Jet.com’s Valuation Nears $600M Before Launch | Hacker News Reader

Jet.com’s Valuation Nears $600M Before Launch

blogs.wsj.com

49 pointsnikunjk57 comments

One of the main arguments used to distinguish the current tech landscape from the dot-com bubble is that today's companies have real products and real revenues to back up their valuations, whereas many dot-com companies soared to huge valuations without a real product.

But Jet.com is a company worth $600M with no product... so where does that leave us in relation to 1999?

Is it public money (IPO) or private money? This makes a difference.

The article says "convertible debt" and lists some investors. Google Ventures, Goldman Sachs, etc.

I know, I was referring to the bubble comments. If private money wants to value a company at a stupid high valuation, thats their prerogative.

If it was public money valuing this company, we'd definitely be in a bubble.

No product? A mailing list is a product, no?

No launched product. These are the guys who have done it before, so can probably model some numbers. Goldman and Coatue presumably like those models.

I can think of quite a few examples of people who had "done it before" and went on to have a very disappointing experience. Often, the people who have done it before will fail because they assume the same strategy will result in the same payoff. It is often easy to overlook the importance of luck and chance.

Goldman liked credit default swaps, too.

Exactly. These guys are the opposite of the lean startup. All air and venture funding with ambitious growth plans. No product, nothing tested, just on theory. That seems like how a lot of famous dotcom companies launched to great fanfare only to discover the market wasn't interested. Pets.com and webvan come to mind.

amazon proves enough people will buy many things online

costco (and even amazon prime) prove the membership model

past experience proves the founder can build a large ecommerce company

there is a little more validation than just theory

That sort of high level speculation has a mixed history at best.

Anyone can model some numbers for a big market and make impressive Kurzweil shaped graphs.

That sounds good in theory, but there's no way to know if it will be like that in practice. Those are unproven assumptions when applied to a new entity. Many of the same things could have been said of Pets.com. Just like no battle plan survives contact with the enemy, no startup survives contact with its customers.

No doubt it's a big gamble, but amazon's market cap is is $173B. That justifies a big gamble.

They have a very long way to reach Amazon and that's given that Amazon stays still all the years to come!

Except that there is a small but significant anti-correlation between running a successful startup in the past and doing so again.

So having a founder with past experience in a successful company gives you a slightly lower chance of success than taking a random first-timer. The existence of wildly successful second-timers does not answer this fact. This slight anti-correlation predicts the existence of wildly successful second-timers. Just fewer of them than you'd get if you selected an equal number of random first-timers.

Secondly, comparison to an existing major player is never a good move for a startup. One of the more frequent arguments I've had in startup environments has been countering the claim that "Microsoft (or Apple, or whoever) does it this way!" as justification for some particular business practice. It is surprisingly difficult to gently disabuse a sincerely committed individual of the notion that their ten-person zero-revenue startup is meaningfully comparable to pick-your-multi-billion-dollar behemoth with tens of thousands of employees, a universally recognized brand, a world-wide distribution network, and a generation of technical expertise.

So there is in fact little more than theory to support the validation. Factual validation necessarily involves paying customers. Lots of them.

'Til then, this looks like a late entry into a market dominated by Amazon, with Amazon Prime already owning the membership space for online sales. Unless their execution is perfect in every detail (which is could be but more likely is not) and/or they offer some compelling advantage over Amazon's delivery model and Amazon Prime's membership model it's hard to see how they are going to put significant dents in Amazon's position. Maybe they don't have to, if they're lean enough and clever enough, but that's a pretty risky bet.

amazon prime is itself taking a series of risky bets -- I bought into it as a fast shipping service. Over the last two years, they've made the shipping shitty with the rise of add-on items, and turned it into a backlist tv / movie service. I don't use, or really want, that -- I just want fast shipping, which has gotten a lot suckier. I'll give jet at $50/mo a try.

$45/year not month

> But Jet.com is a company worth $600M with no product

This is a common misconception. They are not "worth" $600M just because investors put a little money in at that valuation.

Buying 10% of an old car for $60M doesn't make it worth $600M to anyone.

Exactly right, "worth" should only really be used if someone else would pay $600M for it today.

getting, no doubt, investor shares -- ie their cash is out first

But buying one share of a publically traded company makes it worth number of shares * value of share?

Where's the Snapchat's revenue or Instagram's or WhatsApp's?

It appears that WhatApp was profitable in 2014 with $16m in revenue and $13.5m in expenses. With that said, the value to Facebook was purely strategic and was worth far more than their business model.

http://techcrunch.com/2014/10/28/whatsapp-revenue/

And that justifies $16B?! There were strategies during the Dot-com bubble as. Facebook's leading strategy for acquisitions is insecurity.

I was responding to your point about revenue. I agree that $16 Billion is an outrageous amount for that company.

This is an attempt to generate a self fulfilling prophecy. A new internet marketplace, almost by definition, cannot become viable unless people think it either is already or is a sure bet to become so. Only by trying to persuade us that it's succeeded before launching do they even have a shot.

> Take advantage of Jet’s audience of millions of loyal shoppers and build a direct relationship with the customers you acquire.

