Reflections on the APLUSS IPOs so far, Uber+Lyft+regulators+autonomy, and listener Q&A
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Hello, Acquired Limited Partners. We hope you had a wonderful Memorial Day weekend. If you are in the US, Dave and I are coming to you bright and early Monday morning on Memorial Day.

Yeah, happy Memorial Day. We wanted to do a Q&A episode because over the last couple of months, we've gotten some awesome questions from LPs, and we've kind of been stockpiling them since our LP episodes of late have been specific about a topic or with a guest, and we cherry-picked a bunch of our favorites today, some of which have to do with all the IPOs that have happened. And so...

We want to do a little section before we dive into Q&A here to kind of just give an update on each of these IPOs, specifically their share prices. So sort of how it's gone with a little bit more time. Granted, we don't have six, 12 months behind us, but we have more than the initial day of trading to go off of. And kind of a couple of remarks about this class so far that we are in the middle of. So David, do you want to take us into IPO updates? Sure.

We've covered three of the A-plus IPOs so far, Lyft, Pinterest, and Uber. There has also been Zoom, which we are going to cover on not our next main show episode, we're going to release today. It's going to be on electronic arts with

founder Trip Hawkins. This is going to be great. Can't wait for that to drop. Probably the next episode after that, we are going to cover Zoom with a very special guest. Board member Santi from Emergence has agreed to join us. So that's why we've been holding off on that one. But to start with the beginning here, Lyft, oh man, I remember another, well, it wasn't a holiday morning, but it was a Saturday morning, running into the office early and

record. We were very excited. Lyft priced at $72 a share. We might have recorded a little early on that one. As everyone probably knows, it sort of fell off the cliff from there. It's trading at $57 right now. The way we left out, I think, was that it traded up a little bit. It spiked. I think it went up into the 80s. There was so much pent-up demand and pent-up euphoria around it.

Yeah. And then the next sort of week saw that initial slide. Yeah. It's since stabilized. I believe it's at $57 a share. I believe it's right around $16 billion market cap. So, you know, hardly a fall off a cliff is harsh. But the initial euphoria has certainly been dampened around Lyft and that carried into Uber, which we'll get to in a minute.

A few folks have asked, so, you know, what happened? And I think, David, you nailed it that the pop that Lyft had was a proxy for people's excitement about a big set of tech IPOs in general. And then I think the sort of sobering, I guess, over the last few weeks has really been a reflection of evaluating companies

One, their intense, intense competition with Uber, but then sort of looking at the business a little bit more independently rather than emblematic of a class of companies. I think the other thing that happened was when the Uber S1 hit and people started really digging into Uber and the dynamics leading up to their IPO.

And people started realizing, like, shoot, where's the path to profitability of any of these companies? And I think that set off a lot of alarm bells, obviously for Uber and for Lyft, too. But what's interesting is that so if you look at the other IPOs, Zoom and Pinterest, they

contrasted with Lyft and Uber, have traded up since the IPO and Zoom, astoundingly so. So Zoom, priced at $36 a share, is now trading at $76 a share. Notably, it is the only company of this set that is actually profitable and I believe quite profitable. Pinterest is

priced at $19 a share is now trading at $26 a share, had traded up quite a bit and then came down when they reported Q1 earnings. I believe it came down because while revenue growth was strong, losses were larger than expected. So I mean, clearly, like the biggest thing that's going on with these IPOs right now is that the public markets are sending a very, very clear signal

to everyone that profitability either path to or ideally, as evidenced by Zoom, actual profitability is something that they value very highly.

It is interesting to note with Uber, they priced at 45 and they're trading at 42. I think that if you didn't look at any numbers and just took the temperature of the media landscape right now, you would walk away feeling like if I had to take a guess at their share price, it'd be a lot lower than 42. We've definitely seen a world that drummed up some serious doomsday scenarios, and that's not what we're looking at. But to reiterate, I think what we said on the episode,

anchoring at $120 billion valuation, what, nine, 12 months ago, and then two months ago at 100. And it just felt like it's on this slide. And I think that that's a lesson to be learned for future Ubers. So I suppose like the one a decade that's going to end up being like Uber. Yeah. What's interesting is, you know, with Uber and Lyft both, I mean,

I think as we painted on the episodes, like the market is still massive. The growth of the market is still large. Now, a lot of that growth has been accruing to Lyft versus Uber in the US over the past year. So the opportunity is still there. And I think just the...

This overhang of the profitability question is really, really weighing on these companies. It makes sense. Eventually, you have to build a profitable business or you don't have a business. Ben, you pointed out on the Uber episode, this is a company that has raised more money than any other company in history on the private markets.

and still doesn't have a path to profitability. So I can rightly understand the skepticism on that front. There was a little bit of a narrative overcorrection on like, wow, is there a business here at all? And it's interesting, coincidentally, that the stock is trading at $42 a share, which is where I believe it closed on the first day. Uber pre-IPO had raised more money than Lyft's current market cap. Like, that's crazy. And now...

