8 ms·

DoorDash Raises $127M in ‘Down’ Round

35 points by mathattack 11y ago

stephenitis 11y ago
The most important piece of this article. >DoorDash isn’t profitable and has struggled to keep some of its delivery staff, known as “dashers,” from remaining with the company for longer than a few months, raising costs to attract and train employees, according to people familiar with the matter. >A DoorDash spokesman said the company is “cash flow positive” in its “earliest markets,” including applicable marketing and overhead expenses. He declined to name those markets. Overall the company operates in 22 urban areas in the U.S. and Canada, according to its website.
- semil 11y ago
  Earliest markets are Palo Alto and Stanford.
  - danieltillett 11y ago
    It is good then that these markets are typical of the rest of the USA.
  - deleted 11y ago
    [deleted]
- mathattack 11y ago
  Perhaps the core underlying issue is that the service just isn't that good. Wait times of over an hour for cold food is awful. Is suburban delivery so hard to manage that restaurants and consumers are willing to let this go?
  - potatolicious 11y ago
    This is I think the core issue that almost all of the gig economy startups face, even the gigantic ones like Uber. The trick with on-demand is that we're not the first into this space - low-tech versions have existed for years, but largely priced out of reach of the mainstream. This pricing was necessary because of the fundamental nature of on-demand. After all, getting someone to drive to a restaurant, order for you, and bring you the food has some pretty immutable built-in costs. Software can help reduce these costs, but IMO we've vastly overestimated the degree. It turns out in most cases the technology can't reduce costs enough to shift the economics from "upper class only" to "middle class". There have been two responses to this reality - one is to force the issue by subsidizing the unit economics with VC money, and pray that you can actually figure out the economics of bringing on-demand to the middle class before the money train derails - this is the Uber strategy (specifically, UberX, which is heavily subsidized in many markets). The other is to make the service suck - I'm not sure why any company thinks this is a viable strategy but we've seen many pursue it. Homejoy is the spectacular nuclear-explosion example but there are many others. It turns out human labor is expensive, hard to scale, and has a lot of built-in costs that can't be eliminated by smart software.
throwaway_exer 11y ago
I don't see how delivering somebody else's food can be profitable, or even how they can guarantee that the food is edible as a middleman. Maybe somebody can explain what the business model is here. It sounds like the founders get to play big shot for a couple years while they bleed their VCs.
- danieltillett 11y ago
  The business model is called the "greater fool". The surprising thing is that when you have the sort of terms that VCs can insert it is actually a great model.
- ryporter 11y ago
  It's a straightforward and logical business model. Restaurants want a way to deliver food to their customers. They provide this service, and are compensated for it. They ensure that the food is edible by working with restaurants that customers already dine-in at. Sure, they can't guarantee that the food is edible, but no delivery service can guarantee anything about the product that they are delivering. They have to rely on the reputation of the sender. The problem is instead that this is too common of a business model. There doesn't appear to be anything particularly innovative about what DoorDash is doing, and they don't appear to be executing very well. It's not a fundamentally flawed business; it's just a uninspiring one that was probably overvalued.
  - kotach 11y ago
    It would be innovative if they had some super fast on-line optimization of delivery routes. Optimized routes would allow them to chain several pickups from restaurants with a chain of deliveries. Given the fact that the optimization is global they would have the advantage of doing global optimization over each restaurant doing it locally. Therefore they could charge less for deliveries while paying their workers the same. Unfortunately, a google search of the founders tells us they haven't got the slightest clue how to do that. What the investors can hope is that this money will allow them to find people that can make the extra effort to rise the business above all of the similar ones.
  - 11y ago
gjvc 11y ago
This is an excellent example of throwing good money after bad.
danieltillett 11y ago
How can I invest in this company as a common stock holder?
- nxzero 11y ago
  Companies like SharesPost and EquityZen allow accredited investors to invest in some venture-backed companies.
  - danieltillett 11y ago
    I think I need to make my snark a little more obvious. I am sure that there are some common stock holders in DoorDash looking to offload their stock, but I can’t think of a more certain way to lose all your money than to invest in the common stock of a startup who has just taken a down round.
    - arunaugustine 11y ago
