Thursday, 2 March 2017

A (satirical) interview with the co-founder of

Today it is my great pleasure to introduce to you the co-founder and CEO of Since its founding two years ago, the company has delivered extraordinary growth in monthly active users (MAU) and gross dollar merchandise value (GDMV). Forbes has labeled the latest addition to the prestigious 'Unicorn' club, with the company's latest funding round with SoftBank and Sequoia having recently closed and valued the company at US$1.2bn. I think you'll agree the story of what this 24 year old without any prior business experience has achieved in under two years to be truly inspiring. Thanks for joining us here today.

Pleasure to be here.

So tell me a bit about yourself and

Well, last year me and a friend were sitting in our Ivy League dorm-room chatting about the world, and concluded that making money the hard way by getting a degree and working for a living appeared to be sooo 20th Century. As millennials, we wanted the good life and fast. We live in an amazing age of entrepreneurial possibility, with the internet re-writing the rules, and so we concluded that we needed an online business. You know, so we can get rich really fast, and do Ted talks and stuff.

So we brainstormed and came up with the idea of We pitched our idea to a bunch of silicon valley VCs and got funded, and the rest has been history. We have managed to grow our monthly active users by a compound growth rate of 20% per month, and gross dollar merchandise value by a 50% compound rate, all while spending a material fraction of our VC funding on lavish parties and office bean-bags. We've used social media to promote our offering and it's really taken off - it's gone viral. All of our measures of user engagement and customer satisfaction are extremely high, and so we are very excited about our future growth prospects.

We are still in the growth and development phase so we are still losing money, but our VC partners have been extremely supportive of our go-for-growth strategy. We have recently closed out our fourth funding round which has valued the company at US$1.2bn, which has provided us with enough funding to support our growth ambitions for the next 6-12 months.

So what is your business model exactly?

Ok, so our business model is to sell dollar bills online for 80c. You can place orders through our website or custom-designed app, available on both Android and iOS, and we will ship you a batch of crisp freshly-printed dollar bills directly to your door in less than 24 hours.

It's an amazing customer value proposition, and the size of the addressable market is truly enormous. We have been investing heavily in same-day delivery capability in major US cities, and plan to roll out our offering across the country in 2017, before going global shortly thereafter. We may look into the use of drone technology to reduce our shipment times to less than an hour in major cities in coming years as well. We plan to call this service dollar-discount-prime. We also plan to launch our own driverless car R&D initiative soon as well. It's not at all relevant to our core business, but all the cool tech kids are doing it so we figure it must be a good idea.

Ok but hold on a sec - how do you guys have a viable business model?

It is true that we are operating at negative gross margins at present. However, this is a deliberate strategy to maximise the growth rate in our user base and GDMV turnover, and in time we hope to make it up through volume. Our strategy is to first invest in growth and customer acquisition; increase our number of monthly active users and measures of user engagement; and acculturate customers to using our services regularly. As noted, all our measures of customer satisfaction and net promotor scores are extremely encouraging, so we're very optimistic our growth will continue.

We will seek a path to profitability later, if needed. As everyone in the tech industry knows, profits are nice, but not necessary, because you can just raise new capital from VCs when needed. Furthermore, this is how we increase the company's appraised valuation. We also think going for growth its the right strategy to maximize our long term growth opportunity, given the size of the addressable market, and we need move quickly to capitalize on this opportunity before our competitors do so. And as noted, our VC partners are extremely supportive of this strategy.

Sorry, what? I still don't see the viability here. Run it by me again.

It's ok - you are over 30 and work in the old economy so I can understand why it is hard for you to grasp what we are doing. So once we have captured a large portion of the addressable market, our strategy will then be to slowly improve gross margins over time by raising prices. We will also derive increased S&GA and R&D cost efficiencies. Our superior economies of scale will also position us much better than our competitors. That's why we need to get big fast. That will also provide us with additional resources to fund our newly-incorporated space rocket subsidiary that aims to help humanity colonize the universe.

Yes, but how will you be able to sustain your user base if your value proposition no longer exists - i.e. if you raise prices to more than 100c? Won't users desert you?

Hmm that's a good point. I never really thought about it that way. But you're sort of missing the point anyway - our business model is not really about profitability, but about increasing MAUs and securing higher and higher valuations through continuous VC funding up-rounds. And in order to secure higher valuations for our business, all we need to do is continue to increase the number of users and show that our top line is growing fast. That's the way it works in the valley. Earnings based valuations are old-hat.

We were smart enough to not take the company public too early. There is a reason there have been so few tech IPOs in recent times - it is much harder to maintain control of the company's valuation and maintain an illusion of ever-increasing valuations. Public market investors are also notoriously demanding, and often require a pathway to profits, if not real profits (gasp). It's a real buzz kill.

We believe it to be a much better business model to stay private. That means we can mark our valuation up every time we need to do a new funding round - we usually just add 50-100% to the last round. It works just fine. We get money in; VCs get to show good mark-to-market valuation gains on their private market holdings, which makes their returns look good and their underlying investors happy; those investors then feel richer and put more money in to finance the next funding round; and VC fund managers get to bank large bonuses. It's a really great eco-system.

Yes but isn't this a ponzi scheme?

No because there is always the option of IPO if and when VCs decide they don't want to put any more money in or that it's time to cash out. That's usually when we've passed our peak growth rate in users. Public market investors sit outside the eco-system described above. If public market investors wouldn't buy us out, the eco-system could be threatened, but fortunately Wall Street is populated by many master salespeople who are prepared to abandon any sort of ethical restraint provided there is a large enough fee trough to gouge in. We just pick a big valuation, promise Wall Street a bunch off fees, and Wall Street will work its magic and sell the story.

I can't wait to ring the NASDAQ opening bell!

Well I should probably let you get back to your bean-bags. It has certainly been an enlightening interview, although not quite in the manner I originally expected. Thanks for joining us today and I wish you well with your future fund-raising plans.

We don't need luck, but yeah thanks. My back is also starting to ache - I haven't sat in a real chair for a while - so it's probably a good time to break. Keep an eye out for our upcoming US$2.5bn funding round. Laters.


The above is of course satire, and was inspired by SNAP's IPO; some of Uber's recent pricing decisions; Twitter; Softbank's proposed WeWork investment; and many (but not all) online retailer and upstart platform companies I have observed in Asia. The oblique references to Amazon and SpaceX are pure jest - I think Amazon has a very viable and valuable business platform and I'm a big fan of both Jeff Bezos and Elon Musk, who I believe are driving real value creation (although I have no interest in investing in Amazon or Tesla at current prices).

However, I have observed a trend of many online businesses growing fast primarily by selling their services at below cost. Online retail businesses (excluding Amazon) are a prime example. Some ride-sharing apps are arguably in this camp too. It's easy to grow top line & take market share off bricks & mortar competitors if you're prepared to sell your wares below cost. But do you have a viable business model? Selling your goods and services below cost is the equivalent of selling dollar bills for 80c. Eventually you will need to price your services at a competitive economic cost. And how much of your user base will stay with you when you do? Especially if there is another upstart service willing to lose money to take your customers' eyeballs.

There are shades of a bubble mark 2 evident at present. SNAP's IPO valuation appears sheer lunacy to me. I won't be touching it. The IPO pricing is a testament to the powerful ability Wall Street has to market overpriced junk not just to the public, but to large institutions as well.

Comments welcome.