Is this really all that significant? It seems that since the WeWork fiasco, all of SoftBank's failures are being covered by news organizations. But isn't that simply the nature of venture capital? Invest in a lot of different things, most of which will fail, and make up for the losses with the Ubers of the world. (edit: It sounds like Uber was a bad example to use)
$375 million sounds like a lot of money, but it's 0.3% of their investment fund.
I'm not sure if SoftBank is suddenly performing worse than they have been in the past or if people simply just care more about the losses since they had such a major one recently.
I think part of the problem is how uncritically tech journalism covers these companies pre-scandal.
Even call it a "robot" pizza company is strange...I can't imagine that the inside of any factory for frozen pizzas would look that different than what this company was offering.
> But isn't that simply the nature of venture capital? Invest in a lot of different things, most of which will fail, and make up for the losses with the Ubers of the world.
One, if that's really the model, then founders had better stay as far away from venture capital as possible. Whether your motivation is "change the world"/"deliver on the vision you have" or "make money," that's not your investor's model. Your investor's model is to convince you and a hundred people like you that each of you is special and going to change the world, while expecting only one of you to succeed. Your investor's model is to push you to be Uber-scale even if you're overextending yourself and to convince you that you can do it even if you probably can't, because it's better to let you fail and cut you loose than to let you have a modest and small success that doesn't make a dent in the portfolio. If you and everyone else is aiming for safe successes instead of high-risk-high-reward gambles, then the let-a-thousand-startups-bloom approach stops being profitable for the investor, so investors can't let that happen.
Two, I think the rest of the world - and perhaps even the industry itself - doesn't quite intuitively understand that. If that's really the model, "We have $375M from SoftBank" isn't an indicator of anything, neither to other investors nor to potential employees.
One: It's really the model. There are almost 200 years of data on VC in the US. That's the model, I promise.
Two: It's not as simple as just throwing money at a bunch of random things and hoping one sticks. They work hard to invest in companies they think will make large returns, knowing that despite their best efforts a large portion likely won't. This is intuitively understood. But this more nuanced understanding leads to the conclusion that "[w]e have $375M from SoftBank" is meaningful because they're a successful entity in that space, with subject matter experts, and if they invest in you it indicates you're doing something right.
> then founders had better stay as far away from venture capital as possible
There's always tradeoffs. You seem to think that no VC money is safer, but that not necessarily true.
Without capital, you spend 10 years finding out that your bootstrapped robot pizza company is in fact utter garbage. With capital, that would have taken 2 years.
> that's not your investor's model
And it's not my customer's model either. Or my employee's model.
Just because we don't all have the same exact goals doesn't mean we can't create a mutually beneficial arrangement for all parties.
The economics on the Vision Fund are basically unprecedented. No one has ever managed a $100B "Venture" fund before so the fund economics are basically unknown at this point. That being said, it's much easier to return 100x on a seed fund than it is a late-stage fund. This is basically been proven over and over in the PE world.
> I'm not sure if SoftBank is suddenly performing worse than they have been in the past or if people simply just care more about the losses since they had such a major one recently.
The only reason people like talking about anything SoftBank is because (1) its so abnormal in the investing world...it's essentially an unproven model, (2) SoftBank's fund is basically "Masayoshi-son made the most significant investing venture bet ever in history with Alibaba and we want to try to do this 100x more" (3) the investing principles are so abnormal (Masayhoshi-son basically has to bless the founder/idea) that it makes for great headlines.
Masayoshi-son has proven he can throw he dice pretty well, however the jury is still out on whether this model will actually produce outsize returns.
> But isn't that simply the nature of venture capital?
Venture capital isn't a monolith.
Investing in pre-seed, seed, or series A rounds are significantly different than coming in as an investor in a later round.
For Softbank to whiff so badly on such late stage investments is drastically different than an early stage investor failing with a similar portfolio. The risk and uncertainty profiles are starkly different for the early stage and late stage investor.
what loss? Looks like Softbank is already making small (by the tech standards) profit (if they had the stomach to make through the trough of course) - $7.6B invested for 220 million shares at the current stock price is more than $8.6B :
". The Japanese conglomerate spent about $6.6 billion to buy just over 200 million shares from existing investors, including former CEO Travis Kalanick, at around $32.87 a piece. It provided another $1.05 billion in fresh capital to Uber, buying 21.45 million shares at about $48.77 each."
