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Peloton pedals toward an IPO, self-driving is big business and SaaS's new highs


If you're looking to sell your private company stock shares POS solution for you with more than four billion and company approved transactions. Shares posts is the leading marketplace for private company shares to learn more visit us as shares post dot com slash Ecuador. And welcome back to equity. I'm tech wrenches. Silicon Valley editor Connie Loyola's. I'm joined today by crunch base. News is Alex Wilhelm low. Hello, and Niko. Banat Sosa managing director at general catalyst excited to be here. Excited to have Unico before we do the topics. What does that mean managing director? It is it like general partner, but just different words or different. Okay. So same sane league alone or fons at we raise. Okay. I always want to make sure that I understand what everyone's John venture world's opaque. And you know, it's true in the nomenclature does mean different things at different firms, but general days, everybody's a partner. So who cures everyone is a partner director sons better than partner. Jeffersons I'm gonna call myself, a partner to you. Call lewis. I'm sorry for derailing the show. Let's begin. No, no, that's fine. So I think we wanted to talk today about Palatine. So we wanted to have our Palestine because it's a very interesting company that is interviewing banks right now reportedly for roles in an IPO. Now, this is a maker of video streaming stationary exercise bikes anybody in the room have one I do not Nico. I don't have one. But I've tried them have a lot of friends who have them. They're obsessed with them. It's unbelievable. That's what I hear to like people EDSA Tron have won. All they do is bike on it all the time. I don't get why they're so addicted, but I guess it's healthy so people of taking care of their health, and fitness, and if you're in New York and now the weather's freely. Shane shitty, right? Once into a club who wants to get out of their home, and the content has gone, very very, very good. So that's particularly compelling with this business. I think that's something that so I don't have one my husband drops since all the time. I think we're gonna end up with something at some point. But I apparently the content is sort of the secret sauce. So as reading about how people just become so attached to their instructors who are being streamed to them. There's one instructor. I think her name is maybe ours on and she has two hundred thousand Instagram followers. So they're sort of like little celebrities in this community that there's a soul cycle comparable here, right because soul cycle individual instructors, get cold followings and big markets, and they have people that fall in there. So this similar idea I presume, so it's like micro sports liberties that are aimed at making you move as opposed to watch other people do all the work. But they're going to go public has quite large now, and we pulled some numbers on this. And according to various media reports that we compiled they did about four hundred million revenue in two thousand and seventeen and for the current fiscal year. I don't know exactly when that ends about seven hundred million revenue is the expectation. So seventy five percent growth you every year. Yeah. And that makes sense because so the bikes are about two thousand although they think they say with them sort of add it's like two thousand two hundred and fifty two to two thousand seven hundred and they've sold I think four hundred thousand plus of these what it'd be interesting to know is how much they're spending on creating the bikes. I was thinking if they spend like five hundred dollars on a bike, which it's got to be more than that. You know, they they have their costs are high. They have their they designed the hardware. The software. They're training the instructors, I didn't realize this. But they've opened seventy brick and mortar locations across the US the UK and Canada. They're building thirty five thousand square foot space in Manhattan in the fall. I guess to house several fitness studios. Yes. So they're spending a ton of money. So, but they have everyone's favorite thing in the world. Which is a high margin recurring subscription business that's attached to it. So after you pay the privilege at twenty three hundred twenty two hundred dollars per this bike, you get to pay thirty nine dollars a month to peleton for all the lovely video streaming stuff. And so I bet there's a lot of margin there to be used. So my question is when we eventually see this as one presuming that it all goes, well are driving margin on the hardware side. Or is that a break even entry point for the subscription part of the business where they drive most the margin. It depends on how you want to approach it. I don't know which is more aggressive. But I like that there's at least two parts of this company. But the problem is from outside if it's a two-part business harder to see which of the revenues from which so I don't know if it's a super mazing business or does a pretty good one. Let's ask that he see complete Nico Nico. Have you looked at this company has degenerate catalysts ever, we have? But I have not personally I spend most of my time on the at eight side of the business, but phenomenon it's like a definite consumer phenomenon has capped. Activated the hearts and minds of so many consumers always hardware is very hard because you