DoorDash Venture Capital Investment Memo
Sequoia invested led the $17.3m at the series-a round in 2014 in DoorDash. They shared their investment memorandum in 2020. Read to understand how a venture capital investor thinks about investing in a company and how they communicate it to their partners and potentially their limited partners.
About the DoorDash VC Investment Memo
Alfred Lin at Sequoia Capital shared the DoorDash investment memo from 2014 on an episode of The Founders’ List podcast in 2020 on the Twitters and a podcast.
You can see it here.
“In the Summer of 2013, DoorDash had a dream of building a real-time local delivery network for local commerce. This episode of The Founders’ List is the reading of an internal memo by Sequoia Capital Partner Alfred Lin in 2014, focused on the market and business of DoorDash before their Series A partnership.
DoorDash launched in Palo Alto, California in 2013. As of January 2020, it had the largest food delivery market share in the United States. DoorDash held its initial public offering on December 9, 2020.”
About DoorDash
DoorDash provides restaurant food delivery services connecting customers with local businesses.
The company is passionate about transforming local businesses and dedicated to enabling new ways of working, earning, and living. By building the last-mile delivery infrastructure for local cities, DoorDash is bringing communities closer, one doorstep at a time. It connects customers with their favorite local and national restaurants in more than 600 cities.
Andy Fang, Evan Moore, Stanley Tang, and Tony Xu launched the company as PaloAltoDelivery.com in 2013, which became DoorDash, Inc. in October 2014. It is headquartered in San Francisco, California.
Commentary from Alfred Lin
1/ Huge congrats to the @DoorDash team on today’s IPO! As the team celebrates today’s milestone, I thought it would be fun to take a walk down memory lane. Here’s a snapshot of the internal memo I published on DoorDash in 2014, just before our Series A partnership.
2/ Customer empathy: x grew up washing dishes in restaurants where his mother worked while she saved up for med school. He understood the struggles small-business owners face: how hard it is running a restaurant, how thin the margins are, & how little room there is for error.
3/ After founding @DoorDash, Tony moonlighted as a driver for companies like Papa John’s – all to learn how those companies operated and recruited drivers. He also regularly tested out DoorDash’s system on busy shifts.
4/ This customer obsession served as the foundation for @DoorDash’s mission to grow and empower local economies – starting first with the *merchants* in the suburbs (not a focus for their competitors).
5/ *Data mindset*: @DoorDash wasn’t the first food delivery service. But their technical approach to problem solving enabled them to break down logistical issues, simplify processes, and minimize errors.
6/ The team also knew early on, for example, that their software around batching would become a competitive advantage. They understood that local delivery was different from the transportation business.
7/ Over the years, @t_xu, @andyfang. @stanleytang, & team have continually shown a deep understanding of their customers, unparalleled operational efficiency and ongoing resilience. Congratulations on today’s milestone! We look forward to working with DoorDash for many more years.
About Sequoia
Sequoia is a venture capital focused on energy, financial, enterprise, healthcare, internet, and mobile startups. The firm helps a small number of daring founders build legendary companies. Its spurs them to push the boundaries of what’s possible.
The firm seeks to invest in all sectors with a focus on energy, financials and financial services,
healthcare and healthcare services, Internet, mobile, outsourcing, and technology.
The company was founded by Don Valentine in November 1972 and is based in Menlo Park, California.
| Announced Date | Transaction Name | Number of Investors | Money Raised | Lead Investors |
| Jun 18, 2020 | Series H – DoorDash | 3 | $400M | Durable Capital Partners |
| Nov 13, 2019 | Series G – DoorDash | 1 | $100M | T. Rowe Price |
| May 24, 2019 | Series G – DoorDash | 8 | $600M | Darsana Capital Partners |
| Feb 21, 2019 | Series F – DoorDash | 9 | $400M | Dragoneer Investment Group, Temasek Holdings |
| Aug 16, 2018 | Series E – DoorDash | 2 | $250M | Coatue, DST Global |
| Mar 1, 2018 | Series D – DoorDash | 4 | $535M | SoftBank Vision Fund |
| Mar 22, 2016 | Series C – DoorDash | 6 | $127M | Sequoia Capital |
| Mar 26, 2015 | Series B – DoorDash | 9 | $40M | Kleiner Perkins |
| May 22, 2014 | Series A – DoorDash | 5 | $17.3M | Sequoia Capital |
| Sep 30, 2013 | Seed Round – DoorDash | 11 | $2.4M | Khosla Ventures |
Usual caveats
No investment memo made voluntarily public will ever be 100% as it was. The pressure is just too high for VCs to look smarter, and not make founders uncomfortable, etc. I highly praise the VCs who share their thought leadership so we can all learn.
