
DoorDash Valuation Nearly Triples to $4B in Six Months - adventured
https://www.bloomberg.com/news/articles/2018-08-16/doordash-raises-250-million-as-delivery-war-with-uber-heats-up
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th0ma5
This hearsay but I've heard restaurants hate all of the delivery services.
They take a cut and decrease walk in traffic which usually buys high profit
stuff like alcohol and fountain beverages.

~~~
mrep
Well, considering I can order food and pay practically the same delivery
fee/tip that I have to pay for waiter tip + I don't have to pay the ridiculous
"alcohol and fountain beverage" since I can drink that at my home that I
already purchased: BooHoo. Maybee it is time they reduced their ridiculous
"alcohol and fountain beverage" margins.

~~~
toomuchtodo
Those beverage margins are what makes the razor thin food margins tolerable
for the business (average restaurant margins are 2-6 percent). If you can’t
turn a profit, no point wasting your time being in business (or accepting tech
delivery platform orders).

It behooves you for the restaurateurs you enjoy patroning to have healthy
financials and not be squeezed, otherwise they can’t continue as a business.

~~~
rahimnathwani
Your comment uses the word 'margin' in two different senses, which makes it
hard to evaluate its claims.

When you talk about 'beverage margins' or 'food margins', you must be talking
about 'gross margin', i.e. [selling price, less direct costs of good sold] /
[selling price]

When you talk about 'restaurant margins' and mention 2-6%, you must be talking
about net profit margin (i.e. profit as a percentage of revenue).

It seems like you're comparing gross margin on beverages, with net margin for
a restaurant overall. Not apples to apples.

The markup on food (based on ingredients only) and wine is similar (3x). It
costs virtually nothing to store wine or to prepare it for sale. But the
process to take ingredients and make a meal takes a lot of labour and
machines.

~~~
compcoffee
> _It seems like you 're comparing gross margin on beverages, with net margin
> for a restaurant overall. Not apples to apples._

Oh brother. The high gross margins on beverages positively contribute to the
net margins. The point is that most restaurants aren't crushing it, margins
are thin, and a middle-man taking a cut doesn't help.

on

~~~
rahimnathwani
"The point is that most restaurants aren't crushing it, margins are thin, and
a middle-man taking a cut doesn't help."

Yes, I agree with you. See my other comment:

[https://news.ycombinator.com/item?id=17780385](https://news.ycombinator.com/item?id=17780385)

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RestlessMind
Based on my personal experience with this service, I guess two things have
happened that would make them profitable:

1\. DoorDash has started gouging customers with exorbitant fees - restaurant
tip, service charge, delivery fee, driver tip etc. I stopped using service
after that. Remaining customers could the true "target demographics" for
DoorDash, who might be price insensitive or really busy in their lives, thus
improving DoorDash's financials.

2\. Softbank betting big and investing lavishly on gig economy companies (see:
Uber, Didi, Grub, now DoorDash etc)

~~~
mmt
> DoorDash has started gouging customers with exorbitant fees - restaurant
> tip, service charge, delivery fee, driver tip etc. I stopped using service
> after that.

This seems to be the case for PostMates, too. I recall being sceptical when
they originally were acquiring customers with free (or $1-$3 flat fee)
delivery promotions, but I figured it could be worth it even for double that
amount.

However, when I next looked, they had quietly [1] implemented fees that are a
(high) percentage of total bill in _addition_ to a higher flat delivery fee,
that was a dealbreaker.

Distance-based pricing would have been OK, but not percentage of the order on
top of a flat fee.

[1] A generous interpretation. Personally, I found it sneaky.

~~~
babaganoosh89
Don’t forget in most cases the tips don’t actually go to the drivers. Doordash
may guarantee the driver will make $7 for a delivery, then if you tip anything
under $7 doordash will just pocket it. Seems like a good business model.

~~~
mmt
The UI I just looked at said something like "100% to the Dasher" under the tip
selection.

Do you have evidence that they're lying about that (which might be outright
fraud and thereby a risky move)?

Or are you saying something different, that if a customer tips $0, DoorDash
has to pay $7 (or DoorDash pays $4 to make up for a $3 tip, etc), but if a
customer tips $7 or more, DoorDash has to pay $0?

~~~
babaganoosh89
Yeah that second part is how it works according to people on the doordash
subreddit.

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WisNorCan
This is why the best time to join a startup is increasingly at the post $1B
mark. Significantly derisked with product and economics proven, solid comp,
crazy upside.

The unicorn is a silly designation, but it also isn’t. There are exceptions of
course as it is not zero risk.

~~~
birken
I disagree about joining a startup worth over $1B. First, compare it something
that actually is de-risked, a big company. Amazon has grown 6.5x in the past 5
years. Google has grown nearly 3x in that period. So in addition to have
basically no risk of failure, you get high compensation, fully liquid stock
_and_ pretty decent growth if you are lucky.

Let's compare that to unicorns. I own some shares in a unicorn that has been
worth over $1B for nearly 3 years. In that time myself and all the other
shareholders have had exactly 0 opportunities to sell the stock. I'm not
saying the valuation is made up, but I certainly wouldn't say anything is de-
risked. Taking a lot of money in investment just means the outcome is expected
to be bigger and bigger. It doesn't mean less risk and it doesn't mean more
liquidity.

If you want upside, there is just going to be so much more potential if you
join a really early company. If you want to de-risk, join a big company.

~~~
WisNorCan
The valuation increase in the FAANGs are a historical anomaly. I’ll bet you
that Amazon will not 6.5x in the next 5 years.

I am not saying that Amazon is a bad company, or working there is a bad idea.
Just that reversion to the mean is a powerful force.