Because they raised $9 billion in their IPO or eight or whatever. They're close to total money ever raised being 2x what Lyft's current market cap is.

It's an outlier in every sense of the word. And I do think the important thing to pay attention to with Uber is, can they slow their net loss and get to profitability before the cash that they've raised runs out, given they just raised $9 billion and they're burning three a year? So the next few years are going to be quite telling. For me, the wildcard in the Uber and Lyft...

stories here, which has been said on the episode, the story of our time. The wild card is, okay, they're now both public companies with market caps marked to market. There is clearly this overhang of profitability. Profitability, the biggest lever is the competition that they're locked in with one another. And

Even though, and I think we talked about this on the episode, regulatory and antitrust concerns are huge. But given the current state of play, is there a path to a merger here? And I think that's the wild card. Let's suppose there's not a path to profitability for these companies without a merger.

So the assumption there is these are two marketplace businesses that are both massively subsidizing and spending on acquisition and retention on both their supply side and demand side.

Let's make a quick assumption here that autonomy is not the answer and that we can go back and revisit that assumption. So if that is the case, like what you would typically see in a marketplace business, like what we saw with Rover and Dog Vacay, as we heard from Aaron on that episode, a merger makes a ton of sense because...

There's just massive margin expansion when you're no longer, I mean, in those companies' case, buying the same keywords and bidding each other up on Google. But, you know, I think there's very similar things going on with Uber and Lyft. So then the answer would turn to, okay, well, it makes sense for them to merge then.

Well, I would assume, and it'd be interesting to see if there's a game of chicken here where they try and do this, but I would assume that the FTC would judge that as anti-competitive because the ride-sharing market is so massive now and because the two of them combined basically have 100% of it. And if you believe the S1s, they combined have more than 100% of it based on what each company says they own of the market. It's something like...

60 some percent and 30 some percent or maybe 40 percent in the US. And so if you remember from what Kathleen Phillips was telling us on the Zillow Trulia merger, they defined the market not as the online real estate advertising market, but the broader real estate advertising market. And so it went through. And the question is for Uber and Lyft, would they classify ride sharing as something different than taxi or ride sharing something different than sort of for hire plus taxi plus

public transit plus like are they going to get the google halo of we're not a search engine company to be judged against all other search engine companies we're a technology company that offers all these different services and so okay so let's say they fail to make that case and it would just be judged you guys are a ride sharing company in a ride sharing market and you two own all of it

in the U.S. It's interesting then that neither company would have a path to profitability because they both cannot sustainably continue on the current plan and they can't merge. And when you take that one step further, I see you shaking your head, we should revisit that. The question that pops into my mind is, it's interesting that anti-competitive legislation in the U.S. is

predicated on the notion that these companies wouldn't have near infinite access to capital. That of course they would have to get profitable otherwise they couldn't continue to exist. And of course you know a company couldn't get this big and be this unprofitable and in fact there'd be two of them that are continuing to get less profitable continuing to get larger. The supposition is that

Yeah.

It's such a crazy dynamic in this market right now for all the reasons you just said. Assuming they can't make that technology or technology company argument to the FTC, then clearly a merger should be blocked by existing regulatory frameworks, right?

However, if a merger doesn't happen, it almost assuredly results in bankruptcy of one or both of these companies. So like, what do you do? The interesting thing is that the U.S. regulations around anti-competitive behavior

is designed to optimize for the consumer. So what is the best thing for the American consumer? It typically is competition to keep prices at a market rate. Right now, the best thing for the American consumer is this massive subsidy of... I guess it's probably likely to be Lyft would go bankrupt before Uber because Uber raised a lot more money and Uber also has Eats and other. So if Lyft goes bankrupt though, then that's bad for the American consumer, right? So actually, I wonder if...

I don't know how forward-thinking and insightful the regulators would be. What they probably should do is say, we will approve a merger with certain restrictions placed on your operations. Like you can't raise prices more than X per year or something like that. Now, whether the companies would go for that, I don't know. That could be a potential way of threading the needle. Yeah. And I'm curious...

Would ride sharing ever become a regulated monopoly or regulated duopoly the same way that I guess what's the best example of a well like the power industry the telephone industry is any infrastructure. Yeah.

Yeah, the same way that AT&T and Verizon are allowed to, you know, they get special privileges because they spent the money to lay the infrastructure to make all the calls. They get special privileges because of that. But they have operational constraints placed on their business. Man, we're just riffing here. So I don't think we've thought through. I certainly haven't thought through enough about this to make like a recommendation. I feel solid standing behind this.

However, I could actually see with like a number of technology, quote unquote, technology industries, that being a path that makes a lot of sense. Like, you know, take Google and Facebook, right? You know, certainly take ride sharing while...

There wasn't the same kind of like laying of the wires in the ground that the cable companies and the phone companies and the power companies, you know, did in the ground or on telephone poles. They did build this infrastructure and they should enjoy special privileges because of that. However, like the effectively monopolies that they've created are not good for either the business environment in the case of Uber and Lyft or for consumers. Yeah.

