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Funny thing is that whenever we learned about entrepreneurship, the three phrase was always SUSTAINABLE COMPETITIVE ADVANTAGE. When I look at meal ingredient de

Funny thing is that whenever we learned about entrepreneurship, the three phrase was always SUSTAINABLE COMPETITIVE ADVANTAGE. When I look at meal ingredient delivery services (or Groupon type businesses) almost none of them seemed to have actual sustainable competitive advantages. Some had advantages (early traction, etc) but nothing seemed sustainable. What is the thinking behind backing these businesses for VCs?

eismcc 8y ago
FOMO
manigandham 8y ago
There's not much thinking. It's hype and portfolio theory, and mostly hoping for a quick acquisition by a bigger company.
- jjeaff 8y ago
  There's plenty of thinking. The VCs know what they are doing. For those that have plenty of cash, the game is to invest in anything and everything that has a good public facing brand. Pump it with cash, then dump it on the public market with an ipo to all the less sophisticated investors that aren't reading the financials. Sure, every once in a while, you'll come across a Facebook type business that ends up being profitable, but in the meantime you can still make money on the losers when you cash out.
  - phamilton 8y ago
    > less sophisticated investors that aren't reading the financials Do these actually exist? My understanding is that retail investors aren't significant and I don't believe that institutional investors don't look at financials.
    - deleted 8y ago
      [deleted]
    - AmericanChopper 8y ago
      Snap comes to mind.
    - flukus 8y ago
      > I don't believe that institutional investors don't look at financials. Many don't, like indexed funds. They just try and keep their shares ratios inline with the market and rely on it always going up overall.
      - phamilton 8y ago
        Do index funds drive the price at all though? I would expect them to be net neutral. If the stock goes down they sell, if it goes up, they buy.
        flukus 8y ago
        Yes they're mostly neutral. But when the stock goes down that's still real people losing real money from their pension funds to what are essentially con artists. The saving grace here is as nradov said, they won't buy into IPO's.
      - nradov 8y ago
        Very few index funds purchase IPO shares. Companies that just IPO'd aren't listed in indexes; it takes a while for them to be added. Then the index funds buy on the secondary market.
    - ajcodez 8y ago
      Definitely. My aunt liked the service and put $100k into APRN around $5. It adds up.
    - nradov 8y ago
      In most IPOs, the vast majority of shares are allocated to institutional investors plus high net worth individuals who are favored customers of brokerages. Some of those buyers then flip their shares to retail investors just after the IPO for a quick low-risk profit.
  - barry-cotter 8y ago
    This strategy requires a chain of greater fools. It’s only possible in a bull market because dumb money runs away quickly. If you collect a salary anyway far better to chase FB, Stripe, Airbnb than even think about flipping some company for more than it’s worth.
  - rebuilder 8y ago
    So... The Index Bubble?
  - manigandham 8y ago
    Maybe we have different definitions of thought but there's definitely not a lot of in-depth analysis and due diligence in most deals, as that's how portfolio theory and sufficient deal flow is attained. What you're talking about with IPOs is not quick or easy, and definitely not guaranteed in any way. Taking a company public essentially counts as an exit for most funds, and if it was that easy to just sell up everything then the entire VC field would look different. That process is more for private equity and banking firms who maneuver through financial engineering rather than early and mid-stage VCs.
bdcravens 8y ago
Home Chef was acquired by Kroger.
- mooreds 8y ago
  For $200 million: https://thespoon.tech/kroger-buys-home-chef-for-200m-as-meal-kits-continue-march-into-grocery-stores/ https://thespoon.tech/kroger-buys-home-chef-for-200m-as-meal...
baxtr 8y ago
There’s so much money available that product market fit is not that important anymore. That’s at least what Steve Blank says (1). I don’t buy it, because I think it’s just a matter of time until you’ll find out that it doesn’t work and I don’t believe sheer money can create sustainable demand. But, it’s probably a great time to try stupid/crazy things or just give free stuff to consumers. (1) https://steveblank.com/2018/09/05/is-the-lean-startup-dead/ https://steveblank.com/2018/09/05/is-the-lean-startup-dead/
deaddodo 8y ago
Most early VCs get preferred stock and sales early. That's what happened with Blue Apron's IPO. The VCs benefitted greatly as it was their stock being sold to the public, first.
- TheOtherHobbes 8y ago
  Finance vaguely plausible but essentially bullshit idea - IPO - sell most of your stock just after the IPO peak - move on. Bullshit idea crashes, trashing the livelihoods of the developers and later investors, but you and your money are long gone. This can look suspiciously like the slower and more professional version of a pump 'n dump stock scheme - although historically it's sometimes written off as "irrational exuberance". If by some miracle the bullshit idea actually flies, your remaining stock gives you a slice.
