Raising money | Bastian Lehmann

Speaking of money, you've gone on to raise a little bit of cash with Postmates, $140 million or so?

That's it. It's hard. I tried to count it, but I got bored after a while. So if you did dollar bills, it's around $140 million, I think.

Imagine the sympathy you get for that from a room full of students.

There you go.

$140 million or so, $500 million valuation, and that was as of last summer when you closed your Series D. So you've done In May, yeah. C through Series D. Talk a little bit about raising that first round, what that was like, and also talk about raising that D last summer, because you'll remember last summer was— well, this was just before the stock markets tanked. Questions about the global economy were at an all-time negative for the year, and venture capitalists started to really tighten their purse strings. And mutual funds started marking down companies they invested in. Things were not good.

Yeah.

So you faced a different type of scrutiny, I imagine, during that D. So maybe compare both those series for us.

Yeah. I think when we raised the D, things were still great, by the way. I think now it's a lot worse. Actually, it was a lot worse, and now the Dow is up, so maybe everybody has a smile on their face again. But let's run through that, because I think it's quite interesting. So I met a bunch of people for Curated By. They all said like, you suck, but they didn't say that. So we figured that out by ourselves. And one person that I met was Naval. He runs AngelList. Naval Ravikant. If you guys don't know AngelList, you should. You should engage there. It's basically the greatest VC in the world. And I think slowly Naval and his team there, they're working on disrupting venture capital in general. It allows you to invest in companies. It allows you to split investments with friends over syndicates, how they call them. And it allows you to view company profiles, to work there. You get the idea. They're really taking away a little bit the power from like VC meetings behind closed doors to like a very open and public approach to investing. And Naval is an absolute great person to know, and he's a good friend of mine and was also a great mentor. So when I met him the first time, however, he likely thought that I was an idiot as well because we pitched him Curated By and he was not impressed at all. As a matter of fact, he made a counteroffer and said, you know, I think you guys should just scrap that and you guys should come work for AngelList, and you should be venture hackers, and you should build AngelList with me because that's what I want to do. And, you know, I asked him the question, what would happen to our existing investors, mainly AngelPad? And he said we would take care of them. So it was important for me the moment we considered that offer that the people that invested in the company, more importantly, the people that believed in myself, because I'm pretty sure that Thomas never believed in Curated By, but he thought that I will figure something out, that they were taken care of. So a few weeks later, I declined the offer and we figured out that it's probably not what we want to do. And I told him, look, I have this other idea that we're working on and I want to get back to you and I want to show you what that is. When we built the first version of Postmates, the very first meeting that I took— and it's a true story, but it's really cool— was with Naval. And he said, look, you know, I'm really not investing right now. That's also code language for, you know, I'm giving you an upfront warning that I have an easy out if I don't like your idea. And we went in that meeting and we had the working prototype for Postmates. It was Sam, Sean, and myself. And we sat down and And we showed him how it works. It was a very basic version, 2 iPhones. One would be the Postmates courier, and the other one would be the customer. And we gave him a demo, and he was totally blown away. He liked the logistics space, and he invested $250,000 in that meeting and led our seed round. That was in total $750,000, introduced us to a whole bunch of other investors. And, and we were off to the start. So Series E was super easy. Great. We— because we kind of shown persistence, we knew some of the investors, we came back with something that they were really interested in. It was easy. It was time to raise our Series A around a year later, and there was a whole different story. Postmates was so early that there were no other companies around that VCs could compare Postmates to. And by the time the Series A was there, We made some progress, but we're talking about ridiculously small numbers. We're talking about like 100 deliveries a day, maybe. So clearly far from revenue-making, far from being thought out at all. And more importantly, VCs have like this crazy herd mentality, right? They like to think that they all want to be the first to discover a company, but they still need But at the time they do, it's in many cases the most obvious thing already, or something is really hyped. And what they love to do, they love to compare it to other companies. That's why they have such a passion to develop into number 2 or number 3 in the market. Even if you're not, even if you're not the first mover, it's often easier to raise money. So we ran around the Valley and we went up and down Sand Hill and we said, look, this is awesome. This is awesome because, A, the future is is clearly logistics moving back to the city. The future is an anti-Amazon that allows retailers to compete with big-box retailers and companies like Amazon. We want to use the city as a warehouse. This thing will be in 5 years the destination for anybody who wants instant access to goods, and people will not stop pressing that button. That's the story. And the VCs looked at the numbers and they're like, yes, I'm not sure about that. So Most of them said no before we met Founders Fund. And you know, Founders Fund is Brian Singerman, who was our contact person there, and it's Luke Nosek and Peter Thiel and a lot of the PayPal guys. And they have a slightly different philosophy to, to the investments, to the early investments especially.