Yeah, that's a bunch of half-baked thinking by two non-lawyers about regulatory frameworks. But this feels like where there's smoke, there's fire. Like, I feel like we should continue to revisit this in future months and years, and that there will be some sort of negotiation with the U.S. government in order to have one or both of these companies get to profitability in the next couple of years.

I mean, there's no way if you are the CEO, you know, if you're if you're Dara, if you're Logan or if you're John, that the events of the last few months haven't put merging back at the forefront of your mind.

Yeah. Well, and as we've talked about several times on the show, if both entities are public, it's much easier to structure M&A events. Even if one company is public, it was extremely difficult when both of them were private because, you know, how do you value the shares?

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Okay. Well, those are unstructured thoughts on the recent IPOs leading into questions here. So first one that we want to do from Alexander Green.

What do you guys make of big mutual funds already owning stakes in not just Lyft and Uber, but a lot of these IPOs? You know, it's been talked about that because of that dynamic, then there hasn't been as much demand from them. These are the Fidelities, the T-Rows, etc. in the order books for the IPOs because they already have stakes either close to what they want in these companies as public entities before the IPO or even more than they want.

Well, let's look at a benefit of what it's done. And that is because you have crossover between the private market and public market investors, we

we are more likely to see a stable price handoff from the private markets to the public market. I think we've talked about this in the main show a bunch, big risks around if you throw something over the wall from a bunch of private investors who might be doing their math differently than public investors tend to think about it. And nice to have institutionals on the private side who are sort of

doing the math the way that public company investors tend to. I believe where both of these companies, at least we're still talking about Lyft and Uber, are trading right now is roughly where they were trading in the private markets. So I think this is a really good point, Ben. And where a lot of the institutionals bought their shares. I mean, if you look at Uber hasn't really moved much in the last two to three years since you started seeing the big institutionals come in.

I would assume no one's doing like a discounted cash flow here since they're... I mean, when do you start factoring in earnings? Well, to our previous conversation about profitability, can't have cash flow without, you know, cash flow. And there's so many confounding variables there that I don't know...

how much faith you could put in a model that makes assumptions about when profitability will occur and how. I just want to represent that as an interesting pro of mutual funds coming in early. It's interesting to me that

retail investors don't get to participate in the post IPO growth because we tend to not see post IPO growth in the companies where these mutual funds were you know in it two or three years before they went public you don't actually want to come back to your first point because

I mean, as I think about this and as a marketplace investor at Wave, I think it's helpful to remind ourselves that the stock market is just that. It is a market. It is a marketplace. And what are all markets driven by? They're driven by supply and demand. This whole concept of...

IPO pops and narratives around companies when they go public, seeing this swell of demand and massive increase in valuation from where they were valued in the private companies, that was predicated on an imbalance in supply and demand. What's a good example of a company from the past that...

Well, EA wasn't in the beginning, but was shortly thereafter. You know, when all the when these dynamics happened in the past, and it was just normal that you had expected this, it was because the

public market investors wanted to buy these stocks, did not have access to them as private companies because companies only raised a couple rounds from VCs when they were private and then they would go public. So you have this big supply-demand imbalance. This doesn't exist anymore. So like IPOs are just, it's almost just like a technicality these days. Yeah, if you're a big institutional investor,

and you want to get into a company that's valued over $5 billion, like when I say being institutional, it's traditionally a public market investor and a mutual fund manager. You can figure out how to go lead their next round or participate in their next round by secondary shares. Yeah, markets. Exactly. So there's shares posts, there's equity, there's several out there. It's very easy to do this. Is second market still a thing? I think.

think so. I remember during the Facebook IPO, that was when all the Facebook people started getting liquidity on their shares. Alexander, this is a really great point, one we probably didn't talk about enough on the Uber and Lyft IPO episodes, and has a lot of complexity to it. And I think it's interesting when you zoom out and think about the macro point of

Who was supposed to take on risk in the private markets? And that was accredited investors and venture capital institutions. And who is supposed to have well-documented risk and thus mitigated upside? And that was the American public post-IPO and worldwide.

what we've seen in the last few years is just a massive, massive blurring of those lines. And it really makes you wonder, is that permanent? Or are we going to see either because of law or because of... And by that, I mean because of new legislation or because we just see how it tends to play out when you run a model over 10 years and a bunch of these companies that that will stop and this like...

little experiment ended up not being fruitful. I don't think that's the case, but it does make you wonder, are we seeing a permanent shift here or not? You know, it's funny. I'm just laughing to myself here. One more point on this. This is such a great question. I think it's unlocked a lot of thinking for me, at least here. I think for both of us.

