This week, the Equity duo of Kate Clark and Alex Wilhelm convened to get some quick hits in about Slack’s WORK, Luckin Coffee and Sam Altman’s departure from Y Combinator.
They then dug a bit deeper into the money around food: DoorDash and Sun Basket both raised this week. And what is a discussion about venture in food without mentioning Blue Apron?
And finally, TransferWise illustrates how not to IPO.
In all of this, they considered a world without the word “unicorn” as it relates to billion-dollar valuations — before admitting they are probably responsible for a good amount of its use.
Alex: So I think that the real unicorns now are companies that are growing, and are profitable, while also been worth over a billion dollars. Because we’ve seen very few of these, Zoom famously, was a profitable company. And its S-1, appears TransferWise also is, I can’t name more than two. And that makes them actually as rare as unicorn should be, in my view.
Kate: Yeah, I’m thinking maybe we should just actually stop using the term unicorn unless they’re profitable.
Alex: The problem with that is, it would be a two-person crusade against a wave of usage. I don’t think you and I have that clout. No offense to us.
Kate: I do think you and I are responsible for using that term, at least like 20% of the times that it’s used.
Alex: If that’s true, I’m going to retire. But I hear your point, we should actually get rid of the word unicorn, it’s now effectively meaningless, it means nothing. And profitable growing and worth a billion would be a great constellation of things to actually meet some threshold to be called special, because that is.
This also marks the last time the show was recorded from the only home it’s ever known — because TC SF is moving — so Kate trolling Alex at the tail end is quite fitting. Come back next week for the same great podcast from a different great location.
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Kate Clark: Hello and welcome back to Equity. I’m TechCrunch’s Kate Clark. This week, I am with Alex Wilhelm of Crunchbase News. How’s it going today, Alex?
Alex Wilhelm: Very, very good. Excited about all this and enjoying the sun out here on the East Coast. And I am missing you in the studio today because it is, I think, the very last one out of 410 Townsend, is that right?
Kate: Yeah, so last week we said it was our last one recording altogether, Chris, Alex and I. But this week is my last recording in the studio as Alex is in Providence. So next week we’ll be with you from a brand new spot. I have not seen the new podcast studio, I have no idea what to expect but hoping it’s nicer than this little cave.
Alex: It is cave-ish. It’s kind of nice. There are chairs and a table.
Kate: There is exposed brick which I really like. So I’ll miss the exposed brick.
Alex: It’s very SOMA rustic, if you will.
Kate: It is, indeed. All right, well, let’s get going, we have a few really good topics to get into today that I’m excited to talk about but first, let’s just do a quick little IPO update. Alex, why don’t you lead the way?
Alex: Yeah, so I just wanted to go ahead and call out a couple of companies that we had talked about on the show over the last couple of months, really, just to provide a little bit of continuing context. We often cover a company before it was public, during its IPO and then we drop it and we move on to new, shinier things. But there is some interesting stuff going on chief of which is that Luckin Coffee which we’ve spoken about on the show since its early fundraising days is actually now below its IPO price if I’m reading this stock chart correctly. So that’s a fascinating little data point. I recall that Luckin and Fastly went out on the same day priced well and generally did well, but are now struggling, sorry Luckin is struggling, Fastly doing fine. Moving on Uber is at about $41 a share still down with $45 per share IPO price. Lyft is off more sharply 50 to 50 as we come to you, off at $72 IPO price, and that I think makes Lyft the bigger dog of the two, if I’m doing my percentage calculations correctly in my head.
Alex: Pinterest is down to about 24-40 a share. Notably, it was up as high as $35 a share, post IPO, but then its earnings report didn’t have quite the goods that Wall Street was expecting. So drop from there. And finally for me Fastly, about 20 to 60 a shares far up from its IPO price of $16. So from Fastly and Luckin definitely a diverging set of results. Okay.
Kate: I feel like at this point we should just have an IPO/public company podcast and a startups and venture capital podcast.
Alex: Yes, but then we’d have to do two podcasts.
Kate: That’s true.
Alex: And I used to do that it’s not good.
Kate: There are so many companies going public, at what point are we going to stop checking in on them? At what point is the list too big for us?