  - lotsofpulp 8y ago
    I don’t think it’s anything like pump n dump. Anyone who bought into a food prep delivery service should have known better, all they had to do was try it for themselves. In any case, if you’re not wary of the risks in food service businesses, you probably need to do better research.
  - dsfyu404ed 8y ago
    >trashing the livelihoods of the developers and later investors If you don't like it then go write software for bigco and shove your money in an index fund. Nobody is forcing developers to work for trendy startups or forcing investors to invest in freshly IPO'd startups.
TeMPOraL 8y ago
> Funny thing is that whenever we learned about entrepreneurship, the three phrase was always SUSTAINABLE COMPETITIVE ADVANTAGE. Yup. Shameful to admit, but I only this month finally got around to read "Lean Startup". I'm in a process of copying notes and writing down some thoughts, so I have this fresh in front of me: the book frequently talks about the goal of a startup being to "discover how to build a sustainable business around that vision" (emphasis mine). But then, it shows to build unsustainable growth and keeps portraying companies that got sold as examples of success. Such is the double standard, and the only way I can reconcile those two views is by concluding that the goal is for you to make money via the discovery, and for someone else to use that discovery to build an actually sustainable business. But if it is so, then there's no surprise people skip the "sustainable business" part, as you can make even more money in an unsustainable way.
puranjay 8y ago
It's honestly a good idea, but it's not a VC idea. It's a slow burn, 10% annual growth market - like a well-liked restaurant.
meritt 8y ago
How do you feel about Uber? They arguably don't have a sustainable competitive advantage either. Yet they're somehow looking at a $120B IPO next year.
- Joeri 8y ago
  Uber is a transportation marketplace. If they’re successful in cornering the market all transportation is arranged through them but they employ zero drivers, and therefore would be wildly profitable. That’s why they’re all about market share at any cost.
  - kanyethegreat 8y ago
    Yeah, and Uber's founder's name is Travis Kalanick. How does spitting out random facts about Uber at all address his comment that Uber doesn't have a sustainable competitive advantage.
    - Joeri 8y ago
      Their sustainable advantage is in dominance. If they offer the most transportation options people check them first, and drivers flock to where the people are.
      - nradov 8y ago
        That's not how it actually works. Customers flip back and forth between Uber and competing services based on cost and availability. There's literally zero switching cost and no customer loyalty.
  - gaius 8y ago
    If Uber disappeared tomorrow, everyone would download another app and do the same journey in the same car with the same driver and the day after tomorrow would forget that Uber ever existed.
    - 8y ago
kanyethegreat 8y ago
I don't think they're failing because of a lack of competitive advantage. People just don't really like the service. My group of friends used the term "Blue Apron Anxiety" to describe the feeling you get when a new BA box was sitting on your doorstep and you still haven't cooked any of the meals from the last batch. If they did, competitive advantage could've been established (e.g. economies of scale). Besides, companies sometimes succeed with products that don't really afford themselves to competitive advantages (e.g. Facebook or Spotify) until they're big enough to be deeply entrenched.
- randycupertino 8y ago
  Not to mention the anxiety you feel when you open up the packaging and there was just so much waste. Every time I opened up a meal delivery service meal I just felt like I was killing the environment. One time I had a large cardboard box specifically solely to package 10 almonds which were also wrapped in plastic and surrounded in bubble wrap.
  - exergy 8y ago
    > Every time I opened up a meal delivery service meal I just felt like I was killing the environment. As you well should. How the fuck have we gotten to the point where chopping up vegetables is a task too onerous for the "I'm too busy in my hustle to bother with this shit" types? These ass backwards Silicon Valley 'products' should be taken behind an alley and burned to the ground. Coral reefs are dying, mass exctinction is underway, our oceans are deadened and acidic, the little life that remains is full of microplastics and metals, glaciers are receding, entire fucking nations are sinking, fires are blazing larger than ever, antibiotics are no longer effective, heck, even drinkable water is getting scarcer, but fuck it, what we need is yet more asinine packaging to let the fat, overfed, heavily consuming American have yet another morsel of convenience because god forbid he have to get off his electric wheelchair to exercise his muscles and bike to a grocery store to buy some fucking Brocolli. Fuck it all.
    - dragonwriter 8y ago
avip 8y ago
When thinking about "why VCs...", keep in mind they have to invest in something. If they don't invest, they lose (lose LPs, lose the fund). So simple answer is - they invested in this company because it was the least worse idea pitched to them over a certain period.
hatmatrix 8y ago
Is it possible that brand recognition is sustainable?

