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Sources: Magic Is Raising $12M from Sequoia at a $40M Valuation

62 points by dcre 12y ago

Pizzalover 12y ago
This is retarded. There, I said it.
colinsidoti 12y ago
Magic + DoorDash seems like a great pairing. DoorDash wants to get away from just food pickup, Magic needs better delivery options. (When I tried Magic, they priced out delivery via a cab.)
- armasK 12y ago
  Do people actually use Door Dash? Seems like Postmates is winning that race by quite a long margin.
  - nijiko 12y ago
    Wow, didn't even know this company existed. Currently use Caviar, and Postmates.
bhayden 12y ago
With all the bubble talk and speculation recently (of which I have no real opinion either way) - to me, this is the biggest evidence I've seen of a bubble. The day after Magic posted on HN, someone posted how to make an identical service with only a couple hours (tops) of configuration. Per user, this valuation seems insane. You could launch an identical service for free, essentially instantly, and for tremendously less than $12 million you could get the same number of users and same brand recognition. I have no idea how this can be justified. I also think Magic is going to be hard to be sustainable due to fraud. Get Magic to buy you thousands of dollars worth of something and then do a chargeback on the card (or use a stolen credit card). There's nothing they can really do about that other than try to detect fraud before it happens.
- pbreit 12y ago
  You demonstrate a breathtaking lack of understanding of the topic. Yes, the front-end tech is easy. The hard part is the scheduling tech and the task management. And you seriously underestimate what it takes to get noticed and the value of such. Many/Most Magics result in a face-to-face meeting which cuts down dramatically on fraud. And card transaction is susceptible to being charged back.
  - bhayden 12y ago
    Let's be real here: Magic likely did not develop much, if any, scheduling tech and task management technology in-house. I would be comfortable betting they are using off the shelf software for this and applying some smart decisions about how to use it. Before launching I would also bet less than a month of full-time work went into planning scheduling tech and task management. It's a cool achievement, I like their service and wish them luck, but valuing this amount of effort (and a great deal of luck) at $40 million seems pretty ridiculous. I agree getting noticed and getting users is hard, but did Magic really generate millions of dollars worth of brand recognition in only a few weeks?
- tdicola 12y ago
  I'm with you, IMHO this is a 'jump the shark' moment. Enjoy the $12m while you have it!
- IgorPartola 12y ago
  Getting to the proof of concept like they did is easy. Going from there to having many millions of recurring users is not. They can easily be as big as Amazon's retail arm is, but they need to grow fast. After this $12m is spent on marketing and tech, you will have a much harder time competing with them with your two hours of configure editing. They have identified a good business model and are actively building a moat around it while we sit here debating.
  - proksoup 12y ago
    Bingo!! The 12 million invest is what sets them apart :) Too late, yeah you can build it --- but would you get funded for something so simple when someone else is already ahead? Market validated ... but barely, and definitely not enough to fuel more ... and if they do ... ha.
downandout 12y ago
I'm a little bit curious if anyone knows or someone from the company is willing to answer: Magic charges the customer, then pays for the items. Since this was a weekend project and they use Stripe (which pays in no less than 2 business days, and in most cases 7 days)...where did they get the money for such a large "float" at the beginning? They have to have the money to pay out in advance, well before receiving it back. Also, maybe Stripe should issue temporary cards instantly for just this sort of business. You charge a customer, then can get a one-time-use virtual card number to be able to order the items that you just charged the customer for, up to the amount you have in "escrow" with Stripe. People could do "roll your own" affiliate programs anywhere, with anything, without the cooperation of any other business.
- chatmasta 12y ago
  Not necessarily. They can negotiate custom payment schedules with the service provider. I imagine this investment will go a long way toward helping them form those partnerships.
- beachstartup 12y ago
  > where did they get the money for such a large "float" at the beginning i don't understand what the mystery here is. it could have come from anywhere. credit cards, savings, cofounder investment, mom and dad, etc. in major US cities regular professional people easily have six figures of cash in their bank account and the whole point of money is that it's fungible. also, after doing some reading, this isn't the ceo's first startup. maybe they just had the cash.
  - 123452500202 12y ago