Alex: Well, the good news is, we are kicking off with some old school stuff to balance out all the IPO curve which we are going to go, not to the world of unicorns or decacorns or public markets. But instead all the way back to accelerators, and especially Y Combinator, everyone’s favorite and the most famous of all of them. Kate, what’s going on?
Kate: Okay, yes, Alex. But before I talk about Y Combinator, I do want to quickly mention that Slack is actually going to go out under the ticker symbol WORK instead of what we had initially expected, because they said they were going to do it SK. So a weird, semi last minute change up because they are going public via direct listing on June 20th.
Alex: Yeah, also SK I think is the name of a South Korean telecom company. So I don’t think they want to get conflated with that. But the little joke that everyone’s making on Twitter is that Atlassian ticker symbol is TEAM and Slacks ticker symbol will be WORK. And if you have put together you get work team … or something like that. And the problem is, it’s really terrible. And if this is foreshadowing a merger, I’ll cry.
Kate: Teamwork?
Alex: Yeah, teamwork. Yeah.
Kate: Yeah. All right. Well, let’s segue into this at YC news. So, we’ve talked a lot about Y Combinator on the podcast. It’s the largest accelerator and highly influential in Silicon Valley and beyond. This week, they announced a brand new president, his name is Jeff. And he will be replacing Sam Altman, who had actually transitioned out of a leadership role recently and is now permanently going to be dis affiliated with Y Combinator. So Sam Altman left his role of President to become CEO of OpenAI, which is a research outfit that is supported by some really big names in tech, including Elon Musk and Peter Thiel. Altman had been part of YC for a really long time. He was initially part of a cohort in 2005 and he became a partner years later and then he was eventually promoted to head of the organization. Which he was for five years before he decided to focus more on OpenAI.
Kate: So Connie actually, who’s often a co-host on Equity. She sat down with Sam Altman and had a really great authentic interview that you can find on our website. Where he talked about the role he played in changing YC to become this very large accelerator. And then he also talked about his goals for OpenAI, which I thought, there were some funny quotes in that interview.
Alex: Can we pause and just tell people who don’t live here that Sam Altman leaving YC is a changing of the guard in a material way. Because YC does, maybe is an overstatement, but sets the tone for accelerators, both in Silicon Valley and outside of it. It’s the model people look up to. And so to see it change leaders, could usher in some change that could reverberate throughout the global startup community. It’s a big deal, even though it sounds like a small personnel change.
Kate: Totally like I think when I wrote a story a few months back about YC moving to San Francisco full time. I had a lot of heat, will be like, “why are you even writing about that?” That seems fairly insignificant. But actually, these small changes end up playing a really large role in the ecosystem. Because YC is responsible for incubating some really notable large companies that play a huge role in Silicon Valley for years to come.
Kate: So, I think the big takeaway here is we wonder how will YC change, now that it has fully different leadership with Jeff Ralston on board as President. I don’t know him personally. But I imagine he’s going to take on a much different leadership style than Sam Altman who like I said, he, Sam Altman’s was responsible for scaling YC, so much over the last few years. He created several programs, at the time when Sam Altman became or was handed the reins. YC had just 67 companies that had graduated from the program. And the last cohort alone was more than 200 companies. So you can see how much he was able to change YC, not saying that it was for the better. I don’t know. But it will be interesting to see how YC shrinks or expands under new leadership.
Alex: I want to talk a little bit out of my head here, but YC didn’t have a late stage fund before Sam’s time at the group I don’t think. So, that’s the change that was brought in. And the way YC has funded companies has changed, they get more money now, class sizes are bigger, demo days are even more chaotic, it’s just a bigger and louder show. I wonder if it’s going to continue that way. But there was some notes in Connie’s piece, Kate that you and I were talking about before we hit record about how Ramen profitability was like the old goal for graduates of YC. And now instead, people are really chasing it, it seems from what we hear from investors and also media reports and just showing up that it’s much more trying to raise more money than before higher valuations. Which is a bit of a change from how YC used to function in terms of startup results, is that fair?
