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Losing $16 on every order
The new CFO had come from infrastructure private equity, where businesses throw off stable cash flows. He hoped the numbers were simply how Silicon Valley looked and that venture investors would fund it anyway. His first reaction to the September financials was that he hadn't even been there for them, which he now calls the stupidest reaction available. He was the CFO now.
Mike Moritz, the Sequoia board member, ended that hope. He told the new CFO flatly that this would end in bankruptcy, and to do the math. Then he asked for a call every week, even though the CFO worried he couldn't produce something worth a board discussion that often. Moritz was a multi-billionaire by then, and he spent the time anyway.
By February 2016, a few months after that November 2015 start, Moritz was naming the Instacart team as one of the things that kept him going in a long interview at YC with Sam Altman. The CFO teared up at his desk when he saw it.
Why do grocery orders lose money so easily?
Groceries are a thin-margin business: supermarkets have typically kept only a low single-digit percentage of sales as profit, according to industry groups such as the Food Industry Association. A delivery order adds work the store never had to pay for, including a person who picks every item off the shelves and a driver who brings the bags to the door. Those costs land on each order whether the basket is small or large.
Why would a venture investor fund losses per order?
Venture funds are built around a few outsized winners paying for many failures, so investors often back companies with bad early numbers if the numbers could improve with scale. Per-order losses can shrink as deliveries get denser, pricing improves, and other revenue such as advertising grows. Amazon went public in 1997 and posted its first quarterly profit in the fourth quarter of 2001.
How does infrastructure investing differ from venture?
Infrastructure investors buy assets such as toll roads, pipelines, and utilities that often earn money under long contracts or regulated rates. The cash flows are predictable, so returns come from steady yield and careful use of debt. Venture investors accept the reverse: little predictability in exchange for the chance of very large outcomes. Infrastructure funds often hold an asset for a decade or more.
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