But before we move on, back to supply and demand and the dynamics here. Ben, you said a minute ago, the American public, the retail investors are sort of the losers here and have been locked out of investing in these companies when there's still growth and valuation at least ahead of them. That's actually not totally the case. I mean, think about who these...

quote unquote big institutions are that are crossing over. It's Fidelity, it's T-Row, like you can go buy these mutual funds. Anybody can go buy these mutual funds. So you can't directly invest in these private companies, but it's very easy for you to go invest in these mutual funds that do. Okay, so what's going on there? Just peel back the onion one layer further. If I'm Fidelity, if I'm T-Row, if I'm Janus or like other big mutual fund companies out there, what

what's been going on with me? I have been under siege for the last 10 to 20 years by Vanguard and index funds and passive investing, right? And like my product that I historically have been selling to consumers, to, you know, retail investors to come and invest with me is no longer compelling, right? You know, everybody... It was no longer compelling.

Yeah. Was no longer compelling. Against the vanguards. And yeah. Against the vanguards. And even, you know, Fidelity's in the lake, they're offering their own index funds, passively managed low fee index funds. So how do you compete with that? The way you compete with that is you do exactly what they're doing here is you offer vehicles and funds that cross over and invest in private companies that are now differentiated from the passive index funds. Is this strategy working? Yeah.

Well, I don't know. Yeah. You know, for these mutual funds, like number one, have they drummed up new demand? Like have they have they generated a bunch of new revenue from the fees that they generate from these mutual funds because they have grown their assets under management?

And then two, has it provided the return that people would hope by rushing into these vehicles with unique access? Yeah, that's a good... That's a good... We should do some... Spin up some acquired research. Yeah, really good study. I was wondering about this because I have like a Fidelity managed 401k from when I was at Microsoft. And I was like, do I have exposure to some of these pre-IPO? And you hear about these institutions coming in, but I have no idea what funds they end up actually trickling into. Yeah.

Any LPs out there, if you want to do a project and basically just follow the money here and like where does this money come from? What funds within Fidelity, within T-Row are investing? What are the returns on those funds? What are the fee structures? What percentage of the total capital under management for the Fidelity's and et cetera does that represent? I'd be very interested to know. Me too.

All right. Sticking on the large IPO theme before we get into some unrelated questions, David, do you want to take it from Peter? Yeah, from Peter. Shout out to Peter, a good friend from way, way, way back home for me. He had some good questions for us on the Uber episode about self-driving that Ben referenced earlier. So

First question, is Uber going to be the ones to make self-driving work? Second question, does it matter? Third question, did it ever even make sense for Uber to undertake this hardcore robotics and automation and AI project, considering that the value of their platform is roughly the same on anyone's self-driving car? All really good questions.

I don't actually have the answers to any of them, but we can speculate. I don't have an opinion yet, but I want to walk us through a framework where I may pull out of it with an opinion at the end. Great. Go for it. I guess what the LP show is for. So if you think about the value chain of how self-driving will work on one end, you have the car manufacturer.

And somewhere close to the car manufacturer is the autonomy provider. Then all the way on the other side, you have the person who pays money to enjoy a ride from

from an autonomous vehicle. Are you assuming that's a pay per ride? My personal view, and this is coming from probably a pretty biased person, but I haven't owned a car in five years and sort of have been doing the ride share only thing for a long time. How are you feeling five years in? You loving it still? Yeah, let's take this little detour. So the...

Privilege disclaimer, I recognize that living within a half hour of work and not having children allows me to uniquely do this. I think there are probably other ways in the future that people who don't live in this specific situation will be able to do it, but, you know...

That out of the way, the only places where the friction points come in are like yesterday when on a long hike had to go rent a car to go, which is way nicer than formally renting a zip car because you can actually park it right outside your house with all the gear and stuff.

other than that being kind of a pain and ironically not doing some of the travel the regional travel that used to do when I had a car and it was easy to just go take a weekend trip because you have sort of the counter incentive of oh well I have to worry about both the logistics and the cost of having a car for my like 28 29 days out of 30 use cases it's amazing and

I definitely save thousands and thousands and thousands of dollars a year and I get good exercise. And on the one or two days where it's raining or something and I need to take an Uber to work, that's super easy. It's way cheaper than owning a car there. Yeah, I could totally understand that.

Really good most days. And then on the days where you would otherwise drive to do something enjoyable, kind of a pain. I will say the funny thing that I thought I was going to do was I modeled it out and with not needing car insurance and not needing to pay parking either at work or at home and depreciation in the car, I was going to save like $8,000 a year or something. And so my thought was like, oh, well, I'll just put like a few thousand dollars into an account that I'm going to not worry about spending what I want to like...

take a weekend trip or something like that and in practice of course that doesn't happen the money just gets allocated to something else and you still feel the because i was trying to prevent feeling the um

Oh, man.

What a human psychology bug. But it's inescapable, even when you know that it exists. Yep, completely. All right. All right. So back to the value chain. No, it's great. So you've got the car creator, you've got the autonomy provider, and you've got the person enjoying the ride. Now, the question comes in sort of in the 75% on the right side there between the autonomy provider and the person in the car. Yeah.

is does that person own the car? And what is the percentage at steady state of autonomy of people that have their rides provided by a fleet versus have their rides provided by a car that they own? At least for my own use, I think it's going to rely heavily on being a member of a fleet. But I also think it will take a long time to get there for society at large. So let's say for some reasonable time period, you know, the next...