Kate: Right exactly, like you just mentioned they were once going after Ramen profitability. At this point a YC grad can fairly easily raise a couple million bucks right out the door. Some raise a lot more than that right away. And I thought it was interesting because Sam Altman actually told Connie that, “He would not have YC companies raise the amounts of money they raise, or at the valuations they do.” “I do think it is on net bad for the startups.” He said, which I would say, Sam is really the reason why that’s happening, at least, because he’s taken YC to these new extremes. I thought that was funny to hear from, essentially the person whose idea it was.
Alex: Yeah, I mean, a lot of this is also the fact that the markets have tilted towards larger rounds early on larger rounds later on. And so YC has also adapted the times, the cost of living is going up in the Bay Area. So of course, they need to put more money into these initial companies. But a big shift, I mean, we will meet Jeff Ralston, we will talk to him, we will figure him out, and maybe we’ll talk him into coming on the show and try to get a better feel for him. Because we’ve all met Sam Altman before, but now it’s a new leader. So I’m excited.
Kate: Yeah, we should definitely have him on the show. Well, now I think we should talk about one of the bigger deals of the week, now that we dove in deep on the early stage ecosystem might as well go downstream a little bit.
Alex: Yeah, so DoorDash is raising I should say, it hasn’t actually closed this round yet. As of the time we are taping, by the time you hear this maybe it will be completed. But according to really everybody that covers the world of technology and finance, DoorDash is raising more money. Now if this sounds like a bit of a refresh, keep in mind that I think they raise their series F in February of this year. I think there was a $400 million round at a $7.1 billion post money valuation. So this is a pretty quick second round for the company.
Alex: Rumor has it or reports indicate that it could be between $500 and $750 million. So, flexible, unclear yet. And the valuation could be between 10 billion and 13 billion, and this is from the information and Bloomberg and a few other people. So it’s going to be an enormous check into a company that’s already very well capitalized and just raised money. And here’s the thing that really caught my eye, if they were worth 7.1 billion in February, how in all that’s holy to pick a non profane, superlative, is it could birth 13 billion now? It strikes me as an insane bit of paper value creation that feels very bubblish. And I want to get your opinion on that.
Kate: Right. I mean, I don’t think there’s any way it’s worth $13 billion. And I mean, that’s nearly double, in what? How much? Three months time? Yeah, I mean, I imagine. I think it’s a mixture of DoorDash truly having really phenomenal growth rates and seeing a lot of growth despite extreme competition in the last year or so. But I also think it’s that coupled with a serious case, of fo mo among investors.
Alex: Tell me more about that. I’m curious what?
Kate: Yeah, I mean, it does feel like every investor does want to get a piece of some of these really bigger on demand companies. And I think DoorDash, from what I’ve heard is truly the best in the space, in terms of just pure financial projections. So I also think that they have a really grounded, strong CEO, Tony. So I think that’s a little bit of that. And I think for years, we’ve seen investors, we’ve seen investors really go after all these different food delivery on demand or milk companies. And all of us I think, the whole time have been puzzled by that.
Alex: Yeah. Because when I was covering the DoorDash stuff, I was just going around creating and aggregating all the different news bits into one report from my pub. And it reminded me a lot of the opposite of 2016, because if you go back to 2016, DoorDash, was trying to become a unicorn, I think for the first time and they raised at a valuation, I think it was like 700 million, not a billion. So they missed the unicorn threshold that time, and it’s also the year that SpoonRocket shut down. TechCrunch called the year the on demand apocalypse. And I think that was the same year that Postmates raised a flat valuation. So if you go back just three years ago, these companies were on the outs. And now on the flip side Postmates has raised more, DoorDash has raised more, is raising more. It’s a weird turnaround of events because the market doesn’t feel materially different, people still eat food from cars, I don’t know. What changed?
Kate: Right, exactly. That’s what I’m thinking. I wonder if maybe global expansion has had a really big role in DoorDash’s growth? I’m trying to think of what could have changed, maybe just since 2016. Obviously, not much if anything has changed since February, which is why that’s just mind boggling that they would have such a rapid increase to their valuation. But yeah, maybe they’ve seen, maybe they’ve just added a lot of global markets that have contributed to that as far as Postmates. I mean, I just worry, I just feel so bad for them. I just don’t think the IPO is going to go well, in the slightest and DoorDash seems like they have a scale. And they’re at this size that I think they may still be able to get a lot of demand. But Postmates, I don’t know.
