Building a Company in Stealth | Travis Kalanick with a16z

That wouldn't have gone that way if Ben or Mark was on the board. You're in this hell. You're dealing with the lawsuits. You worry about the lawsuit and you say, 'Hey, let's build again.' It's not as much about where you start. It's about why you start.

I know some of the techniques I use very aggressive but that name you can't use that name. And I remember David Drummond from Google was on our board and he's like no Travis that's not a thing dude. You got to change it. The meaningful thing about Adam's food is can you make the preparation and delivery of a quality meal so efficient that it approaches the cost of going to the grocery store? If it does, you do to the kitchen what Uber did to the car.

Okay. So, um, this will be interesting because I think Ben and I have maybe discussed this once or twice. Yeah. Painful and and I think that there could I'm not sure if there's a difference of opinion on what happened, but I'll tell you what I thought happened. So, I'm in fundraising mode. This is our series B. This is 2011. Uber started 2010, June 2010. I'm raising our series B. Earlier that year, I did series A with uh VCL Main Remain Nameless. And uh I'm hardcore like it's interesting. I was such I went through such tough times as an entrepreneur pre- Uber that once I'm in Uber and things are working, I'm still acting like I'm not going to eat tomorrow. So I I would do everything right up to the line, like be perfect. And so I have this whole fundraising process that I would do just to perfection. And that means I'd run an auction. So met with A16Z guys, met with lots of folks. And it was a what I would call winner takes all auction, meaning there's one major lead. They're going to set the price and then everybody else will fall in. So I'd go to the one guy, you know, I'd tell him what the story was and uh they're like, 'Oh, you know, we're interested. He's leaning forward.' And I would, they're like, 'So, how much you raising? What's the price?' And I I would do this thing where I would say, 'Um, we don't know what like this is going to be one of the hottest deals in Silicon Valley this year. We don't know where the price is going to be, where it's going to go to, but it's at least blank.' And I call this the uncapped anchor. Meaning, I'm never in a place where I'm negotiating with somebody where I'm here and they're here and we meet in the middle. I'm always saying it's at least this and it can go up, but I start low. So, it all go so that everybody's pumped, leaning forward. He's like, 'Okay, you can see body language. You can read. It's good.' You go to the next The next guy literally comes to your office. An hour later, same thing happens. He's fired up. I'm showing all the analytics. It's great. Uh, okay. So, we're interested. What's What are you thinking about price? Whatever. I'm like, it's if the last one was at least 2x our previous round. It just became 3x. I'll say, 'We don't know. One of the best deals in Silicon It's going to be one of the top deals in Silicon Valley this year, but it will be at least 3x our last round.' And he's like, 'Okay.' You then go call the guy before and you're like, 'Hey, just, hey, look, dude, just went from 2x to 3x.' You know, we'll see where it goes. I don't know. They start getting nervous. Anyways, you get all the way to the top and then you go going once, going twice. And uh it's kind of funny in this particular case, Yuri was almost coming over the top. So, we got to 375 with 3775 million pre with A16Z. Yuri almost came in at 400, but he was like, 'No, I can't do it.' And so I'm like, 'Okay, going once, going twice, sold.' Yeah. And it's funny because that's a high momentum deal, and that's how you do it. And at the time, you almost should feel a little shy about doing something like that. And it's a little bit crass, let's just say, but that's how I was wired back in the day. Like just go all the freaking way, all the way. Like run the touchdown, like score the touchdown even when you're gonna, you know, it's a little much. So we're starting to work. you're going to get a term sheet going, the whole thing. And uh I get an email from Mark. Um and it was like uh hey, let's uh hey Travis like let's go to dinner. I think it was like tomorrow night or something like that. Let's go to dinner. And I said send me the term sheet and then yeah, we can go to dinner. And he responded he said let's go to dinner. And I'm like oh that didn't I didn't like that. So came down south this neck of the woods. Yeah. because I was in San Francisco and uh this little sushi place, I don't remember the name of it. And he said, 'Look, I know we talked about 375, but went to the partnership. They don't agree or they just didn't think it was the right number. We're the best we're going to be able to do is 210.' See that? So that I'm just telling you how it went down for me. Yeah. Wow. Well, and and so then I'm like story was definitely different on the other side, but so but I want it be interesting to hear it. I've got I've got more than the hour we have scheduled here if we want if we want to take time. But anyways, I had a high momentum deal. It went all the way to the top. I auctioned it, cleared the market, and the bottom came out from it. And so I had to go back to everybody else and say 210 is the new number. Yeah. Like, 'Hey guys, the guy who won backed out. I'm now back at 210. We're starting the auction over.' It was super awkward and weird because people you lose credibility in that moment. And I built it back up. And uh basically it ended up being Menllo Park. This is how Shervin got involved in Uber. And at some point I told Shervin to stop negotiating against himself because he just kept driving it up without anybody else. I'm like, 'Dude, you won, dude. It's fine. I didn't want the same thing to happen again. You know what I'm saying? Uh, so I'm I am very clear about the 375 and the 210 and the experience I had, but there may be another side of that story.

