This Week in Startups - Trump SPAC, WeWork SPAC, GitLab IPO w/ Eric Newcomer + Quick Commerce w/Matt Newberg | E1310

Episode Date: October 22, 2021

Tech journalist Eric Newcomer joins to talk the Trump SPAC (8:26), WeWork SPAC (15:58), and the behind the scenes funding story of GitLab's IPO (25:41). Then, HNGRY's Matt Newberg joins to talk innovations in the quick commerce space, the growing impact of ghost kitchens, and more! (1:01:10)

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All right, everybody, the world has gone completely bonkers. Trump is launching a social media company and he's going to spack it. Absolutely bizarre. We're living in an upside down world because in addition to that spack happening, we work has finally gone public and the stock is up 10%. And since everything is going absolutely bonkers, I thought we'd bring a guest on who's doing a great job with his new newsletter. You know Eric Newcomer.

He's been on the pod four times. He was reported at Bloomberg, then with the information. Now he's on his own. This is his fifth appearance. Coincidentally, Eric's last appearance was on November 11, 2016, right after Trump got elected. And on that episode, the amazing Molly Wood and Eric joined me to reflect on Trump winning the election. And today we're going to talk about Trump today. Welcome back to the program, Eric.

Thanks for having me. Now I'm independent. I can say whatever I want. You can finally. Absolutely. Yes. I don't have my Bloomberg paranoia or, you know, information. rules, so hopefully it will be better than anyone.

You basically went from like a super stringent big company, Bloomberg. Well, I was at the information first. I was the first employee information. Bloomberg. Yeah, I did the information a year and a half. And then I went to Bloomberg, which is even more, yeah, buttoned up. Buttoned up, yeah. And now people can go to newcomer.

Dot CO, yeah. Dot CO, N-W, C-O-M-E-R dot CO, and you can subscribe to your amazing substack newsletter. You had a great story in there about the GitLabel. IPL, we'll get to that in our news stories. But you've got a bunch of people subscribing. Is this able to? Yeah, I have 11,000 plus total email list and I have 1,300 people paying me, you know, $15 a month or $150 a year.

So you're making more than you were at Bloomberg. It's good. That's incredible. This is like independent journalism is working. You know, about half the posts are paid and half are free. It's sort of a mix. I mean, it's on substack, which has sort of pioneered this model of. you know, sort of a half paywall.

And you weren't part of the group of people that substack paid to move over there, correct? Correct. I mean, they offered me like a very small advance, but it didn't even make sense to like get tied up to them. And, you know, ultimately you're running your own business. And so this isn't about the advance. How are you enjoying that versus working? Do you feel you're doing better work, working for yourself being an entrepreneur? Yeah. I think, you know, you have a much more personal relationship with your readers, I think. You know, I like writing for insiders. So it's very much, you know, for founders, venture capitalists, sort of people really in the industry. So it's nice. You know, even at Bloomberg,

you know, you're sort of writing for like finance people and trying to explain, you know, I don't want to have to say who Bill really is. Like if you don't know who it is, it's just sort of like you're not the audience. You know, it's for like. So yeah, I like that. You know, I like mixing sort of reporting an opinion. So it's a blast. I mean, it's a lot more work because I'm editing my own stuff and, you know, you have to keep putting content out. Yeah, there's no days off, right? I mean, if you, I guess you could take a week off. I took two weeks off, actually.

And, you know, I was like, you know, there's a premium business. Like, I'll take a vacation. But yeah, like a holiday weekend is a hassle because then you need to play catch up and you're behind and everything. Ah, right. Yeah, this is where you will wind up hiring a stringer to do an extra day a week for you and then suddenly you're going to have 10 people working for you. And no, after this, yeah, I definitely need.

Jason Calcanus lessons. I feel like you've done some of the things. If you ever need advice on building media brands, I'll let you know. Employees are really annoying. Be careful, especially riders. Riders are the most difficult to manage. Right. Just super opinionated.

Think they know better than everybody. And in many cases, they're, you know, they kind of self-select for very intelligent people who are loved to debate. So you put 20 of them in a room. Right. Just think about what Jessica Lassen is dealing with, you know.

Oh, my God. You know, with all those like incredible writers. I think what's my interesting theory about this substaffification and, you know, the indie journalist thing. Yeah. Is that I think it's going to create a little more empathy between the tech industry and the writers in that you now as an entrepreneur are going to have a level of empathy and be thinking about business and dealing with business issues as opposed to just being like in the ivory

tower and just, you know. Yeah, I agree with you on sort of twofold, or at least this is. been my experience. One is sort of the reason you're giving, you know, you're running your own business. You sort of realize, yeah, that you have to build something. You know, you have a clear sense of the customer. There are lots of reasons that makes you more aligned. But I also just think the substack model is much more a mix of reporting an opinion. And there's a way that sort of the objective journalistic style allows for these sort of positions that, you know, they're not fully baked positions. So you're writing with an inherent narrative that no one actually

you don't have to fully think through it. Whereas if you have to write an essay and make an argument, you have to sort of think through what you actually believe, which then makes you understand sort of the entrepreneur point of view a little bit. Yeah, and I think the connective tissue then becomes not us versus the New York Times, which has now become the New York anti-tech Times. Like they're literally hiring journalists based on how aggressively they will go after tech companies, right? Like that's literally, when they made the announcement about the last two,

they were specifically saying, like, we want journalists who are going to hold truth to power, power to truth, whatever. I mean, I like the New York Times. I'll defend the New York Times. But yeah, it just feels like when you're in the industry that they're just, it feels like they don't write anything that is in any way, complementary or objective about tech. It's just, it's like a percentage thing, you know? Yeah, I mean, the media goes through moods in their story. You know, there was a period where it was all about shiny gadgets, but there, I mean, you go to the verge. it's still like, oh, people excited about an iPhone.

So it exists. If anything, I'm sort of, I feel like we should get to a point where there's the media, which is just like reporters, you know what I mean? And everybody else, opinion writers, calmness, whatever. We should just treat them like influencers online. And like, if anything, the elevated status, I think is hurting reporters because it allowed, or hurting sort of the sort of intelligentsia of media commentators. Because then people on Twitter can be like, oh, you're a blue check or whatever.

It's just like, no, I'm one person with an audience talking just like if Andreessen talked or whatever. And then you can evaluate, you know, their actual values that the New York Times column is hold, which is like, I'm not invested in the stuff I cover, blah, blah, blah. But right. I mean, you're a talker now. You know what I mean? I mean, you're a, so I just rather see that whole world collapse so that you guys can stop saying the media. You know, it's just like, oh, you know, we're saying things.

We're going to have to put them into different buckets, right? because the average consumer doesn't know the difference between the opinion page and opinion versus reporting. And I think that's why I think the opinion page at the New York Times should literally be like an attachment to it, a separate format. And it needs to have like these are opinions. Exactly. Yeah, I totally agree. The confusion between those reporters should be treated as different. They're mostly trying to get information. Obviously they have bias. But too much of the conversation is this weird mishmash of people not knowing the difference between. Sort of a columnist and reporter. All right, well, let's start giving our opinions now,

since we're just doing random acts of journalism here. Donald Trump just announced his new company, TMTG, or Trump Media and Technology Group. And they're launching an app called Truth Social. You can go to the app store and search for it, and you can, I've never seen this before, but I guess in the app store, you can pre-install an app or pre-sign up for it.

That's kind of a cool feature. And they're going public via a SPAC. The SPAC is called Digital World. Acquisition Corp. It's currently trading under Dollar DWAC. The stock went up 160% on the news Thursday morning and it was briefly halted around noon Eastern as it became a trending stock on Wall Street bets. So let's break it down here. According to the press release, Trump Media and Technology Group's mission is to create a rival to the liberal media consortium and fight back against the big tech companies of Silicon Valley, which have used their unilateral power to

silence opposing views in America. Initial value of TMTG will be $875 million is also a potential earnout of $825 million in additional shares. That would add the valuation up to $1.7 billion. What's your take on this, Eric? Do you think this could in any way be successful? I'm skeptical just because, you know, the first people you attract to a super niche conservative of platform. I mean, this is the, you know, Gab had this problem are going to be really terrible.

You know, it's going to be the people who are really on the edge. And if they don't want to be censoring people, all of a sudden, they're just going to have a huge content moderation challenge. I mean, it's sort of the argument that Facebook makes, right? Being really big, they have the talent, skill, they've hired a bunch of people to moderate their platform. You know, TikTok puts a lot of work into moderating itself. And will sort of this new app, be able to, will they have the infrastructure? Or is it much more sort of of, yeah, Wall Street Pet's stock play?

You know, that's my initial reaction. I don't know. What do you have, do you have a bull case for this thing? Well, if Trump remains off of these platforms, right, Twitter, Facebook, etc. If the board of Facebook, their, you know, independent Supreme Court does not reinstate Trump, people love Trump content

and they will probably create accounts I could see a website I mean you can go to a website right now and see you know why does it need to be an app I would say because the app

would be you know interactive two way and then all the constituents and whack pack around him would be creating content too so you basically get all of the people you know these lost children who were kicked off of all the platforms

now have a place to live and so he did have whatever 70 million people vote for him. 10%, 20% of them still really love him and weren't voting just because they wanted a Republican and not Hillary. So yeah, maybe they get to

5, 10 million people. But they don't know what they're doing. There are glossier. There are brands that are oriented around far less famous people than Trump. So I guess there's certainly a draw, you know, a single really popular person can build a company around them. But, you know,

running out company is hard. Moderating is challenging. The people they're going to attract are going to be sort of the worst of the worst. And how do they get mainstream Republicans or regular normie sort of Trump fans on there? Like, I feel like there are there are a lot of challenges. And then obviously Trump himself is not a great like executor. You know, execute. But it's actually the worst. Yeah. I mean, What is it? Trump University, Trump Stakes, Trump, Water, Trump Airlines. Everything he touches just... He's good at marketing, so we're going to talk about it right now.

The stock's going to go up, but are... You know, he hasn't proven any capability to run a company, let alone a technology company. Yeah, and the moderation, I think, is a really good point. Because didn't... See, Gab was the other one that on January 6th, they banned from all of the app stores, like basically... Yeah, I think that's right. Yeah, I think Gab got banned. So, you know, they have some, if this becomes like insurrection 2.0 planning platform, like, it's going to get bounced off of the app stores again.

Right. That's going to be a disaster. I think there's something really horrible about this as well in terms of using the SPAC vehicle because now it's going to be a money grab. This is going to go, you know, to $50 a share. People are going to lose money. It's going to become a meme stock. I could, yeah. Well, that's a recurring theme of Trump world, right? Like, I mean, there are all these. games to keep donors, you know, contributing when they didn't even realize it paying far more than they could afford. So the idea that Trump World is willing to extract money from loyal followers is nothing new. And clearly something that he's willing to do. So. And here's the thing, you know, tech companies generally have a positioning or a point of view in terms of product, right? Twitter was, you short updates, you know, Facebook was the news feed, TikTok, Snapchat. each Instagram filters.