eismcc 8y ago

FOMO

manigandham 8y ago

There's not much thinking. It's hype and portfolio theory, and mostly hoping for a quick acquisition by a bigger company.

jjeaff 8y ago
There's plenty of thinking. The VCs know what they are doing. For those that have plenty of cash, the game is to invest in anything and everything that has a good public facing brand. Pump it with cash, then dump it on the public market with an ipo to all the less sophisticated investors that aren't reading the financials. Sure, every once in a while, you'll come across a Facebook type business that ends up being profitable, but in the meantime you can still make money on the losers when you cash out.
- phamilton 8y ago
  > less sophisticated investors that aren't reading the financials Do these actually exist? My understanding is that retail investors aren't significant and I don't believe that institutional investors don't look at financials.
  - deleted 8y ago
    [deleted]
  - AmericanChopper 8y ago
    Snap comes to mind.
  - flukus 8y ago
    > I don't believe that institutional investors don't look at financials. Many don't, like indexed funds. They just try and keep their shares ratios inline with the market and rely on it always going up overall.
    - phamilton 8y ago
      Do index funds drive the price at all though? I would expect them to be net neutral. If the stock goes down they sell, if it goes up, they buy.
      - flukus 8y ago
        Yes they're mostly neutral. But when the stock goes down that's still real people losing real money from their pension funds to what are essentially con artists. The saving grace here is as nradov said, they won't buy into IPO's.
    - nradov 8y ago
      Very few index funds purchase IPO shares. Companies that just IPO'd aren't listed in indexes; it takes a while for them to be added. Then the index funds buy on the secondary market.
  - ajcodez 8y ago
    Definitely. My aunt liked the service and put $100k into APRN around $5. It adds up.
  - nradov 8y ago
    In most IPOs, the vast majority of shares are allocated to institutional investors plus high net worth individuals who are favored customers of brokerages. Some of those buyers then flip their shares to retail investors just after the IPO for a quick low-risk profit.
- barry-cotter 8y ago
  This strategy requires a chain of greater fools. It’s only possible in a bull market because dumb money runs away quickly. If you collect a salary anyway far better to chase FB, Stripe, Airbnb than even think about flipping some company for more than it’s worth.
- rebuilder 8y ago
  So... The Index Bubble?
- manigandham 8y ago
  Maybe we have different definitions of thought but there's definitely not a lot of in-depth analysis and due diligence in most deals, as that's how portfolio theory and sufficient deal flow is attained. What you're talking about with IPOs is not quick or easy, and definitely not guaranteed in any way. Taking a company public essentially counts as an exit for most funds, and if it was that easy to just sell up everything then the entire VC field would look different. That process is more for private equity and banking firms who maneuver through financial engineering rather than early and mid-stage VCs.

bdcravens 8y ago

Home Chef was acquired by Kroger.

mooreds 8y ago
For $200 million: https://thespoon.tech/kroger-buys-home-chef-for-200m-as-meal-kits-continue-march-into-grocery-stores/ https://thespoon.tech/kroger-buys-home-chef-for-200m-as-meal...

baxtr 8y ago

There’s so much money available that product market fit is not that important anymore. That’s at least what Steve Blank says (1). I don’t buy it, because I think it’s just a matter of time until you’ll find out that it doesn’t work and I don’t believe sheer money can create sustainable demand. But, it’s probably a great time to try stupid/crazy things or just give free stuff to consumers. (1) https://steveblank.com/2018/09/05/is-the-lean-startup-dead/ https://steveblank.com/2018/09/05/is-the-lean-startup-dead/

deaddodo 8y ago

Most early VCs get preferred stock and sales early. That's what happened with Blue Apron's IPO. The VCs benefitted greatly as it was their stock being sold to the public, first.