have to deal with inventory. They've X returns you have to deal with putting in more capital. I into the next race in of the product that he wanted develop disciples are longer. However here the predictability of the revenue that they have from the media business and with a subscription. This is quite quite compelling people when they spend money on their fitness they've made such a large purchase. And then they fill this sense of guilt. Which is it's like, you know, how a buying team subscription. So it's kind of harder. You not the consulate even if you actually, you know, have committed to it because you don't want to be doing something bad for your health here. People love the product from what I'm hearing without knowing, you know, any details about the company, of course. And then you have it in your living room. You see every single day. So that's hard. You know to forget about it. You're not doing it alone. Like from my circle of France, people do their partners do it. They're competing with each other the content has gone so good. So you can do kind of competitions with other people or take classes will people's at all that stuff is very very very very compelling. So I would assume the the Kerr the retention and and churn rates are going to be pretty healthy. The price point is always ask. So the price went do think it needs to go down or I wonder even if it would go up. I mean, I do sort of wonder who they are targeting. I mean, we're seeing sort of newer offers in the market that are even more expensive like tonal this week training system. That's I think maybe four thousand. I mean, even even it's from what I've seen. They have the treadmill. What's going to be the most amazing one of all time Olympians are going to be using it to train themselves, and that's also four thousand dollars. It's going to be like, I don't know the tesla will. Because that's what we were lacking. The market really was another treadmill on but there's also coming called mirror. If I recall say exercise, merely you dance in front of people give that a lot of flack for being like, narcissistic, whatever as if there are no mirrors in gems as it is. I mean. This people never been to Jim. I think it's awesome. I think a lower price point would be interesting. I wonder how much demand for Pelivan is. And the I I mean think about NICO's friend group and their average net worth versus mine and think about how many of his friends smile. There's a pretty big jump there. And so it's kind of like the cool rich kids. Most of my friends are the founders where you're talking about stays founder who has a peleton probably already had some money in this market. They probably all have peleton's. But what's interesting is the company does have a defense against this widespread? Perception that this is for the, you know, elite money, whatever, which is that you can just download the app, which I think I should do. I would sort of just be interested in and taking look at it. But that's apparently like, I don't know. Maybe just thirty nine dollars a month, which is the standard also this company. Smartly has a financing plan. You can pay fifty eight dollars a month over maybe like forty months, and so they sort of say, look it's the same that you'd be paying for a gym membership. Anyway. So now, you get you know, those. Gyms can use the cost sixty a month of seventy month. The the the other thing about it is if you have opposed on you can do it at home. You don't need to help on a new bird to get your Jayme. You can do whatever you want. It could replace part of the sessions that you're doing with a trainer it's a good family activity to do because a lot of positive concern is in in many ways. Of course, the pricings aspirin today. Sound for everybody? I could see a future where they have like a tiered pricing same way that car companies. You know, like tesla have done it before. Maybe you could buy a used peleton when they come up with their new newest goodbye, you could buy us pubs win that whenever they come with thing. Uber's and you can buy one like how does it the old? Right. That's the other example, however at these price points and given the subscription component don't need to sell like, many, millions of them have a very very good business. You don't need to do that. Well, we will find out more when we get that s one after these bankers it's going to be a fun year for like, I know I know we've been looking forward to this for a long time. But I think it's actually going to happen this year, the government's not going to close, for example, the SEC will stay open people can't file it's gonna be good. Well, you know, one thing. I mean, we are going to talk about other companies that have filed today, but I'd be interested in your thoughts on this Nico. You know, Jim Cramer, I don't watch his show mad money. But he was he made an interesting point earlier this week, which was that he was sort of wondering whether that market can support some many new companies coming in. He was like are people going to be selling atlassian Dubai's slack, or you know, I I thought it was sort of an interesting point is that something that you have given any thought you haven't thought months about the frankly, there's one's money out there like? It's it's insane. And the US is perceived as safe harbor for anybody who invests either wants inventor at the capitol right now, also the -nology is perceived as height growth industry, soundless, something fundamental