      Sometimes, the devaluation might be just due to a wider market correction and not specific to the company itself (which in this case appears not to be if its having the problems described). But if that's the case, then it would be an opportunity to invest, wouldn't it be? That is if the fundamentals of the business are on a strong base?
      - danieltillett 11y ago
        It might be if the earlier investors didn't have preference shares. Typically once you have a down round the common stock holders are wiped out if there have been a significant numbers of preference share issued.
        jacquesm 11y ago
        > Typically once you have a down round the common stock holders are wiped out if there have been a significant numbers of preference share issued. That all depends on several unknowns at that time. It definitely increases the chances of the holders of common stock to be left without compensation if and when the company sells or there is some other 'liquidity event', but it definitely is not a given. A down round is simply the issuing of new shares at a different valuation than the previous shares. There could very well be a round at a higher valuation later on, the difference between the previous share issue and the current one could be small, the number of shares issued could be small to the number of shares already outstanding and so on.
hobo_mark 11y ago
I was visiting Palo Alto one afternoon last year and as we were grabbing dinner one thing I noticed (from the tshirts) were all the "dashers" waiting for take away just like we were. Considering all the time we had to wait I could not help but think that, surely, it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready? As a logistics company you want to minimize the time your couriers sit around... The kitchen already knows roughly how long it's going to take anyway, and with enough data computers could do that automatically too, I guess all delivery services work the same but I never use them, do other incumbents do these things more efficiently nowadays?
- danieltillett 11y ago
  This is the exact thinking that got all these companies and investors into this niche. Unfortunately, the restaurant business is too messy to automate (at least right now) and too prone to falling into profitless competition. There is a great business in this area waiting to be unleashed, but I have no idea how anyone can make a profit.
- jimkri 11y ago
  The "dashers" could also keep track of the wait times for each restaurant, and then work accordingly to the wait times. They could boost their delivery's, but it definitely would take several weeks to get the right amount of knowledge about each restaurant.
- mathattack 11y ago
  The listed wait times on the App are 60-70 minutes. As a former New Yorker (used to bike delivery of sub-30 minutes) it seems crazy that they could have a viable business. It's even more surprising given that they don't have food warmers, so the food arrives cold. This tells me that they're not really in the Food Business - they're in the delivery business, and learning how to do it with food.
- potatolicious 11y ago
  The trick with DoorDash is that many (most?) of the restaurants in the system aren't voluntarily participating with DoorDash. A smart system that summoned delivery people when the food was ready/close to ready would require integration on the restaurant's part (see: Seamless/GrubHub/Caviar), but DoorDash seems to be going in a different direction. This has been a point of controversy - DoorDash offers delivery for restaurants that do not participate in delivery by simply sending someone there, ordering, and bringing you the food. This is terrible for the delivery people obviously, and DoorDash has also been caught marking up the prices on these menu items without informing the customer. Overall, highly doubtful about the sustainability of this business model. Or the ethics. Side note: Postmates also does similar - some of the restaurants in their system are not official partners, and so the delivery person gets to make the order and wait around. This is a large part of why I stopped using them - they're getting paid peanuts as it is and now they're sitting on their ass for 20+ minutes to bring someone $20 of food and foregoing much needed tips.
swingbridge 11y ago
The business model is broken. Surprised they managed to raise more funds at all.
clairity 11y ago
sure, there is plenty to be skeptical about with doordash's business model but they just convinced some of the best-funded venture funds in the valley to invest in doordash. rather than simply tearing them down, it would be more fun to try to figure out how and what he said in those closed-door meetings, like... * who could be a likely suitor waiting in the wings to snatch them up? * what do the unit economics look like in their best and worst markets? * have they actually found a novel solution to the massive logistics problem they face with individual deliveries? * do they have a viable plan to pivot/expand to non-food deliveries? * are they getting a big contract from a giant corporation to be their last-mile delivery service? * is there a strategic partnership that changes their business for the better? there is certainly something(s) that got previous and new investors excited about doordash's prospects. what is it? what could it be? the suspense is killing me! =D