    Maybe I'm misunderstanding what you mean by "regular" or "professional", but the idea that normal professionals have six figures in their bank account is absurdly far from reality.
    - beachstartup 12y ago
      not every one, but plenty do. of course they're not going to tell you about it. let me ask you something - how do you think people are buying houses in these insane real estate markets? do you think they're royalty, or aristocracy? no, they're professional people spending their hard earned money. a good 30 year old lawyer easily makes 200k a year. the smart ones spend very little of that. the really smart ones invest the rest, and have been for years. if imagining a major city like LA or SF or NY where lawyers and bankers and entrepreneurs have six figures to their name is tough for you, i really don't know what to tell you, dude. even in tech, i personally know sysadmins and programmers who make ~100k but save most of their money and have done so for over a decade, who easily have 100k saved up. most of them are either trying to buy property, or pull the escape hatch with a huge cushion. quite frankly if you're a professional (a REAL, ACTUAL, professional, with a respectable salary) in your 30s and you don't have at least one account with six figures in it or a house to show for it instead, you kinda sorta fucked up somewhere along the way. where in the hell did ~$1M of cumulative gross income go?
chatmasta 12y ago
Funny enough I just wrote one of my first blog posts in years, minutes before this article was written, about Magic. [0] My theory is that by positioning themselves as an aggregator, or a "platform for platforms," they retain the cashflow advantages of service based marketplaces, without the need to build supply because they piggyback on existing supply. Some say this is unsustainable because of low barrier to entry, but I would say actually they are in a perfect position. With investment like this, direct partnerships with service providers are possible. Partnerships are a barrier to entry. [0] https://milesrichardson.com/the-magic-of-service-business-cashflow/ https://milesrichardson.com/the-magic-of-service-business-ca...
- bitsweet 12y ago
  This. I liken it to Segment.io who managed to move up the analytics stack and being the integration point for a product. This lowers the switching costs to using other analytic services and gives Segment all the leverage to create the highest value products in the future and offer one button migration. Additionally they have efficient platform economics with their emerging app-store. If I was an analytics provider I'd be really worried about Segment. Now Magic has something that could be similar, defaulting them to owning all the relationships with the consumer in the very hot on-demand industry.
  - timr 12y ago
    To use a different analytics service, I have to change my code. To use an alternative to Magic, I have to text a different phone number. apples and oranges.
    - softdev12 12y ago
      Don't forget that they have a stored credit card with payment information as well (via Stripe). That's another barrier to entry - especially considering the effort in building up enough trust to hand over payment details.
      - 12y ago
minimaxir 12y ago
> In the first 48 hours of the service going live, Magic co-founder Mike Chen said the service had already seen 17,000 text messages. If this is the metric being offered as evidence of virality, and was likely given to investors, it's misleading. It implies at face value that 17k unique people tried out Magic, but transactions take many SMS messages, as evidenced by the example conversations given. This is why vanity metrics are a bad thing. As with Meerkat, I am very skeptical of the short-term-virality-indicates-long-term-success logical fallacy that seems to permeate Silicon Valley nowadays. I can't wait until every hackathon has endless amounts of poorly-thought-out "Magic for X" clones, as was the case with Yo.
- bhahn 12y ago
  I would assume that the partners at Sequouia are smart and diligent enough to follow-up or ask for clarification if presented with a potentially misleading metric like that.
- Tonyflo 12y ago
  Yah, that 48 number doesn't mean much, which is why I was asking if they have released any user or rev numbers. I know some startups did at Demo day, but I guess they didn't or someone would have tweeted or wrote about it. Would be helpful to pin down the factors that led to Sequoia to invest $12 and take only a little more than 20% of the company.
deleted 12y ago
[deleted]
- 7Figures2Commas 12y ago
  I'll invest $100 in Magic Messenger at a $100 million valuation if you can get TechCrunch to write it up. I won't even ask for a liquidation preference!
  - downandout 12y ago
    Sorry I deleted the parent comment apparently as your were replying. Anyway....sold. $100M here I come!
rhino369 12y ago