Everybody had their own kind of technological innovation. This is done. It looks like they just forked MasterDon, which is an open source Twitter, basically competitor. So it looks like they have zero technology behind this. They literally just threw this thing together, put lipstick on a pig, and forked the open source version of Twitter.

And they literally didn't even put, they didn't have the courtesy to put in the open source licenses. So I think this is a disaster. my professional opinion is this thing will fail. It'll have five or ten million people and anybody who puts money into it will lose all their money. So if you're better in the public, this is probably the worst.

Unless you're like a sophisticated gambler like day trading, you know how to pump these things on Reddit. Like I would stay far away from this and buy Amazon or Disney or Tesla stock if you really like want to buy a stock. Like buy one that actually has competent management. We all know how hard it is to eat healthy when you're grinding on product sprints and trying to meet crazy deadlines.

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So go to Real Good Foods.com and use the code twist for $15 off. Learn more and follow at Real Good Foods on social media or go to Real Good Foods.com and use that code twist to get $15 off. All right, WeWork finally went public Thursday via SPAC and the stock is up 10% as of this taping. Back in 2019, we had the famous WeWork S1, all kinds of shenanigans in that. Adam Newman was buying buildings, then leasing them. back. He was selling the trademark Wii to Wii work for $5 million.

The malfeasance was just brutal and disgusting. If you haven't seen the documentary, it was, you've seen the documentary I take at the Hulu documentary? Well, I read the book. This is a classic reporter. I'm not,

I don't think I actually have seen the documentary, but I read Elliott Marines book. Yeah, and then there was Reeves book. Oh, yeah, yeah. A billion dollar loser, the epic rise and spectacular fall of it. Adam Newman and We work. We had them on episode 1130. And they were going to go out at 47 billion.

And that was in mid-2019. And according to a Barron's article for March, quote, soft bank holds about 65% of the equity in WeWork. And so I don't see what the market cap here is right now, but if they own 65%, according to CNBC, it's at $9 billion, right? So they now, if I guess if it was we rounded up to 10, that's a $6 billion or so. And do we know how much we were pumped into it? Are they actually going to come out of this even?

Didn't they put it in like, I thought it was at least, I thought it was like a $9 billion, $10 billion and something. Yeah. They put a ton of money in. They might be halfway there, which is really super interesting. Well, you have to be able to exit. Obviously, if you own that much of a company. And I'm sure a bunch of the value is predicated on soft bank's perceived commitment to it. They start selling out.

It'll put a lot of downward pressure on the stock. Actually, SoftBank invested 18.5 billion. Oh, my God. Oh, my Lord. So they got to triple up here. The company's got to become worth $27 billion for them to break even. Well, yeah. But you know what, to get a save, to save a third of your money on your worst investment,

pretty good, right? Expected revenues, $3.2 billion, over $450,000 members. I mean, it's not a terrible business. I actually think, I'm curious what you think. Isn't this business perfectly aligned for the, you know, work from home hybrid where people are going to need to use space on a more flexible basis? Well, that's the irony of the whole situation, right? You know, if he committed, if Adam Newman had committed slightly less fraud, had made it

to the pandemic, this would seem like a smart business to have emerging from the pandemic. You would have even had sort of this nice reset period where you could have sort of fired a bunch of people, cleaned up the business. There is an alternative storyline where if he just held on slightly more normally, he could have come out of the pandemic and pitch the business as having, you know, an excuse for why it suffered a bunch of losses and layoffs. But yeah, I totally agree. I mean, this is a great time for WeWork.

We're seeing more people like myself become sort of solo entrepreneurs. So, you know, people want offices and also just temporary workspace and companies are distributed. So the thesis, I mean, it was always. sort of a cool idea. Yeah. And that's what becomes dangerous, right? The idea is so gripping and compelling and socially resonant that people stop paying attention to the financials and the losses and the mechanic.

Exactly. It's easy to just like, oh, it's a story stock. Like, and in this environment, that can go forever. And obviously, Adam Newman pushed that theory too far. Yeah, I mean, if you, you need only look at the on-demand economy, which they were part of with Uber Postmates, Lyft, DoorDash. Airbnb. The on-demand economy really, you know, was super promising because users loved it. It was a great product. All of them were great products. But we had things like Lux, the valet that would meet you anywhere and park your car for less than it cost to park it in a lot. And the union economics there didn't work. You know, some food delivery didn't work until they put minimums. Instacart wasn't working. They had to put a membership fee on. And so it's sort of like the great reckoning of unit economics feels like it's upon us. Right. It still feel, I mean, there was an interesting column.

Greg Benzinger at the New York Times used to be the Wall Street Journal, a beat reporter, had a smart column on Uber and sort of the reckoning on unit economics. I mean, we're still seeing that play out. I mean, it's been a terrible experience getting Uber in some of these cities. And obviously, it's a two-sided marketplace, and they have to be able to get drivers, and that drives up, you know, price. So I think that, and, I mean, Instacart is still a private company, and they really saw an advantage from the pandemic.

So I think it's still possible. There's more of a reckoning there. But we work as reset expectations. And so hopefully there's some upside. And even Uber left are like, this is the quarter where they just started to hit, you know, like a reasonable break even or a modified EBTA. And actually, if you raise the prices, this is what I always said. Like if they were losing 50 cents a ride, if you raise the price a buck or two, now they're wildly profitable. Like, why don't they just raise it a buck or two?

They've been doing that, and they cut their staffs, you know, at Airway. The reason I think is just that they were predicated on being able to disrupt transportation wholesale, which required underpricing. You know, people are very price sensitive. And so if you want to show a big Tam, you need to keep prices low. And they wanted to downplay the inherent tradeoff between their profitability and the potential Tam. And so I think that's why they delayed for so long. Yeah, and if you think about it, they were trying to make Uber Pool and Lift Line work, and maybe there was something there, maybe the algorithm could make it work, and maybe those products just don't work.

Definitely not. Don't work. I mean, my friend Tom Doton at Business Insider, right a piece basically about this. I mean, the pandemic was definitely like a cover to get rid of pool, which wasn't really working. And they had pitched for years. I mean, that was supposed to be the future of the business, sort of more sustainable, lower prices. Well, we build liquidity, right? because you'd have so many more cars on the road

and they would always be running. Yeah. I mean, I love the vision, but it doesn't work. Vision was good. They didn't, they released our couldn't execute it. Execute it. And there's other visions that work easier. So, you know, do you just capture the top 50% of the market or the top 60% of the market and say, you know what?

For people who are in the bottom third, yeah, public transportation is a better option at $3. There's not going to be a three or $4 Uber. The minimum in Uber is going to be a, and a Lyft is going to be seven or eight bucks. Are you all sold out of Uber? No, I mean, I still believe the company is going to do well because if they weren't the leader, like if I was in Lyft, I might feel slightly differently about it. But because they have the trucking business, the Eats business, and Uber, I mean, have sold a lot of it before they went public. But I think the company will be, you know, they're growing 20, 30 percent a year on big numbers. And I think, you know, they have the perfect guy in there in terms of optimizing it. He's like really good at that. And they've got, you know, whatever it is, $14 billion worth of equity in other companies and a big balance sheet. So I I know this is your show, but do you ever see Travis anymore? You know, I try not to talk about Travis, but we've remained friends and we see each other, yes. And so I just, you know, he is being very low-key and does not want to talk about cloud kitchens.

But, you know. Yeah, every friend of his I talk to you, they're extremely, they claim to know nothing about cloud kitchens, whether that's true or not. I mean, I know a lot, but I know nothing. Well, here's the thing. You know, like, he really helped make my career. I helped him, obviously. in a minor way. And, you know, he got, you know, really destroyed.

And he wants to focus on his business. So focus on your business. And, you know, I respect that he's got his head down and he's just working. But, you know, I think he will build a business with Cloud Kitchens that will be as big or bigger than Uber. And, you know, I still believe. I don't believe that's the consensus view. I mean, I have no idea. But, yeah, it'll be, I mean, the pandemic was obviously talk about, I mean, if we.

work is a cool coming out of the pandemic story. I mean, Cloud Kitchens with these, you know, ghost kitchens was built for the pandemic where food delivery goes crazy. Restaurants are shutting down. So, yeah. I think your instincts are probably absolutely correct. Heads up, the days of the 60-40 portfolio might be over. You know, 60% stocks, 40% bonds. Bank of America and Goldman Sachs both agree mounting pressures from inflation and the Fed's upcoming tapering deadline might slow down the economy and could cost trouble for stocks and bonds. I think we all know that. So diversifying is more important than ever. It's also important to look at alternative assets uncorrelated to the stock market like contemporary art, according to our friends at Masterworks.

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com.I.O. slash twist to get priority access. That's Masterworks.com slash twist. And make sure you read the important disclosures at masterworks.com.com slash disclaimer. All right, let's get into your recent story. This is a pretty crazy story. Everybody knows GitLab, GitLab, when public GitLab was essentially There's GitHub and GitLab. So explain to people the difference between the two companies. Obviously, we know that Git Lab recently went public, and it was a massive windfall for a lot of venture capitalists. But as you are really good at doing, you found the backstory here. So tell us about the companies and the backstory. Yeah.

So GitHub was sort of the early movers, a code repository where you could, you know, go and show what projects you've been working on, work on open source. It became sort of a mix of like a LinkedIn for coders and sort of a resource. for finding code. And then GitLab comes out of Y Combinator, years after the founding of GitHub, and is basically trying to build tools for enterprise. It's less, it's not the social network.

It's more like, okay, if you're a big company, where can you, you know, your coders sort of keep all their code. And, you know, so it comes out of YC. And I just sort of, I write these story of the cap table pieces, which are really, you know, you look at the S-1 and you say, who's the biggest holder? So I saw, okay, it's Coastal Ventures is one of them, August Capital is one of them, iconic is one of them, and Google Ventures, GV now is one of them. And then I sort of-

And those tend to be people who own over 5% get listed. Over 5% get disclosed. Right. That's why I always dodge the bullet. Yeah, I have multiple entities. So even if I do own more than 5, they're broken up. Some of these I try and go back and, you know, if there's a good angel investor story, I'll tell it. This one, I didn't as much.

But this guy, Casar Eunice at YC, I think, was sort of a big proponent of theirs there. And he introduced this. So Ben Ling was at Coastal Ventures and he was sort of just, you know, going through the YC portfolio. He meets with Sid, the founder of GitLab. This is back in March 2015. and then basically, you know, Ben believes in it, hands it off to Sven, Stroband, the CTO at the time of Kostla. And it sort of just documents, you know, how investing works, which is just, it's extremely interpersonal. It's like who you know, who can refer you, even on something super technical is GitLab.