Matt Levine's comments on this yesterday [1] are comic genius:
Presumably many local pizzeria owners have never heard of Masayoshi Son; presumably many more just would never have thought “oh we’re actually a pizza tech company and we need hundreds of millions of dollars of venture capital funding to scale.” But if you have the proper mindset, if you believe in yourself, if you are not a guy opening a pizza place but a founder who previously sold a tech company, if you hire a strategic and retail consultant, if you test out various combinations of “[giant tech company] of [broad category including pizza]” for the pitch, if you call your pizzeria “the Gigaranch” or “the Pizzaplex” rather than “Al’s Pizza & Subs,” and sure sure sure yes fine if you employ some robots to careen around town sloshing cheese around trucks, then maybe you can be the pizza proprietor to rake in Masayoshi Son’s millions.
You craft a pitch calculated to convince Masayoshi Son that your pizza delivery business will change the world. You meet with Masayoshi Son. He convinces you that you will change the world. Now you are all believers, all in it together. He hands you piles of money. You go home and weep to your friends, “I am going to change the world.” The friends are like “wait what with the pizzas?” But it is too late for skepticism, you have the money, the robots are in the trucks, they are fanning out across town, the cheese is everywhere, they cannot turn back.
Pizza reference and all. That book (along with a lot of his other writing) has really influenced the way I see group social dynamics, and the way technology influences them.
Domino's pizza was one of the fastest growing big companies in the world with a 30 minutes guarantee. It's quite similar to the pizza chain in Snow Crash actually. I would say Snow Crash predicted it before it became so successful.
But, in this case, it sure seems, in hindsight, like it should have been predictable. My first thought when I heard about the company was, "How do they keep the toppings from flying all over the place if the truck hits a pothole or has to make as sudden stop or something, and the cheese hasn't softened enough to stick it in place? And how do they keep the cheese from sloshing all over the place after it melts?"
It would seem, based on what I'm reading now, that my error was assuming that they had thought of something clever and wondering what it was. Because the answers turn out to be (1) skimp on the toppings, and (2) you can't, it just plays out like a scene from Astérix chez les Helvètes† back there.
I can infer from this that I, a person who was just sitting on their armchair having a knee-jerk reaction, still managed to think more deeply about this business plan than any of the key figures or investors.
Starbucks, on the other hand, seems to have always had a basic grasp of how coffee behaves vis a vis Newton's First Law of Motion.
†(DDG image search seems to do a better job than Google at turning up the cheesiest panels.)
You may want to check out the Starbucks timeline. They did not raise an astronomical amount of money right off the bat. Blue Bottle is a closer comparison. They also grew organically for many years before raising a serious round. There must be an example of a successful food chain that raised a ton of money in their first few years but I can't think of it off the top of my head.
If Alfred Peet had pitched the founders of Starbucks on a bunch of robot baristas in the back of vans who would deliver your coffee, but which spilled half of it before it got to you, it would have been right to pour scorn on them.
I don't see the comparison. Starbucks is a successful, 50 year old, company with a good brand and always had a sane strategy. Failure or success aren't random.
What the author is alluding too is the fact that putting a bunch of robots into a pizza store isn't going to turn you into a technology company worth hundreds of millions, that is absurd right from the beginning.
The quote really understates the sheer insanity of this all... Alex Garden cynically constructed a narrative for Masa Son that he [Garden] would change the world, and at the end of the meeting, _Son_ was the one convincing Garden that he’d change the world??!
There was a spoof book in 2008 called "Manifold Destiny," which consisted of dinner recipes that could be wrapped in aluminum foil and placed under your car hood, near some hot part of the engine -- to be nimbly cooked in the course of an hour's drive to your destination.
I skimmed it in a book store, back in the day. Quite funny! (Where else could you learn about Hyundai Halibut With Fennel -- cooking time 55-85 miles.)
