gilbert?

  Amount of money, right? There are just not that many shares go around.

• 35:20Speaker 03

  Definitely true, but everything was smaller back then. So 40 was not a necessarily small IPO in 1992.

• 35:29Ben Gilbert?

  I see.

• 35:30Speaker 03

  But as it turns out, he got 59 of the 60.

• 35:36David Rosenthal?

  I'm sure it kills him to this day.

• 35:38Speaker 03

  Well, no, the story gets better. There was a guy named Mickey Strauss and Mickey Strauss was at a firm called Weispecken Greer, wonderful man, may he rest in peace. And Mickey decided not to buy it at Weispecken Greer. Within nine months after the IPO, who was the largest shareholder of Starbucks? Weispecken Greer.

• 36:03Speaker 03

  And the lesson for your entrepreneurs out there is what goes around can come around. And Howard was so frustrated that Mickey Strauss didn't buy on the IPO, but he then became in the public markets, the biggest buyer.

• 36:17David Rosenthal?

  So the lesson for the venture capitalists is if you really want to invest in a company, you should turn them down the first time because then the entrepreneur is going to want to get you the second time.

• 36:29Ben Gilbert?

  Right. Earn that right in the A round.

• 36:30David Rosenthal?

  Yeah, that's such a great story.

• 36:32Speaker 03

  So we go around the world and it's finally time to price. And the offering was over subscribe eight or 10 times, as I remember. And we had filed at 14 to $16 a share.

• 36:47Ben Gilbert?

  There's literally like 10 times more interest in the IPO than there was room.

• 36:51Speaker 03

  Correct.

• 36:52Ben Gilbert?

  Wow. What's normal?

• 36:54Speaker 03

  Well, in Snap and some of these others, it's a lot more.

• 36:58Ben Gilbert?

  Okay.

• 36:58Speaker 03

  You know, at Zulily, I think we had 20 times interest because what ends up happening is if these things get hot, then everyone acts like they really want it, but maybe they don't really want it for the long term. They want it just for the flip. And so it's very hard to gauge real demand versus flipper demand. But what ended up happening at the pricing was the comps went down 30%. If there were comps between the time we filed and the time that the company priced. And by the way, that was so different than you couldn't file confidentially. When we filed, everyone saw our filing and it was super bad because if you couldn't complete

• 37:40Speaker 03

  an IPO, then everyone knew that you had filed and you couldn't get it done. And that was quite a taint.

• 37:46David Rosenthal?

  Yeah.

• 37:47Speaker 03

  But in terms of the pricing, the deal's way oversubscribed. And the capital markets guys recommended that we price the deal at $16 a share. High end of the range. And Howard said, no, we have to price it at 17. And the capital markets guys from both firms recommend we price it at 16. And so we had this very awkward phone call where these wise guys who somehow couldn't really tell you why it was 16, but they felt that it was 16. They kept saying it had to be 16 and Howard kept saying it had to be 70.

• 38:27Speaker 03

  And it was a difficult spot for me because as the investment banker who's in corporate finance and kind of representing the client, I was kind of pulled toward Howard, yet the colleagues in my firm were saying 16, 16, 16. Howard relentlessly prevailed and we priced the deal at 17. And ultimately the stock traded to 2021 that day. And kind of the rest is history. It's gone up 183 times.

• 39:01David Rosenthal?

  So you priced it at 17, which was roughly a $225 million market cap.

• 39:07David Rosenthal?

  And then today Starbucks has a $83 billion market cap. So that's about an 18,000% return since then. So the selling shareholders in the IPO probably should have held on to those shares.

• 39:22Speaker 03

  Yeah, but like every other early company, they might've had a five or a 10x at the offering. And so for the Apples, the Amazons, the Starbucks, those turned out to be incredibly bad sales. But you have to have patience and tenacity and you can't be thinking of yourself as a trader.

• 39:42Ben Gilbert?

  Yeah. And Dan, before we move on from this, what are the implications of pricing at 16 versus 17? Both for the company, for the people buying those shares, for the investment bank? Why was that a contentious issue?