Obviously, Sven is sort of more the coder guy so he can assess the company and come to a view of whether this is actually like a good idea. But to get the deal and start thinking about it, it's like, who do you know, why Com? How does it work? And so I love to chart that out, you know, how even within the firms, it's so interpersonal and that there's so many random things that happen that make, you know, I did one of these on DoorDash and literally, um, Saar, who was at, who's at CRV, he was going to invest in DoorDash. He was looking at another company and he happened to talk to the general Merringer at Orrence Hummus in San Francisco who said, actually, I don't like that other company you're looking at, but I like DoorDash, and that's how he found it. You know, and it, so I love sort of

just, you know, the randomness of it is, it's very real. The world's so human, you know, you get all these numbers, you're starting from S1, you see ownership and they're huge, you know, we're talking about billions of dollars, but at the end of the day, as you know, as well as anybody, I mean, these are such like personal things, right? So YC gets 7% of the company for 150K. They get diluted down, obviously. So they probably didn't show up on the S1, I assume. Right. I was talking to someone the other day. I think the standard YC is like owning like three and a half percent probably so that, yeah, it's below the five. And if you do that math, maybe they own like 450 million. I mean, that's extremely ballpark on YC. But obviously it's a great return. If you did three or four rounds at 20 percent each, you're looking at 50, 60 percent dilution. If you started at 7 percent of common, you get down to three and a half. But they do have a continuation fund. That continuation fund might have put money in. But that would also be under a different. entity so therefore it wouldn't go above five.

You wouldn't see it either because it might own 1%, 2%. So then August invests at that $27 million post money valuation. Right. August is the best part of the story. I mean, yeah. Tell us that part. That's where the drama is here. I mean, basically August Capital had this guy, AB Katz, who's an associate. So sort of, you know, the total growth.

And by the way, Ben Ling, he's at Ling Capital now. Ben, uh, Ling Capital. Yep. he did the seed round with KOSLA, which means they put in a million or two and own 10% and the A. Yeah. And so then August capital. So this guy, A.B. Katz, after the seed round, you know. An associate.

It's just like on hackery news, sort of a nerdy guy, super deep in sort of the San Francisco tech scene, starts tracking GitLab and is bringing up to his partner. So Tripp Jones, who's the partner, they meet with GitLab CEO, Sid, and they bring him into the partnership and the partnership, you know, some of them, like, you know, old school VCs are really skeptical. You know, I have this great quote, the company seems like, quote, the antithesis of everything is smart VC held to be true. You know, because GitLab was open source. It was fully remote when nobody believed in that. And then, yeah, it was coming behind GitHub and it was competing with Atlassian. So it just seemed like such a crazy company. So then August capital doesn't invest in the A,

Kostla invest in the A. And then, you know, then this guy, Vili Ilchev comes in in May 2016, joins August. He had worked at Box, life lock, Salesforce.

And most importantly, while at Salesforce, he looked at GitHub around the acquisition of Heroku. And so then Ili really gets, becomes a big believer in GitLab and really like vibe. with GitLab's CEO and then really pitches the founders. And he's a partner. He's a partner.

Got it. And then August Capital, you know, there's still like, I don't know, we're worried about it. And David Hornick, who's sort of like the big time guy who'd invested in Splunk and made a bunch of money, has some reservations. I mean, Hornick was very defensive with me. I saw the quotes. I mean, he gave you a lot of, yeah, he sent me like a long email. Because, you know, I was like, oh, I'm going to say you were like not into this deal. He's like, you know, everyone had some reservations about the deal.

It was anything but a sure thing at the time. I was no more vocal about my reservations than anyone else. Anyway, and Billy is very, you know, probably directionally correct. But your guy told you he was dead set against him. He was fighting against him. No, no, I just said he had some reservation. It's just, there's a certain irony.

I'm not saying like, I mean, obviously the deal happened. The partnership has to agree. Hornick was super key in selling it. So I'm not trying to insult him. It's funny in light of how the story ends. It's not so, which I'll get to. a second. It's not so much that he was like dead set against it. It's just like this wasn't, he wasn't like the champion in this. Like, Billy was the champion of this. This guy,

A.B. was the champion of this. And then, you know, Tripp, who is another partner, had sort of been involved in bringing it in. It was really listening to A.B. about it. Um, so anyway, Villy gets it done. They invest 14 million. Uh, and they end up with an 11.1 stake in GitLab at the IPO. The stake's worth about 1.6 billion. billion dollars. So you invest like 15.5 million altogether and you get 1.6. Yeah, exactly. It's more than 100 X. Yum. Yum. Return. On a big number. It's not 100 X on a 25 or 50 K check. It's 100 X on 14. Right. Yeah. It's huge. I mean. And the fund itself that they're investing out of was only 450 million. So they've more than 3x the fund.

$1.2 billion in profit, which means 20% of that carry would be $250 million. Yeah. And there are other companies. And they might have a ratchet there where if they, you know, double, they get to 25% or 30%. So this could be 300 million in carry. I would put it at 250 in carry. There are always more, you know, VCs hate to talk about it. I'll tell you everything. Yeah, I know. I love it. When you are trying to grow a startup fast, hiring engineers will slow you down like nothing else. Don't I know it? So many companies I invest in are telling me they can't get their next version out because they don't have a great engineer. Well, lemon.io will find you a perfect

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lemon, l-em-o-n-o-slash twist, and you'll receive a 15% discount for the first four weeks of work with that amazing developer. Well done, Lemon. Okay, check it out, everybody. Lemon.com. So then August capital, you know, they're trying to raise their next fund and there's some resistance from LPs, you know, it's just there hadn't been a lot of exits, you know, people were constantly, people have been worried about a bubble forever, you know, and it, you know, it was hard. And August didn't have tremendous returns. They didn't have a big breakout like this previously. It's hard to know GitLab's going to be huge, you know. Right. But they didn't have a GitLab in the previous fund or the past two funds, I would guess, which is why they were having. a hard time. If they did return four or five times the fund, cash on cash, they would have an easy time raising a fund. Yeah, I'm not, I'm not sure. I know they exit Fastly. I was good one.

And they exit, I have it in this story. I'm looking for it. It's like Fastly and Bill.com. I'm not sure which funds those were, but I guess they hadn't exited yet, but then once they exit, LPs are more convinced. So basically, you know, Hornick and another partner sort of say, we're not take more, we're not going to invest more. We're basically in a pause. We're not going to take in all this money. And it takes all the people around GitLab, which is like the great investment of Fund 7 by surprise. And so Billy leaves like the, and everybody's sort of in this weird position because if you're a VC, your funds vest generally. So it's not like, so you need to stick around because it's supposed to be a long term business. So basically the story is just like

the guys who made this firm of fortune were sort of screwed over. by the sudden shutdown of August capital. Now August Capital exists. So they shut down August Capital because they can't raise a new fund. They say we're going to stop investing seven. Right. They weren't going to raise a new fund and they were just going to sort of manage out seven. And then suddenly some of the guys who were involved in August start lobby capital,

which is a very related firm that has some control over August capital. August Capital had started a conference over 10 years ago called the lobby. I never, I was invited. I never went because I was running my own conferences at a time. Right. The key thing is to run a conference, not to go to conference. Well, yeah, exactly. And so, but people love the conference because it's just a boondoggle.

It was invite only to 300 of VCs and founders. Right. And so they shut down August, but then they create lobby capital with the same two founding DPs. Right. So it's sort of, it feels like a little bit of a game to shed maybe. some of the partners and still have control. But I don't want to say anything beyond what I said in the story. Well, the cynical view of it would be if you have a seven-year carry.

So let's say the associate, I can do the math for you here. An associate would get 1% of the firm's carry. Okay, 20 points of carry. They might get 20 basis points, which would be 1%, right? 10% would be two of the 20 points. So 1% of the $250 million carry in that one deal would be $2.5 million. So it's getting paid $150 grand or something, $100,000, $200,000, who knows. So it's a pretty nice pay day to get, you know, 20 times your first job.

Associates like the first job. The other partner is a junior partner or maybe not one of the two founding partners. The two founding partners are probably getting 6% each, six points each, which would be five times that 30% of the carry. that partner maybe has, let's say, instead of 1% of the carry, maybe they have 5% of the carry. 5% is, you know, 15 million, 12 million, something like that.

Now, if they're on a 7-year vest, they're three years into it, where does that other half of the money go? Where does the 1.25 go? Where does the other half of the 15 and 7.5 go? Goes back to the original founders because they don't have to pay it out. Just like if an employee leaves Uber or Google early,

those shares don't get issued. They go back to the founders, or they just all the shareholders get that benefit of those shares not being issued, right? So that would be the most cynical view of this. Now, if they did shut down the firm, they might say to the other partners will accelerate your vesting by a year or two as a thank you. And then they would make them sign a non-disclosure, which means you would not get it because if they did, they have something called a clawback. That's because there's a clawback. I know.

gave them two thirds of it. And if they talk about it, they get their money. The founders get to take the money back. So it seems like Villy, the guy who really landed the GitLab deal, probably got at least some of his carry accelerated. And then A, B, the associate. I mean, he was just an associate. And it seemed like they gave him some carry for playing the role.

So I'm not saying they've been totally ungenerous. I mean, it seems like one of the other partners sort of stuck around after it really made much sense. I would infer that that was to keep vesting. But it was a very painful situation for everyone involved. And there is like, even in stories where you don't have a firm shutting down, you know, there's a lot of credit taking in the VC business because everybody has a fair position, right? The top guys are like, well, I worked my way up. And part of the values, you have some associate working for you who does deal flow.

line stuff. You have to decide whether to do it and then you get the credit and then they get to get promoted and then they get credit. That's sort of the old school flow of it. But then, I mean, I think we're in a world where it's much more individualistic. People don't stay at their firms forever. And so now I think there is much more like, who actually found this deal? Like, and then what parts of sourcing and getting the deal done were most important? And these stories dig up, you know, get into the specifics of that in ways that firms would just like to say, you know, the venture firm did it instead of. But I thought this was a funny quote from David Horneck.