changes. This perceptions can provide us with pretty good run. The the float of these companies that are going to go public. This your isn't going to be huge. I don't think I don't think there's a lack of available capital for the question is is the money interested in these IPO's also already invested in high grotekyn plays. I would say sure, but there's play a lot more money laying around people are so desperate for yield. They're putting piles of extra money into private equity and all sorts of things. This is an easier way to generate some returns. No, exactly. And then the other thing is a lot of the companies that are going to go public or consumer facing again. And whenever that happens customers and users of these companies get excited to own a piece of them. Oetzi affect you could say what happened with Facebook buck in the day, or you know, even snap and Walberg going public. I'm sure a lot of Hoover customers, maybe thinking about it. Maybe you can buy shares in the app on demand. I'm kidding. Everyone. Don't forget this episode is brought to you by shares post. All right. Let's move on to post mates now. This is being a possible finally is when they filed a privately last week, and they said in a statement about the size and price of their offering. We'll be have to be determined. So we'll hear about that later on and right before we got on the show, you're actually looking up their last funding round. And I think it was early July of this year. Sorry early. I it's actually on temporary. It's not in the future. It's in the past. And that's why I get paid to do a pug us. All right in January this year. There is a hundred million at it. I think it was a one point seven five billion roughly one point eight billion valuation right in there, picking up a lot more money for the delivery space. And it's a very crowded space because talking about Uber. We all know that Uber eats is supposed to be this very dynamic with business even for Uber, which is already a growth business. So to see more money going to post is very interesting, especially towards an IPO. Absolutely. I mean, it's interesting the space is just so crowded so post mates raises huge round last. Month with black rock and tiger global on participating but this week door. Dash is reportedly one another, you know, in addition to overeat stored ashes, a huge competitor. And they are reportedly raising a five hundred million dollar round at a six billion dollar valuation. So there's you know, I don't know if there's sort of a a race going on or there's just, you know, like, you know, everyone sort of seize infant, you know, market share to be grabbed. And, but it's certainly interesting that everyone sort of well, you know, Nikolai would also be interesting. Your thoughts on why door dashes raising privately instead of going public. I mean, this is I think seen is the bigger company. So post mate's needs the money door dash doesn't or what do you? What do you think is going everybody in this category needs the money because what everybody's trying to do is pick on how quickly this market is expanding. Probably that's something that a lot of us do not expect but can today, but they're four players know gropups in those. Host maids door. Dash and ubereats all of them are growing. I think grub seamless are losing markets here. But if you take out there stock price, it's it's pretty well over the last year or so it it's it's interesting to see that I didn't know people stop cooking at home or they go over the blue print stuff that we're doing before everybody cares about this food delivery because they're lazy with the partnerships that these companies have done in particular door dash and ubereats they're taking money with from the restaurant sues maybe they're offering better deals to the end users. So it's really interesting. You know, what's going on in that space? It's an ever expanding market. I wanna talk about that more by expanding market. You mean, the total addressable market for food delivery itself is expanding. So as these companies are growing the actual market category into which they sell it is expanding which is where you want to be the growth stage company. Of course, people are going. Restaurants, more people are ordering out. But, but you know, I I interested to see everyone's numbers like Jordache. For example. I talked to another software company in New York. It sells sort of point of sale software to restaurants. But it also works as a funnel for door dash. But it's also taking a bit of the revenue so they're sort of I feel like there's probably like revenue splits that we're not aware of also these companies aren't just competing with each other. They're also interestingly competing now with sort of self driving cars, or they they will in the future. I mean, in fact, the right because one of their biggest coast is labor coast just like, but in in many ways, you know, in the case of Uber. One of the most interesting things is the two partnerships did with McDonald's and with Starbucks, and basically, you know, for over it's essentially the equivalent of juicing up their marketing cuisine costs like every order a somebody does with Uber. Ubereats for McDonald's burger through. At money, but it's probably deeper for Uber to serve that order rather than a pay payment. The obser- on Facebook talk way that new customer interesting. This seems like such a counter intuitive partnership like ordering a McDonald's hamburger and having it delivered by a car. It's only counter intuitive until those hot fries riding, your partner nine thirty PM. And you are the happiest kid in school. So I didn't know that. I was calling Uber money. Every time. I ordered Uber from McDonalds. I think I've bankrupted them by now for sure. Interesting on ultimate guilty pleasure. You can follow pull up your phone while watching Netflix. It'd be like I would like ADA chicken tenders now. And then you wait like twenty eight minutes, there's McDonalds near my house and us up. And so the food just arrived ubereats has changed my life entirely in the area. 