
SoftBank’s $375M bet on pizza went bad fast - Balgair
https://www.bloomberg.com/news/articles/2020-02-13/inside-the-firings-at-softbank-s-robot-pizza-startup
======
jakemal
Is this really all that significant? It seems that since the WeWork fiasco,
all of SoftBank's failures are being covered by news organizations. But isn't
that simply the nature of venture capital? Invest in a lot of different
things, most of which will fail, and make up for the losses with the Ubers of
the world. (edit: It sounds like Uber was a bad example to use)

$375 million sounds like a lot of money, but it's 0.3% of their investment
fund.

I'm not sure if SoftBank is suddenly performing worse than they have been in
the past or if people simply just care more about the losses since they had
such a major one recently.

~~~
OnlineGladiator
> Invest in a lot of different things, most of which will fail, and make up
> for the losses with the Ubers of the world.

Ironically, SoftBank is one of few investors to _lose_ money by investing in
Uber.

~~~
jakemal
I wasn't aware of that. So it's a bad example but the idea behind VC investing
still stands.

~~~
OnlineGladiator
I understand your point. My point (which I didn't really explain, so that's my
fault) is that SoftBank is an especially terrible VC firm - at least when it
comes to making money.

------
asciimike
Matt Levine's comments on this yesterday [1] are comic genius:

 _Presumably many local pizzeria owners have never heard of Masayoshi Son;
presumably many more just would never have thought “oh we’re actually a pizza
tech company and we need hundreds of millions of dollars of venture capital
funding to scale.” But if you have the proper mindset, if you believe in
yourself, if you are not a guy opening a pizza place but a founder who
previously sold a tech company, if you hire a strategic and retail consultant,
if you test out various combinations of “[giant tech company] of [broad
category including pizza]” for the pitch, if you call your pizzeria “the
Gigaranch” or “the Pizzaplex” rather than “Al’s Pizza & Subs,” and sure sure
sure yes fine if you employ some robots to careen around town sloshing cheese
around trucks, then maybe you can be the pizza proprietor to rake in Masayoshi
Son’s millions._

 _You craft a pitch calculated to convince Masayoshi Son that your pizza
delivery business will change the world. You meet with Masayoshi Son. He
convinces you that you will change the world. Now you are all believers, all
in it together. He hands you piles of money. You go home and weep to your
friends, “I am going to change the world.” The friends are like “wait what
with the pizzas?” But it is too late for skepticism, you have the money, the
robots are in the trucks, they are fanning out across town, the cheese is
everywhere, they cannot turn back._

[1]:
[https://www.bloomberg.com/opinion/articles/2020-02-14/robot-...](https://www.bloomberg.com/opinion/articles/2020-02-14/robot-
pizza-trucks-hit-some-bumps)

~~~
Aqueous
this is one of those moments where i really, really feel like we are all
characters living in Neal Stephenson’s Snow Crash

~~~
xiphias2
Domino's pizza was one of the fastest growing big companies in the world with
a 30 minutes guarantee. It's quite similar to the pizza chain in Snow Crash
actually. I would say Snow Crash predicted it before it became so successful.

~~~
teachrdan
I think you may have it backwards. Domino's was well known for their 30-minute
guarantee when Snow Crash was written in 1992. Indeed, Domino's was in the
midst of a lawsuit regarding it while the book was being written; it resulted
in a $78 million verdict against Domino's. [0]

I give Stephenson credit for taking that guarantee to its logical extreme. And
while I _love_ the book, it's funny how basically none of the predictions in
it came true. No computers that project images on eyeballs, no 'poon guns, no
losers walking around scanning retinas with backpack-mounted lasers, and book
features working payphone booths!