Shoot me for not realizing that it was a visionary guide to getting funded by Softbank.
Except future robotic cars will mostly be electric I think, and you can't have engine block tv dinners anymore because evs don't generate waste heat like ice cars. But you could have electric ovens in them ;-)
> Some hires came directly from coding schools that specialize in quick boot-camp-style training courses. One adviser recalls being surprised to learn that some Zume coders had last worked at the porn-and-hookup site Adult FriendFinder, known for a security breach that exposed the data of 412 million users.
I kinda get the bootcamp concerns, but what's wrong with being a programmer at a porn site?
I also highly doubt the problems were with the software team either.
After the robotic delivery truck problem failed, which I think was a critical piece of the puzzle as they were essentially replacing retail pizza stores with mobile robotic food delivery machines. Which is something new - and critically something actually scalable with VC funding.
Instead this ended up requiring a sophisticated infrastructure if it was going to compete with pizza stores on every corner, who already have ovens and drivers close to the last mile customers + these old pizza companies already have central marketing funnels from mobile apps, phone calls, and online orders which then distributed "leads" to the various local franchise locations. So an Uber-style play is pretty pointless.
I'm curious if they should have tried a bit harder to solve the robotic pizza truck problem, so they didn't need to build out a centralized facility or a bunch of smaller delivery shops. Especially on the cusp on automated driving, these could just automatically pick-up food restocks at the central location and stay mobile as long as possible.
I'm convinced too many startups give up too easily as soon as they face hard problems then pivot to boring old-industry style companies that aren't real startups/VC companies. Replacing minimum wage workers with robots will never be exciting by itself.
Pizza chains haven't even displaced the local pizzeria who make a higher quality product. It's inherently a resturaunt business and resturaunt are a terrible proposition.
In SF the chains have terrible quality, but in other places you can actually get pretty good pizza from a chain, if the style you want is in their lineup.
Where I moved from the chain pizza was all pretty good. One day after I moved here I needed something quick and familiar so I ordered the same thing I used to get, and it was awful.
So it comes down to the local management, and in areas where management is sound, the pizza is fine and robots add no value in time or quality.
I don’t think the issue they worked on adult sites. I think the issue is they worked on AdultFriendFinder, who basically didn’t care about user privacy.
I still think that's a silly reason not to hire their programmers, unless they played a role in creating weak security.
Security is often a whole company exercise that needs to be prioritized by management, putting blame on some individual programmers seems to show a lack of understanding of how infosec works.
Wow a pizza compNy that delivers and cooks on the way to your house, all done by robots. I can see the pitch. All cooking is automated and in a few years we will become a self driving car company also and automate everything from taking order to cooking to even delivering to the door. There will be no human involved except to refresh the bank account to look at the money we are making!
Instead they ended up increasing their costs multiple times by cooking in parking lots and delivering over scooters. Wow. Classic example of not understanding what they are doing. Both the founders and investors have no understanding of either the tech or pizza marketplace and blindly jumped in. I guess it’s great for the founder. They make money almost for free.
> Classic example of not understanding what they are doing. Both the founders and investors have no understanding of either the tech or pizza marketplace and blindly jumped in.
>Wow a pizza compNy that delivers and cooks on the way to your house, all done by robots.
I am not sure I suppose in really high real estate cost areas that might be good, but it does not strike me as an obviously good idea with respect to capital usage.
And the employees too, they got fat severances. All of this reminds me of a government jobs program. Strange, isn’t it? If the free market wasn’t so distorted in the US (primarily because of government involvement), companies like this would never get funded in the first place. Instead we have government jobs programs popping up all over, due to QE by the Fed. Next time they should just helicopter the money directly to everybody. Way more efficient.
SoftBank is a Japanese company heavily invested in companies all over the world. I am not clear on the direct link between US Fed QE and SoftBank's Zume Pizza investment.
If you are going to blame the US government for this bad investment, then you'll also need to give them credit for all of SoftBank's good investments too, right?
AI is the biggest scam of all tech pitches. Get some data, make a neural network, slap a single-page app on front of it, and BOOM - disrupt [insert sector that employees N-thousands of people]. "Once we scale, we won't have employees - and you'll own a percentage of the black box that disrupts the whole industry."
