Postmates Secures $141M in a ‘Super, Super Difficult’ Fundraising Effort

https://www.bloomberg.com/news/articles/2016-10-31/postmates-secures-141-million-in-a-super-super-difficult-fundraising-effort

by scapecast • 10 years ago

72 92 10 years ago

bloomberg.com

gumby3• 10 years ago

Really hard to see the defensible "moat" in the business models of these delivery companies. As the article says, Uber uses its balance sheet as its weapon, but the flip side of that is it will be hard for any new investor to get much of a return in any future round -- its hard to see its defence against a disrupting competitor. Even Lyft, which looks weaker, easily scoops up the same drivers as Uber.

All of which means it's not clear if this is a difficult fundraising market or not. It certainly is for these undifferentiated delivery companies, but for tech startups? Not seeing it yet.

x0x03• 10 years ago

I think the thing to watch for Uber et al is Austin. If a good local alternative is created that is content to make $100m/year with no real ambitions of growing, then they will have to continue to fight city by city.

vosper• 10 years ago

I was in Austin just after Uber and Lyft had left. There was a company called Fasten which had promo codes on seemingly every lamppost in the city. It worked just like Uber, and I believe it pays the drivers better. I don't know if they're still around and still have the market to themselves, but if they do I imagine they could become entrenched there.

dopamean4• 10 years ago

I live in Austin and I'd be shocked if all the new ride share companies (Fare, Fasten, GetMe, RideShare Austin, etc) did 100mm a year in revenue combined. I think RideShare Austin has the best chance of sticking around here. They're set up to be a non-profit. So their intent is to follow local regulations carefully and stick around for the long haul. We'll see what happens.

pfarnsworth• 10 years ago

The difference is that all these food delivery companies need to acquire both customers and drivers. Uber already has the drivers and the infrastructure for delivery. That makes it much easier for Uber to compete against companies like Postmates. I honestly don't think Postmates, Caviar, et al. have much of a chance over the long haul.

madeofpalk3• 10 years ago

Actually, they need to hire customers, drivers AND partner restaurants. Makes it quite difficult having to 'manage' three individual parties.

gumby3• 10 years ago

Sorry, I didn't mean to imply Uber as a competitor to Postmates-etc/DoorDash-etc/dry-cleaning-delivery etc. I just meant Uber as also being in a class which has only moderate barriers to entry. I agree with you that these delivery companies have little competitive advantage or particularly good business models.

I don't really see what advantage Uber has over Lyft, Didi etc except the balance sheet and using it in the hope of doing the largest, fastest land grab possible. To draw a tenuous analogy, it's hard to say that the 17th-19th century European land grabs worked out that well in the long term.

lgieron• 10 years ago

Really hard to see the defensible "moat" in the business models of these delivery companies.

Couldn't the same be said about a lot of the "unicorns"? For example Dropbox or AirB'n'B don't have significant network effects and anyone with some cash can copy their software and directly compete with them (the same way Lyft is competing with Uber). The likes of Facebook and Twitter are an exception.

pjc503• 10 years ago

Dropbox has a mild network effect, as soon as people use it to share files with their friends and colleagues. Once Dropbox gets established inside a business (often because it's easier to use than internal IT), they're probably quite secure.

majani2• 10 years ago

That's why they're avoiding the public markets. Their valuations will take a pounding once they're put up for everyone to scrutinize

lmm• 10 years ago

I would think AirBnB has a pretty big network effect, in the same way as e.g. eBay.

HalfwayToDice• 10 years ago

"It has said it intends to be profitable, without tax-related expenses, by the end of next year."

That's a bizarre interpretation of "profitable".

digikata• 10 years ago

I think that it's the articles colloquial expansion of EBIT. EBIT (Earnings Before Interest & Taxes) is a somewhat common financial metric. I think it is useful to look at if you have a concern that a business has tax/interest portions of their balance sheet that might be skewing the other measures of profitability.

qwrusz2• 10 years ago

I agree, very bizarre way to claim profitable.

As for the other comments mentioning EBITDA. The Tax in EBITDA is income tax.