Is there a huge market for this? I'm probably right in their demo. UMC professional millennial with a time suck job. I ubered to work today and I'll uber home. I ordered dinner on postmates. But how is magic going to save me time. Seems like I'll spend more time typing the stuff out than doing it myself. Maybe I should just bite the bullet and try it.
- mikeash 12y ago
  I imagine the first time, where you have to give them your credit card number and address and whatever other info, won't be any faster than doing it yourself. But once you've done that, you can just activate the voice commands on your phone and say, "Text Magic: order a massive burrito delivered to my house." One more quick command to confirm, and boom, massive burrito at your house with ten seconds of effort on your part. (Not that I've tried it myself.)
sjg007 12y ago
It's the personal assistant for the rest of us.
flyinglizard 12y ago
Before anyone talks about a bubble and how easy this service is to replicate, consider that by putting $12M in, Magic was selected to win the space. Now to win over Magic you need to replicate the concept AND get matching resources. Even spaces that are easy to get into and replicate still have winners, household names to rule over all others (Dropbox, Github to name a couple of services that, ignoring scale, can be replicated pretty easily). At the seed stage, investors mark those winners in advance. At later round stage, investors back the de-facto winners (A16Z style). At some point the investment creates a momentum of its own, preventing viable competition and drawing in even more money (all the way to an IPO or acquisition). The competition eventually dies and if the business case/segment has merit, the winner and their investors will stand to make all the money. So Magic has just been marked as the winner in their segment (whatever you can call it). Whether or not this service is easy to replicate is irrelevant.
- engendered 12y ago
  The overwhelming majority of those "winners" fail. These funds aren't anointing the king, but rather are just trying to make a bet, and it's a bet they usually lose. As you said, their funding gives the entrant a leg up (usually if there's a significant capital cost), but in this case such funding provides astonishingly little advantage of scale. This isn't an example of a bubble. It's an example of a really comically silly investment.
  - flyinglizard 12y ago
    "winners" failing is not much of an indication - obviously there is a staggering number of investment entities and often they are competing with other "winners" (look at the payment market, with Stripe, Balanced, Braintree etc, they all raised serious money) and someone usually comes out on top. Whether or not Magic is a smart investment - I can't really tell, but I suspect that if I were to choose between Magic and Twitter back when they were just ideas, I would bet on the former.
    - kra34 12y ago
      Yeah I have to agree it's actually really hard to fail when backed by one of the bigger VC's, if you're on the road to failure they can just bully one of their former portfolio unicorns to acquire you with post IPO Opm dollars. See Twitter's recent bail out of Foursquare care of Fred Wilson. There are no losers in this game.
tempestn 12y ago
Wow, that was fast. 33 days ago was the original Magic post to HN: https://news.ycombinator.com/item?id=9087819 https://news.ycombinator.com/item?id=9087819
axiom 12y ago
People are incorrectly thinking of this round as meaning that Magic is worth $40M. That's not how fundraising at this stage works. The thought process is more along the lines of: - is this a VC fundable concept? - are the founders impressive enough that Sequoia thinks they can pull it off? - how much money does the company need to build what they need to build? - how much does Sequoia need to own in order for them to get 10-100x return if the company succeeds? Think of the $40M valuation as simply a back-calculated parameter based on how much Sequia needs to own with respect to how much capital the company needs and how big the opportunity could be. The thought process is not: how much is Magic objectively worth now based on their EBITDA?
- Mahn 12y ago
  > objectively worth Is there such a thing? At the end of the day a company is worth whatever someone is willing to pay for, which is always subjective.
stephancoral 12y ago
Is Magic still taking people's money without actually doing anything? "Or, in my case, Insomnia Cookies. After I paid $50 to jump 178 spots in line, I got a VIP number and texted again. By now I was hungry, so I ordered a dozen chocolate chip cookies. Five minutes and $26 later, they were supposedly on their way—but they never arrived, and I never heard why. I never got my money back, either." http://www.wired.com/2015/02/magic-the-startup/ http://www.wired.com/2015/02/magic-the-startup/
Tonyflo 12y ago
Does anyone have any idea of their numbers? Even just estimates of users and revenue. I ask because $12 mill Series A is definitely on the high side, and I'd love to know what numbers helped them get that valuation. (I know there are other factors like the team, market size, momentum, etc).