0\. [https://www.nytimes.com/1993/12/22/business/domino-s-ends-
fa...](https://www.nytimes.com/1993/12/22/business/domino-s-ends-fast-pizza-
pledge-after-big-award-to-crash-victim.html)

~~~
ansible
> _No computers that project images on eyeballs..._

Actually, we have something close to that now:

[https://www.kickstarter.com/projects/tiltfive/holographic-
ta...](https://www.kickstarter.com/projects/tiltfive/holographic-tabletop-
gaming)

It doesn't use lasers though.

The tech is basically working, and they're ramping up to production this year.

And no, you can't just walk around arbitrarily, but you couldn't do that in
the book either (you could walk out of range). Also, Stephenson didn't worry
about just turning your back to the laser projector...

------
GCA10
There was a spoof book in 2008 called "Manifold Destiny," which consisted of
dinner recipes that could be wrapped in aluminum foil and placed under your
car hood, near some hot part of the engine -- to be nimbly cooked in the
course of an hour's drive to your destination.

I skimmed it in a book store, back in the day. Quite funny! (Where else could
you learn about Hyundai Halibut With Fennel -- cooking time 55-85 miles.)

Shoot me for not realizing that it was a visionary guide to getting funded by
Softbank.

~~~
seem_2211
There's a good Top Gear episode where they tried 'cooking' with a car engine
(apparently the food tasted awful)

[https://www.youtube.com/watch?v=o9vhGiSL904](https://www.youtube.com/watch?v=o9vhGiSL904)

~~~
lazulicurio
They should have gotten Alton Brown to do their cooking for them!

[https://www.youtube.com/watch?v=tqABijWMlxA](https://www.youtube.com/watch?v=tqABijWMlxA)

------
dmix
> Some hires came directly from coding schools that specialize in quick boot-
> camp-style training courses. One adviser recalls being surprised to learn
> that some Zume coders had last worked at the porn-and-hookup site Adult
> FriendFinder, known for a security breach that exposed the data of 412
> million users.

I kinda get the bootcamp concerns, but what's wrong with being a programmer at
a porn site?

I also highly doubt the problems were with the software team either.

After the robotic delivery truck problem failed, which I think was a critical
piece of the puzzle as they were essentially replacing retail pizza stores
with mobile robotic food delivery machines. Which is something new - and
critically something actually scalable with VC funding.

Instead this ended up requiring a sophisticated infrastructure if it was going
to compete with pizza stores on every corner, who already have ovens and
drivers close to the last mile customers + these old pizza companies already
have central marketing funnels from mobile apps, phone calls, and online
orders which then distributed "leads" to the various local franchise
locations. So an Uber-style play is pretty pointless.

I'm curious if they should have tried a bit harder to solve the robotic pizza
truck problem, so they didn't need to build out a centralized facility or a
bunch of smaller delivery shops. Especially on the cusp on automated driving,
these could just automatically pick-up food restocks at the central location
and stay mobile as long as possible.

I'm convinced too many startups give up too easily as soon as they face hard
problems then pivot to boring old-industry style companies that aren't real
startups/VC companies. Replacing minimum wage workers with robots will never
be exciting by itself.

~~~
saber6
I don’t think the issue they worked on adult sites. I think the issue is they
worked on AdultFriendFinder, who basically didn’t care about user privacy.

~~~
dkdk8283
Having previously been in the adult biz it is now considered a black mark on
your resume. It was all mostly black hat work at one point or another.

~~~
latchkey
That is a load a bs. If anything, it has been enabling for me. Any business
that wouldn't want to hire me based on the incredible scalability experience I
gained from working on a super high traffic/revenue project, isn't a company I
would want to work for anyway. Nothing I did was black hat.

~~~
dkdk8283
I was in the business pre-tube. I learned a lot too.

It’s probably very different now but affiliate shaving, spamming, cpc fraud
were all ubiquitous in the late 90s/early 2000s.

~~~
latchkey
May 2006 - April 2010

Yes, we had to deal with all of that as well. Also built a lot of automated
tools to deal with those sorts of things. My favorite one, I named 'the
cockblocker'. ;-) This sort of experience you just can't get elsewhere and has
been extremely valuable for me.

------
yalogin
Wow a pizza compNy that delivers and cooks on the way to your house, all done
by robots. I can see the pitch. All cooking is automated and in a few years we
will become a self driving car company also and automate everything from
taking order to cooking to even delivering to the door. There will be no human
involved except to refresh the bank account to look at the money we are
making!

