The Downfall of Webvan: Oasis to Smoking Crater

1. BGBen Gilbert0:00

   So David Byrne arrived at Benchmark with ambitions to contribute to the partnership fast in any way he could, and he had some ideas for new businesses for which he hoped he could find entrepreneurs. One of the concepts that kept nagging him was an e-commerce business that he called MyStore, which would sell online everything for everyday needs. Start with groceries and move toward an online Walmart. We've got some less family-friendly language here, but I'm quoting from the book, so fast-forward if you have little ones listening. "Well, shit," Bruce Dunlevie said when Dave told him his idea as the two sat in Dunlevie's office. "Have I got the plan for you." Dunlevie reached into a stack of papers and pulled out a business plan called Oasis. He tossed it to Byrne, explaining that he and the other partners lacked the balls to do it. Would Byrne be willing to be the guy? And Oasis, of course, is Webvan, which I remember Webvan as a crater, a cautionary tale of what could go wrong in the dot-com excesses. But going back and doing the research here and, and looking at it, this was actually a great bet to make.

2. DRDavid Rosenthal1:12

   Oh, this is exactly the type of bet you should be making in venture capital.

3. BGBen Gilbert1:16

   Totally. This is the exact kind of swagger bet with the right aligned asymmetric upside and downside that if you wanna be taking the right kind of risks to establish yourself as one of the premier early-stage venture capital firms, you should be doing.

4. DRDavid Rosenthal1:36

   All right, so what was Webvan?

5. BGBen Gilbert1:38

   [laughing] What was the company or what was the deal?

6. DRDavid Rosenthal1:41

   What was the company, and why was it so swagger-filled to do it?

7. BGBen Gilbert1:45

   Have we talked about Webvan on every season episode so far in season eleven, I think? [laughing]

8. DRDavid Rosenthal1:49

   [laughing] That might be true.

9. BGBen Gilbert1:51

   Yeah, I feel like everybody knows.

10. DRDavid Rosenthal1:52

    The theme of season eleven is Webvan. [laughs]

11. BGBen Gilbert1:54

    There we go. There we go.

12. DRDavid Rosenthal1:55

    That's so true. We probably hit it on Walmart and Amazon.

13. BGBen Gilbert1:59

    So of course, as we've talked about, it was Louis Borders, the founder of Borders Books, which had then gotten absorbed by Kmart and then spun out, and he had left as part of all that, and he felt like Borders didn't realize his vision. He wanted another big swing, bite at the apple. He knew about Kmart, Walmart. He wanted to build Amazon, what Amazon is today. He wanted to build amazon.com, uh, the modern amazon.com. He was just a couple decades too early. And so that's what Webvan was. It was anything you want, starting with groceries, that was their wedge, but it was anything you want from the web on a van delivered to your doorstep.

14. DRDavid Rosenthal2:37

    And importantly now, Webvan did have the sort of last mile component as the initial founding wedge. Whereas Amazon, they're like, "Yeah, we'll get it to you, and it might take two weeks." And of course, then they get to Prime, and then they get to Prime Now, and now they're trying to do one-day Prime, and all sorts of things can happen the same day if you're spoiled like me and live in Seattle. And Webvan had that from the start, and it was equally ambitious. Louis Borders did want to do food and everything. It was the everything store at the edge, sort of close to your house whenever you want it. And it was so ambitious that even the Benchmark partners, after they invested, kept trying to talk him into, "Could we just do food? Do we have to compete with everything Amazon is doing right away?"

15. BGBen Gilbert3:29

    And the Benchmark partnership as a whole, but I think especially the, um, original four Benchmark partners were the ones really pushing David to push Louis, "Hey, can we just do food? Can we scale down?" David totally falls in love with Louis. Like, this is what he's there to do from his perspective.

16. DRDavid Rosenthal3:46

    And it did feel like this was the sell to Dave. "Hey, leave your lucrative, successful executive search firm because if you come here, you can make big bets." And so I think that was the thing that was, like, always on his mind is, "Well, if there's a bet that everyone else at the firm is too scared to make, maybe I'll make it."

17. BGBen Gilbert4:02

    Yep, he was that guy. Which Benchmark totally needed.

18. DRDavid Rosenthal4:06

    Yes.

19. BGBen Gilbert4:06

    They needed to re-inject that DNA into the firm.

20. DRDavid Rosenthal4:10

    Yep.

21. BGBen Gilbert4:10

    And this deal is a great deal to make, as I alluded to. So here's how the deal goes down.

22. DRDavid Rosenthal4:17

    And this is great 'cause this is not how people remember it. Everyone goes, "Webvan, ball of flames, terrible venture investment, lit more money on fire than I can ever remember, emblematic of dot-com insanity and incorrectness of everybody lost their mind." This is A, a great risk-adjusted bet to make by Benchmark, but B, not actually that big of a smoking crater relative to today.

23. BGBen Gilbert4:39

    So it's a seven million dollar round. Benchmark splits the deal with Mike Moritz at Sequoia. Sequoia does three and a half million. Benchmark does three and a half million. Moritz and Byrne join the board. I think they each get ten percent of the company. And then Webvan does do a late stage one or two, I can't remember if it was one or two, at least one "later stage," but mezzanine rounds from completely other investors. Sequoia and Benchmark don't put more money into the company before they go public. And then Webvan goes public, you know, during the go-go eras. It trades up to an eight billion dollar market cap.

24. DRDavid Rosenthal5:19

    [laughing]

25. BGBen Gilbert5:19

    So, you know, at the high point for this Webvan bet that Benchmark and Sequoia each put three and a half million into-

26. DRDavid Rosenthal5:26

    That's what, like, Lyft is today.

27. BGBen Gilbert5:28

    They go from, let's assume it was ten percent that they each got, and maybe there's a little dilution in there, but, like, let's keep it easy, three and a half million to eight hundred million dollars in public stock, you know, within, like, two, three years. So, like, man, fantastic. I don't think they got liquid on a lot of it. I think they were still locked up before the dot-com crash happened, and it cratered. So, like, whether they got any money out or not, you know, I don't know. But, like, man, what a great bet to make. I stand up and applaud for Webvan.

28. DRDavid Rosenthal6:00

    And the thing that I really wanna underscore here is for the asset class of actual venture capital, early stageHigh risk, high return stuff. You wanna back someone who's got a missionary-focused dream, like Louis Borders was ready for his next act, and he wanted it to be really, really big. And it was probably the right bet maybe at the wrong time. It's probably a decade, maybe two decades early, but the vision was right. And so you're betting on someone that kind of has to be bigger than their previous win, so they have an incentive to make it really, really big. And as a venture investor, you want to be buying all that risk. You don't really wanna be making these sort of risk mitigated bets and have a port-- No, that is why you have a portfolio of thirty companies. Go get all the risk you can.

29. BGBen Gilbert6:49

    And especially for three and a half million dollars, so that's less than five percent of the fund. Like, for sure. Of course. Do that all day long.

30. DRDavid Rosenthal6:55

    [chuckles]

Episode duration: 8:49