• 39:54Speaker 03

  Well, the pricing of an IPO is a very complicated thing because you have multiple constituencies. For the company, clearly they did get more money at 17. And in theory, for the flippers, they would get less money the higher you price. And so I think from the very beginning, the investment bankers are trying to find what a nice bump is, but not an incredibly overwhelming bump. Because it feels like you've left too much money on the table. Yet if it breaks the IPO price, then it becomes a negative story.

• 40:30David Rosenthal?

  Right. It's damaged goods.

• 40:32Speaker 03

  Exactly. And one of the things that I always used to counsel public company CEOs is, don't let yourself or your people be judged by whether or not the stock today goes up or down. It's you're building a company and in the long term, they will correlate. But in the short term, they can frequently widely diverge.

• 40:51David Rosenthal?

  Yeah.

• 40:52Ben 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.

• 41:06David 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. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 41:22Ben 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.

• 41:37David 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.

• 42:01Ben 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.

• 42:20David 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.

• 42:50Ben 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.

• 43:15David Rosenthal?

  I want to get into maybe a one-off section. If you guys are willing to experiment here. We introduced on the Snap IPO, a new section narratives. But one, I think, that doesn't make total sense and would be really hard to do the research, given how long ago the Starbucks IPO happened. The narrative section that we're going to do going forward is what the company's narrative is that they're trying to tell during the IPO process and what the narrative is in the press and the market around it. But what I think is really interesting, especially for listeners of this show, is that there has been a narrative that's emerged over the last 10 to 15 years around Starbucks. And that's, it's a coffee company, it's a retail company, it's a real estate company,

• 43:59David Rosenthal?

  but it's also a technology company. And I think that's, especially for you, Dan, being a technology venture capitalist and a consumer-only technology venture capitalist and founding Mavron with Howard. How has Howard's thinking and the company's thinking evolved from those days when it was, there was no internet? You could only find out about Starbucks if you saw them on the street corner, to the days today when you can request your usual mobile order on your phone or from Alexa and then pick it up in the building of your lobby or have it delivered to you?

• 44:31Speaker 03

  Yeah, it's changed a lot. In 1998, when we started Mavron, the whole thought was, holy cow, technology is integrating into consumers' lives in unprecedented ways. So how will it change the business models of these companies? And I think in 1998, a company like Starbucks, or even in 2008, most companies in the retail business thought of themselves as using IT as a way to manage their business, but not really as a way to attract customers. And I would say in the last 10 years, with the advent of the web and the power of social

• 45:12Speaker 03

  media, you saw the eye-opening opportunity that social media can drive traffic into stores. And that was the first aha that a lot of companies had. And Starbucks maybe was a little more advanced because...

• 45:30Speaker 03

  With Mavron and Howard was on the board of eBay. So I think he came from that regular retail world, but he was exposed to consciously exposed to technology, perhaps before other traditional retail companies. And I think now I find it kind of somewhat humorous that people refer to Starbucks as a technology company. I would say it's a incredibly powerful consumer company that's utilizing technology to integrate into customers' lives.

• 46:02David Rosenthal?

  Well, I think it's interesting, though. You're right, it is a consumer company, but you know, you mentioned JCPenney, you mentioned Sears. These were its peers for a long time that haven't evolved. Obviously, co-founding Mavron with you, being on the eBay board. Howard was for a while on the Square board. I guess the question is, what along the way do you think were some of those key moments when Starbucks built that capability and that part of that transformation into being a technology company when some of its peers didn't?

• 46:34Speaker 03

  Well, there was a guy named Chris Brizzo, who was the first social media person at Starbucks. And he's now in marketing at EA. But anyhow, Chris was kind of before his time at Starbucks and just kept pounding on the opportunity that social media had to be an awareness vehicle and a traffic driver. He didn't have much budget, but he kind of relentlessly kept on it. And I think Howard started seeing that through social media, they could literally send people into the stores. And if you think about retail, one of the key metrics that every investor looks at

• 47:19Speaker 03

  is same-store sales. And in fact, I was privileged enough to know a guy named Jerry Gallagher, may he rest in peace, who was the inventor of same-store sales. And I asked him to join the Potbelly board with me, which he did. But anyhow, the concept of same-store sales became a valuation driver for these retail companies. So at the beginning, the first aha was if technology and social media could drive traffic.