Alex: I actually had the other perspective, I either flipped in my head, I’m like, Postmates seems fine. What’s DoorDash doing? Yeah.
Kate: Really? Oh, man. No way.
Alex: I feel like the problem here that I have is that I don’t have enough data points, to feel confident in anything that I feel about this space because it’s so variable. And so I don’t know full of gyrations and change. That’s hard to tell. But here’s my thought Kate, Uber just went public, and we talked about it too much. And we’re not going to talk about much today. I do apologize for how much we talked about it, but it was so much fun. And they have an enormous food delivery business called Uber Eats and it has now been priced essentially by the market. It’s worth a fraction of Uber’s market cap. Do you think that, that has helped these other companies? Because now they can maybe work out how Uber is being valued in terms of food on demand, gross bookings? Or is this just like, Uber got a bunch more money and so people that compete with Uber for food delivery also now need to get a bunch more money. I can’t decide that this feels bullish or reactive, if that makes sense.
Kate: When you say, do I think it helped? Do you mean do I think it helped, like, say DoorDash value themselves or like, okay. Yes, I do think so. I think it has and even I think in Postmates, which is an itty bitty business in comparison to Uber. I still think, just given the fact that they’re in the same, that they are all on demand businesses that there had been some learnings they could take from that. And DoorDash especially because I mean, damn, if it’s going to be valued at $13 billion. That’s going to make, I mean, just like we should put that into context, that makes it one of the most valuable startups in the world.
Alex: Also, almost as much worth as much as Lyft, which had several billion dollars in revenue last year. So because Lyft is not worth 15 maybe 16 billion, I have to go look it up, but it’s right in there. So you’re getting into that range. It’s a lot of money.
Kate: Exactly. I think I’m looking at a list right now of the most valuable companies and yet $13 billion puts it behind the Stripe, Airbnb, Jewel, WeWork and a couple others. So, that’s just crazy. Palantir, yeah. So yeah, I mean, that’s wild and it sounds like it’s definitely going to happen. And I mean, I guess couple more years then until the IPO.
Alex: Yeah. Okay, so let’s go back in time a little bit and remind everyone of when Blue Apron was hot. I know it sounds like that never happened, but it was actually a thing for a minute. And then they went public, and then they quickly became not hot. And then they packaged meal delivery service, world went to hell, but not everyone died. Kate, someone still raised. I’m excited. Tell me about this.
Kate: Yeah. So Sun Basket has just raised a Series E of $30 million. And actually, I want to say I want anecdote about Blue Apron. I remember when they filed for their S-1 to go public, I was at a baseball game and I had to leave and go blog about IPO. So that’s not the best memory yeah, so Blue Apron, Sun Basket, they were all part of the same cohort of earlier meal kit delivery companies. So Sun Basket, it’s the same as the rest, although it uses organic and ‘healthy ingredients’. So, it’s like if you’re looking for a healthy, specifically healthy meal kit startup, that’s where you’d want to go.
Kate: But, couple of years back, actually, I made the whole on demand apocalypse, Sun Basket was rumored to maybe could be considering an IPO. That seems like probably not super likely this point. They’ve just raised a $30 million round. And whatever. It’s not super exciting. It is just another deal in the food space. But I was, I know I did cover it and I was reading through some of the stuff they sent me and they provided an interesting financial metric that I wanted to ask you about and see if you can tell me more because it’s unsure. So they said, “Sun Basket is one of the fastest growing meal delivery services. It’s grown at 80% CAGR over the past three years.”
Alex: CAGR being compound annual growth rate, right?
Kate: Mm-hmm.
Alex: Okay, so this is what those metrics you have to think about because over the last three years could mean 18, 17, 16. It could mean last three years from I don’t know, the start of May back 36 months, a bit flexible on the timeframe here. And then they did say I think grower growth there. So we don’t know if this is revenue or a different revenue like statistic. But an 80% compound annual growth rate from any material revenue base adds up pretty quickly. So it sounds impressive, but I wanted to throw a couple caveats on that.