The parts of any business that can actually be automated by "AI" (aka machine learning, aka automated statistical analysis) are not the pieces of the business that justify its existence and value to customers. Self-driving cars are the most obvious debacle, but it's the same story everywhere - enormous capital to get the data and engineers to automate, but even the "good" AI still gets it wrong much of the time, necessitating endless edge-cases, human intervention, and eventually it's a giant ball of poorly-understand and impossible to maintain pipelines that don't even provide a better result than a few humans with a spreadsheet. Imminent implosion to the AI sector is incoming, sell now before the hype completely wears off.
Yet AI _within_ large companies is producing enormous benefits. If your AI startup is helping customers implement AI on their own data, you may have something. A one page web site on top of your own startup data? Yeah that sounds risky.
Do you have any examples of "enormous", tangible benefits from machine learning own data? I can see some benefits on the margins, but I have not found any evidence of disruptive productivity enhancements.
I am honestly surprised that nobody mentioned the critical quote:
"The fund is less than three years old and we’ve already had eight IPOs and returned $10.6 billion to our limited partners."
I would be willing to believe that. Maybe SoftBank is making money and paying out profits, despite some of their companies publicly failing in spectacular ways. In that case, they are absolutely correct to ignore public opinion and continue doing what they were doing before.
It's worth remembering that Vision Fund's apparent thesis wasn't just to have a many-losers-compensated-by-a-big-winner portfolio like most VC funds, but that they would pick winners by sheer scale of their checks. That should imply a smaller shares of outright failures (if Uber, Wework et al can even be called that, which I'm not sure)
Unfortunately to test said thesis they HAD to raise that much money (maybe half was enough, but then again, if they could raise 100Bn, why not?) and HAD to burn it like they did.
Apparently the result is that scale alone can't bring the kind of outsized returns VCs rely on, even if they do end up creating juggernauts. But to learn that, someone had to try.
Readit News
$375 million sounds like a lot of money, but it's 0.3% of their investment fund.
I'm not sure if SoftBank is suddenly performing worse than they have been in the past or if people simply just care more about the losses since they had such a major one recently.
Even call it a "robot" pizza company is strange...I can't imagine that the inside of any factory for frozen pizzas would look that different than what this company was offering.
Very different. Frozen pizza factories are impressively efficient (with decades old tech).
Compare random frozen pizza machine https://www.youtube.com/watch?v=7anib2L7uUk with the hilarity that is Zume https://www.youtube.com/watch?v=uFSdxwRVh8A
One, if that's really the model, then founders had better stay as far away from venture capital as possible. Whether your motivation is "change the world"/"deliver on the vision you have" or "make money," that's not your investor's model. Your investor's model is to convince you and a hundred people like you that each of you is special and going to change the world, while expecting only one of you to succeed. Your investor's model is to push you to be Uber-scale even if you're overextending yourself and to convince you that you can do it even if you probably can't, because it's better to let you fail and cut you loose than to let you have a modest and small success that doesn't make a dent in the portfolio. If you and everyone else is aiming for safe successes instead of high-risk-high-reward gambles, then the let-a-thousand-startups-bloom approach stops being profitable for the investor, so investors can't let that happen.
Two, I think the rest of the world - and perhaps even the industry itself - doesn't quite intuitively understand that. If that's really the model, "We have $375M from SoftBank" isn't an indicator of anything, neither to other investors nor to potential employees.
Two: It's not as simple as just throwing money at a bunch of random things and hoping one sticks. They work hard to invest in companies they think will make large returns, knowing that despite their best efforts a large portion likely won't. This is intuitively understood. But this more nuanced understanding leads to the conclusion that "[w]e have $375M from SoftBank" is meaningful because they're a successful entity in that space, with subject matter experts, and if they invest in you it indicates you're doing something right.
There's always tradeoffs. You seem to think that no VC money is safer, but that not necessarily true.
Without capital, you spend 10 years finding out that your bootstrapped robot pizza company is in fact utter garbage. With capital, that would have taken 2 years.