• 47:47Speaker 03

  And incremental traffic into the stores, then that was worth investing in. But as recently as five years ago, many traditional food and other retailers really had a hard time investing in technology because they couldn't really see the return. They felt it was cool to be on social media, but they didn't want to spend the money.

• 48:09Ben Gilbert?

  Yeah, I think that's a good tech trend to extrapolate here is the shift from technology as a cost center in the IT spend to a revenue driver and a core part of the product organization and the driver of part of the innovation of the company. And I mean, we look at some of the things that have happened with Starbucks. They've had a lot of experiments with other technology company partnerships and bringing things in that weren't huge. I mean, there was like that 2012 Square deal. They had that early partnership in the mid 2000s with Apple and iTunes and co-advertising there. And then they still have, I think, the song of the week and the app of the week with the free download card in the stores.

• 48:49Ben Gilbert?

  And the thing that ended up really like working in my mind is they have incredible loyalty due to their app or manifested in their app. They were one of the first to pioneer putting those gift cards in the app. And now I don't think I've actually used cash or a credit card at a Starbucks to buy anything other than reloading my card so I can get my stars. They've always been pioneers in loyalty and then using technology as a lever to strengthen the loyalty program. In my mind at least, that's the thing that they've really exemplified the best in using technology of any retailer on earth.

• 49:25Speaker 03

  Yeah, it's funny that you say that because 12 years ago, Madrona and us invested in a company that had order ahead and it went flop.

• 49:37Ben Gilbert?

  What company was that?

• 49:38Speaker 03

  I've forgotten the name of it. But we literally lost $10 million investing in a business that had order off your cellphone. And at the time, we had a test going with five or six Starbucks and they didn't think it was relevant. But the complication of understanding this stuff is they didn't think it was relevant, partly because the smartphone proliferation wasn't as wide as it is now, obviously. And the feature set wasn't as compelling as it was. So I think the stored value component coupled with the order ahead became kind of a compelling feature set.

• 50:19Speaker 03

  And now I would argue that the suite of products that Starbucks has in mobile order and pay is being clamored for by all sorts of other restaurant and retail companies.

• 50:32David Rosenthal?

  Maybe we can mark the official transition into tech themes on the show at this point. We're sort of in it, but something that we've talked about a lot on this show, and I'm just such a huge believer in, in technology is it has to be in service of a superior customer experience. And just doing tech or just doing mobile ordering for the technology aspects isn't going to work. And this is what I think Starbucks has executed so well on in the last few years is doing order ahead in the app with my stored value. It makes the experience better because I get my coffee faster, but I still interact with the people there and my name is still written on the coffee and it's wonderful. It's just I don't have to wait in line. And so it's better as opposed to forcing you to jump through technology hoops

• 51:16David Rosenthal?

  just for the sake of jumping through technology hoops.

• 51:18Speaker 03

  Yeah. And where I've had the most luck working with technology companies is companies that have a great compelling product, but can put themselves in the shoes of the retailer or the consumer company and try to understand what that customer experience is as opposed to just kind of selling it based upon.

• 51:41David Rosenthal?

  Feeds and speeds. Yeah.

• 51:42Speaker 03

  Exactly. Where we've had no luck is where tech companies think that, well, you know, these retailers just don't get it. They don't understand the big idea. And it's that alchemy of building cutting edge technology that then can be adopted, relevant and embraced by these.

• 52:01Speaker 03

  Companies who are responsible for nurturing the relationships with their customers.

• 52:06Ben Gilbert?

  Great point. Well, before we go whole hog into tech themes here, it's worth stopping for a moment in our what would have happened otherwise section. And we've talked about in at least before the secondary in that initial IPO, they raised $25 million. Did Starbucks ever consider doing that on the private markets like we see a lot of today? I mean, obviously they needed a capital infusion to continue opening the stores at the rate that they were doing that. But I guess the two possibilities are what if they grew more slowly, would Starbucks be the way it is today? And then two, could they have raised that money in a different way?

• 52:38Speaker 03

  What if they had grown more slowly, they probably wouldn't have the domination that they have. Unlike a Amazon, Starbucks kind of won market by market. And so it was super important for them in their mind to get to markets quickly. And eventually build the resources where they could go into a market and kind of own it. And they did that in a number of different ways. I remember when I was privileged enough to work with Starbucks and buying a company called The Coffee Connection in Boston. And it was a venture funded company by a guy named George Howell. I was funded by a bunch of VCs and we basically told them, you know, we're coming to Boston. We're going to either steamroll you down or you could sell to us and they did.