15, 20 years or something like that, autonomy is going to play a bigger role in being a bonus add-on to cars that people buy. So you look at sort of what Tesla's doing now and autonomy playing a larger role there than just a fleet that shows up that doesn't require a driver. Because I also think, like, let's play this out too. In the next 10 years, I would suspect that even if there were autonomous Ubers and Lyfts

there's still going to be a person who's paid by the ride or by the hour to sit in that car and make sure it doesn't screw up at all. Like, I don't think that cost goes away and we're just instantly in this perfect... Either in the car or at a remote command center. I don't know. It's all still science fiction right now. Like, it's super unclear when even any of this happens. Yep. By the way, have you been in a self-driving Tesla? Yes. Yeah.

It is incredible when you're on the highway and that thing is like changing lanes and, you know, doing the whole visualization on the dashboard in the in the Model 3 of. It really is cool. Like you're living in the future there and you see a path to how this just happens universally. So it's weird how it both feels like sci-fi and I don't know when it's going to happen writ large and also sitting in a car watching it work, feeling how amazing it is in the right scenarios. Yeah, totally. Totally.

So anyway, where I was going with the value chain is where will the point of integration make sense where there is a provider in that value chain that is able to get leverage over other players in the value chain because of what the consumer demand is?

And so let's assume that the consumer demand is I want autonomy in vehicles that I own because that we're like, at least in the U.S., very fixated on car ownership as an institution and a thing that that's like a rite of passage to adulthood. You know, when I was a kid, like I really cared about cars. And then I went through probably a

10 to 15 year period where I didn't care at all about cars. And I thought I never would again. But now like I do not have a Tesla, but I have friends who have Teslas and I've been in them. And I'm like, man, this is really cool. Like if I were going to buy a car, I would like actually want to buy one of these. And I haven't felt that way in a long time.

Yeah. If I bought a car, yeah, it would either be optimized for an adventure vehicle being the proper Seattleite that I am or a Tesla. And it's kind of like, but both of those are so likely. Model Y. Feels like a good diagram. That's true. It's true. I guess there's going to be multiple value chains here where you have one that's for people to own their cars and you have another that's for the self-driving fleets. And that's why you have people developing...

doing a bunch of self-driving work to enable the traditional car OEMs. Like, I don't think the traditional car OEMs themselves are actually doing as much work as sort of their outsource partners and things they've done, like buy crews and sort of keep them at an arm's length, as well as Uber and Lyft doing it in-house. And the question is, where will consumer demand end up for autonomous driving? And how valuable will that make the...

sort of modular players versus the integrated players in who's creating that self-driving technology. And so what I mean by modular and integrated there is the Ubers of the world will probably be extremely integrated where they're not selling their technology out to someone else. They're using that in a very integrated way that is... Although, didn't in the investment that just happened in the self-driving division, weren't there car companies that invested?

Yes, there were. So that makes me think maybe they actually would license out the technology to car companies.

I could also paint a path for it would be advantageous to Uber not to integrate and to be modular because what are they going to make cars? Like we've seen with Tesla how hard that is. I would assume all of the work that Uber and Lyft have been doing on autonomy has been about retrofitting cars, right? Rather than producing their own as an OEM. So then...

conceivably they could just license that out to anyone who wanted to do that to the other do they do they view it as meaningfully differentiating or do they view the unique differentiating thing that they have as sort of the supply demand and network and that the autonomy is just commodity and enables them to save costs on already having that network probably the latter but

Yeah. Finally, getting back to Peter's question, it feels weird to me that these are both within the same company, and I don't think they will be long term. I bet Uber spins out, fully spins out the autonomous division. And I think that investment was probably the first step to that, especially given all the pressure on profitability from Wall Street right now.

I think that's a really good reading of the tea leaves. And I think after starting with a value chain discussion and then trying to move into an integrated versus modular discussion and now landing at a core competency discussion, I think that's the right way to think about it, where as a company that is sort of efficient, you want to own value.

and keep secret and keep proprietary all of the things that you can uniquely do best in the world that are the core competency of your business that drive the moat and then outsource everything else. And I would bet when, if we were sitting here having this discussion right now, uh, 20 years in the future, that autonomy is commoditized and that that is not the unique differentiator. It's not like Uber is going to solve autonomy and Lyft is not. So, uh,

don't keep that in house, outsource it, allow that to get better off of your balance sheet. Because if you're Uber, no one else in the world can uniquely leverage it like you can within your network. And so, you know, if you can own a piece of a subsidiary that makes money by licensing it out and you get access to it, then great. Now you have two ways to create value from that technology and it doesn't destroy your moat.

Yeah, this may be an imperfect analogy, but it feels like Intel and Microsoft to me. Intel is self-driving technology in this analogy. Also, Aft, because Intel bought Mobileye. And then Microsoft is like the...

network, you know, the operating system, the network, if you will, and that's Uber, Lyft, ride sharing. And I think it would, the whole ecosystem would work better if those are two separate companies. And now I'm trying to revisit my statement too of it's not like Uber is going to figure it out and Lyft's not.