35 points by mathattack 11y ago

The most important piece of this article. >DoorDash isn’t profitable and has struggled to keep some of its delivery staff, known as “dashers,” from remaining with the company for longer than a few months, raising costs to attract and train employees, according to people familiar with the matter. >A DoorDash spokesman said the company is “cash flow positive” in its “earliest markets,” including applicable marketing and overhead expenses. He declined to name those markets. Overall the company operates in 22 urban areas in the U.S. and Canada, according to its website.

semil 11y ago
Earliest markets are Palo Alto and Stanford.
- danieltillett 11y ago
  It is good then that these markets are typical of the rest of the USA.
- deleted 11y ago
  [deleted]
mathattack 11y ago
Perhaps the core underlying issue is that the service just isn't that good. Wait times of over an hour for cold food is awful. Is suburban delivery so hard to manage that restaurants and consumers are willing to let this go?
- potatolicious 11y ago
  This is I think the core issue that almost all of the gig economy startups face, even the gigantic ones like Uber. The trick with on-demand is that we're not the first into this space - low-tech versions have existed for years, but largely priced out of reach of the mainstream. This pricing was necessary because of the fundamental nature of on-demand. After all, getting someone to drive to a restaurant, order for you, and bring you the food has some pretty immutable built-in costs. Software can help reduce these costs, but IMO we've vastly overestimated the degree. It turns out in most cases the technology can't reduce costs enough to shift the economics from "upper class only" to "middle class". There have been two responses to this reality - one is to force the issue by subsidizing the unit economics with VC money, and pray that you can actually figure out the economics of bringing on-demand to the middle class before the money train derails - this is the Uber strategy (specifically, UberX, which is heavily subsidized in many markets). The other is to make the service suck - I'm not sure why any company thinks this is a viable strategy but we've seen many pursue it. Homejoy is the spectacular nuclear-explosion example but there are many others. It turns out human labor is expensive, hard to scale, and has a lot of built-in costs that can't be eliminated by smart software.

throwaway_exer 11y ago

I don't see how delivering somebody else's food can be profitable, or even how they can guarantee that the food is edible as a middleman. Maybe somebody can explain what the business model is here. It sounds like the founders get to play big shot for a couple years while they bleed their VCs.

danieltillett 11y ago
The business model is called the "greater fool". The surprising thing is that when you have the sort of terms that VCs can insert it is actually a great model.
ryporter 11y ago
It's a straightforward and logical business model. Restaurants want a way to deliver food to their customers. They provide this service, and are compensated for it. They ensure that the food is edible by working with restaurants that customers already dine-in at. Sure, they can't guarantee that the food is edible, but no delivery service can guarantee anything about the product that they are delivering. They have to rely on the reputation of the sender. The problem is instead that this is too common of a business model. There doesn't appear to be anything particularly innovative about what DoorDash is doing, and they don't appear to be executing very well. It's not a fundamentally flawed business; it's just a uninspiring one that was probably overvalued.
- kotach 11y ago
  It would be innovative if they had some super fast on-line optimization of delivery routes. Optimized routes would allow them to chain several pickups from restaurants with a chain of deliveries. Given the fact that the optimization is global they would have the advantage of doing global optimization over each restaurant doing it locally. Therefore they could charge less for deliveries while paying their workers the same. Unfortunately, a google search of the founders tells us they haven't got the slightest clue how to do that. What the investors can hope is that this money will allow them to find people that can make the extra effort to rise the business above all of the similar ones.
- 11y ago

gjvc 11y ago

This is an excellent example of throwing good money after bad.

danieltillett 11y ago

How can I invest in this company as a common stock holder?