You cannot be taxed out of being profitable.

The tax rate is not >100% so if you are profitable before taxes you are profitable after taxes. Just less so.

I have no idea what postmates means here by "profitable, w/o tax-related expenses". Maybe something like sales tax they collected that must be remitted? (that's not technically an expense either but they don't seem to know what they are doing or saying at the moment).

JumpCrisscross2• 10 years ago

The tax rate is not >100%

Lol welcome to New York. Even ignoring the cost of preparing reams and reams of paperwork, a flat $4 tax on, say, bagels could very well flip margins negative.

lathiat2• 10 years ago

It's not clear to me which side of EBITDA we're arguing on, but as a generalized statement capital expenses for which you cannot claim a full immediate deduction could put you in debt -- the full tax claim is deferred over the life of the asset. You could earn $10,000 of revenue -- spend $10,000 on a server and then still owe some 20-30% income tax because you cannot claim the full $10,000 deduction in that first year. For my server example that may be 3-4 years, some plant and equipment can be much longer.

This is also based on Australian tax, I assume it's similar elsewhere but don't know the intricacies.

gaius• 10 years ago

EBITDA really only makes sense for businesses with large capital assets, like dams or runways.

noahmbarr• 10 years ago

Overcoming less-than-favorable unit economics when a business is at scale is never fun.

That said, I appreciate this startup's continued hustle.

gaukes• 10 years ago

Here in Berkeley, we're getting indefinite free delivery from Uber Eats. The war of attrition has definitely started.

CN7R4• 10 years ago

Wait hold on.. where is this deal? I'm too lazy to walk to get cheese board.

taigeair• 10 years ago

Why free delivery?

CN7R4• 10 years ago

Pretty sure it's like the Lyft coupon they're handing out around here -- free for a certain amount to incentivize you to keep using their service.

rkho• 10 years ago

In SF, UberEATS has a rolling $5 off per delivery for the month of November. Last I checked, deliveries were a flat $5 so this counteracts it. It's been that way for ~2/3 weeks now.

ehnto• 10 years ago

All orders were $20 off including free delivery for the last week here. Still free delivery now that it's over.

Previous to that were free uber rides, free uber helicopter rides and all while still paying the drivers the same amount.

It is a shame to me, because we are a small city in a relatively remote location that had been incubating it's own smaller scale food delivery services. Some really cool platforms that could compete with Uber in all metrics but one: the ability to spend big to create incredible brand presence.

Everyone is now super excited about UberEats because it is cheaper and makes us feel like we're just like the cool kids in San Fran. Meanwhile these smaller companies will likely fizzle out, as our city just doesn't have the capital to invest and compete.

madeofpalk3• 10 years ago

Uber Eats launched 4 months ago here in Sydney with free delivery and no minimum order "for a limited time" and it's been amazing - I immediately stopped using competitors like Foodora/Suppertime, Deliveroo, Delivery Hero, Eat Now and Menulog.

I guess this is exactly what he means when he says Uber is "using their balance sheet as a weapon".

rjvir• 10 years ago

Postmates raised $141 million in a financing round led by Founders Fund. The San Francisco VC firm, co-founded by billionaire Peter Thiel

So much for the Silicon Valley boycott of Peter Thiel.

I wonder if they would have raised from Thiel if they were in a position of strength, and had other options.

Naritai2• 10 years ago

I'm reminded of an old Hollywood quote, "I'll never work with <actor X> again, unless he's right for the part". Business is business.

JumpCrisscross2• 10 years ago

Which, if one is honest, is what makes America work.

I disagree with Thiel. Sixty percent of Americans see similarly [1]. But guess what: democracy depends on tolerating--and reconciling--different views.

In Evelyn Beatrice Hall words, "I disapprove of what you say, but I will defend to the death your right to say it" [2]. The same fraction of Americans who disagree with Trump agreed with interracial marriage as recently as the 1990s [3].

Democracy is messy. If you like overruling others with force, don't pretend to like our system. You're lazy, trading liberty for security, and in turn deserve neither.

[1] https://www.washingtonpost.com/news/the-fix/wp/2015/09/14/si...