'cause I I do not cook an us up period anymore. That was a lot of confessions on the air in a row. So I wasn't pausing post me to sell. I I can go a little bit. They are going public. We think because they probably need the money, which is interesting because a lot of IPO that have happened or may have in this year from companies like slack that have a lot of cash. Everybody needs to mind because there's too aggressive about growing their market share and going after other cities, why is post mates going public and wise Jordache turning again to a private market investor which is reportedly to Tamasek saying, we're not investors in any of those two companies over his oversee like the if he can raise capital from private from the private markets terms you on like in a couple of days or a couple of weeks. Sometimes you do it plus mates. His raise the number of rounds. From a lot of other people. I'm sure they have over Kim is right now in the private markets, but they may want to find exit for some of the earlier investors. They may also be concerned that they're not, you know, the biggest player in the space. And if you go public, I. Your name. You know gets there. The markets are doing well right now and grab puff has done. Pretty well. So why the window will pretend to do? It's interesting. I also sort of wonder how much of the company the founders and early plays on at this point. These companies have raised so much money, and they're actually sort of fairly young very a lot of money. But always with the founders and the executives that are doing well, you can free up them over time. And I'm sure there also performance bays. New way. Could he grunts have been given to them via thing that happened with post meets a couple of years ago? When founder taunt invested in the the wiped out the preferred status full the previous investors. Yeah. I mean, you guys reported a couple of years ago. So like anybody did, you know seed series A series, B excetera, all this folks are coming, sir holder. So in essence, you know, the only major prepares her holders post mates or founders fund. And tiger global and whoever, you know, blackout. Interesting. I don't remember this like the CEO postman's Boston. And I bring them up because post mates used to be based literally next door to the building. We're in right now wherever you're at tech H HQ, and they were next door and Boston had this really amazing cardboard cutout of Angola miracle that I really covered because Boston I think is German, and I asked him if I could have it, and he told me, no. So since then I've been off the post mates tip. But I I gotta say they're cluelessly companies that you've known for a long time do well, I know that's Nicos job. But it's not mine, but it is still kind of fun to see absolute in Boston is a phenomenal individual like this company, the marketing ride that goes some of the most interesting and hardest to get restaurants on the platform. He's perseverance and probably another German crunch has helped him. Personally intensive business avoided. What's been sort of a scandal? In this space this week at tipping. I don't really know how posts mates operates anybody talked to him about it. But the word ash, let's, you know, its customers pay to some extent for its drivers. So the more the drivers or the more the customers pay essentially, there's sort of some sort of algorithm, they pay the drivers less, and this was true of instinct, I'm sorry insta- card as well. But insecure it was sort of shamed. Into changing that policy. I think early this week is people thought that if you tipped your instant instant Carter than for a cute name for it or your door dash door dasher shirt dasher. There we go. I knew that some sort of term people thought that the tip was additional to feed, and they were going to get for doing the deliveries if you tip them extra money for being prompt or great or just doing the thing. They will get extra money. It turned out that that wasn't the case. And so that tip within go to their standard flat rate, and the more you. Tipped essentially, you were kind of covering the door dasher insta- card fee, so far as I understand it to that person for that order and people were very cross about this because they felt like they're actually just subsidizing the company itself as opposed to supporting the worker doing the labor and insta- card as we said roughly in this kind of folded on it door dashes gone. The other way and said, no, this is cool. We're going to keep doing it. I I'm not gonna use cash if they're going to if they're going to operate in that way, just personally, I don't I don't think it's a good business. The business doesn't work if you can't pay your workers or only works. If you don't then your business is terrible. And it will Amazon also has it has the same policy. I think in is also not changing it was on is big enough to