GrubWithUs (YC W11) Raises 5M Series A
pehub.com
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Really rough back of the envelope finance makes this seem like a dog.
14 employees. I read something on HN a few days ago that said to expect to spend 100k/yr/employee on costs. I assume this is something like [salary + taxes + benefits + whatever you have to do for your employee other than the actual dollars that hit their bank]
So that's 1.4M/yr in just employee costs. Considering they raised 1.6M previously, it's probably safe to say the needed the money.
So now if they hire NO MORE, they'll have 3 years of runway. wheee.
The article says they DOUBLED their user base while expanding to FIFTY cities. Say they had 10 before. Uh, that's not a good engagement sign in most cities. So the users in the remaining 40 cities are extremely sparse/uniterested. What is GWU's strategy to reach users and make one city really popular? I'd rather see them get HUGE in one city, then take it to the next.
Trying to get into happy hours and "last minute dinners" seems like grasping for straws because the actual dinner business isn't sufficient. Nobody has made a ton of money on last minute local deals yet, and this reeks of desperation and divided focus when they haven't been able to nail down their core business yet.
I just glanced on NYC GWU. In NYC they're averaging less than 1 public meal per day. NOT A GOOD SIGN. Other comments here indicate that Washington DC is also a flop.
Let's play the "how much is GWU worth" game. They're not doing very much in NYC, which I would consider to be the top (or at worst 2nd place) candidate for GWU proving success.
Lets be generous and give them 1 meal a day in all of their 50 cities (more than NYC).
To be generous, say they get 10 diners per meal and munch on a 25% referral fee:
$30 meal x 10 diners x 25% == $75
(I just went through a few listings and typically I see far fewer than 10 diners (I saw zero listings with >9 diners))
GENEROUS SCENARIO: 50 cities * 1 meal/day/city * $75/meal * 365 days/year == $1.368M/yr in gross revenue.
realistically, its probably more like: 20 cities * 0.7 meal/day/city * $60/meal * 365days/yr == 306.6k/yr gross revenue.
What do we think grubwithus's operating costs are? well. employee costs alone are 1.4M/yr.
So gross revenues less employee costs and no other expenses, no additional employee growth, gets them, in a VERY generous sales scenario, almost breaking even.
If they couldn't figure out in 1.6M how to scale one city, what gets an investor excited about this?
I don't see how it's their current business model.
Granted, I'm leaving out their soon to be launched happy hours and last minute dinners. The last minute GWU smells like local group deals to me. Groupon can't do it with their scale and only needing ONE buyer, much less an entire table to warrant the grub with us dinner (they have a tipping point before the dinner is "on").
Also, they used to have a model that penalized late joiners (or rewarded early joiners) with price differences, and back of the envelope calculations could show that being worth up O($50) / dinner, but that still doesn't make this a typical venture scale business.
Assuming the people who invested 5mm have less than 100% of the company... say its 25%, that's a 20M valuation on it, which in this internet bubble, doesn't sound terribly high.
I struggle to see the scenario where they turn this into a business where strict discounted cashflows will make this worth anywhere near 20M (i guess at zero rates, they just have to make the money EVENTUALLY).
So for investors to win on this deal, GWU basically need to get acquired. Investors buy in at a 20M valuation not to flip it at 25M.
The only possible acquirers are yelp or groupon type companies that are trying to drive online users to real world commerce. Restaurant syndicates have no interest. at anything less than a 40M sale this is a HUGE failure for investors, and at that price, its probably still a failure for employees, and possibly even the founders.
What are the odds that given the business model and assumptions of profits, this will ever be worth anything in that range to an acquirer?
I must be missing the point here, because i actually think investors are really smart, despite the fact the media coverage about startup frothiness focuses on some seemingly dumb decisions. These guys don't WANT to lose money...
I must have the entire picture wrong for GWU. Please help me see where I'm wrong.
No offense to investors but as time goes on I see them as being pretty sheepish. They're (rightfully so) risk averse but they do so by buying into what everyone else is bullish on --- which can't be the best option else we'd all be millionaires.
That's the only explanation I can think of here. GWU somehow has a good following in the valley (in the startup circle?) though I don't really know anyone who uses it.
I consider:
1. This is a good deal
(a) WYSIWYG: Public information exists that I missed/misinterpreted
(b) Information Asymmetry: Investors know something we do not know yet from private conversations
2. This is a bad deal
(a) WYSIWYG: It's a dog and investors screwed up
(b) Information Asymmetry: Investors know something we observers do not, and either they're getting tricked into a bad deal or they're misinterpreting information.
Sometimes when I see people wondering why a deal that appears to make no sense was completed, and I am an insider to the deal, there actually is material stuff that isn't public. But sometimes there isn't...
GrubWithUs lets the restaurant sell off that extra floor space in chunks, and keeps a good chunk of the value captured (and also gets people to meet each other, or something like that).
You assumed the best they can do is one meal per day per city. So in effect, they'd have 10 users (actively eating) per day per location. Why did you pick that number?
I have been involved in that space for 2 years. We definitely have moved more way more than that number of people (to lunch) for one location.
So maybe they'll reach 100 groups per day, at scale. Just like Meetup today has hundreds of meetups everyday in large cities. Now you're talking $100M in revenue, which means a valuation approaching $1B. VCs do invest in such odds.
EDIT: if it makes you feel any better, tens of VCs I pitched to did conclude that the market was too small.
I agree that it COULD be 100 meals per day per city, but I have no indication that the market is interested or would support that.
I want to guess what their business is worth right now, not some hypothetical future projection.
You have moved more than 10 people to lunch for one location. Have you done that on a sustained (daily) basis for 50 locations? Because that's what my numbers are saying, and that's a bleak scenario.
I am not saying the investment is bad. I'm saying "please show me how this investment is good". There are a lot of ways it MIGHT be good, like:
1. yelp has been secretly wanting to buy something like this for 100m. 2. there is evidence that they can fill 50 tables a night in kalamazoo michigan
I just don't have that data, so from what I've seen I can't tell that it's awesome.
I want it to be awesome. Show me.
You could look at the size of the meetup market, dating, etc., and go based on that (assuming everyone eats, and that the users view the cost of the meal as in-line with what they'd pay otherwise, so the meeting is "free"). That's a lot bigger than one per city per night.
There doesn't seem to have been a huge volume of meals in the Bay Area recently, though.
I did notice other cities like San Francisco and Los Angeles have lots of dinners
How does a founder, who tries everything end up finding his hit business?
We started off with a gold apparel line. I mean, I enrolled in sewing classes at Santa Monica College...Don't be shy!
Um, errors like it not accepting my name or sign up information until a second or third refresh of the page. It also would seemingly doing nothing when enter was pressed, stuff like that. I didn't look closely at it, but I"m guessing the JavaScript failed because of some resource it was calling failing. That's what it felt like at least. Again I didn't Firebug it or anything. I just tried later.