Raising money after IPO is pretty different because there’s no fantasy element to valuation.
Public companies can raise money by selling shares in a registered direct offering, or doing a PIPE (private investment in public equity). They can even register to sell new shares directly on the market (called ATM). But if there are not enough buyers, it doesn’t help to keep printing shares.
Definitely interesting TFa points out that Amazon was one of the biggest benefactors from Webvan because they learned from their mistakes and even got people and robot tech later from it.
> The biggest beneficiary of Webvan’s failure was Amazon.com. Not only did the company learn from the mistakes made by Webvan, but it also hired former Webvan executives to launch its own grocery delivery service: Amazon Fresh. Further, in 2012, Amazon bought KIVA Systems, a company that developed the robotic technology initially used in Webvan distribution facilities, for $775 million. Amazon even owns the domain webvan.com.
Never heard of this company before but found this very interesting. Good read.
They used to deliver your groceries in these (https://en.wikipedia.org/wiki/Webvan#/media/File:Webvan_tubs...) tubs, leaving the tub with you. You were free to keep them if you wanted. I had several for years which served as the best moving boxes I've ever had.
They cost $50-70 each on Amazon or ULine. Awesome for stackable storage. With some plywood and casters, you can easily stack 6-8 tall in the garage and move them around with ease. Highly recommend.
While not in the same league as those tubs, when we first signed up for Fresh Amazon was using frozen Amazon-branded bottled water to keep the groceries cold. They switched to insulated bags a couple weeks later though, but we had plenty of free bottled water for a bit.
I was just thinking this weekend about that in fact: was wondering who’s idea it was and if they got recognition for the idea or not.
In my area, they didn’t leave the tubs behind. What they did instead was mess up my order in my favor. Say I ordered one set of Starbucks bottled coffee. That would transform into 10 sets of Starbucks coffee where I wasn’t charged
Were they really? I got mine at a sharp discount online and kept it for over a decade before finally tossing it. I grew up in a small town, and Kozmo epitomized for me both big cities and the Internet. It's a large reason why I'm working in the space now.
In 2000 I lived in an apartment block in San Francisco.
There were SIX WebVan delivery trucks pulled up out front making deliveries at the same time to different people. It was clear they had not even started to generate the efficiencies they needed to succeed in that business.
Of course if they could have raised money like Uber has then .....
Webvan was pushed into too many markets by their VCs. They had 3% market share in 30 cities, but needed 30% market share in 3 cities to be profitable. With customers too spread out, delivery gets too expensive. It was a good idea with a bad growth strategy.
I loved Webvan and when they failed, I think the company I was working for was able to snag some of their conference phones and Aeron chairs.
I remember ordering produce for delivery and they allowed different ripeness of bananas so I would order one of each (green, ripe, etc ) just to see if they came and looked differently. This was back in the day of web commerce so fun to play with. Good times. I remember Pac Bell Park had all their seats with Webvan cup holders and scoreboard ads for Webvan too at the time.
For the record, I'm currently in Saigon, and whenever I order delivery from the local Tops Market (around USD 1.5 fee, within two hours from order placement) they call me to say that bananas are either too ripe or too green and confirm if I still want them. Would love them to digitize this interaction.
In response to another comment, the pickers have access to the backroom and frequently deliver better produce than would be available in-store.
I bought Webvan stock on their IPO day. Lost around $5k. (I was 22).
Amazing service. Terrible business model: boil the ocean, premature scale, hire the head of Andersen Consulting as CEO. Every bad, nonsensical decision.
And yet, the core was valid: a lot of people want their groceries delivered. When I went to business school a couple years later, the CMO of H-E-B spoke to my class (later, President) and I asked when they’d offer delivery. His response: “we believe people enjoy the experience of walking the aisles.” Well, Scott, whose parking lot is now 50% curbside pickup? Who spent 9 digits to acquire Favor? You’re welcome, you rich bastard.
It’s a good thing the grocery business had enough margin for error for these people to come around to learn the correct lessons from Webvan.
Curbside pickup, and delivery are quite different economically, but I agree that "enjoy walking the isles" is nonsense.
I'm not sure the economics of delivery (in a general context) work. Sure, there are folk who are time-poor, and cash-rich, and for them it makes sense, but for the rest the price either has to go up to reflect the cost, or the delivery cost has to be subsidised.
