

GrubWithUs (YC W11) Raises 5M Series A - ezl
http://www.pehub.com/153039/investors-dish-out-5m-to-social-dining-startup-grubwithus/

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grubwithme
Can someone please educate me on why investors are interested?

Really rough back of the envelope finance makes this seem like a dog.

14 employees. I read something on HN a few days ago that said to expect to
spend 100k/yr/employee on costs. I assume this is something like [salary +
taxes + benefits + whatever you have to do for your employee other than the
actual dollars that hit their bank]

So that's 1.4M/yr in just employee costs. Considering they raised 1.6M
previously, it's probably safe to say the _needed_ the money.

So now if they hire NO MORE, they'll have 3 years of runway. wheee.

The article says they DOUBLED their user base while expanding to FIFTY cities.
Say they had 10 before. Uh, that's not a good engagement sign in most cities.
So the users in the remaining 40 cities are extremely sparse/uniterested. What
is GWU's strategy to reach users and make one city really popular? I'd rather
see them get HUGE in one city, then take it to the next.

Trying to get into happy hours and "last minute dinners" seems like grasping
for straws because the actual dinner business isn't sufficient. Nobody has
made a ton of money on last minute local deals yet, and this reeks of
desperation and divided focus when they haven't been able to nail down their
core business yet.

I just glanced on NYC GWU. In NYC they're averaging less than 1 public meal
per day. NOT A GOOD SIGN. Other comments here indicate that Washington DC is
also a flop.

Let's play the "how much is GWU worth" game. They're not doing very much in
NYC, which I would consider to be the top (or at worst 2nd place) candidate
for GWU proving success.

Lets be generous and give them 1 meal a day in all of their 50 cities (more
than NYC).

To be generous, say they get 10 diners per meal and munch on a 25% referral
fee:

$30 meal x 10 diners x 25% == $75

(I just went through a few listings and typically I see far fewer than 10
diners (I saw zero listings with >9 diners))

GENEROUS SCENARIO: 50 cities * 1 meal/day/city * $75/meal * 365 days/year ==
$1.368M/yr in gross revenue.

realistically, its probably more like: 20 cities * 0.7 meal/day/city *
$60/meal * 365days/yr == 306.6k/yr gross revenue.

What do we think grubwithus's operating costs are? well. employee costs alone
are 1.4M/yr.

So gross revenues less employee costs and no other expenses, no additional
employee growth, gets them, in a VERY generous sales scenario, almost breaking
even.

If they couldn't figure out in 1.6M how to scale one city, what gets an
investor excited about this?

I don't see how it's their current business model.

Granted, I'm leaving out their soon to be launched happy hours and last minute
dinners. The last minute GWU smells like local group deals to me. Groupon
can't do it with their scale and only needing ONE buyer, much less an entire
table to warrant the grub with us dinner (they have a tipping point before the
dinner is "on").

Also, they used to have a model that penalized late joiners (or rewarded early
joiners) with price differences, and back of the envelope calculations could
show that being worth up O($50) / dinner, but that still doesn't make this a
typical venture scale business.

Assuming the people who invested 5mm have less than 100% of the company... say
its 25%, that's a 20M valuation on it, which in this internet bubble, doesn't
sound terribly high.

I struggle to see the scenario where they turn this into a business where
strict discounted cashflows will make this worth anywhere near 20M (i guess at
zero rates, they just have to make the money _EVENTUALLY_ ).

So for investors to win on this deal, GWU basically need to get acquired.
Investors buy in at a 20M valuation not to flip it at 25M.

The only possible acquirers are yelp or groupon type companies that are trying
to drive online users to real world commerce. Restaurant syndicates have no
interest. at anything less than a 40M sale this is a HUGE failure for
investors, and at that price, its probably still a failure for employees, and
possibly even the founders.

What are the odds that given the business model and assumptions of profits,
this will ever be worth anything in that range to an acquirer?

I must be missing the point here, because i actually think investors are
really smart, despite the fact the media coverage about startup frothiness
focuses on some seemingly dumb decisions. These guys don't WANT to lose
money...

I must have the entire picture wrong for GWU. Please help me see where I'm
wrong.

~~~
alain94040
Your math is correct, but you could be off by a factor of 100, which explains
why VCs are interested.

You assumed the best they can do is one meal per day per city. So in effect,
they'd have 10 users (actively eating) per day per location. Why did you pick
that number?

I have been involved in that space for 2 years. We definitely have moved more
way more than that number of people (to lunch) for one location.

So maybe they'll reach 100 groups per day, at scale. Just like Meetup today
has hundreds of meetups everyday in large cities. Now you're talking $100M in
revenue, which means a valuation approaching $1B. VCs do invest in such odds.

EDIT: if it makes you feel any better, tens of VCs I pitched to did conclude
that the market was too small.

~~~
grubwithme
I picked 1 meal per day because its larger than their current volume in either
NYC or SF and a milestone they should probably hit before getting to 100 meals
per day per city.

I agree that it COULD be 100 meals per day per city, but I have no indication
that the market is interested or would support that.

I want to guess what their business is worth right now, not some hypothetical
future projection.

You have moved more than 10 people to lunch for one location. Have you done
that on a sustained (daily) basis for 50 locations? Because that's what my
numbers are saying, and that's a bleak scenario.

I am not saying the investment is bad. I'm saying "please show me how this
investment is good". There are a lot of ways it MIGHT be good, like:

1\. yelp has been secretly wanting to buy something like this for 100m. 2\.
there is evidence that they can fill 50 tables a night in kalamazoo michigan

I just don't have that data, so from what I've seen I can't tell that it's
awesome.

I want it to be awesome. Show me.

------
zanek
I can't tell if GrubWithUs is dying or not. In Washington DC there used to be
tons of dinners. Now there is only 1 scheduled and no one registered for it.

I did notice other cities like San Francisco and Los Angeles have lots of
dinners

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dazbradbury
Was looking at GrubWithUs' background, and thought people might be interest in
this interview with Eddy Lu: <http://mixergy.com/eddy-lu-grubwithus-
interview/>

    
    
        How does a founder, who tries everything end up finding his hit business?
    
        We started off with a gold apparel line. I mean, I enrolled in sewing classes at Santa Monica College...

------
smartwater
As an older guy, I'd feel a little weird using GrubWithUs. Maybe it will one
day evolve into something that I would be comfortable using.

~~~
fourstar
Dude, you created Vitamin Water? I'd PAY you to pick your brain over some food
(I probably wouldn't eat).

------
IanDrake
I tried it yesterday, twice, and it didn't work (functionally speaking).
Errors left and right. Hope 5m can fix that.

~~~
27182818284
I just wanted to second this. I hit it up yesterday and was almost stopped
from signing up because of the errors. I persisted, but I don't think a lot of
people would.

~~~
guynamedloren
Hi, Grubwithus dev here. We're a very small team of developers doing our best
to squash the bugs and build new features. Yesterday was unusual due to
increased traffic, but what kind of errors were you getting? We'd don't like
errors either :)

~~~
27182818284
Hi,

Um, errors like it not accepting my name or sign up information until a second
or third refresh of the page. It also would seemingly doing nothing when enter
was pressed, stuff like that. I didn't look closely at it, but I"m guessing
the JavaScript failed because of some resource it was calling failing. That's
what it felt like at least. Again I didn't Firebug it or anything. I just
tried later.

------
atomical
I grubbed last night in Chicago. It can be hit or miss but last night was
great. I think it's better with a smaller group of people who have a specific
interest.