• 53:23Speaker 03

  And same thing in London where Scott Svensson from Mod Pizza sold what he called the Seattle Coffee Company to Starbucks, which served as the footprint for Starbucks in those stores. So it's in Howard's DNA that growth, growth, growth. And I think part of that is to give back to the partners and create opportunities. So I don't think in the early days, there was much of a chance that he was going to slow down. But you had asked it as a two part question. I'm sorry. I lost the second part.

• 53:57Ben Gilbert?

  The other part being raised in the private markets.

• 54:00Speaker 03

  I don't think many of your listeners can comprehend the vastness of what's happened and the changes in the capital markets over the past 25 years.

• 54:10David Rosenthal?

  Yeah, there were no, not even late stage, quote unquote, but there were especially no, well, there probably weren't even very many hedge funds, period. But there certainly weren't any of them that were investing in private companies.

• 54:20Speaker 03

  Right. There were a few crossover funds, but the amount of capital doing that was small. And so Starbucks did a $20 million raise in December of 91, and that was a big raise. And they used DLJ as an agent for it. So the fact that you have 180 multi-billion dollar or more private companies today, that's probably 178 more than there were in 1992. So they didn't have access to the capital that private companies have today. Period. Full stop.

• 54:56Ben Gilbert?

  There you go. Well, that's a great lead into going hard into tech themes here. It's shocking to think of the lack of information and the significantly fewer options available to anyone, to companies, to investment bankers, to venture capitalists in those days. And we see very different companies and very different market dynamics falling out because of, well, the internet.

• 55:16David Rosenthal?

  Yep. You know, I think it's so cool that in the coffee industry, there's this concept of waves, right? Everybody talks about third wave coffee. And for listeners that aren't steeped quote unquote in coffee culture, the first wave of coffee was the Folgers and the Maxwell House that we talked about in the beginning of the show, the making your coffee at home. You know, I perhaps unlike many of our listeners, I'm old enough, perhaps dating myself a little bit. And I, you know, remember growing up, my parents having the TV on in the morning and hearing the jingles, like the best part of waking up as folders in your cup and the good to the last drop Maxwell House.

• 55:55Ben Gilbert?

  It was never true.

• 55:56David Rosenthal?

  It was never true. But then Starbucks, that was the second wave. And that was the first time that this sort of orthogonal business model had emerged in coffee, which was this idea of coffee as an experience, not just as a beverage. And Starbucks obviously rode that huge wave into becoming orders of magnitude bigger than folders and Maxwell House ever were. And then today you have the third wave coffee, which is the sort of disaggregated, you know, the artisanal brew, small batch, roasting and brewing local coffee shops. But I think there's this great analogy between all of that to the tech industry and the internet, the first wave being AOL, right? Everybody remembers the jingle, it wasn't nearly as good as it was supposed to be.

• 56:42David Rosenthal?

  And the second wave being the truly compelling version of AOL, Facebook and social. And then we talked about social media earlier and I think of Starbucks being the social place, Facebook being the social place, the insight being that, once you bring human interaction into a market, you can completely transform it. And then you have the third wave today of the further disaggregation of everything happening on Facebook that of course, Facebook is a big part of with the messengers and WhatsApp and Snapchat and Instagram, taking the photos, but basically creating through tech, through data, but also through humans, you know, matching the best of each individual element for you, personalizing it to what you're doing.

• 57:26Ben Gilbert?

  So would you summarize that as first wave being one size fits all but bad?

• 57:30David Rosenthal?

  Yep.

• 57:30Ben Gilbert?

  Second wave is being one size fits all but good.

• 57:33David Rosenthal?

  With your friends.

• 57:34Ben Gilbert?

  With your friends, yeah. And then the third wave being not one size fits all, truly this broken up, small groups, small batch, highly targeted, highly personalized experiences.

• 57:43David Rosenthal?

  That would be a summary of my coffee drug induced fever dream.