He's like, sometimes the deal business is more mundane than modern folklore would suggest. And in the end, great successes like GitLab have many fathers, while great failures die as orphans, which is both true, but then also, obviously, that's true because of how people tell these stories where they all want to make themselves the key player in getting a deal done. Yeah, and great reporting, by the way, and I just love the format you're doing at newcomer.com. To break down the cap table like this,

very informative. You know, we get to see this, you know, and now cap tables are getting tightened up because of carda. You know, when I go look at a cap table in the old days, like I have in my email, the Uber and Robin Hood cap tables. Like, they would just send them to you an Excel sheet. And that's how I met a lot of my contemporaries. This was a hack I did, and I actually wrote about it in my book,

was just take out the cap table, look at the other names, Google them, find those people, and then say, hey, are you an investor in Robin Hood? And if they say yes, then go have coffee with them and ask them to share a deal flow. So literally, one of my big playbooks of how I became successful was I just looked on the cap table. It was like, who's this guy, Chris Saka, who's this person, Sian Bannister? I'll invite them to my next event. So I built my network that way. Now, when you go in Carta, it obscurifies, it's opaque who's on the cap table.

What you'll see is the seed round has this many shares. It's this many shares. Pro rata is this, but it blurs all that. So whether you're using CapTable I have, Cap-based, take, you can restrict by levels. That's sad. There's so much information in Cap-Table. I mean, it is, yeah, I love just going through Pitchbook,

and that's my version of it when you're not getting the real thing and just seen. Yeah, pitchbook has, you know, a little bit more granularity. And then people would leak, you know, cap-tables now and again. There's very famous stories about Cap-Table. I mean, that's how people, the Wall Street Journal, did the story about my Uber position. and was somebody leaked the early cap table and okay, well, there it is.

And some of these stories, I think the DoorDash, when I, you know, I'll get, you know, the people below 5%. It just depends how interest, what I'm focused on in this story. I mean, they're not that tightly held, obviously. No.

And, you know, and there's all kinds of wacky stuff that happens on cap tables and people get bought out. And there's all kinds of stories, like, of early Uber investors who sold in the series B. Like, there's very famous

that tech stars, I think, you know, had a fund. And I think they got offered, you know, at maybe, I know, it was a past history it. It was maybe like $4 billion. And there was a secondary. And I talked to Travis and there was this like secondary going on. I was like, what's this? Who's emailing me? And he's just like, yeah, don't sell.

And I was like, okay. Thanks, pal. And that's Saka, you know, with Twitter and I think Stripe has made a bunch of money just buying from other people who are foolish enough to sell. I mean, obviously some of it is, you know, if you're an exec and you want to be rich now and not rich in five years or whatever. If it's your only holdings, if it's 95% of the net worth, it's a very smart idea to get it down to 50% or something, right?

You want to ride your winners, but you don't want to, as we've seen with WeWork, you would have been wiped out and got zero. So you're sitting there with the $47 billion we work with an $18 million preference, right? There's probably more $25 million in the company, $25 billion, rather. Now the company's worth $9 billion. You know what that means to the common? Zero dollars.

Like you get nothing. You're wiped out. and maybe some early investors got just severely wiped out as well. I don't know. Honestly, I'm interested to know what happened in the, if a direct listing versus an IPO would have had a different impact on the preference stack or anything. If there was. Well, in an IPO, all shares convert to common.

But what can happen is if in those later rounds, because they're so spectacularly large, there's a clause that says, if this is, you know, we're buying into $30 billion for Airbnb, let's say. I'm just making this up. If it goes down to $15 billion, you've got to give us 50% more shares. I get preference, stack. I'm saying that a direct, that a, um, a SPAC is technically a merger. And so I, I don't know. It's just reportable. I just like, you know, whether they're, you know, whether they

knew to protect against a SPAC versus a IPO. I think probably, you know, with soft bank owning 65%. Right. That was a recapitalization moment. They could do whatever they want. Yeah. Exactly. They fixed it then. Yeah. They fixed it then to that. And a lot of times when they do those like really ugly cap recaps, I've been involved in them, it gets really ugly.

And the best thing is when they just say it's pay to play. So, okay, the company's going from $47 billion down to a $6 billion valuation. We're raising $3 billion. All the common is now wiped out. All the other preferred is wiped out. Everybody's wiped out unless you participate in this. So you have to put more money up. So, and that's the way you legally protect yourself.

Does that make sense? Because you had the opportunity to buy. It's not like you were excluded from buying the shares at this new price, you know, this discounted price. Or they do warrants. They could say, hey, you know, for every share you buy. I'd love to know whether, how benchmark, if they're going to make some money on this.

Because they were the C Series A investor. The rumor I heard, just a rumor, is that they may have took an opportunity to sell in secondary. Yeah. In those increasing rounds. Because remember, they were a CER Series A? Were they the Series A or the Series A or the CERER. Series A, yeah.

Series A. So when Masa Yostasan shows up, he's buying as much as possible. And if they owned, you know, let's say they owned 15% at that point, completely conceivable that they sold 10% to Masa for $500 million or something at a $5 million valuation locked in their returns. That's been my assumption that they've made money off this thing. I mean, I think so. Right. I mean, with the WeWork story, you know, the reporters love to make it sort of an indictment on everybody who touched it. But there is a degree to which investing in this charismatic Messiah founder at a series A can make sense even if they're sort of out of control.

Well, you know, the thing is you don't know they're going to be out of control. And actually, it looks like soft banks first investment in 2017 benchmark cashed out $129 million for an 8X return on the initial investment. I assume they had some idiot insurance. They still had some shares. Right. But to your point about the craziness going on right now, the amount of fraud, the amount of, you know, Well, we were a treasurer is going to come after you. They're insistent.

There was no fraud allegation. You can say whatever you want. No, no, no, I wasn't talking about. I know you're not saying about we work. I'm saying the amount of fraud I've seen at the industry writ large. They're running around. Are they? Very, I think so.

Yeah. Oh, wow. That's interesting. Yeah. Yeah. Well, I would just say unethical behavior on the part of what I would consider unethical. I wouldn't say the word.

Right. Yeah. But what I'm saying is there's a lot of people right now, I think, who are, I think the industry is probably got a five to ten X the amount of bad behavior malfeasance, borderline fraud, shaping of stuff. I think we're going to see, you know, so many lawsuits and allegations in the coming months. Because I don't know if you saw there was the person who had a SaaS company. What was the name of it that just got sanctioned by the SEC? Because he faked a headspin.

Oh, yeah, I saw that. Yeah. It was headspin. I mean, that one was egregious. That one, I never really followed that. Right, right. I mean, they had like 40 million in revenue or something. GV.

Yeah. So it was legit investors. Well, here's the thing that's really scary that you should really be, you know, as a, you know, somebody who's deep in this, my little like, hey, look over here kind of moment. If you're, if people are dipping down and they're relying on the series A and the series B's or the series A and series, the seed and the series A investors diligence, and they're just coming in saying, I can do a. deal in 48 hours. Right. At this crazy price. Well, I'm not talking about anybody in specific. But let's just say, they say, as part of their aggressive approach, we don't need to do diligence. We can just do a quick investment. We know you got great investors. What I can tell you is, you know,

I do a very serious diligence process. People think I'm nuts because we'll ask to see bank statements. We'll ask to see the iTunes sales reports. We'll ask to see, we'll ask to talk to their account. We'll ask to talk to the top three employees. We'll ask to the top three customers. I mean, we do diligence like we're a series A firm even though we're doing C. And since we started doing that, we found a lot of, we uncovered a lot of problems that then led us. I'd say it used to be one out of ten times. Now it's maybe one out of five times.

Wow. And we'll pass on a deal. Now, I'm pretty sensitive. I'll see something like somebody owns 30% of the cap table because they went to some Fakaka crazy accelerator and they gave 30% to a dev shop. And I'm like, I'm not investing in this because I know it's going to screw up the future rounds. I'll buy them out or you can buy them out or get them down to 10% so we can clean the cap table up.

But that's your choice as the founder. I don't want to force you to do that. I'm just telling you it's going to be hard. So what the problem is is I look at my contemporaries and some of them don't read their legal documents. They don't sign. They don't take the time to spend $1,000 or $2,000 on a legal review of the documents. They don't even know what they signed. They don't do diligence.

They say, you do diligence, J-Cal? I'm like, I always do diligence. They're like, oh, okay, great. I'm like, okay, great, what? And it's like, okay, great, I don't need to. And I'm like, right, we can free ride off of you. Well, and I think what's happening is there's a lot of suspending of disbelief in order to win deals. So what are people doing to win a deal in a competitive environment?

Not doing diligence, not taking a board seat. Okay. How does that play into a sociopathic person like, you know, Elizabeth Holmes or somebody who's just a freak like Adam Newman? Right. No governance. How did he do with that? Not well. Okay. No diligence? How did that go for? There are no. Not well. Now add to it. In order to win the deal, I will give the founders a bucket load of new equity. I'll re-up the founders.

And now the founders are looking at three term sheets. One is doing no diligence, no board seat, and they're going to give them an extra 10, 20 percent of shares of the company. And the other two are from Bill Gurley and Sequoia and whoever. And they're saying, let's do diligence. We're going to take a board seat, of course. And then, yeah, no, if you want to give yourself more shares, we'll have a compensation committee, we'll do a proper review. And the founder picks that one. That to me is fraud, you know, or it's borderline fraud. It's just, it could be if you were not acting in the interest of the shareholders. It's funny that you're taking the more conservative line than I am on this. I mean, there's a degree to which, yeah, it's the sort of Andresen philosophy that like

some of the disasters will get washed out in the good and that it's better to deploy a bunch of cash and get in it has been validated in certain ways, you know. Until the, until the tide goes out. But even soft bag, right? I mean, which is the sort of, you know, we saw what we were, I mean, Kupang, D.D. Now, some of those, they might get hit in some of the China retrenchment problems. They'll still return. But there's still, getting tons of exits.

So there is a degree to which, if you're playing for big and you're like, well, I want to be the king of the bubble. you know the bubble blows up i'll be the most destroyed but i'll be infamous and if the bubble goes i'll be the biggest that that's sort of a worldview that says yeah exactly i'm diligence i'm kind like in i obviously respect the bench that you're doing it the right way that that i'm a reporter though i'm sort of like that's yeah obviously i'm inclined to manage downside i want the train wreck i want no no no i'm saying i like i like people care about the truth you know what i mean and don't say like well, enough money will, you know, solve the truth or whatever.

But clearly the people who have been bananas have been rewarded in certain ways. So I can see why people just keep playing that strategy. Well, I mean, also just look at crypto, you know, like people are suspending a disbelief. They're like, you know, here's my next NFT project. Right. Yeah, I'll put 50 million into that. It's going to buy me tokens. And it's going to go into some offshore, you know, Panamanian, Zerg, nonprofit.

fit and we don't know who's on the board of it. Like, there's a lot of suspending of disbelief. Well, this is sort of my position on Coinbase, right? They've become so successful despite, you know, I sort of, I wrote this story about Gary Tan, right? Gary Tan was a Ycominer. He starts initialized. He's great. He invested in Coinbase super early because he thought Bitcoin would not be some speculative

tool, but like, but a medium of exchange, like something. that, you know, people could pay with. That has not been borne out. You know, it is still a speculative tool. But it doesn't matter. He got rich on Coinbase anyway. You know, like the reality is that Bitcoin has gone up so much that even if, you know, it comes crashing down, a lot of the people who bet on it early have made their money. And so what's it, what's reality at that point when it's like, well, the speculation went on long enough that they've been able to exit, you know, $100 billion or whatever valuation Coinbase's company. You know, it's sort of like you throw up your hands about reality at some point because it's worked.