Instead they ended up increasing their costs multiple times by cooking in
parking lots and delivering over scooters. Wow. Classic example of not
understanding what they are doing. Both the founders and investors have no
understanding of either the tech or pizza marketplace and blindly jumped in. I
guess it’s great for the founder. They make money almost for free.

~~~
0x8BADF00D
> They make money almost for free.

And the employees too, they got fat severances. All of this reminds me of a
government jobs program. Strange, isn’t it? If the free market wasn’t so
distorted in the US (primarily because of government involvement), companies
like this would never get funded in the first place. Instead we have
government jobs programs popping up all over, due to QE by the Fed. Next time
they should just helicopter the money directly to everybody. Way more
efficient.

~~~
Klinky
SoftBank is a Japanese company heavily invested in companies all over the
world. I am not clear on the direct link between US Fed QE and SoftBank's Zume
Pizza investment.

If you are going to blame the US government for this bad investment, then
you'll also need to give them credit for all of SoftBank's good investments
too, right?

~~~
0x8BADF00D
What good investments are you taking about? Nuro? Give me a break. WeWork?
These are malinvestments.

~~~
Klinky
Alibaba, Yahoo Japan, SoftBank Corp, ARM, Boston Dynamics

------
seibelj
AI is the biggest scam of all tech pitches. Get some data, make a neural
network, slap a single-page app on front of it, and BOOM - disrupt [insert
sector that employees N-thousands of people]. "Once we scale, we won't have
employees - and you'll own a percentage of the black box that disrupts the
whole industry."

The parts of any business that can actually be automated by "AI" (aka machine
learning, aka automated statistical analysis) are not the pieces of the
business that justify its existence and value to customers. Self-driving cars
are the most obvious debacle, but it's the same story everywhere - enormous
capital to get the data and engineers to automate, but even the "good" AI
still gets it wrong much of the time, necessitating endless edge-cases, human
intervention, and eventually it's a giant ball of poorly-understand and
impossible to maintain pipelines that don't even provide a better result than
a few humans with a spreadsheet. Imminent implosion to the AI sector is
incoming, sell now before the hype completely wears off.

~~~
ttul
Yet AI _within_ large companies is producing enormous benefits. If your AI
startup is helping customers implement AI on their own data, you may have
something. A one page web site on top of your own startup data? Yeah that
sounds risky.

~~~
seibelj
Do you have any examples of "enormous", tangible benefits from machine
learning own data? I can see some benefits on the margins, but I have not
found any evidence of disruptive productivity enhancements.

------
fxtentacle
I am honestly surprised that nobody mentioned the critical quote:

"The fund is less than three years old and we’ve already had eight IPOs and
returned $10.6 billion to our limited partners."

I would be willing to believe that. Maybe SoftBank is making money and paying
out profits, despite some of their companies publicly failing in spectacular
ways. In that case, they are absolutely correct to ignore public opinion and
continue doing what they were doing before.

~~~
abrax3141
Unless they spent $20b to make back $10.6 :-) [In some circles it’s called
‘Selling a dollar for fifty cents.”]

------
vslira
It's worth remembering that Vision Fund's apparent thesis wasn't just to have
a many-losers-compensated-by-a-big-winner portfolio like most VC funds, but
that they would pick winners by sheer scale of their checks. That should imply
a smaller shares of outright failures (if Uber, Wework et al can even be
called that, which I'm not sure) Unfortunately to test said thesis they HAD to
raise that much money (maybe half was enough, but then again, if they could
raise 100Bn, why not?) and HAD to burn it like they did. _Apparently_ the
result is that scale alone can't bring the kind of outsized returns VCs rely
on, even if they do end up creating juggernauts. But to learn that, someone
had to try.

~~~
Balgair
> but that they would pick winners by sheer scale of their checks

So, $10 billion cargo-culting?

------
Spooky23
Of course it did. The notion of some capital intensive robot to make pizzas is
and was absurd on its face.

What problem was this company solving?

~~~
tyingq
I think it's even narrower than that. Mobile pizza robots. Since non mobile
ones surely already exist in the frozen pizza world.

They seem to have been solving for a delivered pizza that's maybe 10 minutes
more fresh. I don't think there's much value there.

~~~
friendlybus
The way to do automated pizza is to miniaturize and streamline like what
Wozniak was great at doing at Apple. Retain the storefront and physical
location. Push the storefront to be more community driven as an open plan
restaurant and pickup location. Develop tech to generalize automated food prep
and inventory storage. Build up from the basics engineering disciplines for a
fully custom assembly pipeline.