Yeah, that's that's which is uh by the way unusual. So normally people don't, particularly in those days, very rare that an entrepreneur would come in with no team members on a deal that size. That was a big deal by the way, that wasn't that was a high price deal at now it's like a [__] 375.

I think it was like 16 board seats. It was something crazy.

And just so you understand my experience on the Lyft thing, it happened I believe a year later.

Almost to the day something like this and the deal on 210.

I know. I'm just saying this is what the entrepreneur is going to remember, dude. You know what I'm saying? Holy cow. But anyway, so so I you know because if a company is in a lot of trouble that that's generally when I get called um you know given given my history with that.

And so

Oh my god, it was a lot of trouble. It was a lot of trouble. But anyway, so so I'm living with that. And then by the way, and then I would see Travis, you know, now and again like we had I had him over to my house, CEO barbecue, like all kinds of [__] right? like just cuz like I knew who he was.

Yeah. And we were kind of friends. We were like and it was always like a lot of like there was a there was a respect there because we knew who each other were.

There's also all the time like for for a decade.

There was also this other thing would happen. So this is like 2000 I think this really started 2014 15 etc. is Emil and I would meet up with Mark and Ben at this super undercover restaurant.

Yeah the best. Yeah, we would do these sessions. We just we'd have dinner, break some bread, talk shop, and we're like, yeah, Emil and I would always walk out going, damn, it would have it would be so great to have these guys involved. Of course, I didn't because they were at Lyft. Yeah. And sometimes even we might even talk about, hey, is there a thing that comes together? But like I was just so the way I was. There's

Yeah. and he could just fire everybody instantly.

Yeah. Yeah.

Yeah. It was kind of like uh it felt like well you're a basketball guy. It was felt like the old Larry Bird like [__] Magic Johnson. We're like okay we'll meet each other. We hate you but like wish you were on our team. This sucks. So it's the one that got away. Um but fast forward and now there's a there's a new chance at

Sure. which is those who are obviously in the tech industry, like we know what Uber's 2017 was like. Uh that wouldn't have gone that way if Ben or Mark was on the board.

So, so when Ben and I talk about this, we're like, it was our fault.

We we screwed it up.

Yeah.

DoorDash was 5% market share when I left. Yeah. And um and if we lost a tenth of a percent in a week, yeah, we're not going home this weekend.

And he's done it.

Yeah.

He did. He did. He did.

No. Amazing. He survived it. Which is, by the way, you know, in entrepreneurship, surviving is a big part of it.

Yeah. Good stuff.

Our EATS program was like second to Wimo, but catching up at the time.

We had the network, too. Uh and we just we had the ferocity sort of the fierceness that it takes to catch up.

In a certain technology space uh while building all these other things that we were doing. I mean it was a lot it was it was good times. It was a lot of fun.

Yeah. I mean even though 17 was super tough for me uh and maybe you could say even for the company at large. Um certainly for the company at large uh you know I loved every minute and honestly even when you come out of it and you're like yeah got a little weird at the end. It was tough. I still I still I still re it was still great.

Yeah. No, I get you. I trust me. Trust me. You don't have to remind me of that. I'm just saying like there's that feeling that's so [__] horrible at the time, you know?

And a lot of people talk about well you know are you mad about this or that? You upset that that happened and I'm like when you when you fall in love again you don't think about the ex very much.

That's it. So then you can just be like it was a good time.

She got a little crazy at the end.

Yeah.

Well, yeah. I mean you had a really interesting situation. And I think headlines and the negativity in the headlines from that period of time and and you could really say the extreme wokeness that was sort of coming in on on Uber and trying to constrain it if that makes sense. There's this interim period. It was like seven, eight months between when I left and when I started what's now called Atoms. And I had to sort of fight for my life because there are just a number of lawsuits, a number of investigations, all these things where it was just like I I continue to stand by every decision I made at Uber. Uh but you know there are a lot of times where you could just make the argument I just got way too close to the line and then yeah I could show that there's no chalk on on the shoe. I could show but you would need an electromagnetic scanning microscope to see that there was no chalk on the shoe. You reverse angle slow-mo and it's just like that's the problem is is the edge of being a what's the word? a hard scrabble small startup kid brought to something that's working and going super big.