For me, it's like if you're going to do this stuff, it's worth doing right and to do it in a buttoned up fashion. And so that's just been my message to founders. Yeah. You know, you take these shortcuts, you know, you might be building, you know, this giant building on a shaky foundation. Right. And it could collapse. And you know who gets hurt the most? not the venture firm or the angel investor with 100 investments or 200 investments in seven funds.

It's the founder and the team members who are living in the building who just got crushed when it crumbled. You're the one who's going to take the biggest hit. Right. I know you're not going to talk about your friend, but there is a degree to which if Travis had listened to Bill Gurley more and moderated slightly. I mean, maybe Gurley was wrong on going to China or whatever. It still probably would have meant that he was still in his job, you know, which might have been worth it. it was a that's certainly going to be an interesting you know in 10 years from now we'll have an interesting debrief on that one I think uh clash of the titans only yeah the show is still going to come out

you know it's like amazing that this is the story even though uber the business is not like a once generation uh company at this point uber the story is like a once it's a huge it's cultural phenomenon I have a feeling like Uber will be worth five times as much, 10 years ago. Really? Yeah. I think, you know, the people are underestimating, you know, what being... They've sold everything off. Like, what's that? I feel like they've sold everything off. You know, they still own those positions in Aurora and the veto companies and they get to monetize them without having to run them. And then they get to focus like a laser just on transportation,

logistics and shipping, you know, things. I think it's going to be a very... play for them. And I think self-driving, you know, which everybody thought would be the death of Uber and Lyft, that's why the New York Times story didn't make sense. They were like, oh, that's going to be the thing that saves them. It was like, that was the thing that was going to kill them, right? And I think self-driving without the person in the vehicle is, you know, 10 years off in San Francisco, New York, L.A., Tokyo, you know, like at least 10 years. I do think Tesla autopilot works. I've used it all the time. I don't have the most recent beta, but you do need to intervene. So, I think regulators are not going to allow the driver and the searing wheel to go for at least 10 years.

Yeah, I have not been. I've been skeptical about self-driving for a long time. But, yeah, it was a fun story for a while. Yeah. All right. Listen, everybody go subscribe right now. Let's get another 100 subscribers for Eric so he can hire somebody so it can take three weeks of vacation next year. I have a podcast called Deadcat, too.

You can listen to that with some reporters. Oh, yeah. I did know you have that. Tom Dutonic Business Insider and Katie Benner at the New York Times. We had Parker Conrad on for our first episode. Oh, from Ripple and Zennifer. Yeah, yeah, yeah. And Rippling and Seneffin.

We just had Max Chaffin on to talk about the contrarian. I had him on last week. Yeah. You had a lot. Did you happen to hear my interview with him? No, I haven't yet. Sorry. I basically got into it a little bit because there were two things in the book I noticed.

Did you notice that he was talking about like white supremacy adjacent people, like seven or eight times in the book. And then maybe six or seven, five, six, seven times in the book, he was like, Peter really likes young, attractive, outspoken men. And I was like, he did say that a lot. A lot. But I do think there's a fact pattern in there that a lot of the people he likes to associate himself with her.

He's like, what are you getting at here? He was like, it's just he has a type and it's attractive young men. And I was like, okay, what about, I just asked him straight up, Max, do you think he's a white nationalist? because you keep mentioning the white national stuff. And he's like, no. I think he just likes those provocative people. And he, you know, has the Milo Yanof.

I mean, I'm not saying this makes somebody a white nationalist. I mean, he's very anti-immigrant, clearly. I mean, he's like a hard line on immigration. And he definitely is big on the, you know, we should be able to say whatever we want, which is often coded as I should be able to like, you know. Say bad words. Well, not. Or just, yeah.

Have dark thoughts. Right. have dark thoughts about race and like, you know, just like, that's often the subject people, when people say, oh, I am not allowed to say what I think. It's like, well, what's, what's the thing that you really want to speak about? I don't know. I, you know, this is a huge, I believe, I actually enjoying the book, you know, knowing the, knowing all the principles in the book or most of them. Right. And having watched, you know, the last 20 years, you know, by their sides, it filled in a lot for me. I actually, like, I thought it was a well-written book. I thought he did a good job at it. I thought

he was like overestimating how scared and, you know, Peter Till's footprint in Silicon Valley. Like Peter, I don't want to say Peter Thiel's not relevant in Silicon Valley. But he's not in Silicon Valley. He's not really since Facebook and, you know, Palantir, it's not like he's, he's not even running Founders Fund. Like there's people Brian runs Founders Fund. It's nothing to do with Peter, really, it feels like. Yeah. Yeah.

It's always hard. A, it is a key question is like how big is Peter Thiel, because then, You know, it's like how worried should we be? How much should we hold it against Founders Fund? Yeah, I don't have, it's, it's hard. I mean, it's still on the board of Facebook. I mean, to me, that is an extremely powerful place to be. I mean, Palantir is a huge government contractor.

Andrew is probably going to go public in the next 18 months. Like, I think there, you know, he's doing a lot. And obviously, this is someone who took down Gawker sort of in a long play, sort of quiet game. And then he's, he's donated. That's the thing. Media people, overestimate. Because, and I told them, I was like, Max, he's, he's like, this is a big existential threat. I was like, how many other publications has he shut down?

It's a big impact on freedom of speech. I mean, just as somebody who's writing independently. Like, I think about it a lot, you know. Yeah, but you also don't print revenge porn and sex. Sure, but you're not ever going to get sued. The fact that you can sort of lose a sort of, I mean, the one they lost, you know, there's a was a long argument. A stolen sex tape.

Yes. I mean, if they had the, if the stolen sex tape for Hulk Hogan was in your inbox, you would not print it. 999 out of a thousand publications wouldn't. If the law isn't there to protect you, it's good to avoid having enemies and doing things that might antagonize people needlessly becomes risky, which impedes journalism. So, you know, that's the flip side of it because you don't want unnecessary enemies or, you know, obviously I'm much more conservative than Gawker was.

But that lawsuit didn't exist. I would be a little freer than I am today. That's interesting. Wow. I didn't think it was actually impacting people's behavior. All right, listen, thanks for coming on the pod. Bye, bye. All right, welcome back to this week in startups. Matt Newberg runs something called Hungry TV. It is H-N-G-R-Y. TV. Get it hungry without the vowels, a cool naming convention. He's been doing that for a couple of years now. And it's just a platform exploring how technology shapes food, you know, the stuff we eat. And it's got a trends newsletter. and he covers food tech, and that obviously is something that is becoming a giant business, from Whole Foods and Amazon to Postmates, Uber Eats, DoorDash, and everything in between. So we're going to talk with Matt about the state of the industry. Welcome to the program, Matt Newburgh.

Thanks much for having me, Jason. Awesome to be here. Oh, you probably heard my introduction of you. Did I get it approximately right? You run a newsletter company and a media company. want to sign up for your newsletter. They go to Hungary.tv without the vows. And you are on the Twitter at the new B. The noob. The noob.

Just put it together. The noob. So why don't we kick off a little bit with how the COVID pandemic impacted food delivery, grocery delivery and everything in between because you also have beverages in there and convenience sources, is a big sort of sweeping a revolution that happened where people who had not previously used these services were stuck at home in quarantine and obviously downloaded the app.

So I'm curious as to not only what happened during the pandemic, which I think we can all guess, but what's happening right now in what we hope is the waning days of the pandemic and depending on which state and city you go to here in the United States, there's either an incredible pandemic and people are wearing masks and socially distancing or it's a free for all depending on the state. So tell us what's happening now in this hopefully waning days of the pandemic to the food delivery industry. Yeah.

It's a great place to start. So like looking at the overall food industry across restaurants and groceries, there's constantly been kind of this food away from home, food at home kind of paradigm. So an aggregate, it's about 1.7. trillion in spending. And what happened during the pandemic was as restaurants closed their doors, we saw about a 20% decrease away from restaurants and a real big boost to groceries as people stocked up on groceries. But simultaneously, within that, we had a massive growth in both online e-commerce for restaurant delivery, for takeout and delivery. And we also had a huge, huge boom to

online grocery, which I think is probably the biggest amount of growth. So in restaurant food delivery, I believe we went from about, um, don't call me exactly on this, but like something like, it's like 7% um, food of total food sales going towards delivery to, to somewhere now about 10%. Um,

it's mostly takeout and then we, when it comes to online grocery, went from like 2 to 3% to 10%. Wow. So that's the, that's the major jump. That's where instant. cart really came in and saved the day for a lot of grocers. And now here we are, people are

waking up and saying, we need to do this ourselves. We need, grocers need to become technology companies, which is a very big challenge. And, and that's why now you're seeing a lot of the 10 to 15 minute vertically integrated players, eyeing this, this tam of delivery, of, of grocery, which is about $1.1 billion, $250 billion of which is going towards your traditional fuel convenience stores and then the rest, the other 850 billion is, you know, your grocery outlet. So we went from from 3% to 10% and in the next five years, we're expected to go from 10% to 20%. Wow. So that's a steady, you know, 2% growth every year for the next five years.

And so based on what you're saying there, it feels like the grocery stores and the conventional. convenience stores are saying, you know what, partnering with, you know, Instacart, DoorDash, um, Postmates, UberEats, uh,

might be fine, but you're saying, some of them are just going to decide to do it for themselves and go it alone and maybe stop, especially in the grocery space, are you saying that Instacart is going to see their delivery service go down because Vons or

whoever Safeway decides, you know what, this is our, core business. If one out of five customers is going to take our services by delivery, why are we even having Instacart in the building? Why are we enabling their business? Why don't we just be fully integrated, which I believe is what Whole Foods chose to do, correct? Well, yeah, I mean, they sold to Amazon, and Amazon is building a very compelling Omni Channel offering now across in store with Whole Foods as the high-end kind of banner and Amazon Fresh is kind of the

middle market kind of Kroger banner. And then the online company. which is Amazon Fresh, right? And then the other grocers, I don't think can even compete because they need a player like an Amazon to come in and completely revamp everything from their purchasing all the way down to the consumer experience and the logistics. So they've kind of cobbled together these solutions. And I believe that over the long term, you know, the Albertsons and Kroger's of the world will just buy their technology from the likes of Okado, Instacart, et cetera.

and use them as picks and shovels if those companies can offer those picks and shovels. But the real interesting thing is the rise of the vertically integrated grocer that's going to try to attack these guys at their knees. So, you know, by offering faster delivery, obviously not the same 40,000 items of products that you would find in a traditional grocery store, but a much more curated set of grocery items and pantry items for this category of instant needs, which we can get into. So the strategy for these vertically integrated ones, are those like the jokers and the getters and the corner stores, which was obviously bought by Uber,

this is this new category of lower number skews, but quicker delivery time, correct? Vertically integrated, yeah. And that's kind of the key here. It's that, you know, a lot of the labor laws in this country and abroad do not support, you know, sustainable delivery at high penetration volumes. And you see this with Doris.