not care because we all can't live without Amazon try that for a week. But at a minimum here, we can vote with our, you know, from having worked with other companies at some point, you know, like the workers make enough complaints. Or you start seeing having issues with your supply. So and you have to pay attention. To this stuff because if the supply side is not sticking around and they're not productive. It's going to heat the overall profitability of the business. So it it's unfortunate that this is happening. I wouldn't say the door deaths is about business they've grown really quickly have a lot of partnerships with a ton of food chains. Hopefully, they could they configure something out with workers of the house, which is frankly, you know, parring the whole business the thing that I think we're we're going to see maybe some changes in overtime is the state of the labor market. And if you look at unemployment through a more broad lens than just he was currently unemployed look at people that are partially attached or part time work full time work. There's still a lot of slack in the labor market, which is why these gig economy companies have always had access to people to come and take these jobs that have I don't know issues. Like we're talking about today. And if the economy keeps expanding and doing well that will become increasingly less slack. And they'll be fewer people any probably more slots in all these gig economy. Was companies at which point I think NICO's argument comes into play. And then it's gonna get more competitive in terms of what these people can earn and so forth. But I think the slack in the labor market is part of the puzzle where seen play on the on demand space, and then on the other side of that all of us. Lazy people who don't really for house get food which brings us to neuro which raised nine hundred and forty million dollars. Yes narrows interesting. I had not heard of neuro until this week. What is a neuro a neuro is a company that is just a couple of years old was founded by a couple of guys who came from Google self driving effort before it was Waymo and Waymo. It's. These are these are guys who've been you know, sort of pioneers on this front, I guess, and they are doing two things. So they're building these delivery robot cars that apparently like half the size of compact sedans. But when you open the doors, there's no person there, it's like a compartment for food. They're charging five ninety five to deliver to deliver groceries. What's interesting about this company is it's sort of appeared on my radar. Anything a lot of other people's this week because it raised nine hundred and forty million dollars in one round of from Softbank's vision fund, we love talking about sufferings vision on here. Do we love? I no, no. No, no. Yeah. I mean, it's it's ridicule that they're raising billion bucks a funding both companies S part to become a unicorn this guy's they became a unicorn just for their Bunka gun mean if only built six of these cars six they've built sixties cars they're valued at two point seven billion dollars the money is so that they can build more cars. But what I think is interesting is I see something playing out here where it's like these guys who were at Google self driving effort before we go able aren't going up against each other. So this just happened. But last week Aurora technology co founded by Chris ERM sin who was sort of like the lead guy. They're one of the project leads. He started his company two years ago with a hotshot from Uber and a hotshot from tesla they raised a bunch of money, and they have more in common than you would think Aurora is not trading robot delivery cars yet. But it's delivering it's working on a sort of self driving technology. That's going to it's going to sell to car manufacturers. And neuro has said it's working on these robot cars, but it's also developing software that it might sell to car manufacturers. So they might actually be very much competing directly with each other two things one very excited about the amount of money going into the space. I know I'm usually a cynical jerk. But in this case, I think it's great. It's a huge problem to human issue. We can make the where literally better and safer cutting mission than a better traffic. Great part two of that is remember back in like nineteen ninety nine is big acquisitions, and they say they're valued at like two thousand dollars per eyeball back when that meant MA, you were monthly active visit or whatever the metric was a two point seven billion dollars and a and six delivery vehicles their valued at four hundred and fifty million dollars per robot delivery, car even for two thousand eighteen is a real big rich rate. Well, that's what I'm saying. It's the delivery cars, but also they're really working on this offer on and also she put things in perspective Wednesay 'em book crews for being bugs, it sounds like a bargain. Right. Right. Absolutely. Well, also, I didn't mention that Aurora. When it raised that round last week. It wasn't just sequoia who led it, but Amazon was a significant participant. And of course, Amazon wants to figure out self-driving autonomous delivery. So you can sort of see Aurora powering that potentially at some point be other. That's a very interesting to me is the Jason that's happening like Khomeini phenomenal machine learning totals V cool engineers wrote there there nothing many. Open news. Founders in the first place, right an