> that's not your investor's model
And it's not my customer's model either. Or my employee's model.
Just because we don't all have the same exact goals doesn't mean we can't create a mutually beneficial arrangement for all parties.
> I'm not sure if SoftBank is suddenly performing worse than they have been in the past or if people simply just care more about the losses since they had such a major one recently.
The only reason people like talking about anything SoftBank is because (1) its so abnormal in the investing world...it's essentially an unproven model, (2) SoftBank's fund is basically "Masayoshi-son made the most significant investing venture bet ever in history with Alibaba and we want to try to do this 100x more" (3) the investing principles are so abnormal (Masayhoshi-son basically has to bless the founder/idea) that it makes for great headlines.
Masayoshi-son has proven he can throw he dice pretty well, however the jury is still out on whether this model will actually produce outsize returns.
So SoftBank was betting on a >20% chance that Zume would succeed to that degree.
This is quite different from traditional VC, which expects much lower probabilities of success in each investment.
Ironically, SoftBank is one of few investors to lose money by investing in Uber.
Venture capital isn't a monolith.
Investing in pre-seed, seed, or series A rounds are significantly different than coming in as an investor in a later round.
For Softbank to whiff so badly on such late stage investments is drastically different than an early stage investor failing with a similar portfolio. The risk and uncertainty profiles are starkly different for the early stage and late stage investor.
https://www.cnbc.com/2019/09/03/softbank-more-than-600-milli...
". The Japanese conglomerate spent about $6.6 billion to buy just over 200 million shares from existing investors, including former CEO Travis Kalanick, at around $32.87 a piece. It provided another $1.05 billion in fresh capital to Uber, buying 21.45 million shares at about $48.77 each."
Presumably many local pizzeria owners have never heard of Masayoshi Son; presumably many more just would never have thought “oh we’re actually a pizza tech company and we need hundreds of millions of dollars of venture capital funding to scale.” But if you have the proper mindset, if you believe in yourself, if you are not a guy opening a pizza place but a founder who previously sold a tech company, if you hire a strategic and retail consultant, if you test out various combinations of “[giant tech company] of [broad category including pizza]” for the pitch, if you call your pizzeria “the Gigaranch” or “the Pizzaplex” rather than “Al’s Pizza & Subs,” and sure sure sure yes fine if you employ some robots to careen around town sloshing cheese around trucks, then maybe you can be the pizza proprietor to rake in Masayoshi Son’s millions.
You craft a pitch calculated to convince Masayoshi Son that your pizza delivery business will change the world. You meet with Masayoshi Son. He convinces you that you will change the world. Now you are all believers, all in it together. He hands you piles of money. You go home and weep to your friends, “I am going to change the world.” The friends are like “wait what with the pizzas?” But it is too late for skepticism, you have the money, the robots are in the trucks, they are fanning out across town, the cheese is everywhere, they cannot turn back.
[1]: https://www.bloomberg.com/opinion/articles/2020-02-14/robot-...
Still hands-down my favorite first-chapter of a book.
You could have written basically the same thing about Starbucks if it had failed.
But it didn't.
It went on to become one of the great success stories of the modern era.
But, in this case, it sure seems, in hindsight, like it should have been predictable. My first thought when I heard about the company was, "How do they keep the toppings from flying all over the place if the truck hits a pothole or has to make as sudden stop or something, and the cheese hasn't softened enough to stick it in place? And how do they keep the cheese from sloshing all over the place after it melts?"
It would seem, based on what I'm reading now, that my error was assuming that they had thought of something clever and wondering what it was. Because the answers turn out to be (1) skimp on the toppings, and (2) you can't, it just plays out like a scene from Astérix chez les Helvètes† back there.
I can infer from this that I, a person who was just sitting on their armchair having a knee-jerk reaction, still managed to think more deeply about this business plan than any of the key figures or investors.
Starbucks, on the other hand, seems to have always had a basic grasp of how coffee behaves vis a vis Newton's First Law of Motion.
†(DDG image search seems to do a better job than Google at turning up the cheesiest panels.)
> You could have written basically the same thing about Starbucks if it had failed.