I don't understand how companies can make claims like this [1]. Unless I'm missing something this has to be false considering they haven't launched yet and their homepage says 350K people have signed up for early access.

I run an online business and a couple of our competitors make false claims very regularly about being #1 (quarterly ranking from the MFG has us at #1 every time). I just can't imagine making a false claim like that - and knowing it is false.

[1] https://partner.jet.com/

I'm guessing that VCs are betting on the co-founders' previous experience. One of the co-founders also co-founded diapers.com which achieved something like that https://en.wikipedia.org/wiki/Marc_Lore

I think their backend is built in F#: http://vimeo.com/104896802

That's pretty neat. Though I'm not sure it's the best association for F# :/. I wonder if they're using WebSharper.

What's wrong with the association? If there aren't any technical issues, it shows F# can scale. If the company doesn't succeed, it's not because they couldn't build what the business required.

That reminds me, how is color.com going anyway?

Good question, let me cuil it.

https://twitter.com/peterpham "I thought I was good.."@WSJD: http://Jet.com hasn't launched yet, but it has already raised $140 million http://www.wsj.com/articles/jet-com-raises-140-million-led-b... …"

Seems like a recipe for disaster.

Why not prove something simple out with a few million before dumping $140 million into it? Does what they're building really require that much software to be written before we know if it will work? I get that the founder has been successful, but wow.

I'm usually pretty wary when people say "OMG It's 1999/a bubble all over again!" But that is a pretty damn frothy raise, even if you're optimistic.

It's for marketing:

> The capital will help fuel Mr. Lore’s grand plans, which include an estimated half-billion-dollar marketing budget and projections for $5 billion in annual transactions by 2020.

(From the full WSJ article : http://www.wsj.com/articles/jet-com-raises-140-million-led-b...)

Despite the highly talented and proven founder, this company has already jumped the shark. Having that much funding and expectations before launch (for this type of venture) is kind of ridiculous. There's going to be unnatural pressures to this business, and I predict it will be a colossal disaster.

Weird things happen sometimes if you generate enough hype.

Oculus VR got bought by Facebook for $2B when its revenues were very small, but highly hyped by nerds.

Seems like an unfair comparison - Oculus has little revenue and working prototypes of the best VR experience to date. Even disregarding the tech talent, Oculus proved their ability to deliver something interesting that people wanted, however unprofitable that something was.

I must have missed something. I thought convertible notes were for seed stage stuff. When did people start raising hundreds of millions with them? Also why, and how, and huh?

Edit: 600m valuation, not raised. Face palm. Never mind.

It's senior in the capital structure. For a high dollar risky investment like this, you really want to protect against downside as much as you can -- a convertible note gives them this protection.

So if it all goes south, these guys can hold debt (rather than common equity) and get first claim on the assets (ahead of common equity).

Aren't later equity rounds usually senior to earlier rounds (the "last money in, first money out" principle) anyway?

No, not unless the later equity round is in a different type of security (preferred equity, convertible debt, etc.).

Otherwise, all holders of common equity are considered to be on equal footing (pari passu)

Don't investors normally get preferred shares?

Not unless you agree to sell preferred shares. All up for negotiation.

I think it's misleading to say it's valued at $600m. What has happened is that the recent investors have invested $140m such that they get 23.3% of the stock it the thing does well. Probably it will end up worth something like $0 if it fails or say $20bn if it succeeds so the investors are hoping $20bn x $probability-of-success x 23.3% > $140m. The headline figure is 600m= 140m/23.3% but I'm not sure that's terribly important. As to whether it's a bubble it depends a bit on your view of $probability-of-success. Dunno about that one.

Private investors (a handful of rich people) bet on this startup. If their bet succeeds, they become richer, else they will still remain rich.

There is no bubble, go home everybody.

Will jet.com be the next pets.com?

Well, it will be at least interesting to see what happens. They are also potentially the most anti-Lean Startup we have seen in a while, and now that seemingly everyone has accepted Lean Startup as orthodoxy, that might be a unique angle.

What are VCs shooting for here? Even a 10x exit at 6B valuation seems outrageous for a service that doesn't seem that easy to scale.

This is late-stage capital, not VC. Goldman Sachs invested in Facebook at $50 bil valuation, so with later revelation that IPO would happen around $100 bil price point, presumably they were happy about 2x.

But when FB had a $50 bil valuation, they already had hundreds of millions of users and real revenue. This company has neither. Bad things are bound to happen when capital is coming in at "late stage" pricing to a VC-stage company.

If I had to guess (and this is based on nothing but conjecture), an amount like that for an early stage e-commerce play is to be used for some sort of capital expansion. Perhaps somebody is going to buy up RadioShack stores or Sears leases.

Harry's Shaving Products is another one that comes to mind raising this much money early-stage, and they've pumped all nine digits of their round into a German steelmaker.

From the large investor perspective this provides some sort of fallback scenario, as worst-case scenario you're left with some commercial real-estate portfolio.

pre-launch late-stage capital

#ShitVCsSaidIn1999

Relevant and recent.

https://news.ycombinator.com/item?id=9031420

Another company with a skyhigh valuation pre-launch is MagicLeap - it is worth something like $1B or so.

Anyone remember 'Boo'?

Reply on news.ycombinator.com