Kate: When a startup says something like, we’re growing fast, like 80% CAGR, three years. They’re throwing all these strange different figures at you. And it makes it a lot harder to make sense of it. Right. Like does that frustrate you when you’re reading press releases from startups?
Alex: I mean, it’s such a nice change from when they told us nothing, that I’m hesitant to be too… complainy about it because I want them to keep doing it’s still better than having nothing.
Kate: I mean, is it better than having nothing? When they say that we have no idea what the baseline, we have no idea what the 80%. It could be $1.
Alex: Sure, but it does help explain how they raised again. So the way that I think about this is they raise a series D in January of ’18. Right, and now they’ve raised E in May of this year. So presumably they grew about 80%, actually more than that, it’s longer than a year long period, so say you at 100%, you can get why they raised again, and also the smaller raise that they did, because their Series E was smaller than their Series D in that context implies either close to profitability or a sustainable growth rate that doesn’t cost that much. So it does provide some context. I agree. You have to work around the outsides Kate, I hear your point. I don’t want to dismiss it. But I would rather have the hard challenge and try to get there myself than to have nothing to chew on. I guess. Maybe that’s to.
Kate: Yeah, no, that’s fair. And they also said, just to note that they plan on using the money to incorporate meal kit services for breakfast and lunch. So you could have all your meals through Sun Basket if that’s something you desire.
Alex: Well, I did Blue Apron for a while, years and years ago didn’t go well. So I think I’m good, I will pass.
Kate: And like I was telling you before we recorded I had Blue Apron for the first time this week. So I’m a few years late.
Alex: So late.
Kate: But I have to say, I enjoyed my experience quite a bit.
Alex: Tell everyone what you made.
Kate: I made a shrimp curry.
Alex: And?
Kate: And it was good. Yeah, I mean, I was with three people total. So it wasn’t really ideal for three people but it worked out.
Alex: All right, well, let’s leave behind the delicious food and quickly talk about something really quickly, which is the TransferWise secondary round that went down this week. This is going to be the technical-ish part of the show. So if you’re more interested in big, shiny numbers, not for you, but if you care about how things work. Stick with us. So Kate, TransferWise is a European unicorn that does money transfers. I think it’s pretty well known now. Is that fair?
Kate: I would say it’s quite well-known now. Yeah. Well, at least in our circles. I don’t know. We’re in a bubble.
Alex: Yeah, we’re in a bubble. But I think we’re fine. Let me rephrase, inside of tech TransferWise is becoming a name.
Kate: Yes.
Alex: Okay, fair enough. They just sold, allowed for the sale of I should say, $292 million of their stock in a secondary transaction. And what that means is, things were sold from external shareholders to other people. But the company itself didn’t sell new shares to generate capital for itself. So it’s a way to provide liquidity to existing shareholders, employees, maybe some early investors, maybe an executive who quit, whatever, without forcing the company to go public. Notably, when this happens, at least in my experience, and email me people if I’m wrong, companies don’t tend to reprice too much when they do one of these huge sales. But TransferWise was priced at $3.5 billion in this transaction, way up from its November 2017, Series E, that valued at 1.6 billion.
Alex: So the company didn’t raise money for itself, but did reprice and allow for a lot of liquidity. And critically, I presume, put off the need for an IPO. And that is a disappointment for us, because we love talking about IPOs on this show. But I guess I mean, Kate, my impression of this story is it’s a huge deal that no one cares about, and it’s going to slip away in the news cycle in a week. This would have been headline news in 2012. This would be the biggest news of the month.
Kate: Right. Yeah. I mean, but so what? I mean, are you saying they’re just… That the bubble is going to pop or what?
Alex: I don’t know, I feel like we should, people should talk more about this. I see very little chatter on Twitter about it, I don’t see a lot of commentaries, I mean, it just more than double this valuation and is secondary, that was almost $300 million. I don’t know, maybe in five years from now, that’ll be crazier to hear. But it’s just nuts.