DASH is now betting heavier, more and more on Dashmart, which is their vertically integrated solution. So they're actually making margin off the product. And I think you're going to see a lot more players enter the space because there's been proven models abroad with the likes of Geteer, as you mentioned, or however you pronounce a Gettor, Gatier, and Delivery Hero that have, you know, really built billion-dollar businesses through dark kitchens and dark supermarkets, D-Mart's, dark stores. that basically transformed

vacant retail on Main Street or off of Main Street and transformed it into kind of a last mile infrastructure that house commonly or you know commonly ordered items from local bodegas or random you know corner stores.

So what we're seeing is there was this model where Postmates or Instacart I think we're the ones who pioneered this would send a Postmates I don't know what they used to call them, but a postmaider. I don't know. They would call them your postmates.

It was like a person, personal shopper basically. Or Instacart would send a personal shopper for you, a shopper, to a store that already existed in the world, buy your stuff, deliver it, charge you a markup. But if you are, you know, Joker or I guess this new corner shop, the concept is that Uber's Corner Shop would inventory the items themselves, have the drivers there. It's one app. It's not two different parties involved in the delivery.

It's just one party. And it's a lot more seamless. If you have a return, if you have an issue, and then it knocks 10 minutes off the average delivery time or something. Yeah. I mean, you go from a traditional, I guess, Instacart was offering one to two hour delivery. Now they're offering 30-minute delivery to kind of compete against these guys. Gatier kind of pioneered the 10-minute model.

You know, we're splitting hairs at some point. It's like, you know, really what this is about is a land grab for, you know, for customers in certain markets. And the way to do that is to go plaster a bunch of billboards and say you're going to offer free delivery in the fastest around the time. Gorillas is doing it in 10 minutes. Joker's doing it 15 minutes. There's one that's even called 15, 20, which in the name implies 15 to 20 minutes. Does it really matter? We can talk about that.

I don't think it really does between 15 and 30, but it is a land job right now. Let's talk about that. When I order my groceries at the house, you know, we have three or four different people who might be contributing to the order. We have a little iPad in the kitchen that we all use. Hey, the order is going in today. The groceries will be here later tonight or tomorrow.

And like you're saying, we're ordering like, you know, two or three hundred dollars worth of groceries, which is I would, you know, with the five-person household, what we're kind of ordering. I think it's probably $150 to $200 every time we order something. We don't care if it's,

I mean, it would be nice. if it was 15 minutes, but we're not ordering that for food to eat tonight. We're ordering that food for the next three or four days. So this might be marketing or it might be unnecessary, sort of what you're saying, for grocery delivery, but for, you know, I ran out of deodorant or razors or milk. Maybe that's what you want 15 to 24. Am I correct in my assessment of that?

You might want, you don't need it. in 50. Do you really need it in 15 minutes? Not at all. No. It's just you're doing a calculation on your, your time is very valuable, Jason. We know this. Very true. Thanks for morning. And your arbitrage is, you know, there's this, now there's this like flexible, you know, you could do this arbitrage now where you can outsource certain parts of your life.

Lots of it, yeah. And so it just has to be better than whatever you can do yourself and you're willing to pay that premium. And they're making it, you know, they're using the margin of the products that they're selling to subsidize the delivery. and some VC money as well. But, you know, you're going from a world of DoorDash making, you know, contribution margins as a percentage of the GMV that they process of 3% to a potential

model where you get about 17% net margins at the store level for these dark stores. And that allowed, and that's after you account for the cost of delivery and maybe charge a $2 fee to make sure that no one's abusing it and just getting a single tube of toothpaste delivered in 15 minutes, which a lot of New Yorkers are doing right now just to kick the tire. So they don't have a minimum on some of these, therefore people are abusing it. And that is exactly for a little history lesson. In 1998-99, Cosmo had no minimum. And at our office, we did as a joke, five of us all ordered a pack of M&Ms because we were

writing a story on it at the same time and had five people show up at the Silicon Aller Reporter office, each of them with a pack of king-size M&Ms we bought for $3 or $2 at the time. and, you know, gave them a $2 or $3 tip and we're like, these guys just lost $20 bucks delivering this. But I guess that's their way.

They're acquiring customers. So if they let you have no minimum for your first order, who cares? On the Converse side, I just saw news that Amazon for Whole Foods is saying starting, even if you have a prime account, it's going to be $10 per delivery,

flat rate. Explain why the smartest kids in the room who have the most experience with e-commerce, have decided to go another direction. It's a great question, Jason. I think it's my take on that, and as I told my readers the other week,

was that $10 basically positions you. I don't know if you've ever read like predictably irrational by Dan Arellella, but he talks about, you know, pricing pages and everyone always goes for like the middle tier. Sure. You know? So I think my personal take is that they did a test.

They did a test in like a few key markets like Detroit and maybe boss, a few other metros. they saw that there was basically very little price of, you know, people were fairly inelastic. The demand was fairly inelastic when they raised the price. They realized that that actually like helped the, you know, the average order economics and then basically used that as a way to propel Whole Foods as the premium tier offering of Amazon and that whole Amazon Fresh would be the kind of free, you know, default middle tier kind of offering.

and they're going to expand that banner across the U.S. very aggressively to augment, you know, to give you that kind of 360 Omni-Channel experience that's emotional to connect back to the online ordering. So I think this is a very calculated play. A lot of people looked at it and said, Amazon is doing this because they can't get grocery right. I mean, I was actually signed up last summer to be an Amazon Flex driver to do some of these Amazon fresh deliveries.

And I can tell you that their costs per order as far as the delivery or some of the cheapest if not the cheapest in the industry, about a dollar per bag that I delivered went to the fulfillment cost. And when you say fulfillment cost, you mean to you as the driver? Yes. So what was the typical order size five, six bags?

And that means you, as a delivery person, would deliver it in half an hour for six bucks? I was making a lot more than that. I was probably making somewhere in the range of $20 to $30, including tips and whatnot. but I can pop the drop off.

Per drop off. I mean, per delivery, not for hour. Yeah, yeah, yeah, yeah, yeah, six or so. It depends on the bass. It really ranged. There was one guy that had like 12 bags,

and I had to schlep it up a staircase in 98 degree heat in North Hollywood. You know, there's a couple people that just had two or three bags. And some people I had to get these six-pack cases of, you know, vitamin water, whatever. So it kind of ranged. How do people treat the drivers overall? I mean, I try to be absurdly generous.

I've done okay. But I'm curious how people treat these drivers. How were you treated, you know, anecdotally? Did you feel like people were really respectful and thankful to you? Or do you feel they were giving you terrible tips and just abusing you and abusing the service and kind of took it for granted? I mean, my interaction with these Amazon customers is pretty much non-existent. They stayed inside their nice homes and their gated communities. I drove in.

I had a very calculated route. The reason why Amazon is so good at this is they have a milk run. I do a single pickup and multi-point drop off within an hour and able to make some of the best rates in the industry because they've basically has all, they have all this demand and it's been promised within a two-hour window that maybe came in in the morning. How many orders would they send you out with two, three, four?

Yeah, maybe like four or five max. And they know this. They knew that I had a Jeep, so they knew exactly how many packages to give me, or so how many bags to give me per pickup. And then you just kind of do like a, you return back to the store. And this is kind of why the vertically integrated model works really well, is because when you deal with like a DoorDash, you could be one minute picking up fried chicken sandwiches at Dave's Hot Chicken.

The next minute, they're going to send you into an Albertsons to go shop a, you know, 50 item order. And the context shift, the context shift for me as a driver, is significant and you know the efficiencies are kind of lost when you start running around the city and it's just dealing with all sorts of random you know temperatures of food and perishables and non-perishables I got no I don't want the eggs to break I don't want all this stuff to happen so it's very tough when you're doing all this crowd source labor and we can talk about the labor there's definitely lots of nuances there one more point on the $10 per whole foods order I saw that as a way. I interpreted slightly differently, but I do appreciate your interpretation.

You're probably right. Maybe mine is the second reason. I thought if you are going to do an order and you know it's $10, you, and many people do this and I do it, even though probably doesn't apply to me anymore, I go, oh, it's $10. All right, I'm going to not do a $50 order. I'm going to do $150 order because I might as well get the pasta I was going to get next week. I might as well think this through. Whereas with Amazon Prime, they specifically trained me to not care. And they're like, would you like these all in one box, you know, on Thursday or would you like two boxes Monday and Thursday? And I'm always like, well, of course, I'll take it faster. You know, sometimes I feel a little bad about the environmental stuff and I really don't need it. I will wait two days just to get one

box instead of two. And it's literally, I think, I'm making that decision based on do I want to open one box or two? that, I mean, talk about privilege. The 15 seconds it takes to open a box as part of my thinking, this is how far we've come in our entitlement. And then the second one in terms of entitlement is like, I'm just feeling guilty about the environment and saying, you know, I want one box, not two boxes, which, you know, I guess is the more valid one.

But is it also a play to get the ticket sizes to go up? And what role does ticket size play in all of this, if any? I think, yeah, I think that's a really valid point. I think you have to think about as a consumer, not what's the percentage, you know, what percentage of the delivery of myself? spending on the actual delivery cost. And, you know, if it costs more for me to order,

if I'm spending more on the delivery fee for my dinner tonight than the actual food itself, we have a problem. And that's when you start to see people try to think about what they might need in advance, you know, for the rest of the week and become a little bit more economical about the number of frequent, you know, trips that they're going to take. And, you know, the one thing tying back to the quick commerce is that I think these quick commerce guys are doing 15, 20,

minutes aren't targeting the weekly stockups that, you know, Amazon, Whole Foods and Fresh are targeting. They're targeting, you know, the two to three top-offs that you would do in a week that for the random recipe that you're trying to cook that day. You need some veggies, you need some spices to complete that recipe. You didn't necessarily know what you were going to cook that when you did that Sunday, you know, weekly stockup. These guys are attacking the grocers by going after those supplemental trips. Yeah, so you're cooking dinner, you realize you're out of lemons, you're like,

I do need lemons in 10 minutes, I'm going to take advantage of that opportunity. And hey, since I'm buying lemons, I might as well buy some ice cream for dessert and, you know, get some croissant for tomorrow. That's kind of what these 10-minute commerce companies are aiming to do. Am I correct?