Not really. Starbucks started as a coffee shop, and started expanding when they became successful. There's a limit to how ridiculous that can be.
https://www.starbucks.com/about-us/company-information/starb...
What the author is alluding too is the fact that putting a bunch of robots into a pizza store isn't going to turn you into a technology company worth hundreds of millions, that is absurd right from the beginning.
Fun Fact: He lost EVERY investment in the last bust, save for getting lucky with Alibaba.
I skimmed it in a book store, back in the day. Quite funny! (Where else could you learn about Hyundai Halibut With Fennel -- cooking time 55-85 miles.)
Shoot me for not realizing that it was a visionary guide to getting funded by Softbank.
https://www.youtube.com/watch?v=o9vhGiSL904
https://www.youtube.com/watch?v=tqABijWMlxA
I kinda get the bootcamp concerns, but what's wrong with being a programmer at a porn site?
I also highly doubt the problems were with the software team either.
After the robotic delivery truck problem failed, which I think was a critical piece of the puzzle as they were essentially replacing retail pizza stores with mobile robotic food delivery machines. Which is something new - and critically something actually scalable with VC funding.
Instead this ended up requiring a sophisticated infrastructure if it was going to compete with pizza stores on every corner, who already have ovens and drivers close to the last mile customers + these old pizza companies already have central marketing funnels from mobile apps, phone calls, and online orders which then distributed "leads" to the various local franchise locations. So an Uber-style play is pretty pointless.
I'm curious if they should have tried a bit harder to solve the robotic pizza truck problem, so they didn't need to build out a centralized facility or a bunch of smaller delivery shops. Especially on the cusp on automated driving, these could just automatically pick-up food restocks at the central location and stay mobile as long as possible.
I'm convinced too many startups give up too easily as soon as they face hard problems then pivot to boring old-industry style companies that aren't real startups/VC companies. Replacing minimum wage workers with robots will never be exciting by itself.
Where I moved from the chain pizza was all pretty good. One day after I moved here I needed something quick and familiar so I ordered the same thing I used to get, and it was awful.
So it comes down to the local management, and in areas where management is sound, the pizza is fine and robots add no value in time or quality.
Deleted Comment
Security is often a whole company exercise that needs to be prioritized by management, putting blame on some individual programmers seems to show a lack of understanding of how infosec works.
Instead they ended up increasing their costs multiple times by cooking in parking lots and delivering over scooters. Wow. Classic example of not understanding what they are doing. Both the founders and investors have no understanding of either the tech or pizza marketplace and blindly jumped in. I guess it’s great for the founder. They make money almost for free.
May I present you...
https://techcrunch.com/2019/09/25/bodega-once-dubbed-america...
I am not sure I suppose in really high real estate cost areas that might be good, but it does not strike me as an obviously good idea with respect to capital usage.
And the employees too, they got fat severances. All of this reminds me of a government jobs program. Strange, isn’t it? If the free market wasn’t so distorted in the US (primarily because of government involvement), companies like this would never get funded in the first place. Instead we have government jobs programs popping up all over, due to QE by the Fed. Next time they should just helicopter the money directly to everybody. Way more efficient.
If you are going to blame the US government for this bad investment, then you'll also need to give them credit for all of SoftBank's good investments too, right?
The parts of any business that can actually be automated by "AI" (aka machine learning, aka automated statistical analysis) are not the pieces of the business that justify its existence and value to customers. Self-driving cars are the most obvious debacle, but it's the same story everywhere - enormous capital to get the data and engineers to automate, but even the "good" AI still gets it wrong much of the time, necessitating endless edge-cases, human intervention, and eventually it's a giant ball of poorly-understand and impossible to maintain pipelines that don't even provide a better result than a few humans with a spreadsheet. Imminent implosion to the AI sector is incoming, sell now before the hype completely wears off.
"The fund is less than three years old and we’ve already had eight IPOs and returned $10.6 billion to our limited partners."
I would be willing to believe that. Maybe SoftBank is making money and paying out profits, despite some of their companies publicly failing in spectacular ways. In that case, they are absolutely correct to ignore public opinion and continue doing what they were doing before.
So, $10 billion cargo-culting?