absurd. There's a fair amount of recycling. That's going on like, I Joan crews and then go to the next one or get three or four overs and they play them against each other. Like that. That's that that there's probably limit in to this talent pool. I'm sure I'm sure like tesla probably wants to like lack everybody inside the building at the end of the night. Because I'm this guys are must be is there anybody left. I don't know. You know, like, maybe we should be reaching them on the ten. So just to underscore that point this morning. I think it was in fortunes term sheet newsletter a classic of the Silicon Valley newsletter game. There was another deal for two simple, t you simple, which is a China based developer of a Thomas driving tech that raise a ninety five or his d I have to say that was reported on by our own Kirstin Korsakov tech, Ron and referenced by Dan newsletter. Well, I did not mean to re tweet the re blog the tuck run story. But that's my point is there's even. Diatta one point one billion valuation. So there is apparently infinite number of founders available, which is pretty exciting. I want this to work. And if you see the market cups of the car companies now that the stock market is don't at an all time high. They're not like super super super high. So maybe this companies get acquired over time from the tech businesses reverse takeover. Yeah. Maybe if I wasn't wants to buy them while you says it'll be justified, but if a car company that's worth twenty thirty but in bugs, and it's the part ways with at ten twenty percent of their market cap. Where company that has made six vehicles. That's harder sell right undoing some quick math on the show, which I promised I wouldn't do anymore. So Ford's worth thirty two thirty three billion right now GM is worth fifty four call it ninety apple could buy them three times over in cash combined. So okay, I see your point there. She's not expensive in tech terms. All right. Well, that's what you get with lower margin. More cyclical revenue and everybody you get a lower revenue multiple, and I should say that to where lost topic about says. Yes. Excellent. All right. Capping off this favorite though. My my second favorite topic SAS IPO's, my favorite topic SAS in general. My second favorite cabinet off the show of a lot of superlatives big numbers sopping vision fund shenanigans and whatnot. I wanna throw in some public market numbers. Here SAS is doing really well again, which is a surprise. If you remember the December time period, we were all saying mad. This is it stock markets. Tumbling tech is going to be slashed all the big five. Technically these lost a couple hundred billion in value. It was rough. But if you look at the Bessemer cloud index, then outrun with NASDAQ, I think it was early as we get set new highs record of the index, which means that things are essentially as best as they ever happened for public SAS companies, and I was also digging through the same Bessemer data, and according to them. The the enterprise multiple of its revenue for those companies had risen to over ten. So we're were worth essentially, their enterprise values were over ten x revenue that what does that is it? Good bad, very, very high, very rich. So if you go back in time to flood Wilson from union square partners or ventures, whatever in two thousand eleven he wrote that public SaaS companies might be worth five extra revenue and four x next year's and private suss going to be a little bit less because they're less liquid. Now public us companies are worth ten x revenue which is twice what he expect it. And so we're at this kind of golden moment for size. I just wanted to market because I'm worried that people don't realize how good this is for these companies. And that it won't always be this good. They won't always be ended a half billion from the vision fund hanging around or if your SaaS company, you won't get this multiple always I would say that a lot of the most ambitious private companies has founders of realized that they raising be groans all of this companies are raising follow on round the research. Hundred nine months at a much higher multiple than ten neck. So would be excited if it was only ten x most of the times, but a lot of times it's twenty thirty forty times. Well, if you're private you're growing more quickly on a percentage basis, you have a higher multiple. But to have a large basket of public SAS, stocks have an aggregate revenue multiple enterprise revenue multiple of ten x ten point two experts. Just that's that's crazy to me, given the unprofitability and most of those companies and their decelerating percentage of revenue growth and just how uncertain the market seemed as of three weeks ago. I mean, again, it's it's crazy. It's really amazing. It's golden ton in q one two thousand sixteen. There was a moment in time. When a lot of these SaaS companies they lost their market share the private market folded afterwards. But hey, it rebounded very very quick. Look where we are not finished SAS crash. So quickly that I don't remember it. But we we have to get going. It's such a pleasure to have you here. Alex. I always love seeing you living the good time. So thank you. And we'll see everybody else next week. All right, everybody. Thank you for listening and a big thank you to our producer. Christopher gates, our executive producer Henry pick of it. And we will see you while right here next week.

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