• 57:49Speaker 03

  Well, I guess where I would go is, we've been spending a lot of time at Mavron thinking about voice and how voice facilitates impulse. And I think if you step back, version one was Amazon in 95, 96, where you had to intentionally go and it was hard. And in many ways, the digital ordering experience has gotten better, it's become more mobile, but mobile is only one step toward impulse. And we were fortunate enough to be involved from the very beginning at Zulily, which was another kind of impulse experience, somewhat of an intersection between QVC and traditional e-commerce.

• 58:31David Rosenthal?

  And the internet, yep.

• 58:32Speaker 03

  I think voice is the next frontier. Part of that is obviously artificial intelligence. But at the Starbucks annual meeting this week, they previewed, you get into your Ford car and you order your latte from there and you pick it up on the way to work.

• 58:47Ben Gilbert?

  Oh, awesome.

• 58:48Speaker 03

  And so I think you're going to see voice on ramps adopted within e-commerce situations that are going to change the way and how we buy. And it seems like such an exciting time to do that, but you have to do it in a way that reinforces kind of the brand and the buying experience.

• 59:09Ben Gilbert?

  Dan, I think that's super insightful. I think that's totally right. And I think that, you know, I have the Starbucks app on my phone. I pull it out when I get to the register. I often don't think it's worth it to pull my phone out when my hands are cold in the Seattle weather and punch in the order. But if there were, and I know this is a problem on Apple's side, not Starbucks side, but if I could pull out Siri and say, three minutes almond milk latte, Starbucks, Third and Madison, and it was just there, I think that's when you break out of that uncanny valley and it actually slots right into your life in a convenient way.

• 59:42David Rosenthal?

  Yeah. Everything has to be in service of creating a superior customer experience. And part of a superior customer experience is not taking your phone out and your hand and pushing the button when it's cold out.

• 59:55Ben Gilbert?

  All right, on to grading the IPO. So the way that we do this, and Dan's smiling, guests can participate or not, but would love to get your commentary, is as we started with acquisitions, we would grade based on, was that a good idea for the acquirer to acquire the acquiree? Was that a gigantic money pit for them? Or did they actually manage to turn that into a one plus one equals three? And then as we shifted over to IPOs, the way that we think about it is, what did that event enable that company to do on all three of the pillars that I mentioned earlier of notoriety and brand for the company, giving liquidity to those early investors, and primarily, what did they do with that capital infusion?

• 1:00:36Ben Gilbert?

  And before diving into it, it's worth recapping a little bit that, you know, Dan, you made that great point that the DNA of the company and of Howard was growth. And they needed to open more stores, they needed to go into more markets. And the question that's been hanging in the back of my head is, were they in a highly competitive landscape? Like, did they need to rush into markets and beat out competitors because there were other copycats coming in and starting these coffee chains that were getting brand loyal? Or could they have afforded to bide their time a little bit more and just reinvest their profits?

• 1:01:10Speaker 03

  The Starbucks IPO, even back then, when you had a successful IPO in a particular sector, it drew a lot of copycaters. So they went public in June of 92. By the fall of 92, there was a couple of companies that were rolling up different existing coffee chains, Gloria, Jeans, and I forget the other ones, but many of them have gone by the wayside, but they were trying to put mass together. And what they didn't realize is that they really weren't focused on execution. They were focused on creating something that was IPO-able, but not exceeding customers' expectations every day.

• 1:01:49David Rosenthal?

  Mm hmm.

• 1:01:49Speaker 03

  But I would think that part of the reason Starbucks is where it is today is that Howard was impatient and always wanted to grow. And as a result of that, he got to markets quicker than he might otherwise. And you talked about Peet's. I haven't seen the numbers for Starbucks San Francisco, but I would say that whether or not it's Blue Bottle or Peet's.

• 1:02:14David Rosenthal?

  Or Phil's.

• 1:02:15Speaker 03

  Or Phil's. The fact that they didn't have the dominant position the way they have it in Seattle or LA enabled these smaller competitors to pop up. You know, I remember making my first investment in Starbucks was in that December 1991 round. And you saw this cauldron of consumer passion in a market by market basis. And you really asked yourself, is the East Coast any different? Is Atlanta any different?

• 1:02:42David Rosenthal?

  Yep.

• 1:02:42Speaker 03

  And if you came to the conclusion, no, then it's okay. So how quickly can you get there?

• 1:02:49David Rosenthal?