~~~
mrep
6.5x is big but not that crazy when you consider they are growing at %40+ YOY
(even more in the past).

How long that continues is anyone's guess but I can see them gaining just as
much if we don't have a recession between then.

~~~
WisNorCan
AMZN’s current valuation does not assume 0% future growth. It already assumes
exceptional growth and expanding margins. Amazon has to do better than that
for the valuation to increase.

~~~
user5994461
Doesn't it just assume that people have to put their pension fund in
something?

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khazhou
Good for them. And by "them" I mean the founders and investors. Employees may
make some money if the company exits, but not much relative to time/sweat
investment, certainly several orders of magnitude lower than the guys up top,
and probably comparable to or worse than FANG compensation (even disregarding
RSUs).

This isn't unique to DoorDash, but it's what comes to mind when a pre-exit
company's valuation is being marketed in public. It's meant in part to entice
eager recruits, but they don't realize that money is never meant for them.

~~~
SmellyGeekBoy
Are their employees not paid a salary like everyone else?

~~~
khazhou
If they are like a standard SV startup, they are indeed receiving salary, plus
equity many orders of magnitude smaller than founders.

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robk
The unit economics in the US just don't quite add up. Assuming in a rational
market a driver has to make about the equivalent of minimum wage (or else
they'd take a less taxing minimum wage job) they need to make say $15 an hour
in SF. So if I order a Cheesecake Factory from Union Square to the Marina,
they arguably will take 30-40 mins roundtrip, so even at full utilization, the
delivery is costing nearly $8. Unless the delivery fee is > $8 then the margin
on food subsidizes the delivery which seems like a pretty rotten strategy to
lower margins even further. Theoretically I guess they could do point to point
delivery where they then pickup in Marina but that seems far more difficult
and anecdotally never the case when I ask a driver. In that case you could
assume a one way takes say 20-25 mins (waiting on delivery probably adds 5 to
each order), then that's still a $7 delivery cost at the margin.

One can make the case this can be made to work in dense cities say 1m or more
with a density over X people/p. sq. ft. like in Europe/Asia. But I don't think
there are many US cities with this kind of density to support.

~~~
mmt
As mentioned in a different subthread [1], their _actual_ delivery fee can
easily be above $8 when including their 11% "service fee". (If the "delivery"
portion is only $3, the total CCF check would need to be $45.50, which doesn't
seem outlandish for that establishment).

Even denser cities are likely to have even more (cheaper) competition.

[1]
[https://news.ycombinator.com/item?id=17780377](https://news.ycombinator.com/item?id=17780377)

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fipple
These valuations are driven by huge liquidation preferences which will totally
wipe out common stockholders in any down round or distressed sale.

~~~
tptacek
Wait, explain the connection between liquidation preferences and valuation?

Or is the argument that these companies get very high nominal valuations but
the terms on the rounds they raise include punitive preferences?

~~~
charleslmunger
Investors are willing to pay higher prices for less equity for two reasons:

1\. Normal investment of $Y at valuation X implies that you, the investor,
think that the company is worth more than X. If it exits for more, you'll get
more, less you'll get less. But investing $Y at valuation X with a 2x
liquidation preference means that you think the company is worth merely Y. The
valuation basically doesn't matter any more. If I invest $10 at a $100
valuation and the company exits at a $500 valuation, I get a $40 profit. If it
exits at a $50 valuation, I've lost $5. The valuation I invest at makes a big
difference for my profitability. But consider the same scenario with a 2x
liquidation preference - in the happy case, I get the same profit. In the sad
case, I've still doubled my money.

2\. Investors in startups are not perfectly rational investors. If I own an
existing stake in a company, I would fight tooth and nail to prevent any new
money coming in from having a liquidation preference over me. But in truth, if
the company can raise money at a $2 billion valuation normally, or a $4
billion valuation with a preference, a fund can report double the gains to the
people who actually put money in it. So they stay quiet, show off the
impressive paper returns of their current investment fund, and go on raising
the next one. This effect is doubly pernicious when the later investors are
also earlier investors - they can basically juice their own balance sheet. On
paper, the existing stake is worth more because of the inflated valuation, and
the new stake is a heads-I-win-tails-you-lose.

And at the lowest preference are all the employees. Founders take money off
the table in the inflated new rounds, so while they technically have a lower
preference they've still cashed out significantly.

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brazzledazzle
It’s not really directly relevant to their valuation but if I can prevent
someone else from that experience: DoorDash will happily let you pass your
phone around a group browsing and adding things but it’s only during the
actual payment attempt that they’ll deny it and inform you that you can’t
order more than $50 worth of food. It was (at least at the time) documented
nowhere. The app didn’t prevent you from adding more than that amount and
their FAQ said nothing. Uber Eats (for better or worse) didn’t have any of
those issues.

~~~
theDoug
I don't deny your experience, but it doesn't match mine. I am able to confirm
15 orders over the last two years higher than $50, the highest landing at $73.

Unless we're to believe the app is detecting multiple users surreptitiously
and has an opinion on them, group orders / a phone being passed around seems
irrelevant, but also not within my personal experience.

(Zip: 94086, and I love Indian leftovers from Ulavacharu, usually individual
orders)

~~~
brazzledazzle
Maybe I’ll give it another shot. The app bugged and double charged me for one
order and it took a week or so to sort out so maybe they flagged me. That
would be bit obnoxious but understandable if they couldn’t differentiate
between a bug and fraud.