I would bet that there are several parties that arrive at a good autonomy simultaneously. There's been enough sort of shared brainpower that has spun out of the work that DARPA has done and people that have moved between these companies and trade secrets that have changed hands. I think...

There's going to be like a three to five year period where multiple players have really good autonomy simultaneously. And so then it's about what's the right capital structure for these businesses to leverage that technology. And it's probably off their books. Yep. Wow. Look at that. We formed an opinion. Wow. Shocking.

Okay, cool. Moving on to our last couple of questions, um, from Paki McCormick in the Slack. Can you guys explain DoorDash and their valuation? Yes. Yes, we can. Also very related to, uh, everything we've been talking about. Before you dive into this, I want to say there was an awesome interview with, uh, Bill Gurley on stage at some like travel conference, uh,

I watched this too. This is great. This is maybe a year, year and a half ago, something like that. They're peppering Bill with like rapid fire questions at the end with just, hey, respond with one word or phrase. And they say, DoorDash. He goes,

Third place. Third place. Yeah. Well, Bill, this goes to show we're all human. As great as Bill is in so many fronts, he's wrong on this one. He's for sure wrong. And Bill said third place because, of course, he was a lead investor and on the board of Grubhub before they went public and then now, obviously, with Uber and Uber Eats. Okay.

DoorDash, tackling the first question, the second question, the valuation is a little harder. But on the first question, DoorDash did something really, really, really smart in the early days that is way under known and underappreciated in tech. And I've only come to understand it recently.

DoorDash focused on the suburbs. All of DoorDash's biggest markets, I believe still to this day, I believe their top biggest markets are not big cities. And so there's this weird thing where people in tech, especially in San Francisco or finance in New York or whatever, people in big cities like DoorDash, like...

nobody uses DoorDash, but go out to like Santa Barbara or go to, you know, not even to go to San Jose, go to South Bend, Indiana. Like anywhere with a lot of strip malls. Yeah. Like decent sized population centers with people like large middle to upper middle class populations that are willing to spend. And you have

a few really interesting dynamics that DoorDash has completely nailed. So one, the actual like product need for delivery in those communities is way stronger than in a city. Like if you live in a city like San Francisco or New York or Chicago or whatever, you're

you can just walk down the street and get takeout from a really good restaurant. I door dashed some Mediterranean food last night and I always feel so like living in a city where I can walk to eight different restaurants within a few blocks. I felt so lazy. I know. Literally like exactly where Ben lives in Seattle is like the lowest like utility of a food delivery platform. So one, okay. But think about like in the suburbs.

You probably live in a standalone single family house. You probably have a family. Your closest nearby restaurants are driving distance. They may or may not be any good, but they're certainly not densely packed. You're trying to juggle a bunch of stuff. You'd be at soccer practice for your kids or, you know, whatever. You're trying to get food on the table. Wow. Delivery like that's actually like really valuable. OK, that's one thing they figured out.

The second aspect that I believe is more appreciated in tech circles, I don't think as widely known, the culture and execution of DoorDash is unparalleled. Like,

One of our investments at Wave was a team of early folks from DoorDash. And just the pure speed and intensity with which they execute on things and that they did execute at DoorDash and the company still continues to. It much more mirrors the 996 Chinese culture than it does Silicon Valley culture.

Definitely not. What would Silicon Valley culture be like? Maybe 10-4-4 these days? That's harsh, David. That is too harsh. But they are really, really militant executors. So I don't actually know much about the company. I will say last night was literally my first time ordering from DoorDash instead of Uber Eats. You frequently meet with DoorDash and ex-DoorDash folks. I didn't realize. I just looked up. They're only a five-year-old company. Yeah.

Tony, the CEO, and one of the other reasons I know a bunch about the company and several of his co-founders, they were all the year ahead of me at GSB. So DoorDash started as, quote, Palo Alto delivery. It was just the founders, Tony and the founders, going to restaurants in Palo Alto, doing delivery for them. Tony delivered food to Jenny in my house in Palo Alto in the early days. And obviously, they've grown a lot since then. Wow. That's wild. Yeah. Okay. So then the third thing I want to say on DoorDash, and this relates a little bit to their

valuation. Can you share what their valuation is? Oh, I don't recall. I believe it was like 12 and a half in this most billion in this most recent round. Yeah. Something wild. Something. Yeah. Something huge. Something up in Lyft territory. Yeah, exactly. Exactly. Okay. So the other thing that they realized pretty early on and then have massively, massively doubled down on since. Yeah.

is that this is a scale business and they have been very focused on winning and achieving scale in the markets that they're in. And I think they've done a pretty good job of that. They did the soft bank round where they sold like 40% of the company

this was maybe two years ago, they realized that if they were going to have a chance of competing with Uber, let's forget about Grubhub for a minute, they needed to start raising massive amounts of capital to compete with Uber Eats because Uber Eats started in cities. They realized this suburbs thing. They were coming out to suburbs. DoorDash realized that they were also probably going to have to go into cities eventually. And so they...