  You mentioned when a company would IPO back in those days, you know, would attract copycats. And it reminded me of something Brad Stone said on our episode about the Uber and Didi merger, that there are folks in China especially, but all over the world that are just reading TechCrunch. And as companies raise their first round of venture funding, they're copying themselves. So funny how the acceleration has happened. You know, I think one of the dominant themes of the IPO and lessons from it and from Starbucks and Howard is that focus, like you just said, Dan, on exceeding your customers' expectations at every opportunity. You know, and I just look at. Companies today that are doing that well versus ones who aren't. And again, thinking back to the Uber Didi episode and even since that episode, all the challenges that have come out about that company.

• 1:03:34David Rosenthal?

  And not to pile on, Uber has done many, many amazing things, but man, it's just, it's really come out in the culture that like the culture there is not about delighting your customer and exceeding their expectations. And I just think about the competitive bloodbath that we saw in that episode in China and that is playing out all over the world and how Starbucks was able to avoid that, even as the copycats popped up by A, growing fast, but also B, just keeping that core mission of always exceeding the customer's expectations.

• 1:04:05Speaker 03

  Yeah, well, I think it starts by just a fundamental belief that at these 26,000 points of distribution, everything matters. And you've got to provide training and you've got to invest in your people such that they feel good about themselves and therefore they feel good about the brand. I mean, they're the brand ambassadors. And in many ways, I would argue that Starbucks is one of the most difficult daily execution. You know, they have 90 million customers coming through their stores every week.

• 1:04:34David Rosenthal?

  Every week. Wow.

• 1:04:35Speaker 03

  And they're so visible that every opportunity to screw it up is an opportunity for social media to amplify that message. And I frequently talk to our Mavron companies about relatively speaking, how easy their task is to exceed customer expectations. Because if you have your own distribution, then you just really need a customer service infrastructure that gets what you're trying to do and what the brand says and speaks for. It's just much easier. And I think that's one of the masteries of Starbucks. But I look at Apple as an example and I look at the Apple stores. And I don't know how you guys feel, but you know, I knew 15 years ago that Apple was on to something when my 70-year-old mother-in-law at the time

• 1:05:19Speaker 03

  told me how she's making reservations at the Apple store and she just loves it. And she's learning. So I think it's not a surprise to see Amazon first with the bookstore and then eventually go, because again, let's take it full circle.

• 1:05:35Speaker 03

  Technology for itself is not the issue. Technology for serving customer needs to me becomes incredibly powerful and sticky and enduring. Yep. Well said.

• 1:05:49Ben Gilbert?

  Completely agreed. I will stop dancing around it and say that yes, very much well said. Obviously I'm biased. I'm sitting in the room here with Dan, but we've gone over this full analysis and I'm going to give this an A. You know, I think for the branding event reason, it enabled them to go into markets and that worked. When they spread to these new markets, they were suddenly national news and people understood this wasn't this little coffee chain in Seattle and on the west coast. It was an IPO that people knew about and they had a pedigree and they could move to these new markets with that. And then I'm splitting what they did with the capital into idea and execution. The idea of what to do with it to continue this frenzy of opening new stores the right way in new markets and moving in was both the right thing to do with that capital and really well executed.

• 1:06:33Ben Gilbert?

  I mean, when you look at your stories, Dan, of 59 out of 60 said yes and pricing it at 17, not 16 and still getting that little pop. Not a ridiculous one, but a good one. And, you know, I was just pulling up the history of the stock price. I'm just looking at these first few years because I think that's a relevant part. There was no like, oh crap moment. The bottom didn't seem to have fallen out on it. It was like, it went to the public markets with a true to the company value and continued to grow from there as the company's value grew.

• 1:07:02Speaker 03

  Masterfully executed by the investment bankers. I agree a hundred percent on the IPO analysis.

• 1:07:09Speaker 03

  But when you say there was no crap moment, there's plenty of times in the history of all these businesses where there are oh crap moments. And, you know, I think that's another thing that we try to help entrepreneurs with, which is there's plenty of dark days in every business. And I've spent too much time with Howard where people say, you know, how did you know when you were successful? And he kind of is taken aback a little and he says, what are you talking about? I have to earn it every day. We have to earn it every day.

• 1:07:42Ben Gilbert?