It's funny, because I spoke to a guy named Barnaby Montgomery, who runs yummy.com, and he says that customers don't have oops moments in the kitchen. And he says that like no one no one is just cooking a recipe and says I'm missing an egg. Let me order it right now. Yeah. But it is more convenient and it is a better way of living because I can spend more time doing my working on my job, making more money than, you know, and let someone else go and deliver that for me.

It's because I have to go drive to the store, pick it up, shop and check out. And that could take, you know, an hour just to get a few things. Why did this happen in Europe so quickly? Because we're now looking at 10 companies that have gotten significant funding. This Gittier or Gitter is from Istanbul. They have a total funding of a billion. Grills from Berlin has raised over $300 million. They are at a billion dollar valuation and cooking with oil, obviously.

And then you have like Flink in Germany. Zap is UK-based. Dija in UK. small gophe um and that was acquired by gopuff and they had Jiffy Kaju I know this was also very big in China but why is this

landing in Europe as a major trend any theories there I have some but I'm curious yours yeah so there's it's definitely a lot more mature overseas so I think you know delivery hero may have been the first one to get into this but I think a lot of it has comes comes down

to the fact that they know that the labor laws and what's going on as far as, you know, being able to, you know, you saw what happened with Uber and the UK. We know that you, that they're these, this is at risk as far as, you know, being able to rely dependably on gig labor. And so a lot of these guys are doing full time, you know, whatever their equivalent of W-2s are. So they own actually. So they're doing shifts. Yeah.

Yeah, they're doing shift workers who come in. for eight hours or ten hours or whatever it happens to be, as opposed to people being able to set their own schedule, which fits into the model of the European way of looking at employment, which is you've got employment that is much more stable and less entrepreneurial, saving the judgments. I'm sure some people in Europe would like to have flexibility, but their system, I think, trades flexibility and entrepreneurial nature for, you know, more security, right? Is it also because of the density of European cities

and the fact that these little convenience runs, the propensity or how adapted the cities are towards mopeds or Vespas? Because one thing I noticed is just, it seems like all these services are using Vespas, which can go 35 miles an hour, and they typically will outrun a car. Whereas in the United States,

we're talking about largely suburbia, infills, which is between suburban areas, and the city. So you would have like the city of San Francisco, you might have some infills, which might be, you know, I don't know, the area is surrounding the city and then you have the suburbs.

We kind of think about infill and suburbs first for delivery here and then the density of cities, maybe second. Exactly. So they're attacking these kind of cities where there's a lot of e-bikes that are roaming the streets and, you know, like there's a guy

named Carlos Marino, who I believe is French, and he's pioneered this idea of the 15-minute city. And this is the idea, a very European idea, that within 15 minutes, you're within a subway or a walk, a subway ride or a walk from, you know, every major, you know, social service that you might need, you know, bars, restaurants, grocery stores, hospitals,

all of these essential services are within a 50, are accessible within 15 minutes. And that's kind of, kind of where these guys are playing. They're playing in cities like Berlin where they're, I don't remember the name of what they're called, what they call their bodegas, but there's a bodega like that on every block.

And, you know, people. A convenience store, yeah. Yeah, a convenience store. And, you know, they tend to purchase a lot of their, you know, daily, like fresh produce and, and meats from these corner stores and then get their, like, you know, weekly stockup of their, you know, pantry essentials. So it's kind of this like,

their express orders are more of the fresh stuff that Gorillas is really over-indexing on, which is like the meat and the produce that they do on a daily basis. They go and shop for their frommage and their meat. Yeah, it does seem like these Vespas and e-bikes are a part of this.

So what's your prediction for these, you know, 15-minute services because they're losing money on every order, it seems. They're underpricing it to get people to create accounts. Is this a sustainable business? Is it a bad business? Or is it a good business? Because if they do have to actually put the cost of the driver in there, I'm assuming they're adding 10 bucks in Europe, 15 bucks to each order in terms of expense, because people get paid well and they have to have benefits and you pay a lot of taxes in Europe. So in Europe, if they're adding 15 or bucks to every order,

does convenience store delivery of $30 ticket makes sense when the delivery cost is 50% of the order and are people not going to walk downstairs and just buy it themselves when they get home? Yeah, I mean, that's a great point. That is going to be the test of time for these guys is that the percentage that they're spending on the basket on the delivery cost

and certain markets, you're going to have higher spend and higher cost, right? And then certain other markets, I think in Turkey, the labor is much cheaper. So, you know, the delivery cost is a percentage of the AOV, the average order basket is, you know, it's lower. So that's kind of, it's all about the ratio there. And so the opportunity that these guys are seeing is that this could eat, you know, the small to middle tier convenience stores and retailers in the U.S. So obviously that's a $1.1 trillion in the U.S.

I don't have the figures for global, but that's kind of what they're looking at. And they think it's a more sustainable model because you're basically inventorying a store based on what people are ordering the most frequently. You're skimming the cream, so you don't have to have as many skews. Instead of, you know, a grocery store has 30, 40, 50,000 skews.

You're talking about what at these stores? 5,000 or something. It can range from, so Guter does like 1,500. GoPub is like up to a 5,000 some of the Bevmo's it's acquired. We can talk about that. But, yeah, Bevmo got acquired.

That's incredible. That was a, you know, very popular company with its own built-in delivery service that I use Bevmo here in the Bay Area and you can put your order in on their site. It has a certain window. Is it as good as like using Instacart Good Eggs, UberE,

or postmates? No, it's janky, but I used it on the website. And it was okay. It wasn't terrible. It was kind of like a 1.0 if Uber and Instacart are 3.0 in terms of delivery service. It's like a 1.0 delivery service. But you pick a window and it came. They were using outsource drivers at Bevmo when I used it here over the summer in the last couple of months. But I had a okay experience. It seems to me convenience stores might be not a great business. It's okay. Maybe they have a low margin. But alcohol. is high margin. So is the play here that you have an okay business that creates a floor and then you make your profit on alcohol like restaurants do? Absolutely. I mean, I think that's why I would put gopuff as one of the winners in the space. And I think there's going to be different winners for each part of the market. And you might have to segment that by East Coast, West Coast, you know, Biggie Tupac.

But, you know, yes, I do think that the gross margins of a gopuff are much higher because they've actually gone through the difficult work of acquiring offline retailers, and they'll go acquire it for like half-time sales, and then go raise at a, you know, 13x multiple off of that total revenue base between GoPuff and Bevmo. And that's what you kind of saw. Here's a question from our live audience from LinkedIn's live stream. Thank you, LinkedIn, for including us in the live streaming beta.

It works really well, by the way. Bram Berg asked, what unique real estate conversations, conversions or repurpose plays are you seeing in the last mile industry retail space, especially in the commissary slash cloud kitchen space. So what's happening there

in terms of real estate place? Because those are real estate businesses more than delivery businesses, correct? You're talking about cloud kitchen versus... She's asking about cloud kitchens, commissaries, yeah, specifically. Yeah, I mean, I think the number one player here is Travis Kahnick's Cloud Kitchens,

which is, you know, basically buying distressed real estate and converting it into basically this last mile infrastructure that is quietly powering lots of delivery transactions, mostly delivery, although they have like a facade in front

just so it's not blight in a neighborhood and it's not looked at as a, you know, some tech companies. Abandon building or whatever. Yeah, they look good. There was one across the street from my office in the city in San Francisco. That looks great.

There's some decent technology going on there. I would order from Starbird and Bel Campo, two really great brands. And when I would order from those brands, which just have incredibly high quality chicken and beef for Starbird and Bel Campo respectively, I would go there to pick up. And it was incredibly sophisticated where they had all the drivers coming in. The drivers could see, you know, on panels where their stuff was.

The food was in lockers. And man, they were franking over there. And if you pick up your stuff on Uber Eats, it was $0. dollars. So I was like, I need to get fresh air. I want to go for a walk. So I'd walk across the street and pick up my chicken and come back. And I'd save seven or eight bucks on the delivery cost. And it was, the reason I did, it was

faster. Like, I don't want somebody to drive around the corner with my stuff. It would take twice as long. But that seemed, they seem to have some pretty great technology going at Cloud Kitchens, yeah. They basically had to build it all themselves from the ground. So if you look at Cloud Kitchens is really just an

umbrella, it's just one business and an umbrella of a lot of other. companies. There's a company that owns the real estate. There's a company that owns a tablet that pipes into all the third-party marketplaces. There's a company that owns these virtual brands with funny titles. That sounds like BuzzFeed articles. There's another company that is Cloud Kitchens. And so it all kind of accrues back to the real estate and they're able to generate abnormal returns on the real estate because they buy them cheap and they're able to charge very high rents per square foot that are abnormal.

if you're a chef and you're looking to open a business, you know, in a city, what is that cost compared to opening a delivery business in, I mean, for every one restaurant in storefront you would open as a restaurant tour, how many cloud kitchens could you open in how many cities? I mean,

five to one, 10 to one, I don't know. I'm taking a guess. I mean, so you need to spend about, I don't know, $50 to $100,000 in,

upfront, cap X just on the kitchen equipment. and then you need then you're going to spend about the lease is about you know maybe i need i haven't i'm a little rusty on these numbers but maybe some in the range of around six thousand dollars plus they take you know something around five percent of your sales um so all in you're looking at you know 80 90 k and if it costs you 100 you know it costs you a million dollars to open up a store yeah so it's it's about five five or 10 percent probably yeah five five five five five five yeah five five five kitchen for every physical restaurant

but you can amortize the cost of that kitchen equipment. Yeah, and so you think about it, like, if you are a restaurateur and you've got some amazing brand, man, and you could always open three brands. I mean, that's the other thing that's amazing about this. I heard you're talking on another podcast about the early days of Uber Eats, and I guess Jason, who was running it at the time, said they knew that, you know, from the data,

hey, there's no ramen. People keep searching for ramen. There's no ramen store or we're under, were under ramenized. They just said, hey, you know, to three or four other kitchens or cloud kitchens, you might want to think about ramen. You might,

you may hit a winner there. So I think that's pretty extraordinary, no? Yeah, absolutely. And that's kind of where this is all going. I think the tech companies own the demand, right? DoorDash, Uber, Instacart. They have so much great data. Now they need to go, they go back to their retailers and say,

hey, we know that there's this demand. at this hour of the day for this particular item, whether it's, you know, a late-night burger or pizza, whatever it is. And they figure out if you have the right ingredients, you could go and, you know, satisfy this demand on this, on our marketplace.

