Top VC Brian O’Malley On The Next “On Demand” Wave

Brian O’Malley is good at his job. He’s good enough, in fact, that two years, ago, Accel Partners plucked him out of his former firm, Battery Ventures, so he could bat for its team instead.

As venture industry watchers know, these moves are rare, and they often pay off. Two famous examples include Sequoia Capital enticing Jim Goetz to leave Accel in 2004; Goetz has since led hugely profitable deals for Sequoia, including WhatsApp. Peter Fenton, also formerly of Accel, has similarly done a bang-up job for Benchmark, which lured him away in 2006.

Earlier this week, we sat down with O’Malley at Accel’s new San Francisco office to talk about switching firms, as well as why, despite a sudden cooling toward on-demand companies, he’s as bullish as ever about them.

We’re running one part of that chat today; stay tuned for the rest this coming weekend.

TC: Across both Battery and Accel, you’ve backed numerous startups that meet on-demand needs, like HotelTonight, the sports ticketing app Gametime, and the food delivery app Sprig. Are you still interested in apps that meet last-minute needs?

BO: At Accel, we’ve done three on-demand companies. We put a small piece in Sprig. We’ve backed the [Uber-for-kids startup] Shuddle. And we invested in Din [formerly called Forage], which is kind of like Blue Apron but that leverages the whole on-demand infrastructure, so you aren’t relying on all this packaging and UPS to get food across the country.

TC: You mean Din is piggybacking off other on-demand startups?

BO: If you think about it, Uber, Postmates, Sidecar — they all have APIs, so we can take advantage of the fact that billions of dollars have been invested in last-mile infrastructure and that those companies are set up to be API driven — a turnkey resource. Why build when we can take advantage of what these guys already have?

TC: You also mentioned the importance of packaging.

BO: It really matters. When people get boxes of dry ice and space-age packing materials, it piles up after a while, and that’s a big reason for churn. Meanwhile, we can play into food trends that people are excited about, which is around eating locally and eating fresher.

[Using other startups’ infrastructure] works, too, because the times when you want to drop this stuff off at someone’s front door is 2 to 5 p.m., when those other guys aren’t so busy, so you can take advantage of a slower period during their days.

TC: What other kinds of “verticals” are you seeing or imagining could be built off others’ logistics systems?

BO: There a wide range of end markets, but one core premise at Accel is that it’s not just about building a good business but trying to find something that can be truly exceptional and break out. So the categories I’m focused on are massive categories. Somewhere between the grocery store and restaurant experience is a trillion-dollar market.

TC: You think that’s still wide open despite all the related startups and funding we’ve seen?

BO: Yes. Blue Apron has done really well, but [in terms of revenue], they’re essentially still the size of four or five Safeway [grocery] stores. They’re growing quickly and have raised a ton of money so have a lot of resources, but in the grand scheme of grocery spend, they’re solving a very narrow use case.

Just like with restaurants and grocery stores, you’re going to have different companies emerge to serve different use cases, including different companies that emerge as regional powerhouses. [Think] grocery stores like PigglyWiggly that you’ve never even heard of but that are multibillion businesses.

TC: Like regional Instacarts

BO: Right, by leveraging the Postmates and Ubers of the world, you can get into markets more quickly.

The challenge is around how good of a service experience you can build, and once someone becomes your customer, what’s the probability that they’ll become your customer for life. But if you can make the logistics work from a cost perspective and you can make people love your service, there’s still opportunity.

There are still a lot of changes in the way that American households spend their money and want to live that haven’t fully been met with new services.

TC: Shuddle seems to play into that. Are its employees contract or full-time employees, and what do you make of the broader battle over whether they should be one or the other?

BO: I think it will take a while to be fully figured out, but I don’t think that everything that we dub an “on demand” service will automatically face the same challenges as Uber. There are other businesses where there’s a legacy of contract workers, including decades of the pizza delivery guy working as a contractor.

Uber has become a service that users can’t live without and its drivers won’t churn out. I think the net result of legislation will be that drivers and users lose [financially] while Uber remains in the driver’s seat.