If you’re learning to make a VC investment memo, don’t assume the memos are what you exactly need to do. Information will be redacted. Assume anything “delicate” or sensitive is not in the memos.
The only memo that is 1 to 1 is the YouTube memo because it was in a lawsuit.
DoorDash Venture Capital Investment Memo
To: Investors US
Date: March 31, 2014
From: AL
Subject: DDDD – DoorDash Due Diligence
I am having amnesia and déjà vu at the same time.
– Steven Wright (Academy Award winning comedian, actor and writer)
Introduction
DoorDash graduated from the Summer 2013 class with the dream of building a real-time local delivery network for local commerce. Their first entry into this vision was to focus on local delivery from restaurants that offered take out but did not have the infrastructure to do their own delivery and quickly found that restaurants that manage delivery were also more than happy to outsource their operation to DoorDash.
Market
According to Grubhub’s S-1 and the National Restaurant Association, there is over $67B restaurant takeout volume in the US. Only 15% of restaurants delivery, suggesting $57B is addressable by the company. DoorDash’s TAM in revenue would be $11.4B, if take rate is 20% or $8.6B if take rate is 15%.
Team
The founders are smart and scrappy. They started out driving for Papa John’s, UberX, Lyft, Sidecar, to learn how these companies operated and how they recruit drivers. They are observant that local delivery is a different business than the transportation business and that logistics software around batching will become a competitive advantage for them. They test out their own system by being a driver for busy shifts. Founder Tony has a heart to help local merchants, as his parents operated a small restaurant. In 8-9 months, the company has proven an incredible amount while being capital efficient. They raised $2.4m and still have $1.7m in net cash (cash on hand + restricted cash – net future payments to drivers and merchants).
Business Diligence
The company has gotten to an impressive Gross Processing Volume (GPV), which is the sum of order volume, commission, delivery charge, and driver tip that now exceeds a $10M annual run-rate. The company’s take rate of GPV is over 21%, which gives the company an annual revenue run-rate of over $2m. Stacked revenue by cohort suggests an almost subscription like revenue stream after the first month:
After the initial month, DoorDash returning user base drops to 40% of the initial month cohort size, but future months decline but all stay above 30%:
REDACTED IMAGE on cohorts
REDACTED IMAGE on returning customers
Until perhaps consumers reach their limit of takeout food from restaurants, all of this suggests a very sticky business where returning users continue to spend more and more. The first cohort from July 2013 might be an anomaly, but certainly, this graph below shows GPV for returning customers by cohort to start from $100 to $120 and increase to almost $200 over time:
Key Questions
We have a few questions and concerns that we wish we could diligence before making an investment decision.
1/ Competition. There seems to be increasing competition in this space. We looked at Grubhub in the past and the company is now public. They have a marketplace approach of taking orders and passing it onto restaurants that do deliver. This might be a superior business financially, but offers a less compelling value proposition to restaurants. Postmates and Caviar were established before DoorDash. In some sense, TaskRabbit also serves this market. Irrational competition destroys value and we are concerned that this market may lead to commoditization and a race to the bottom.
2/ Unit economics. While the company claims 20% contribution margin before marketing, they continue to burn more and more cash. Customer acquisition is the main driver of burn, as well as driver and merchant acquisition. Will this be one-time acquisition costs or recurring costs, especially to get customers and drivers to come back.
3/ Capital Intensity. DoorDash has been capital efficient and claims to be a 3-sided marketplace that will have natural network effects and will continue to be capital efficient. Will this be the case? Will competition lead to irrational investments in growth? Will our margins compress? Will all this lead to massive capital consumption?
Pre-Parade
If everything goes right, DoorDash will emerge as the leader in the restaurant delivery space. The local logistics network and know-how will allow them to expand their use case to other areas and allow all local merchants to delivery to consumers. DoorDash becomes the hyper-local on-demand delivery network.
Pre-Mortem
Consumers loves the value proposition, but are not willing to pay for it. Merchants grovel about DoorDash’s take- rate. Intense competition drives the business to economic profit of zero or worse. We have middling hyper-local business that works in only rich neighborhoods.
Deal Dynamics & Recommendation
The company is likely to get a number of term sheets today. We recommend leaning forward and getting our questions answered. From what we know today, we continue to be enthusiastic and recommend investing $7m-$10m for 25%.
What did you think was missing in this memo?
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