Kind of took the red pill, if you will, and said, okay, we also need to raise huge amounts of capital. They've had a lot of dilution, but they've raised enough capital through these rounds over the last two years that I think, I haven't done the math, but relative to the amount of funding that is going into Uber Eats in the U.S.,

DoorDash probably has an equivalent or a greater amount of capital. And so they're actually able to kind of fight toe to toe with your breeds right now. So I think that's what's going on here. All of those dynamics.

I won't make a judgment about whether a $12.5 billion valuation is meritorious or not, but I think they are very much for real. And I think Bill is completely wrong that they're a number three player. This is definitely one of those scenarios too where the valuation is not where the deal starts. It's where the deal ends. And I don't mean chronologically, but I mean how it gets backed into. So where it starts is we need to raise this much money.

And then a second factor in that equation is this is how much leverage we have because there's so many people that want to give us money. Yep. Which for that first big round they raised from SoftBank, that leverage was low because the narrative was DoorDash is a number three player. So that's why they sold a whole bunch of the company to do it.

Right. But boy, this is coming full circle. Getting to our original conversation around a supply-demand match and how that drives share price, if you have multiple capital sources that are all willing to put huge amounts in, you can decide, hey, I want to sell less of my company, and one of these players is going to go for it. And then, of course, you selling less of your company and raising the amount you want to raise creates the product that is the valuation. And so...

for listeners whose eyes pop when you see a valuation like this, know that it's not a company saying, I think I'm worth $12 billion and an investor going, I think you're worth $12 billion too. It's sort of the product of the other components of the deal creating that as the output. Supply and demand. Always helpful to reduce what's going on to those dynamics. Anything else on...

No, I think that's a good, frankly, I appreciated it because I haven't followed the DoorDash story nearly as well as you have. It's not a well-known story. I can't wait to do the Acquired episode on it when something happens to them, which certainly it will.

Okay, so let's wrap up with my favorite question of the bunch here from Tagfu in the Slack. Jason, what is one widely held tech prediction that we would buy a put option on if we could? And this was inspired by the Jake Saper LP episode we did a while back. This is a great question. And I got to say, Tagfu is like the Slack MVP. Yeah.

If you're someone who hangs out in the acquired slack, and I think Dave and I are in there every at least every other day, Jason, you're always you always have some insightful thing. It's not just check out this article. It's here's my three or four nuanced thoughts on this thing. Here's how I would push back. It's it's it's you're good, man. Yeah, MVP. So one other way to think about this is.

Because they coined the term, I think we should give them credit. The bedrock capital guys who invest in narrative violations. And if you go to their website and read their letter, it's kind of amazing to track what they mean by narrative violations, why they make the investments they make, what the investments they made, or what companies they would qualify as narrative violations that happen sort of a priori before the firm. And another way to think about this is what is a...

common narrative today that everyone goes, oh, yep, definitely, that you would say, you know what? I don't buy it. I think the future is going to turn out differently than the commonly held belief. And David, to back it into one of your favorite frameworks that's become one of my favorite frameworks, how do you be both non-consensus and right? This one at least is how do you be non-consensus? And then the future will show what the future shows. And you could...

If you could guarantee being non-consensus, so you have at least 50% of the equation and hopefully you're right on a few of them. I'm not ready to buy a put option on this yet, but I'll throw out as a, and that's a metaphorical put option, but I'll throw out as a postulate. And that's, so over the last four to five years,

If you talk to any smart person in finance or tech, what they tend to say is, yeah, we've got a correction coming. And some people are even a little more alarmist and say, we're in a bubble. And I can't tell you when, but sometime between six months from now and two years from now, sort of, we're going to, that's going to change. Like we're going to enter a pretty significant correction. Yeah.

And the thing I've been trying to think about recently is what if that's not true? Like, what if we've got a while longer still in this bull run? And what if there actually is...

such a significant increase in the pace of new value creation that comes from a lot of these technology companies. And of course, we're just talking about this tech sector here, not the global economy more broadly. Although those two things are increasingly linked. Yes. What if we're not about to see the music stop? To what could that be attributed? I haven't landed on that yet. Like I don't

I don't know to what could it be attributed other than all these companies that have all these really high valuations actually deserve them, will grow into them. A lot of these bet the farm strategies of expand at all costs because we're going into one of the most massive markets of all time. What if those people are right and then they just get to run hugely well?

revenue and profitable businesses at scale in enormous markets. And that was correct. Maybe a huge catalyst that could drive a future like this could be Uber and Lyft figure out a way to merge, right? And then it's like a profitable, enormous business. Just that announcement, imagine what it would do to the combined market caps of the companies. I don't know, you'd hit that 120 billion threshold. Yeah.