You don't want to lose the place in the community or the accountability of
having humans to hold responsible for your food. A storefront can carry that.
I don't understand buying a robot arm and calling it a day. Or cooking pizzas
in black-box trucks that may arise suspicion in their cleanliness or quality.
Being able to see your food being made adds a lot.

How you do all that and compete with the big dogs is an interesting question.

~~~
tyingq
I typically only see 2 or 3 people manning a Little Caesar's. I don't know how
much cheaper a robot could make an operation like that.

Here's an actual work schedule:
[http://i.imgur.com/ukj47cs.jpg](http://i.imgur.com/ukj47cs.jpg)

~~~
friendlybus
You're not really building a robot, instead filling in the line between
already automated sequences like the oven and chiller. Costco has a saucing
mechanism, the biggest transformations are storing delivered inventory,
managing dough proofing, topping pizzas accurately and self-cleaning. Cutting,
boxing, delivering and taking orders is all straightforward.

I know what a schedule looks like, I used to make them for some of the busiest
pizza shops out there. Shops next to universities and large business districts
are the easiest to make the financial savings argument. The shops that benefit
from a 24/7 model can make savings and increase throughput. Delivering on-time
and without error can be massively improved. Making a cost reduction on the
huge amounts of tiny shops out there is a great place to prove the tech
financially, not where you'll see the most dramatic impact.

There is another automated pizza startup out there that has taken big frozen
pizza factory tech and shrunk it down to retail size. It's not the right
answer either. That tech makes too much sacrifice in accuracy, flexibility and
quality for quantity.

There are more factors that go into this, maybe something better pursued
elsewhere than discussed here.

------
cnst
I've actually interviewed with Zume in winter 2017/2018, they've initiated the
contact through one of the platforms that only accepts the top-5% of
applicants in the first place.

They've set me up for a failure during the initial phone screen by asking a
tricky set of two simple questions that noone else has ever asked together and
in that order, where you have to answer the first question before you see the
second one:

* “You've worked at company X. Rate your performance on a scale from 1 to 10 for how your supervisor would rate you.”

* “What is the reason for your separation from company X.”

(Try doing these two questions in the above order if you've ever been let go
from any job, and when the answer to the first question is fixed before the
second question is revealed.)

These bros then went ahead and made a hard rejection right there on the phone,
waiting for my reaction as if I'm a zoo specimen (it was kind of a shock to me
at that time, as I've never been hard-rejected and humiliated like that before
or after this incident).

Am I now surprised or disappointed these folks have failed? Not really. You
get what you preach. The whole idea seemed kind of stupid and overblown in the
first place.

~~~
marcinzm
>(Try doing these two questions in the above order if you've ever been let go
from any job, and when the answer to the first question is fixed before the
second question is revealed.)

I just always assumed people made things up for these questions and rehearsed
their fake story ahead of time.

~~~
cnst
> I just always assumed people made things up for these questions and
> rehearsed their fake story ahead of time.

How could you do that if you've never heard of the questions? (I did hundreds
of screens, and it's never came up before.) Does everyone always research what
questions each company asks? I guess if you're aware of the trap, it might be
possible to avoid, indeed. Then it becomes a test on whether you've researched
the company or not prior to the call; whether or not if have ever been fired;
and whether or not you're a good liar.

Also, even if you're aware of the question — do you rate yourself below 7, or
hide the fact that you've been let go by the person rating you 7 and above?

~~~
marcinzm
I've found questions about past jobs and why I left to be common enough. So I
feel it's beneficial to have a narrative that paints one in the best light
(ignores the negatives, promotes the positives, etc.).

>Also, even if you're aware of the question — do you rate yourself below 7, or
hide the fact that you've been let go by the person rating you 7 and above?

That depends on your ethical views on lying. Personally, I don't owe companies
anything and they will lie to my face about things if it benefits them (like
layoffs, financial state, worth of options, etc.).

------
kemyd
2005: We will have fully-autonomous cars by 2020

2020: Making pizza automatically is so damn hard

------
Multiplayer
Interesting hit piece. I know Alex from the gaming industry - he's very smart,
very driven and very nice.

3 thoughts: 1\. 375mm is a huge number. 375mm is also 1/3 of 1% of the fund...
so small potatoes. Any numbers they throw around are going to look enormous
and make great headlines.

2\. If some of the investments don't sound a little crazy to you, then what is
their differentiation or thesis? Remember PG's essay about good companies
often start off sounding like terrible ideas.

3\. Yes, anyone that can raise large amounts of money, well, that may be their
core strength. Raising money. They need to pair that with someone that can
build a team. It's not a bad thing to be able to raise funds.

Every SoftBank funded company must have an army of reporters looking for
weakness. One of the cons of getting money too easily I suppose.

That said, I did not / do not understand Wag, and I have 3 dogs and I pay for
dog walkers. Against my will, I'm married, she insists. I'm not totally craZy.