And it's, and it kind of works for the restaurant because it's incremental. It works for the marketplace because they get increasing, you know, GMV. And, you know, and the customer gets to have some product at the last mile,

delivered in, you know, 15, 30 minutes. they wanted that that wasn't there before. Yeah, I mean, one example was Boba. Like, you could be running any food service, and you see Boba's trending in one neighborhood, but there's none in this neighborhood. Bua machine is de minimis. You know,

it just slaps the label on it. So now you're making, you know, chicken fingers or chicken wings, and you just add Boba. Maybe you had another Boba brand, and it just sort of combines it there. Here's a question from Bob G. What innovation in both hardware and software in the future will have the most impact on food delivery? Great question. What hardware?

Let's start with hardware. What hardware, you know, software combination is going to have a big impact? On the hardware side, I think, you know, these automated make lines. So Sweet Green acquired a company called Spice. There's another company called Hyphen. What you're just going to start to see probably some time next year is that a lot of the major QS, you know, fast casual brands, the digins and Chipolets and Sweet Green's of the world, experiment with, you know, some physical, you're still going to have somebody greet you in the store,

but for the off-premise orders, which could be two-thirds of their sales, they're going to have some sort of automated conveyor belt that comes down. And you're going to have, you know, your bowl being, you're going to have different hotel pans. These big pans where they store all the grains and the tomatoes and the lettuce and it's just going to come down, dispense it neatly in a nice little radial pattern. And, you know, you won't even know that it was made by our robot. So this will take out the need for, you know, prep shafts or chefs or whatever. Maybe they'll just be prep chefs and the people who put the salads together.

We're investors, of course, in CafeX, which just reopened at SFO and is doing just amazing. Like, they are outperforming the other coffee stores and they can be 24 hours a day, seven days a week, and require one hour of intervention per day just to change out the milk and maybe, you know, do a couple of quick cleaning things. So the other one that I think is interesting. So you have robotics to prepare the stuff. You have full robotic solutions, which is really only one CafeX. I don't think anybody else.

I've seen tea and frozen yogurt, pizza. Everybody's tried a different full service. ETSA, my friend David Freeberg, was kind of starting or with that kind of process. And then he moved on to doing software. There doesn't seem to be anybody who's figured out a full robotic kitchen yet, right? like the hamburger one, I guess was called Momentum. I really was rooting for them or the pizza one. This just seemed like we're close enough there, huh?

I think you're going to have like, you know, it's going to free up a lot of the labor to focus on hospitality, and there's still going to be probably prep that needs to be done. But as far as the make line, the actual production process of, you know, whatever you do from a scratch cooking perspective, that, you know, a lot are the assembly lines of a burrito, those kind of really mechanic things that someone's doing kind of almost

in a robotic like fashion to begin with are going to be automated. Yeah, we just, there's one company doing a French fry automation for fast food restaurants and miso robotics and I had them on the pod recently. And that seems to be pretty, I mean, they've only got like five or ten of them, I think he said, in operation.

But I think you'll see like if you can really define the work like French fries, you could have the French rice just operating and behind Plexiglas and the, you know, people who are making the burgers could be keeping an eye on it. It's really interesting. And then you had, of course, Mr. Beast Burger,

which was a lot of fanfare. He organized a bunch of restaurants to just be his cloud kitchen. So it was kind of like a reverse cloud kitchen. He said, hey, if you can make burgers, you can be part of this. And then he used his brand. What do you think of these virtual dining concepts? Is that something that we'll see a trend on? Or do you think that's just like a one-off experiment?

that didn't work or did work? I think this is just the beginning. I think I would call them host kitchens. So you have, you know, Chili's created this thing called it's just wings. And they were able to do that out of their existing stores. And so you're going to see a lot of like multinational brands that are already getting into these secondary concepts. And sometimes it's franchise stores, sometimes it's corporate-owned stores.

But it can really be a boost to their bottom line. and it is incremental because it's not like someone, if someone orders it on the delivery marketplace, you're happy to pay that commission because they weren't looking for, you know, chilies. They're looking for wings and it just so happens to be fulfilled by Chili's. So, you know, there's a company, you know,

order mark in L.A. that's doing similar stuff with NextBite. They're getting celebrities in on it. I think that the celebrities will churn and burn. But I think the premise of, you know, restaurants are able to crank out, you know, multiple of what they were able to do in the off hours to fill that underutilized capacity is here to stay. Whether it's a celebrity brand or Jason's brand of nuggets or whatever it is you can dream up is anyone's guess. And that's kind of the fun of it. That's kind of interesting.

This Denver-based next bite I hadn't heard about. But they did Hot Box by Wiz Khalifa. Get it. Brisket Burnhands with barbecue sauce. the turkey burger. Basically, I guess, stuff to eat when you're high. Hot bogs get it. Of course, yeah, Gene Simmons and Paul Stanley of Kiss

getting into it, they'll do anything. They sell their brand for anything. But it is a really good idea. And what an interesting idea for Chili is. And I guess they own that Magiano. But you have this incredible footprint and you say, yeah, let's just start. Wings are easy. You can teach people how to make wings. People love wings. wings are high margin. So at some point,

Starbucks is going to look at this and say, hey, we have X number of Starbucks stores. We could have like a little thing in the back of the Starbucks store, or we could be come up with a Boba brand. And we don't even have to put Boba on the menu. We just have a Boba Cloud Kitchen, although they have a strong brand. I think they do have kind of Boba S drinks now, I saw.

But yeah, this will be a trend that stays. Yeah, something new comes out, trends, and then everybody in the country can experience. It reminds me of the cronut. Remember, the cronut came out in New York and everybody lost their minds about it. And then people started on the West Coast. I remember they made their own version of like donut croissants.

They got sued or whatever. You can't trademark a recipe, but you can trademark a name. But in the cronuts example, cronuts could have been deployed nationally within, I don't know, 30 days or something. You could just share the recipe. and have a cloud kitchen open in every city. So that's what we're going to say.

What about robotic delivery? Is that going to happen? You think all these little R2D2 robots we see running around cities. It's been five years of this. They get made fun of on Silicon Valley and whatever. But it does seem like if one of those gets in an accident or gets destroyed or gets run over, it's no big deal. It's like somebody lost their burrito.

Nobody lost their life. Are those going to become a thing? Maybe if so, when. I wish I could tell you, Jason. I think it's going to be, you know, if you think about drone delivery, that's a huge headache because of the FAA regulations. Autonomous cars, very difficult as well because you just have so many municipalities you have to go through and you're not going to be able to, you know, just, you know, force your way through here the way Uber used to. So it's just not going to work like that. It's going to have to involve the cities.

And so you're going to see pilots right now, I'll really. ready, you know, Kiwbought on, you know, college campuses. And I think it's going to work in like corporate campuses, educational, you know, colleges, universities. But as far as like, you know, connecting the whole U.S. into a network of autonomous last mile delivery, it would probably be DoorDash's dream to have that, but, you know, that could be decades away. Most interesting thing I saw as an investor, an angel investor,

somebody pitched me on this food delivery service on campuses where, students would have a big backpack with, you know, 50 items in it. Bubble gum, you know, whatever. Mixers, whatever, you know, beef jerky. And they could just run around the campus. Anybody who wanted something, meet me here, I'll bring it. Have you seen anything like that? Like, that would be like the five minute, hitting down to five minutes.

It's like, I can watch guy in New York City. Like, hey, kid, do you want a Rolex? Exactly, exactly. Did you remember that company? I was trying to figure out what the name of it was. Or had you ever heard about that one? No, but there's one at UCLA called Duffel that's doing, you know, basically the last, you know, the 10 minute, 15 minute delivery on college campuses as a franchise. Ah, maybe it was Jetpack.

Yeah, sugar, formerly jetpack. I'm looking at it right now on Republic. Interesting. The problem, there are countless moments when you just need something right away. On every college campus students need certain product right away. I think they're talking about condoms. during these moment stores are either too far or close. Yeah, that would describe it.

Or students just don't have the time or energy to travel. Traditional deliver firms take too long, but yada, yada, yeah, yada. Interesting. There's a cool one I covered recently that was out of Ycombe and air called Hash. And it's basically a standalone kind of, I think it's temperature-controlled kind of vending machine that only DoorDash and Uber Eats and delivery drivers can access. And you can create any kind of virtual storefront and house that with a certain number of skews. and you can deliver kind of in any area

you don't necessarily need a physical retail presence. That's an interesting one. That's interesting. So they make the software, the vending machines. And the hardware. Ah, interesting. C-A-C-H-E. C-A-C-C-H-E, like BrowserCat.

Ah, cash-e. Okay, cachet. Ah, got you. That's interesting. There was another one, which I think was called bodega originally until they got chained for cultural appropriation which was a I would say

that's an homage but okay don't cancel me I thought it was an homage that seemed to be a brilliant one I don't know what they changed their name their name to but I had seen one of them and it was a beautiful like credenza

with glass doors and you could see all of these different beautiful items you use your app the app unlocks it you say what you want to order and it says yeah the kickhats are there and the battery pack is there and your lightning cables there. Just take one of each on our system. Yeah, you could clear the whole thing out, but it's got a camera in it. We know that you were the one who opened it.

So we got your credit card. If you steal everything out of there, you're going to be in trouble. I'm going to charge you for it. Bodega is now called Stockwell. That idea is going to work or not? That one of the thing had a hard time because, you know, they were targeting a lot of offices and that. And it was like hard to replenish these things.

And bad time. Yeah. So I don't know. I think the trend of like co-locating like ghost kitchens inside of apartment buildings that are like, you know, expensive rent. It's like a captive market for, you know, a guy like Sam Nazarian has a company called C3, which I think SoftBank invested in. And he's doing, you know, all sorts of concepts out of a single kitchen, crispy rice, umami burger, all that sort of thing. And that's coming real estate developers are actually partnering with him, putting these kitchens in the ground floor. retail, you could come and order it off the menu, or if you live in the building, you could get free

pickup delivery. Same thing with office buildings. That's fascinating. So you basically create like a little single kitchen that will get you Krispy Rice or whatever, but if you have, wow, that's super efficient. So it's almost like having room service at a hotel. And if you're in the building, wow, they can just run up with it. amazing the innovation here

well listen how can people find out more you have a paid newsletter that if people are obsessed about this stuff they can give you a hundred bucks a year or something that's right they can they can pay up 20 bucks a month or $200 a year for now until the price is increased people pay for that who's paying for it you got a shout out to all my readers out there

a lot of entrepreneurs in the space and investors and operators but yeah it's just hungry.tv h N-G-R-Y-H-N-G-R-Hungry with no you dot TV and you can sign up for the free newsletter if you want to get a taste of the digest or head over to the paid subscription with Hungry Trends. All right, Matt Newberg ofhungry.tv, thanks for coming on the pod and sharing all of the great wisdom you've learned from studying the space and we'll have you on again soon.

Amazing. Thanks so much, Jason. All right. Take care.