  Yep.

• 1:07:42Speaker 03

  You know, life's a process, right? It's not a destination. It's a journey. And I think these businesses are tested in different ways. I can give you a bunch of examples where Starbucks was truly tested. It's sitting on the top of the hill now and everyone kind of thinks, ah, you know, it's been a

• 1:08:00David Rosenthal?

  They've made it.

• 1:08:01Speaker 03

  Yeah. But in terms of the IPO, I agree with your assessment. A.

• 1:08:06David Rosenthal?

  I'm an A2 here and not just because we're talking to Dan. Like the Facebook IPO was a very challenging one and we gave that a, well, we gave it two grades, one of which was an A, one of which was I think a C, where we both? We take a lot of liberties. Anyway, we need to do a bad IPO one of these days soon. Plenty of those. It's hard to argue with an 18,000% appreciation since the Starbucks IPO. But for me, the two things taking away from this conversation and Dan, all, you know, your stories and your insights, I'd thought about a lot, but it's the combination of the two, I think are so powerful and expressed so beautifully within Starbucks and within Howard. It's that Starbucks and Howard had these two equal drives within them and that one was for growth.

• 1:08:48David Rosenthal?

  Then the other one was for exceeding customers' expectations, you know, every single time. And I think it's the, the marriage of those two things that make for the most powerful consumer companies out there. I mean, I think about, you know, in ones that I work with, you know, Dan, we work with together with your colleague, David in Booster, you know, early stage company that Madrona and Mavron are investors in together. And that's what Frank and Diego and Tyler and the team and John and everybody there, you know, that's what they do every day. They are hyper focused on growth and they are hyper focused on exceeding customer expectations every day. And if you can nail that and sustain that, that's how magical companies are created.

• 1:09:29Speaker 03

  And that's in the DNA of the CEO, or it isn't. And I remember the early days of my relationships with Starbucks. And as a scrappy investment banker, one of the many things that I tried to do was always give store experiences. And I was hated within Starbucks because my phone calls at the beginning and then my emails were routed through the ops department. And in Westport, Connecticut, at 9:00 PM or 9:00 AM, there was a problem and people would go crazy because I would tell Howard and then Howard would tell the head of ops and then the head of ops would tell the regional person and the district person and the store manager would eventually get it. And people would, oh, you're Dan, you know?

• 1:10:09Ben Gilbert?

  We've heard about you.

• 1:10:10Speaker 03

  We've heard about your feedback. And they would say, thank you. But and then I contrasted to what happened on Sunday morning. And here's the company, as you said, $80 billion plus. I was waiting on Sunday morning for my coffee at the Starbucks Madison Park. And I was stuck behind two large mobile orders physically. And so I was waiting for a super long time. And I shot Kevin a note.

• 1:10:40Speaker 03

  Kevin is the incoming CEO of Starbucks. Yeah, Kevin Johnson. And I kind of framed the problem up and the frustration. And I thought that was the end of it. I go to the Starbucks annual meeting and the head of US stores, the head of Adam Brotman, the digital person, and one other person all said to me, we saw your email from Kevin. Thanks for the insight. And it's that one customer, one cup at a time. And that's in the Starbucks vision statement or their mission statement. I wish I had it memorized, but they're going to exceed customers' expectations. One cup,

• 1:11:20Speaker 03

  one store, one neighborhood at a time. And so there's this incredible balance between detailed execution and yet having a big vision that their employees first and then their customers can embrace.

• 1:11:36Ben Gilbert?

  Yep. And after the show, why don't you just shoot me Kevin's email and then I'll be able to let him know too.

• 1:11:40Speaker 03

  I'm sure our listeners would appreciate that too.

• 1:11:43David Rosenthal?

  What a great story to wrap on. Should we move on to carve outs?

• 1:11:47Ben Gilbert?

  Yeah, let's do it. So mine is, a lot of the time, we'll go wax philosophically about some cool Burning Man video that we saw, or some completely unrelated book that we read. Mine is something that I think every single acquired listener will enjoy, and that is an email newsletter called Pro Rata by Dan Primack from the new company Axios. So Dan wrote the term sheet for a long time at Fortune and moved on to help start this company Pro Rata, which is this third wave of email newsletters. And there's also a website, but I mean, the newsletters are where it's at. Pro Rata in particular is great because you get some really good insight by Dan, who's a true journalist. Not to knock too hard on a lot of like tech bloggers, but he has the journalistic integrity you would expect out of, you know, a Pulitzer

• 1:12:31Ben Gilbert?