[2] https://en.wikipedia.org/wiki/Evelyn_Beatrice_Hall

[3] https://mechanicalbrain.files.wordpress.com/2012/04/interrac...

intoverflow2• 10 years ago

I'm all for "business is business" but it just gets irritating when these startups pretend to have an ethical approach but then that approach goes out the window when money is involved.

Not sure how they expect us to swallow it.

tha234• 10 years ago

Ugh, thanks for the reminder, I'll use Caviar, Uber Eats, DoorDash etc. Supporting UFO level insanity like Thiel's and other conservatives is just ridiculous.

meritt4• 10 years ago

I'm still boycotting Thiel and any of his significant investments. For example, we cancelled our corporate Asana account after the Republican Convention and cited that as the sole reason for cancellation.

After his egregious Trump support, I absolutely refuse to utilize any service or product of which he's a prominent private investor. I know it's just a drop in the bucket, but dammit, you have to take a stand at some point, even if it's effectively meaningless.

dcgudeman• 10 years ago

So you are not going to use facebook?

CN7R4• 10 years ago

Here's a list to make it easy for you: http://foundersfund.com/portfolio/

OoTheNigerian2• 10 years ago

Makes sense.

Especially as the founder of Asana is spending millions supporting Clinton against Trump

CN7R4• 10 years ago

I honestly don't think the 'boycott' was reflective the majority's opinion. Unless someone can compile a list of people who've said they outright weren't going to do business with Thiel.

chronic6l• 10 years ago

People on HN like to complain (expected from the 18-25 year old crowd). But at the end of the day, they realize business is business and will do what's necessary to survive.

Boycott Thiel in front of your friends (a public position) but continue secretly dealing with him (a private) position. Sound oddly familiar...

tyre2• 10 years ago

We are a YC S16 company and will not take money from Peter Thiel. May not be the majority's opinion, but that seems irrelevant.

venomsnake• 10 years ago

On the issues - as my HN comment history shows - I am firmly on the democrats side - pro abortion, pro gay marriage, for sensible gun ownership, taxes on the rich, investment in infrastructure and education, single payer health care and so on.

And yet - the zealotry and fanaticism on the left to extinguish any kind of "wrong" thoughts, deviation from the norm, or perceived transgression is extremely off putting - around the time the Eich drama unfolded - I realized that these people are at least as dangerous as the conservative Christians when they had the upper hand in the discourse. They are against all and any forms of discrimination - unless the people discriminated disagree with them.

Destroying someone's livelihood just because they don't have the "right" values showed me that the new cultural overlords are the same as the old one. So I support Trump just to piss them off.

So I would not be surprised if a lot of Trump/Thiel boycotters are Jedi in the streets, Sith in the sheets - because real hackers always have a rebellion streak in them - and right now the left is "The Man"

achow• 10 years ago

"Peter Thiel, was already an investor but agreed to step up its support.."

Looks like Thiel came to the rescue when Postmates was not able to raise fund from anywhere else.

I wonder if they would have raised from Thiel if they were in a position of strength, and had other options.

Seems like Postmates did try raising from somewhere else first - at higher valuation perhaps, but maybe they were getting devalued?

danm072• 10 years ago

It's going to be interesting to see where they allocate the money. They're in a very tough market: competing with Uber for drivers and Amazon for drone deliveries. Literally, the most inauspicious position to be in, second to competing with Google or Elon Musk.

It's funny that selling the company was their priority, and that they had to hire an investment bank to look for funders.

danvayn• 10 years ago

It'd probably more accurate to say Postmates is competing with Prime Now, not Amazon Air lol

jdavis7033• 10 years ago

I didn't downvote you, but the blasé and pedantic tone to this comment is probably why you're getting downvoted.

scapecast• 10 years ago

It's not uncommon for start-ups at the more mature stage to work with an investment bank to pull together a round of financing (let's say post Series B), particularly when you get into the triple-$M range. For example, Box used JP Morgan in their later rounds.