62 points by dcre 12y ago

This is retarded. There, I said it.

Magic + DoorDash seems like a great pairing. DoorDash wants to get away from just food pickup, Magic needs better delivery options. (When I tried Magic, they priced out delivery via a cab.)

armasK 12y ago
Do people actually use Door Dash? Seems like Postmates is winning that race by quite a long margin.
- nijiko 12y ago
  Wow, didn't even know this company existed. Currently use Caviar, and Postmates.

bhayden 12y ago

With all the bubble talk and speculation recently (of which I have no real opinion either way) - to me, this is the biggest evidence I've seen of a bubble. The day after Magic posted on HN, someone posted how to make an identical service with only a couple hours (tops) of configuration. Per user, this valuation seems insane. You could launch an identical service for free, essentially instantly, and for tremendously less than $12 million you could get the same number of users and same brand recognition. I have no idea how this can be justified. I also think Magic is going to be hard to be sustainable due to fraud. Get Magic to buy you thousands of dollars worth of something and then do a chargeback on the card (or use a stolen credit card). There's nothing they can really do about that other than try to detect fraud before it happens.

pbreit 12y ago
You demonstrate a breathtaking lack of understanding of the topic. Yes, the front-end tech is easy. The hard part is the scheduling tech and the task management. And you seriously underestimate what it takes to get noticed and the value of such. Many/Most Magics result in a face-to-face meeting which cuts down dramatically on fraud. And card transaction is susceptible to being charged back.
- bhayden 12y ago
  Let's be real here: Magic likely did not develop much, if any, scheduling tech and task management technology in-house. I would be comfortable betting they are using off the shelf software for this and applying some smart decisions about how to use it. Before launching I would also bet less than a month of full-time work went into planning scheduling tech and task management. It's a cool achievement, I like their service and wish them luck, but valuing this amount of effort (and a great deal of luck) at $40 million seems pretty ridiculous. I agree getting noticed and getting users is hard, but did Magic really generate millions of dollars worth of brand recognition in only a few weeks?
tdicola 12y ago
I'm with you, IMHO this is a 'jump the shark' moment. Enjoy the $12m while you have it!
IgorPartola 12y ago
Getting to the proof of concept like they did is easy. Going from there to having many millions of recurring users is not. They can easily be as big as Amazon's retail arm is, but they need to grow fast. After this $12m is spent on marketing and tech, you will have a much harder time competing with them with your two hours of configure editing. They have identified a good business model and are actively building a moat around it while we sit here debating.
- proksoup 12y ago
  Bingo!! The 12 million invest is what sets them apart :) Too late, yeah you can build it --- but would you get funded for something so simple when someone else is already ahead? Market validated ... but barely, and definitely not enough to fuel more ... and if they do ... ha.

downandout 12y ago

I'm a little bit curious if anyone knows or someone from the company is willing to answer: Magic charges the customer, then pays for the items. Since this was a weekend project and they use Stripe (which pays in no less than 2 business days, and in most cases 7 days)...where did they get the money for such a large "float" at the beginning? They have to have the money to pay out in advance, well before receiving it back. Also, maybe Stripe should issue temporary cards instantly for just this sort of business. You charge a customer, then can get a one-time-use virtual card number to be able to order the items that you just charged the customer for, up to the amount you have in "escrow" with Stripe. People could do "roll your own" affiliate programs anywhere, with anything, without the cooperation of any other business.