Kate: Right? I mean, I wonder if that happens, a lot more to than we realize and that can be part of the reason why some of these companies’ valuation tumble forward so quickly, is because there’s a lot of secondary activity. But I don’t know, that’s, I mean, the whole entire industry is so opaque but man, like the secondary market is as difficult not to get.
Alex: Yeah, it’s the opaque of the opaque. TransferWise though, did drop some numbers. And I wanted to bring this up, because I think I know why TransferWise managed such a large transaction at such a high price. And in 2018, the firm did, I heard the numbers here, revenue of around 148 million, I converted that from pounds, I think. So do your math, a net profit of around 8 billion post tax, 8 million, sorry, post tax. So the company is growing, and its profitable. And it’s now in super high demand for investors who are trying to get shares any way they can.
Alex: So I think that the real unicorns now are companies that are growing, and are profitable, while also been worth over a billion dollars. Because we’ve seen very few of these, Zoom famously, was a profitable company. And its S-1, appears TransferWise also is, I can’t name more than two. And that makes them actually as rare as unicorn should be, in my view.
Kate: Yeah, I’m thinking maybe we should just actually stop using the term unicorn unless they’re profitable.
Alex: The problem with that is, it would be a two-person crusade against a wave of usage. I don’t think you and I have that clout. No offense to us.
Kate: I do think you and I are responsible for using that term, at least like 20% of the times that it’s used.
Alex: If that’s true, I’m going to retire. But I hear your point, we should actually get rid of the word unicorn, it’s now effectively meaningless, it means nothing. And profitable growing and worth a billion would be a great constellation of things to actually meet some threshold to be called special, because that is.
Kate: Well, before we close out, though, I do want to ask you something about this secondary round. So you know how we talked about how Uber did a lot of this. And seemed like their valuation actually peaked before they went public?
Alex: Yes.
Kate: Is it possible with companies, like TransferWise, doing a bunch of secondary transactions, seeing their valuation expand. It’s nine years old. So we should point that out, as well. Do you think that could ultimately negatively impact any kind of IPO?
Alex: So the answer is possibly. It could set up expectations that are too high that have been can’t meet in the future? That’s the real risk. But my impression is that given its profitability, imply growth rates and current revenue scale, the $3.5 billion valuation isn’t insane. And so the company should be able to grow into it, is my thought. If it needs any more capital to do so, it can raise it, there’s no problem, it’s proven that it can sell almost $200 million in secondary shares, right. So why can’t it sell another hundred million primary. So no, I don’t see this as a risky transaction, because it’s so strong. But Uber had a lot of secondary activity for a long time. And I don’t think people understood fully how unprofitable it was, or also, how much its growth was slowing on sequential quarter basis. And that combination is what captains valuation dominant in public. But I don’t see that happening in TransferWise for two reasons one, it hasn’t. And two, I think the TAM for its business is its global and enormous and probably rising over time.
Because crypto has famously failed to win that market of remittances and create across borders and all that. So I don’t view this as particularly dangerous. But I do think you make a good point. Some companies could get ahead of the skis in this way. But in this case, I’m not too concerned.
Kate: Cool. Well, it’d be interesting to see if other companies pursue similar transactions that helped them delay their IPOs. I guess we will just wait and see.
Alex: Yeah we will. I’ll talk to you next week Kate. Have a good one.
Kate: You too. Bye.
Alex: But in this case, I’m not too concerned.
Kate: Okay. Well, thank you for sorry.
Alex: Was I being mean? Was I accidentally mean?
Kate: No I just didn’t know what to say.
Chris Gates: Well, thanks for that. All right I guess it’s over. Hi.
Alex: I don’t know, I’m so sorry.
Speaker 4: You did good.
Kate: You didn’t do anything.
Chris: Kate screwed up the transition.
Kate: I just got forward of what you were saying. And I was Tweeting something and then I realized you’re talking about crypto. And I was like why are we talking about crypto?
Alex: Bro, you can’t literally phase out during the recording.
Kate: But I tweeted about the unicorn thing. Okay.
Alex: You did that? You asked me a question tuned out answer, twinged and then drop, absolutely bad.
Kate: Your answer was great, though.
Alex: It was so boring. You stopped listening. That’s not a good answer.