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It makes a lot of sense if you know how perverse financial markets are. The difference between those millions and those billions is the perceived potential of t

by hnarn 10y ago

It makes a lot of sense if you know how perverse financial markets are. The difference between those millions and those billions is the perceived potential of the company. All you need is some investment banker becoming convinced that noone wants to visit physical stores anymore, and suddenly money starts pouring into companies supporting that view of the future, almost regardless of whether they are actually profitable or are creating any real value.

deleted 10y ago
[deleted]
thehardsphere 10y ago
Right, so the question becomes "Why do enough people perceive the potential of Instacart to be billions when a back of the envelope calculation by a guy on Hacker News suggests that's not the case?" Presumably said investment bankers are capable of doing the same math as Hacker News readers, so why did they still fork the money over when they have many other crazy bets to choose from?
- MegaButts 10y ago
  Here's a secret: most investors lose money.
  - thehardsphere 10y ago
    Well, sure. They usually know they're going to lose money going in, and they can pick all sorts of things to lose their money on. That doesn't explain why the picked this one particular thing to lose money on.
    - MegaButts 10y ago
      Of course I can't find the source for it now, but during Instacart's last fundraising round they did some really weird stuff. For starters, the investors were only allowed to view their financials in a printed book in a room, and were not allowed to take pictures or write anything down to mull it over and make a decision. Apart from that, you have to understand that there are a lot of investors, and if you can convince just a few of them that the upside is huge then you've got funding. It's not hard to get traction in a space like delivery where everybody knows it's something people want. But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices.
      - grandalf 10y ago
        > But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices. Well, in a competitive environment like Uber vs Lyft, both companies subsidize the service to the benefit of the customers (and employees) in an attempt to maximize market share. There is a lot to gain by becoming the market leader in a service like ride sharing or grocery shopping. The market is very big and it's a basic need that most people have. If anything, I think there is too much expectation by investors that a success in a non-ridesharing market will generate earlier-stage financials that look like Uber's. With Instacart, the value add is such a no brainer. Imagine if everyone had to go to a shop, park, and walk around picking out mail that had been addressed to them. It would be hugely inefficient. This is why the postal service delivers mail to everyone's home. The service is considered so essential to the functioning of society that it's viewed as a legitimate state-run monopoly and aggressively subsidized. Most people spend significantly more time grocery shopping than they do picking up letters and parcels. This is a significant amount of leisure time wasted. Instacart can also easily swoop in and source certain high-margin goods on its own, or offer price comparison or even auction-style services where merchants bid on the virtual cart and it is fulfilled by the merchant offering the lowest price. All these are obvious next steps for Instacart, which wisely sees Grocery stores as a relic of the past ready to be replaced by something better. Grocers are market makers who specialize in understanding demand patterns. This is what makes a grocer successful, but grocers must spend lots of money simply to help alleviate the drudgery of being at the store shopping for one's self. One place near where I live features an elaborate player piano, hot bar, oyster bar, and wine bar! Most customers don't buy the oysters or a glass of wine, but having those side-acts makes being at the store pushing a cart through aisles feel less like demeaning, robotic drudgery. Instacart has found a better way. You take out the app, easily search for products, see recently/frequently purchased products, set up a delivery time, and you're done. It all arrives as if by magic. Maybe someday the shopping will be done by actual robots and the delivery by drone. But even in that world, the market-maker wisdom of local grocers will be just as relevant as it is today, and the high quality shopping experience of the Instacart app will be at least as useful.
        MegaButts 10y ago
- solatic 10y ago
  Because a healthy portfolio is distributed not only in the amount of risk (I.e. low vs high risk) but also in economic sectors (I.e. tech/futurism, health, energy, agriculture). For any given investor, the decision to invest in Instacart or any other "crazy bet" is not made in isolation, but within the context of their existing portfolio, which means that the same investor could rationally decide to either invest or not invest, because that decision depends on the rest of their portfolio. Back-of-the-envelope calculations on HN are always calculated in isolation.

by hnarn 10y ago

deleted 10y ago

[deleted]

thehardsphere 10y ago

Right, so the question becomes "Why do enough people perceive the potential of Instacart to be billions when a back of the envelope calculation by a guy on Hacker News suggests that's not the case?" Presumably said investment bankers are capable of doing the same math as Hacker News readers, so why did they still fork the money over when they have many other crazy bets to choose from?

MegaButts 10y ago
Here's a secret: most investors lose money.
- thehardsphere 10y ago
  Well, sure. They usually know they're going to lose money going in, and they can pick all sorts of things to lose their money on. That doesn't explain why the picked this one particular thing to lose money on.
  - MegaButts 10y ago
    Of course I can't find the source for it now, but during Instacart's last fundraising round they did some really weird stuff. For starters, the investors were only allowed to view their financials in a printed book in a room, and were not allowed to take pictures or write anything down to mull it over and make a decision. Apart from that, you have to understand that there are a lot of investors, and if you can convince just a few of them that the upside is huge then you've got funding. It's not hard to get traction in a space like delivery where everybody knows it's something people want. But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices.
    - grandalf 10y ago
      > But the problem is they get traction by operating at a loss, so when they try to run profitably they inevitably fail as people bawk at the prices. Well, in a competitive environment like Uber vs Lyft, both companies subsidize the service to the benefit of the customers (and employees) in an attempt to maximize market share. There is a lot to gain by becoming the market leader in a service like ride sharing or grocery shopping. The market is very big and it's a basic need that most people have. If anything, I think there is too much expectation by investors that a success in a non-ridesharing market will generate earlier-stage financials that look like Uber's. With Instacart, the value add is such a no brainer. Imagine if everyone had to go to a shop, park, and walk around picking out mail that had been addressed to them. It would be hugely inefficient. This is why the postal service delivers mail to everyone's home. The service is considered so essential to the functioning of society that it's viewed as a legitimate state-run monopoly and aggressively subsidized. Most people spend significantly more time grocery shopping than they do picking up letters and parcels. This is a significant amount of leisure time wasted. Instacart can also easily swoop in and source certain high-margin goods on its own, or offer price comparison or even auction-style services where merchants bid on the virtual cart and it is fulfilled by the merchant offering the lowest price. All these are obvious next steps for Instacart, which wisely sees Grocery stores as a relic of the past ready to be replaced by something better. Grocers are market makers who specialize in understanding demand patterns. This is what makes a grocer successful, but grocers must spend lots of money simply to help alleviate the drudgery of being at the store shopping for one's self. One place near where I live features an elaborate player piano, hot bar, oyster bar, and wine bar! Most customers don't buy the oysters or a glass of wine, but having those side-acts makes being at the store pushing a cart through aisles feel less like demeaning, robotic drudgery. Instacart has found a better way. You take out the app, easily search for products, see recently/frequently purchased products, set up a delivery time, and you're done. It all arrives as if by magic. Maybe someday the shopping will be done by actual robots and the delivery by drone. But even in that world, the market-maker wisdom of local grocers will be just as relevant as it is today, and the high quality shopping experience of the Instacart app will be at least as useful.
      - MegaButts 10y ago
solatic 10y ago
Because a healthy portfolio is distributed not only in the amount of risk (I.e. low vs high risk) but also in economic sectors (I.e. tech/futurism, health, energy, agriculture). For any given investor, the decision to invest in Instacart or any other "crazy bet" is not made in isolation, but within the context of their existing portfolio, which means that the same investor could rationally decide to either invest or not invest, because that decision depends on the rest of their portfolio. Back-of-the-envelope calculations on HN are always calculated in isolation.