nxzero 11y ago
Companies like SharesPost and EquityZen allow accredited investors to invest in some venture-backed companies.
- danieltillett 11y ago
  I think I need to make my snark a little more obvious. I am sure that there are some common stock holders in DoorDash looking to offload their stock, but I can’t think of a more certain way to lose all your money than to invest in the common stock of a startup who has just taken a down round.
  - arunaugustine 11y ago
    Sometimes, the devaluation might be just due to a wider market correction and not specific to the company itself (which in this case appears not to be if its having the problems described). But if that's the case, then it would be an opportunity to invest, wouldn't it be? That is if the fundamentals of the business are on a strong base?
    - danieltillett 11y ago
      It might be if the earlier investors didn't have preference shares. Typically once you have a down round the common stock holders are wiped out if there have been a significant numbers of preference share issued.
      - jacquesm 11y ago
        > Typically once you have a down round the common stock holders are wiped out if there have been a significant numbers of preference share issued. That all depends on several unknowns at that time. It definitely increases the chances of the holders of common stock to be left without compensation if and when the company sells or there is some other 'liquidity event', but it definitely is not a given. A down round is simply the issuing of new shares at a different valuation than the previous shares. There could very well be a round at a higher valuation later on, the difference between the previous share issue and the current one could be small, the number of shares issued could be small to the number of shares already outstanding and so on.

hobo_mark 11y ago

I was visiting Palo Alto one afternoon last year and as we were grabbing dinner one thing I noticed (from the tshirts) were all the "dashers" waiting for take away just like we were. Considering all the time we had to wait I could not help but think that, surely, it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready? As a logistics company you want to minimize the time your couriers sit around... The kitchen already knows roughly how long it's going to take anyway, and with enough data computers could do that automatically too, I guess all delivery services work the same but I never use them, do other incumbents do these things more efficiently nowadays?

danieltillett 11y ago
This is the exact thinking that got all these companies and investors into this niche. Unfortunately, the restaurant business is too messy to automate (at least right now) and too prone to falling into profitless competition. There is a great business in this area waiting to be unleashed, but I have no idea how anyone can make a profit.
jimkri 11y ago
The "dashers" could also keep track of the wait times for each restaurant, and then work accordingly to the wait times. They could boost their delivery's, but it definitely would take several weeks to get the right amount of knowledge about each restaurant.
mathattack 11y ago
The listed wait times on the App are 60-70 minutes. As a former New Yorker (used to bike delivery of sub-30 minutes) it seems crazy that they could have a viable business. It's even more surprising given that they don't have food warmers, so the food arrives cold. This tells me that they're not really in the Food Business - they're in the delivery business, and learning how to do it with food.
potatolicious 11y ago
The trick with DoorDash is that many (most?) of the restaurants in the system aren't voluntarily participating with DoorDash. A smart system that summoned delivery people when the food was ready/close to ready would require integration on the restaurant's part (see: Seamless/GrubHub/Caviar), but DoorDash seems to be going in a different direction. This has been a point of controversy - DoorDash offers delivery for restaurants that do not participate in delivery by simply sending someone there, ordering, and bringing you the food. This is terrible for the delivery people obviously, and DoorDash has also been caught marking up the prices on these menu items without informing the customer. Overall, highly doubtful about the sustainability of this business model. Or the ethics. Side note: Postmates also does similar - some of the restaurants in their system are not official partners, and so the delivery person gets to make the order and wait around. This is a large part of why I stopped using them - they're getting paid peanuts as it is and now they're sitting on their ass for 20+ minutes to bring someone $20 of food and foregoing much needed tips.

swingbridge 11y ago

The business model is broken. Surprised they managed to raise more funds at all.

clairity 11y ago

sure, there is plenty to be skeptical about with doordash's business model but they just convinced some of the best-funded venture funds in the valley to invest in doordash. rather than simply tearing them down, it would be more fun to try to figure out how and what he said in those closed-door meetings, like... * who could be a likely suitor waiting in the wings to snatch them up? * what do the unit economics look like in their best and worst markets? * have they actually found a novel solution to the massive logistics problem they face with individual deliveries? * do they have a viable plan to pivot/expand to non-food deliveries? * are they getting a big contract from a giant corporation to be their last-mile delivery service? * is there a strategic partnership that changes their business for the better? there is certainly something(s) that got previous and new investors excited about doordash's prospects. what is it? what could it be? the suspense is killing me! =D