TheOtherHobbes 8y ago
Finance vaguely plausible but essentially bullshit idea - IPO - sell most of your stock just after the IPO peak - move on. Bullshit idea crashes, trashing the livelihoods of the developers and later investors, but you and your money are long gone. This can look suspiciously like the slower and more professional version of a pump 'n dump stock scheme - although historically it's sometimes written off as "irrational exuberance". If by some miracle the bullshit idea actually flies, your remaining stock gives you a slice.
- lotsofpulp 8y ago
  I don’t think it’s anything like pump n dump. Anyone who bought into a food prep delivery service should have known better, all they had to do was try it for themselves. In any case, if you’re not wary of the risks in food service businesses, you probably need to do better research.
- dsfyu404ed 8y ago
  >trashing the livelihoods of the developers and later investors If you don't like it then go write software for bigco and shove your money in an index fund. Nobody is forcing developers to work for trendy startups or forcing investors to invest in freshly IPO'd startups.

TeMPOraL 8y ago

> Funny thing is that whenever we learned about entrepreneurship, the three phrase was always SUSTAINABLE COMPETITIVE ADVANTAGE. Yup. Shameful to admit, but I only this month finally got around to read "Lean Startup". I'm in a process of copying notes and writing down some thoughts, so I have this fresh in front of me: the book frequently talks about the goal of a startup being to "discover how to build a sustainable business around that vision" (emphasis mine). But then, it shows to build unsustainable growth and keeps portraying companies that got sold as examples of success. Such is the double standard, and the only way I can reconcile those two views is by concluding that the goal is for you to make money via the discovery, and for someone else to use that discovery to build an actually sustainable business. But if it is so, then there's no surprise people skip the "sustainable business" part, as you can make even more money in an unsustainable way.

puranjay 8y ago

It's honestly a good idea, but it's not a VC idea. It's a slow burn, 10% annual growth market - like a well-liked restaurant.

meritt 8y ago

How do you feel about Uber? They arguably don't have a sustainable competitive advantage either. Yet they're somehow looking at a $120B IPO next year.

Joeri 8y ago
Uber is a transportation marketplace. If they’re successful in cornering the market all transportation is arranged through them but they employ zero drivers, and therefore would be wildly profitable. That’s why they’re all about market share at any cost.
- kanyethegreat 8y ago
  Yeah, and Uber's founder's name is Travis Kalanick. How does spitting out random facts about Uber at all address his comment that Uber doesn't have a sustainable competitive advantage.
  - Joeri 8y ago
    Their sustainable advantage is in dominance. If they offer the most transportation options people check them first, and drivers flock to where the people are.
    - nradov 8y ago
      That's not how it actually works. Customers flip back and forth between Uber and competing services based on cost and availability. There's literally zero switching cost and no customer loyalty.
- gaius 8y ago
  If Uber disappeared tomorrow, everyone would download another app and do the same journey in the same car with the same driver and the day after tomorrow would forget that Uber ever existed.
  - 8y ago

kanyethegreat 8y ago

I don't think they're failing because of a lack of competitive advantage. People just don't really like the service. My group of friends used the term "Blue Apron Anxiety" to describe the feeling you get when a new BA box was sitting on your doorstep and you still haven't cooked any of the meals from the last batch. If they did, competitive advantage could've been established (e.g. economies of scale). Besides, companies sometimes succeed with products that don't really afford themselves to competitive advantages (e.g. Facebook or Spotify) until they're big enough to be deeply entrenched.

randycupertino 8y ago
Not to mention the anxiety you feel when you open up the packaging and there was just so much waste. Every time I opened up a meal delivery service meal I just felt like I was killing the environment. One time I had a large cardboard box specifically solely to package 10 almonds which were also wrapped in plastic and surrounded in bubble wrap.
- exergy 8y ago
  > Every time I opened up a meal delivery service meal I just felt like I was killing the environment. As you well should. How the fuck have we gotten to the point where chopping up vegetables is a task too onerous for the "I'm too busy in my hustle to bother with this shit" types? These ass backwards Silicon Valley 'products' should be taken behind an alley and burned to the ground. Coral reefs are dying, mass exctinction is underway, our oceans are deadened and acidic, the little life that remains is full of microplastics and metals, glaciers are receding, entire fucking nations are sinking, fires are blazing larger than ever, antibiotics are no longer effective, heck, even drinkable water is getting scarcer, but fuck it, what we need is yet more asinine packaging to let the fat, overfed, heavily consuming American have yet another morsel of convenience because god forbid he have to get off his electric wheelchair to exercise his muscles and bike to a grocery store to buy some fucking Brocolli. Fuck it all.
  - dragonwriter 8y ago

avip 8y ago

When thinking about "why VCs...", keep in mind they have to invest in something. If they don't invest, they lose (lose LPs, lose the fund). So simple answer is - they invested in this company because it was the least worse idea pitched to them over a certain period.

hatmatrix 8y ago

Is it possible that brand recognition is sustainable?