Right. Jason, this is exactly the opposite of what you wanted, because this is not me putting a stake in the ground definitively here. This is me saying, what if, what if, what if? Here are my thoughts on this. I'm inspired by two sayings from each of my two favorite early stage venture capital firms that I admire more than anyone. One from Sequoia and one from Benchmark here. One of

Sequoia's key cultural aphorisms, uh, is why now? Uh, so whenever they look at a investment, uh, or a company, that's one of, if not the biggest thing on their mind. So like, why, why now? What is, what is going on right now that enables this, that didn't enable it before and why in a year or two is going to be too late, uh, to build this, this company. And then the Ben

benchmark side of things, which these are really saying the same thing, but I just love this saying, I think Matt Kohler originated this, is that the job of a venture capitalist and an entrepreneur, people think it's to see the future. It's not to see the future. It's to see the present very, very clearly. And so where am I going with this? What I try to do in investing is exactly that. Don't

try and see the future. Because when you try to see the future, you get blinded to truly answering the why now question. And so things like what's going to happen with autonomy and self-driving cars, things like robotics, things like cryptocurrency, if you get too caught up in thinking about the future, then you get muddy and

unclear on like, why now? Like, what is this going to do now? And businesses are built on the now. Science projects are built on the future. I would buy put options on any near-term implementation of all of those things if I could. I would buy

buy, buy, buy options. I would literally buy and invest in, and we do invest in at Wave, companies that are serving what is going on right now. So a great example, we're not going to announce this investment for a little bit, but I can describe our most recent investment in broad strokes, is a marketplace for

For an existing industry where there is buying and selling trading happening all the time, but basically without technology, it's an industry where people don't work at desks and don't use computers. Yet it's a sophisticated global industry. But what has happened, all of these people all around the world who participate in this industry now have smartphones. And what do they have on their smartphones? They have WhatsApp. And they communicate with each other and they...

transact and do business over WhatsApp. So what did this company do? They just built a business on WhatsApp to make these transactions more efficient. Like...

I want to buy businesses built on WhatsApp all day long. That's a really good example to me of something that, okay, this is happening right now. This is a clear demand that is for making a transaction more efficient and we can build a business around that. And I don't have to believe three steps in the future about what's going to happen with... I don't know how autonomy is going to play out. I don't know how crypto is going to play out. I don't know how robotics is going to play out.

Actually, David, this gets to a really good, this wasn't quite the question, but a discussion that we had sometime, it was about a year ago. So doing the work that we do at PSL, I get very good at

developing pitches. And at this point now I can pattern match pitch archetypes into like what in what way are you trying to tell your story? Because like I've tried to craft so many different narratives about why a company is interesting. And I was talking to you about the pitch narrative of the sort of phase one, phase two, phase three of here's here's our wedge. Here's what that allows us to do. And then the

here's the big reveal at the end. It turns out actually our Trojan horse is this thing. And you were talking about, I think you dubbed it, I don't believe in hops, where as an investor, it's already so unlikely that your first thing goes to plan that I'm not willing to like go make two, especially not three hops into like what it could eventually be because the sort of matrix of possibilities of things that could go wrong along the way are just like

so overwhelming and compounding that sort of the most that you want to do on that, and I think this makes a lot of sense, and feel free to correct me if I'm putting words in your mouth, is that your first business should be the business. That's great. And you can maybe allude to or dream about what it could potentially become in the future, but it really should just be the main business at a broader scale and described in a different way rather than

taking an asset you've built and then pivoting into a whole completely different thing. Yeah. I really think that the Matt Kohler and benchmark saying encapsulates this super well for me, which is like, don't, don't try and see the future. Like it's a fool's errand to try and see the future, try and see the present very, very clearly. That's hard to do. And that takes a lot of skill and work because on the surface level, like you can guarantee you're probably not seeing the present very clearly. Like a glow is a great example of this, you know?

And podcasters were and are creating monthly subscription bonus content in various ways before glow. And it's like, okay, great. Like, can we make that easier and more accessible to more people? Yeah, great. Like that's seeing the present clearly. Let's do that.

Yep. Skate, an existing thing that is, I mean, it's the marketplace thesis, right? People are already doing a thing. It's inefficient. Glow is in a marketplace, but transactions are already happening just in kind of a terrible way. And can you add efficiency and therefore sort of create value through efficiency in a marketplace? Yep. Awesome. Well, we have like four or five more listener questions here that we should absolutely get to. And maybe that's just a good excuse for us to do another Q&A episode. Indeed, we will have to.

Cool. Well, LPs, we will see you soon. I think if you're listening to this, the EA IPO episode will have already dropped. So would love would love feedback from that. Zoom, I think will be our next one. And we've got some exciting stuff to round out the season after that. Yeah, very special episode. Oh, and I think we're going to try and do Slack. It's on our calendar as well. Forget about Slack. Yeah.

So if anyone's listening and wants to hit us up before we record either Slack or Zoom with any good tidbits that you think we should chat about in the episode, please do. And we love our LPs for that because I think we've already gotten a few good conversations before recording by getting to share episode topics before recording with y'all. All right. Happy Memorial Day, everyone. We will talk to you next time. Cheers.