Curbside pickup is a happy medium ground. Picking the groceries is cheap, and the expensive part (delivery) is handled by the customer using their time and their car.
Delivery cost increases logarithmically (one package more in the same truck) while revenue increases linearly when more people order / people order more. Increase in revenue outpaces delivery cost even for low margin items.
Amazon makes more money with people on Prime, not less.
i wouldn't say "enjoy walking the aisles" is complete nonsense. I actually do enjoy walking the aisles myself, but as I get busier in my daily life, I find that to be a huge time sink. despite that, i still do it because I still can't bring myself to trust a gig worker to do the shopping for me. sometimes, even buying something like crackers, you need to at least do a quick cursory check on the packaging to determine if they were crushed.
I lived outside Webvan’s markets, but I had a (then teenage) friend in LA who used Webvan for underage alcohol delivery. Apparently they weren’t doing any kind of age verification. Growth at any cost indeed.
I’d say times have changed, but I recently ordered alcohol shipped by GSO (a regional delivery co) and they just left the box on the porch without a signature.
Thats surprising, GSO always had me sign for my shipments and required ID. If I wasn't home or no one over 21 was then I'd have to pick it up at the distro center.
many retailers have started running verification through 3rd parties w your name and address. i know cigarbid now does this, believe drizly does. i think it may vary by state.
In the dot-com boom Flooz (meant to be an "online giftcard currency") was giving out $20 in free credit and through that I bought a single cigar at age 16.
Interesting! Think I read an article a while back (we're talking several years here) that said the Dotcom Bubble's biggest bust was a company called theGlobe.com - I think the founder was the grandson of the founder of Nestle or something along those lines.
That sounds like they were a bit uncharacteristic as a dot com in the sense that they had intellectual property that survived the company that was actually worth something and executives that weren't half bad that Amazon later took over as well and a target market that was actually somewhat real. Sure, it failed and VCs got greedy and pushed for an IPO. But then ten years later Amazon acquires the tech, and the people, and builds a decent business from it.
A lot of dot com companies during the bubble had none of that. An MBA with a silly/incoherent idea and a half baked website were all it took to get funding. VCs were throwing money at anything that had a website at some point. They were desperate to get some of the action. Most of those companies were literally created to tap into that kind of stupid money. The dot com bubble was VCs throwing money at absolutely bat shit crazy stuff; and then losing badly when the bubble burst. This wasn't that bad in comparison.
I mean WeWork isn't that different. Or Uber. Or Air BnB. Rapid growth funded. Arguably all cases where the investors maybe got a bit too greedy but also companies that are generating real revenue out of markets that do exist with a service that consumers are willing to pay for.
It's a “supermarket on wheels”. Every city has a distribution point and small electric cars bring the groceries to your front door at a time of your choosing.
After the launch of Picnic, the other players had to catch up by starting their delivery services.
Tesco in the UK have been doing their own grocery deliveries since at least 2008. It feels like one of those things that makes sense for the grocery store to provide themselves (or use a white-labelled solution like Ocado), because they don't have to entirely make their profit from the delivery fee or marking up prices.
Those companies are currently locked into a fight over the American market. That's why they aren't making a profit over there: the US is still a battlefield and the war is worth spending billions. Americans are lazy and eat lots of fastfood after all.
Eventually a shake out will happen and whoever is left standing can start making lots of money.
ModernMBA has a video [1] that hypothesizes that food delivery in general will never be a profitable business.
I'd say that it's pretty apt, that it's all running on VC money for market share. There's a reason that before mobile devices the only restaurants that offered delivery were pizza & Chinese.
> Supermarket Direct was a pioneering online grocer, providing a home grocery shopping and delivery service in London from October 1995. The company sold Sainsbury's-provided groceries until it was bought by Somerfield and integrated into the Somerfield Direct home shopping service
> The Schwan's family maintains 100 percent ownership of Minnesota-based Schwan’s Home Service, a privately held, independent entity traced to the company’s home-delivery business launched by Marvin Schwan in 1952. Schwan's Home Service sells frozen foods from home delivery trucks, in grocery store freezers, by mail, and to the food service industry. As of 2022, Schwan's Home Service will be rebranded as Yelloh.