chatmasta 12y ago
Not necessarily. They can negotiate custom payment schedules with the service provider. I imagine this investment will go a long way toward helping them form those partnerships.
beachstartup 12y ago
> where did they get the money for such a large "float" at the beginning i don't understand what the mystery here is. it could have come from anywhere. credit cards, savings, cofounder investment, mom and dad, etc. in major US cities regular professional people easily have six figures of cash in their bank account and the whole point of money is that it's fungible. also, after doing some reading, this isn't the ceo's first startup. maybe they just had the cash.
- 123452500202 12y ago
  Maybe I'm misunderstanding what you mean by "regular" or "professional", but the idea that normal professionals have six figures in their bank account is absurdly far from reality.
  - beachstartup 12y ago
    not every one, but plenty do. of course they're not going to tell you about it. let me ask you something - how do you think people are buying houses in these insane real estate markets? do you think they're royalty, or aristocracy? no, they're professional people spending their hard earned money. a good 30 year old lawyer easily makes 200k a year. the smart ones spend very little of that. the really smart ones invest the rest, and have been for years. if imagining a major city like LA or SF or NY where lawyers and bankers and entrepreneurs have six figures to their name is tough for you, i really don't know what to tell you, dude. even in tech, i personally know sysadmins and programmers who make ~100k but save most of their money and have done so for over a decade, who easily have 100k saved up. most of them are either trying to buy property, or pull the escape hatch with a huge cushion. quite frankly if you're a professional (a REAL, ACTUAL, professional, with a respectable salary) in your 30s and you don't have at least one account with six figures in it or a house to show for it instead, you kinda sorta fucked up somewhere along the way. where in the hell did ~$1M of cumulative gross income go?

chatmasta 12y ago

Funny enough I just wrote one of my first blog posts in years, minutes before this article was written, about Magic. [0] My theory is that by positioning themselves as an aggregator, or a "platform for platforms," they retain the cashflow advantages of service based marketplaces, without the need to build supply because they piggyback on existing supply. Some say this is unsustainable because of low barrier to entry, but I would say actually they are in a perfect position. With investment like this, direct partnerships with service providers are possible. Partnerships are a barrier to entry. [0] https://milesrichardson.com/the-magic-of-service-business-cashflow/ https://milesrichardson.com/the-magic-of-service-business-ca...

bitsweet 12y ago
This. I liken it to Segment.io who managed to move up the analytics stack and being the integration point for a product. This lowers the switching costs to using other analytic services and gives Segment all the leverage to create the highest value products in the future and offer one button migration. Additionally they have efficient platform economics with their emerging app-store. If I was an analytics provider I'd be really worried about Segment. Now Magic has something that could be similar, defaulting them to owning all the relationships with the consumer in the very hot on-demand industry.
- timr 12y ago
  To use a different analytics service, I have to change my code. To use an alternative to Magic, I have to text a different phone number. apples and oranges.
  - softdev12 12y ago
    Don't forget that they have a stored credit card with payment information as well (via Stripe). That's another barrier to entry - especially considering the effort in building up enough trust to hand over payment details.
    - 12y ago

minimaxir 12y ago

> In the first 48 hours of the service going live, Magic co-founder Mike Chen said the service had already seen 17,000 text messages. If this is the metric being offered as evidence of virality, and was likely given to investors, it's misleading. It implies at face value that 17k unique people tried out Magic, but transactions take many SMS messages, as evidenced by the example conversations given. This is why vanity metrics are a bad thing. As with Meerkat, I am very skeptical of the short-term-virality-indicates-long-term-success logical fallacy that seems to permeate Silicon Valley nowadays. I can't wait until every hackathon has endless amounts of poorly-thought-out "Magic for X" clones, as was the case with Yo.

bhahn 12y ago
I would assume that the partners at Sequouia are smart and diligent enough to follow-up or ask for clarification if presented with a potentially misleading metric like that.
Tonyflo 12y ago
Yah, that 48 number doesn't mean much, which is why I was asking if they have released any user or rev numbers. I know some startups did at Demo day, but I guess they didn't or someone would have tweeted or wrote about it. Would be helpful to pin down the factors that led to Sequoia to invest $12 and take only a little more than 20% of the company.

deleted 12y ago

[deleted]

7Figures2Commas 12y ago
I'll invest $100 in Magic Messenger at a $100 million valuation if you can get TechCrunch to write it up. I won't even ask for a liquidation preference!
- downandout 12y ago
  Sorry I deleted the parent comment apparently as your were replying. Anyway....sold. $100M here I come!

rhino369 12y ago

Is there a huge market for this? I'm probably right in their demo. UMC professional millennial with a time suck job. I ubered to work today and I'll uber home. I ordered dinner on postmates. But how is magic going to save me time. Seems like I'll spend more time typing the stuff out than doing it myself. Maybe I should just bite the bullet and try it.