Bankers have a much wider network of potential investors than founders, and they can also run the process much more efficiently. Raising $141M is different from raising $14.1M, it gets way more complex. And at that amount / valuation, what can be a financing can quickly turn into an acquisition, think what happened to Cruise Automation.

Frequently the bankers do a principal investment in the same round they are raising for the company, to show that they have skin in the game, but also to position themselves for a potential IPO or M&A transaction (which is the lucrative part, you get 2-3% of the total consideration).

Qatalyst is well known in the Valley, another firm is Allen & Co. Both companies do principal investments, and so do the bulge bracket firms like GS, JPM and MS. GS put money into Uber.

So it's probably not "had to hire" but "decided to hire", and a perfectly common practice.

sargun• 10 years ago

I find Postmates competing primarily on food delivery quite odd. When I originally started using Postmates, it was for pretty much for everything but food. When I ordered food from it, it was for the likes of food trucks, where I just needed to dispatch a courier and make a free form order. Unfortunately, Postmates discontinued support for these features.

The kinds of things I ordered before the modernization of Postmates were USB-to-Ethernet adapters, Macs, soldering irons, and more. These were typically high priced goods that I needed in a short period of time to keep up some service.

perryh22• 10 years ago

My team of ~5 people orders from Postmates every weekday for lunch and our order is missing items about a third of the time. It's not uncommon for one of us to reorder via Caviar's Fastbite service, where the food is on-hand and delivered within 5 mins in SoMa. When we tried Caviar's non-Fastbite service, we noticed the same problem with missing items. Does this happen to anyone else? We've been having this problem for months and I'd think that one of these companies have got it figured out by now.

jdavis7033• 10 years ago

Never had missing items via Caviar. I order dinner about once a week from them, the only mistake I've had was a restaurant confusing pepperoncinis for pepperonis (I'm vegetarian so that's kind of a big deal to me), which I can totally see happening in a busy kitchen by mistake.

Ntrails2• 10 years ago

I find it bizarre that you're consistently using a service which is bad 33% of the time. I feel like I'd have given up after a couple of weeks - because honestly convenience is what you're paying for and only getting some of what you order is the opposite of convenient.

yousifa• 10 years ago

I order almost daily from Postmates & DoorDash. I have about the same hit rate as you with either orders cancelled an hour in or missing items.

Edit: I think a big part of the problem is they don't read the order notes

nodesocket• 10 years ago

Honestly, I am shocked they were able to raise at all. I've used Postmates and Cavier a few times, but as soon as Uber Eats released, I haven't used either since. I exclusively use Uber Eats now and use it more frequently than I ever used Postmates or Cavier.

I have to guess the investors (Founders Fund - Thiel) know something I don't, because seems like a lost battle from my porch.

orthoganol• 10 years ago

I can't conceive of mainstream success for Postmates outside of bubbles like SF and NYC - because it's just too expensive: Delivery fee (with very frequent 'surge pricing'), service fee, and prompts for tip. I've never placed an order under $30 for a meal just for me.

And that's fine if you make 6 figures and don't cook very often, why not be a regular Postmates person, but I just don't see how that works outside of certain neighborhoods in certain cities.

madeofpalk3• 10 years ago

Loads of people use alternatives here in Sydney and Melbourne (including Uber Eats). Doesn't hurt that Uber Eats doesn't charge a delivery fee and has no minimum (for now).

Not really sure if we count as 'the bubble', but people have shifted from calling restaurants (or Dominos) directly to using these services to 'upscale' and discover more restaurants.

ojm• 10 years ago

Uber Eats are charging $5 per delivery now in Melbourne. Be interesting to see how this impacts them.

Source: https://www.ozbargain.com.au/node/272512

product50• 10 years ago

Who are these people who have shifted? Are you living in a bubble yourself? I certainly haven't seen this shift happening among my group of friends.

I feel this is more of a he said she said kind of argument. Would love to see some data here (in terms of whether these deliveries are net additions vs. replacements of existing chains that deliver) but unfortunately, Postmates hasn't published anything yet.

majani2• 10 years ago

This is all following an eerily similar script to kozmo.

Postmates Secures $141M in a ‘Super, Super Difficult’ Fundraising Effort

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