Still a good idea overall, perhaps they did a silly execution and had made efficiencies error which a team wouldn't do now a day(listed some in these comments). They somehow went for growth-at-all-cost instead of increasing their density to check the unit economics of a single location and then move on with the gained knowledge.
Reminds me of "We lose money on every sale, but we make it up with volume".
> These eager investors pushed the management of Webvan to grow as fast as possible.
I don't understand this. Why would you want to grow as fast as possible? Yeah there are economies of scale, but it seems like they were far from a point where that would kick in. Rather scaling made them lose money even faster. As a startup, you only have to grow faster than the competition. And it is not like you would be surprized by a competitor building distribution centers overnight. They should have better taken it slow and tried to become profitable before scaling out.
These businesses that are not unique, not patentable only have scale as their moat. So you want the widest, deepest moat and fill it with customers.
This is the early 2000s and deindustrialization is in full effect. If you want a cheap warehouse near a top tier city they weren’t hard to find. So it’s quite possible a competitor could surprise you and do a 10 city expansion overnight.
Everyone during this time was trying to ape the Amazon model. Which at this point still wasn’t profitable. No one was interested in going slow. Because there were irrational investors just looking to spend money on the next unicorn. If you weren’t taking it your competition would and you would be another dead company on a list.
Trust me, there is nothing rational about how money works. Even the experts who were expecting recession any day now have decided to shut up about it.
In retrospect it’s easy to see why a company failed: no viable plan, burn rate, expensive, etc. But a lot of it is just gambling and luck. We can could have worked. Cosmo could have worked. Yahoo could have bought Google. We’ll never know.
Because they thought their business model was so amazing that everyone would copy it, and thus they wanted to build and maintain a first mover advantage. They overestimated how much competition they would face and underestimated the logistical challenges of their model.
Short answer: to juice the numbers ahead of an IPO.
Long answer: In the short term companies need quick and dirty ways to get market share. Showing growth tells investors that they've established product market fit and opens the door to acquiring more funding to scale up.
Once public, the stock market will be forgiving of fast growing but unprofitable companies offering the distant promise of massive profits.
62 comments
[ 2.3 ms ] story [ 126 ms ] threadPublic companies can raise money by selling shares in a registered direct offering, or doing a PIPE (private investment in public equity). They can even register to sell new shares directly on the market (called ATM). But if there are not enough buyers, it doesn’t help to keep printing shares.
Never heard of this company before but found this very interesting. Good read.
kozmo.com (https://en.wikipedia.org/wiki/Kozmo.com) was another one that was ahead of its time.
I was just thinking this weekend about that in fact: was wondering who’s idea it was and if they got recognition for the idea or not.
Of course if they could have raised money like Uber has then .....
I remember ordering produce for delivery and they allowed different ripeness of bananas so I would order one of each (green, ripe, etc ) just to see if they came and looked differently. This was back in the day of web commerce so fun to play with. Good times. I remember Pac Bell Park had all their seats with Webvan cup holders and scoreboard ads for Webvan too at the time.
In response to another comment, the pickers have access to the backroom and frequently deliver better produce than would be available in-store.
Amazing service. Terrible business model: boil the ocean, premature scale, hire the head of Andersen Consulting as CEO. Every bad, nonsensical decision.
And yet, the core was valid: a lot of people want their groceries delivered. When I went to business school a couple years later, the CMO of H-E-B spoke to my class (later, President) and I asked when they’d offer delivery. His response: “we believe people enjoy the experience of walking the aisles.” Well, Scott, whose parking lot is now 50% curbside pickup? Who spent 9 digits to acquire Favor? You’re welcome, you rich bastard.
It’s a good thing the grocery business had enough margin for error for these people to come around to learn the correct lessons from Webvan.
I'm not sure the economics of delivery (in a general context) work. Sure, there are folk who are time-poor, and cash-rich, and for them it makes sense, but for the rest the price either has to go up to reflect the cost, or the delivery cost has to be subsidised.
Curbside pickup is a happy medium ground. Picking the groceries is cheap, and the expensive part (delivery) is handled by the customer using their time and their car.
1. more people order, or
2. people order more items
Both, 1 and 2 can be influenced by marketing and delivery can become a revenue instead of a cost center.
Bonus points if that means that you can deliver from a cheap warehouse instead of an expensive supermarket.