Yeah.

So it's very different from, from a lot of VC firms. They all— they're a little bit more like— cowboy is the wrong word, but If they're convinced of something, they don't need a lot of external signals to justify their opinions. And we presented this to them, and I remember we had one other term sheet that was really bad. So Brian said, look, I like you guys, let's work together on this. And after the longest time, we raised our Series A.

How long?

Fundraising at that time? Felt like a year, but it's not true. It was probably like 4 months. Really long. Like, we ran out of money. The existing investors had to bridge us, I think, with another $250,000 so that we kept, kept going.

Does everybody know what a bridge round is? Do you want to give a quick explanation?

Right. Sorry for being so idiotic. The bridge round is basically you look at your bank account and you know that in a month there is no money left. So you go back to the people that already invested money and you tell them like, bad news. The money is gone. And I have a plan how to get more, but it takes a little bit longer. So, you know, they don't like you for it, but if they are great investors and if they fundamentally believe that you have a thing going, they will, they will, they will write you another check. And that's what happened in this case.

And they're not uncommon, particularly when going from seed to A, A to B in those early stages.

Oh yeah, it totally can happen. I mean, it's nothing to be proud of. It wasn't even that the company wasn't modeled carefully. The burn at the time was very low. It was just that We weren't prepared for not being so well received for the Series A.

So then we get to your Series D. Yep, and you've got a lot more customers, a lot more metrics, a lot more data to show your investors. What did they want to see, and what were the toughest questions that they asked?

The toughest question in, in, in the, in the delivery space At the beginning, you have to answer questions around who wants to use this and how big is the total addressable market. Like, VCs want to know that. Investors are really interested in that. Angel investors, not so much. The first investors you meet, they're mostly interested in you and the team. They have a philosophy that they can see you and that they believe, you know what, she's going to figure it out. It's like, she is going to figure it out if the company looks like this or like that, but that team, And that CEO, she's going to figure it out. And that switches over time to first institutional money. How big is the market? How high can my return be? Early signs of revenues. And later stage, it's almost that at that point it is considered that there clearly is a market. You have a lot of competitors hanging around you already. So the questions are, more around how do you differentiate yourself from the competition? So do you have a product strategy that allows you to grow faster than anybody else? How do you make your unit economics work? Clearly, in the logistics space, that has been a really, really important factor. At least how we grew and scaled the company, it was always important for us. See, there's 2 ways at this moment in time to grow a company. There is a lot of— you can grow a company just looking at the growth, or you can grow a company a bit more careful and you also look at the unit economics. And unit economics means break down a transaction for me. Are you going to make money? Where are you losing money and why? How are you planning to reduce this over time? Is the approach that you're taking reasonable so that an investor—

I'm sorry.

I can't believe— look, if you're making $2 per delivery right now, can this ever go to $3, et cetera, et cetera? That's kind of how later-stage investors think about it. Again, competition, how do you stick out? Second is, how do you make your margins work, your unit economics work? And the third one is probably, how big can this get? And then it's a lot about, this is what we're doing today, but really we can also do X and Y. Postmates. Obviously it has been— we started in food. Food is like what books were to Amazon for us. And the, the story is, how can you explore other categories other than food?