  Prize winning, you know, someone chasing the story from 50 years ago. Really a pleasure to read that. And then the cool thing is you get a list of all the companies that have gotten funded today. In VC and PE, companies have gone public. And it really helps me, someone that works to create early-stage companies, you know, identify trends. So it's pretty interesting to see what's going on in the world of new company creation.

• 1:12:53David Rosenthal?

  Yeah, really good. Dan's work is and has been excellent for a long time. My carve out probably also will appeal to, I was gonna say, all acquired listeners, but perhaps not quite all, at least those of a certain generation, is a super fun podcast and also fun thinking back to the time of the Starbucks IPO that I discovered recently called The Wizard and The Bruiser, which is a nostalgic take, definitely not safe for work, by the way, so not like this podcast, looking at geek culture from the 80s. And it just takes me back to my childhood, like, you know, The Legend of Zelda, Sonic the Hedgehog, you know, all the cartoon TV shows. Super, super fun stuff. And these guys are hilarious, so highly recommend.

• 1:13:37Speaker 03

  This is my first carve out, and I was trying to decide whether or not I should be self-aggrandizing for one of the Mavron companies that I love or not. And I've decided to stay away from the Mavron companies.

• 1:13:50David Rosenthal?

  They are all great, but we can be self-aggrandizing, or we can be aggrandizing for you. So many of the companies they've funded deliver the same kind of growth and superior customer experiences that we've talked about on this show.

• 1:14:03Speaker 03

  Well, thank you, David. I hope they deliver the same kind of growth.

• 1:14:07Speaker 03

  That's your job as a board member. Exactly. Well, it's the management's job, but anyhow, I'm gonna do something that I wish when I was in my twenties and thirties, someone had said to me, because when you're in your twenties and thirties, the table is not set yet. You're still trying to figure out what your table is and how to set it. And there's actually a poem that was written in 1932 by a man named Peter Wimbrell. And the name of the poem is called "The Man in the Glass." And I will quickly read the poem, because in my mind, it says it all. "When you get what you want in your struggle for self,

• 1:14:48Speaker 03

  and the world makes you king for a day, just go to the mirror and look at yourself, and see what that man has to say. For it isn't your father, or mother, or wife, whose judgment upon you must pass. The fellow whose verdict counts most in your life is the one staring back from this glass. He's the fellow to please, never mind all the rest, for he's with you clear to the end. And you've passed your most difficult, dangerous test, if the man in the glass is your friend. You may fool the whole world down the pathway of

• 1:15:28Speaker 03

  yours, and get pats on the back as you pass, but your final reward will be heartache and tears, if you've cheated the man in the glass." That's great. Sexist man, you know, it's 90 years ago. So it's really relevant for people, not males.

• 1:15:46Ben Gilbert?

  Yeah. And I can say for our listeners, one of the first times I met Dan, we were heading a little email exchange afterwards, and he sent me that same poem. So I know it's near and dear to your heart, and a great message.

• 1:15:57Speaker 03

  Thank you for having me, guys.

• 1:15:58Ben Gilbert?

  Thanks for coming.

• 1:15:59Speaker 03

  It's exciting, your format and what you're trying to do, and help educate people. And thank you for having me be a part of it.

• 1:16:06Ben Gilbert?

  Of course.

• 1:16:07David Rosenthal?

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

• 1:16:14Ben 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.

• 1:16:24David 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.

• 1:16:45Ben 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.

• 1:16:57David 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.

• 1:17:08Ben Gilbert?

  Listeners, if you liked the show, or frankly, if you didn't. Actually, if you didn't, we'd love some private feedback. [email protected]. If you did, my god, do we love five-star reviews. They help us grow the show. They help us get more listeners. They help us have more guests on. And quite honestly, what it helps us do is bring on sponsors and then, like any good growth engine, pour it back into the show and figure out how to improve the quality and make a better product. So help us do that. Please review us on iTunes. Share with your friends and we will see you next time.

• 1:17:36David Rosenthal?

  See you next time.