Amazon makes more money with people on Prime, not less.
Business like this is 1% initial idea, 99% execution and cutting costs.
I don't enjoy "walking the aisles" at all. But I do want to choose the produce I buy myself rather than have a picker do it.
Also, I don't buy large amounts of produce at a time. I buy it the day I'm going to use it.
For those two reasons, a produce delivery service isn't of interest to me.
I’d say times have changed, but I recently ordered alcohol shipped by GSO (a regional delivery co) and they just left the box on the porch without a signature.
A lot of dot com companies during the bubble had none of that. An MBA with a silly/incoherent idea and a half baked website were all it took to get funding. VCs were throwing money at anything that had a website at some point. They were desperate to get some of the action. Most of those companies were literally created to tap into that kind of stupid money. The dot com bubble was VCs throwing money at absolutely bat shit crazy stuff; and then losing badly when the bubble burst. This wasn't that bad in comparison.
I mean WeWork isn't that different. Or Uber. Or Air BnB. Rapid growth funded. Arguably all cases where the investors maybe got a bit too greedy but also companies that are generating real revenue out of markets that do exist with a service that consumers are willing to pay for.
Sounds strangely familiar
> https://picnic.app
It's a “supermarket on wheels”. Every city has a distribution point and small electric cars bring the groceries to your front door at a time of your choosing.
After the launch of Picnic, the other players had to catch up by starting their delivery services.
In the UK all major supermarkets do their own delivery, where at least parts of it can be automated
Eventually a shake out will happen and whoever is left standing can start making lots of money.
Will Uber make lots of money? I doubt it.
I'd say that it's pretty apt, that it's all running on VC money for market share. There's a reason that before mobile devices the only restaurants that offered delivery were pizza & Chinese.
[1] https://www.youtube.com/watch?v=IlZ51zeabhM
Why did pizza places and Chinese food places offer delivery, in your opinion?
https://en.wikipedia.org/wiki/Supermarket_Direct
> Supermarket Direct was a pioneering online grocer, providing a home grocery shopping and delivery service in London from October 1995. The company sold Sainsbury's-provided groceries until it was bought by Somerfield and integrated into the Somerfield Direct home shopping service
https://en.m.wikipedia.org/wiki/Schwan%27s_Company
> The Schwan's family maintains 100 percent ownership of Minnesota-based Schwan’s Home Service, a privately held, independent entity traced to the company’s home-delivery business launched by Marvin Schwan in 1952. Schwan's Home Service sells frozen foods from home delivery trucks, in grocery store freezers, by mail, and to the food service industry. As of 2022, Schwan's Home Service will be rebranded as Yelloh.
> These eager investors pushed the management of Webvan to grow as fast as possible.
I don't understand this. Why would you want to grow as fast as possible? Yeah there are economies of scale, but it seems like they were far from a point where that would kick in. Rather scaling made them lose money even faster. As a startup, you only have to grow faster than the competition. And it is not like you would be surprized by a competitor building distribution centers overnight. They should have better taken it slow and tried to become profitable before scaling out.
This is the early 2000s and deindustrialization is in full effect. If you want a cheap warehouse near a top tier city they weren’t hard to find. So it’s quite possible a competitor could surprise you and do a 10 city expansion overnight.
Everyone during this time was trying to ape the Amazon model. Which at this point still wasn’t profitable. No one was interested in going slow. Because there were irrational investors just looking to spend money on the next unicorn. If you weren’t taking it your competition would and you would be another dead company on a list.
Trust me, there is nothing rational about how money works. Even the experts who were expecting recession any day now have decided to shut up about it.
In retrospect it’s easy to see why a company failed: no viable plan, burn rate, expensive, etc. But a lot of it is just gambling and luck. We can could have worked. Cosmo could have worked. Yahoo could have bought Google. We’ll never know.
Because they thought their business model was so amazing that everyone would copy it, and thus they wanted to build and maintain a first mover advantage. They overestimated how much competition they would face and underestimated the logistical challenges of their model.
Short answer: to juice the numbers ahead of an IPO.
Long answer: In the short term companies need quick and dirty ways to get market share. Showing growth tells investors that they've established product market fit and opens the door to acquiring more funding to scale up.
Once public, the stock market will be forgiving of fast growing but unprofitable companies offering the distant promise of massive profits.