~~~
GCA10
It's the cognitive dissonance of your Point 1 that makes this so fascinating.
I think we're all at peace with the idea that a $100m venture fund will
periodically write a $375,000 check to a couple crazy dreamers -- just to see
if they can make their long-shot idea come good.

And when funding is tiny, it fits into our sense of what risk-taking should
be. These are garage/spare bedroom startups with no salaries, a count-the-
pennies reliance on AWS to get it going, and an MVP that's "brought to market"
via some brave/crazy little scheme that's very dependent on other people's
goodwill and tolerance.

If it works, hurray, and if not, everyone regroups fast and moves on.

Multiple all the numbers by 1000x, and the distortions get very strange. Yes,
the fund is still making a "tiny bet." But the founders now can goof around
with more money than most serious presidential candidates enjoy during primary
season. And that feels like a pretty unfortunate misallocation of society's
resources.

~~~
mdonahoe
> And that feels like a pretty unfortunate misallocation of society's
> resources.

Unsuccessful startups don't do much damage to society. It's the successful
startups that you have to watch out for!

------
SQueeeeeL
SoftBank sounds like they didn't get the memo startups involved in physical
world don't really work because you can't "disrupt" complex logistics networks

------
alister
Wouldn't it make more sense for the VCs to make 375 bets of $1M each rather
than 1 bet of $375M?

Just the other day we heard about the troubles of 23andMe that had $786M in
venture funding. Are there any examples of startups that got >$300M in early
funding that went on to become a huge success?

~~~
dmurray
There aren't enough companies for the $1m bets. The Softbank Vision fund was
closer to making 375 bets of $375m each.

------
rcpt
Those pizzas were not good but I don't think it had much to do with the robot.
I don't know why they didn't just spend a bit more on ingredients.

~~~
abhgh
I found them okay-ish. In fact, I felt the cooking was not uniform because it
felt more "bready" towards the periphery (yes its supposed to be like that,
but this was more than standard pizzas).

NB: things may have improved, I had ordered in Jan 2017, after seeing one of
their vans going by in Mountain View.

------
lostlogin
It would be interesting to know the number of pizzas sold. What did each one
cost SoftBank?

------
rebuilder
So, hindsight is 20/20 and all that, but how was this supposed to work? The
pizza assembly apparently was done at a central location, which means they can
deliver to a limited area. Let's say max 30 minutes for delivery, how far is
that in a metropolitan area? The factory is not going to be cheap.

It seems like they figured making pizzas was the bottleneck, when really
delivery is it.

------
jesseryoung
> In January, Zume cut 360 jobs, leaving a little over 300 employees, and said
> it would focus on packaging and efficiency gains for other food delivery
> companies.

Am I understanding correctly that they went from an idea to 660 employees in 2
years? How common is this in VC funded startups? I can't imagine this would be
easy to manage effectively.

------
stewbrew
Where I live they have this TV show where startups have 2 minutes to pitch
their idea to some investors. I remember people who built a fully automatic
pizza machine. They asked for a few thousand euros and failed. I wonder how
much money they would have got from Masayoshi Son. Somebody should make a TV
show for/with him.

------
xenospn
This is very odd to read as a founder. On one hand, you have VCs and Angels
telling you you have to be "10x of everything's that's out there!" to get a 1M
seed check. On the other, you see someone who's arguably 10x worse getting a
medium sized bank given to them.

------
Traster
It's really peculiar. It's the nature of venture capital that your moonshots
will pay off the dozens of trash companies you invested in, but what happens
if some presidential candidate decides his media organisation is going to
write an article about every single one of your investment failures? Is this a
matter of a media eco-system that doesn't understand a business mdoel sticking
an oar in where it doesn't belong?

------
joncp
I researched Zume quite deeply for interviewing with them and I never could
figure out how they intended to make money. They had a vast plan that was way
to big to execute all at once and none of it was ever going to be complete. I
got the sense that they had received way too much funding and had gone on a
feature-creep binge as a result. I learned a neat lesson from that: you can
kill a startup with too much money up front.

------
DevX101
Has SoftBank made ANY bets on American companies that are on trajectory to
make significant returns?