mikeash 12y ago
I imagine the first time, where you have to give them your credit card number and address and whatever other info, won't be any faster than doing it yourself. But once you've done that, you can just activate the voice commands on your phone and say, "Text Magic: order a massive burrito delivered to my house." One more quick command to confirm, and boom, massive burrito at your house with ten seconds of effort on your part. (Not that I've tried it myself.)

sjg007 12y ago

It's the personal assistant for the rest of us.

flyinglizard 12y ago

Before anyone talks about a bubble and how easy this service is to replicate, consider that by putting $12M in, Magic was selected to win the space. Now to win over Magic you need to replicate the concept AND get matching resources. Even spaces that are easy to get into and replicate still have winners, household names to rule over all others (Dropbox, Github to name a couple of services that, ignoring scale, can be replicated pretty easily). At the seed stage, investors mark those winners in advance. At later round stage, investors back the de-facto winners (A16Z style). At some point the investment creates a momentum of its own, preventing viable competition and drawing in even more money (all the way to an IPO or acquisition). The competition eventually dies and if the business case/segment has merit, the winner and their investors will stand to make all the money. So Magic has just been marked as the winner in their segment (whatever you can call it). Whether or not this service is easy to replicate is irrelevant.

engendered 12y ago
The overwhelming majority of those "winners" fail. These funds aren't anointing the king, but rather are just trying to make a bet, and it's a bet they usually lose. As you said, their funding gives the entrant a leg up (usually if there's a significant capital cost), but in this case such funding provides astonishingly little advantage of scale. This isn't an example of a bubble. It's an example of a really comically silly investment.
- flyinglizard 12y ago
  "winners" failing is not much of an indication - obviously there is a staggering number of investment entities and often they are competing with other "winners" (look at the payment market, with Stripe, Balanced, Braintree etc, they all raised serious money) and someone usually comes out on top. Whether or not Magic is a smart investment - I can't really tell, but I suspect that if I were to choose between Magic and Twitter back when they were just ideas, I would bet on the former.
  - kra34 12y ago
    Yeah I have to agree it's actually really hard to fail when backed by one of the bigger VC's, if you're on the road to failure they can just bully one of their former portfolio unicorns to acquire you with post IPO Opm dollars. See Twitter's recent bail out of Foursquare care of Fred Wilson. There are no losers in this game.

tempestn 12y ago

Wow, that was fast. 33 days ago was the original Magic post to HN: https://news.ycombinator.com/item?id=9087819 https://news.ycombinator.com/item?id=9087819

axiom 12y ago

People are incorrectly thinking of this round as meaning that Magic is worth $40M. That's not how fundraising at this stage works. The thought process is more along the lines of: - is this a VC fundable concept? - are the founders impressive enough that Sequoia thinks they can pull it off? - how much money does the company need to build what they need to build? - how much does Sequoia need to own in order for them to get 10-100x return if the company succeeds? Think of the $40M valuation as simply a back-calculated parameter based on how much Sequia needs to own with respect to how much capital the company needs and how big the opportunity could be. The thought process is not: how much is Magic objectively worth now based on their EBITDA?

Mahn 12y ago
> objectively worth Is there such a thing? At the end of the day a company is worth whatever someone is willing to pay for, which is always subjective.

stephancoral 12y ago

Is Magic still taking people's money without actually doing anything? "Or, in my case, Insomnia Cookies. After I paid $50 to jump 178 spots in line, I got a VIP number and texted again. By now I was hungry, so I ordered a dozen chocolate chip cookies. Five minutes and $26 later, they were supposedly on their way—but they never arrived, and I never heard why. I never got my money back, either." http://www.wired.com/2015/02/magic-the-startup/ http://www.wired.com/2015/02/magic-the-startup/

Tonyflo 12y ago

Does anyone have any idea of their numbers? Even just estimates of users and revenue. I ask because $12 mill Series A is definitely on the high side, and I'd love to know what numbers helped them get that valuation. (I know there are other factors like the team, market size, momentum, etc).