~~~
tempsy
They purchased most of their Uber stake at $33. It's at $40 now, so they've
made money on Uber despite what the media wants you to believe.

~~~
icebraining
Yes, they technically did. But they are congratulating themselves on an 18%
gain, having invested in early 2018. The S&P 500, with reinvested dividends,
is up 22% over the same period.

~~~
tempsy
Upside for Uber is higher than S&P at this point. Could easily go above IPO
price given the general upward trend + their good earnings.

~~~
alephnan
Then they could have bought S&P500 first, then buy into Uber now

~~~
tempsy
That’s just called hindsight. If anyone knew at the time of decision what the
perfect investment was we’d all be billionaires.

~~~
alephnan
Right, we don’t. But no one buys the S&P500 because it’s the perfect
investment. It’s diversified. Much less risky then buying an individual stock
like Uber.

~~~
tempsy
You're wondering aloud why a VC firm doesn't just buy the S&P. I think you can
figure that one out yourself.

------
tempsy
FYI: Uber is back to around $40 after a good earnings call. Softbank purchased
most of their shares around $33 (though I think they also purchase some around
$48), so they are mostly profitable on their Uber investment.

Not out of the question for Uber to reach $50+ by end of year.

------
benibela
Would it be a sound investment strategy to short everything that is fianced by
SoftBank?

~~~
vesinisa
AFAIK they only invest venture capital meaning the stock is very rarely
publicly traded meaning it can not be sorted, or generally even invested in.

------
baybal2
I think you need to be seriously stupid to spend $375M on something like a
pizza chain. To me it looks surreal seeing people giving somebody like him
$100B

------
randycupertino
Has SoftBank made _any_ profitable investments lately? All I hear about them
is going bust (WeWork, pizza...).

~~~
fxtentacle
"SoftBank Vision Fund has had 12 exits. SoftBank Vision Fund's most notable
exits include NVIDIA, Uber, and Flipkart."

[https://www.crunchbase.com/organization/softbank-vision-
fund](https://www.crunchbase.com/organization/softbank-vision-fund)

~~~
rrss
Didn't SoftBank buy high and sell low for nvidia, though? (and maybe uber,
too?)

~~~
sdinsn
Not for Nvidia, they sold at $218/share with an average basis of $105/share.

I can't find a number for Uber alone, but they posted a $6.5B loss for Uber
and WeWork together.

~~~
rrss
Ah, thanks. I didn't realize they had options to sell at $218, so I was
thinking of the market price in Feb 2019.

------
mhluongo
Despite the poor company, fanboying over getting a Levine callout in the
"blockchain" bit heh [0]

[0] - tbtc.network

------
thrower123
Is there a list of successful Softbank companies? It's starting to feel like
the only time I ever hear about them is when some batshit Web 7.0 gig-economy
company that should never have existed starts losing its shirt, and then it
turns out that Softbank has invested hundreds of millions of dollars in it.

------
woodandsteel
That robotic arm looks like it could lift something 100 times as heavy as a
pizza.

------
iamgopal
Sometimes I pity masayoshi son, while I fail to earn a hundred thousand
properly.

------
miohtama
Sounds like Zume would have been a perfect merger partner for Juicero!

------
moneromoney
SoftBank will go bankrupt. Such bad and incompetent investments...

------
heyflyguy
ok so how exactly do you pitch to softbank?

------
bb88
Best quote from the article:

    
    
        “I’ve never seen data to suggest that being charismatic
        and confident and overly brash is linked to a 
        successful business,” says Kellie McElhaney, founding 
        director of the Center for Equity, Gender, and 
        Leadership at the University of California at 
        Berkeley’s business school.