You don't realize that when you get big there actually are different rules.

Yeah. It's very that you're viewed entirely differently.

We had Yeah. We had this thing where um we would against Lyft we would uh we would recruit the drivers on Lyft um to bring them over to Uber so that uh it was hard for Lyft to build supply um and we would aggressively do it and we had a program for it internally which we called shoplifting.

it's just not a thing and I remember um you know David Drummond from Google was on our board and he's like you know Travis that's not a thing dude you got to change it and then I had of course like antitrust training which are like at the time again I'm like this small startup kid. I'm like, "Antitrust? What the hell is that?" Legal people telling me whatever. They're like, "Look," I'm like, "I can't wait to have that problem," you know? And uh they're like they're like, "Look, here's the thing. The way you call projects, it has to be appropriate for like a a a 10-year-old basketball team." So, it went from Shoplifting to the National, sorry, the North American Championship Series. We call it the NACS. And we had a whole very heavy duty initiative called the NACS to like make sure that the North American Championship Series was won by us.

Yeah.

So, what happened was, it's super interesting. So I had a buddy who started a thing right near the end of my Uber tenure, and it was called Cloud Kitchens. And what happened was, he's a real estate savant.

That's his thing. And he was looking at real estate like, there's got to be an angle in tech and real estate. How do we do this? And he got a property up. Actually, maybe, you know what? Let me start even before this. We got Uber Eats up in 2015. We saw the first dark kitchens. I don't know, it was like late '15, early '16. We saw pictures of commercial kitchens in Melbourne that were not restaurants that were on Uber Eats.

So the first dark kitchens were emerging. We're like, this is crazy. That's so interesting. And a buddy of mine who is this real estate savant sort of caught wind of what's going on, and he had this idea, which was, why don't we have a multi-tenant approach to this? So 30 kitchens on a single property, and basically lease these kitchens, which are 200 square feet, as delivery-only locations.

Anyways, I didn't really — I mean, I sort of knew what was going on, but not really. And then in the fall, like three months after I had left Uber, we meet up and he's telling me about it. He's like, 'Yeah, you know, we got a few tenants. It's kind of working.' He's like, 'I'm going to do like a few more of these. I think I'm going to try to figure out how to do a few more.' I'm like, 'You mean like a few thousand, right?'

And so then we partnered up. I acquired it. I think they'd sort of done their Series A, and so I acquired it, and then we just went to town, right? And so it's really interesting because sometimes you start a thing, and sometimes you're involved in a thing, and then you come in. Like, I think this is an interesting story about like Elon was obviously involved in Tesla from the beginning, was an investor at first, but then went all the way in. And it's interesting how these ideas come. So I like to say that sometimes you have ideas, sometimes ideas come to you.

But if it's an idea that's meant to be — if it's meant to be your soulmate, you know it when you see it, right? And sometimes it's like a love affair. You just go for it. Some people have these long lists.

Yeah. So, you know, you fall in love with something, and it's meant to be for you at that time, and you just go for it. And for me, it was like — ah, man — complexity is interesting to me. Things that are naturally not sexy on the surface is also weirdly interesting. And then, especially if you can see that it's sexy but people don't understand yet, that's where the sparkle in your eye — you kind of go, ah, you don't see what I see, and I'm pretty sure I'm right, and that's the fun part.

But this was a very complex thing because we're buying property, we're doing construction, we then have a sales team that's selling to restaurants a delivery-only location. So they're expanding the restaurant chain. This isn't like I'm just getting into a vendor flow. We are making a strategic sell, which is you should expand, you should expand your business, and you should expand it in a new way, which is two strategic moves at the same time.

Exactly. Yeah. So then they're like, you're also — okay, so we've woven technology through this whole real estate thing. We have a software stack that, of course, will work in this facility, but we'll also sell it to all your brick-and-mortars everywhere. And let's just get some robotics going at the same time, because labor is your biggest problem if you're a restaurateur. If you solve that, it's really big. I can get into the strategy of why that is the whole thing, but just the brass tacks of the complexity of the project was interesting to me.

No, I think at that time — if I don't see how it's big and meaningful, then complexity for complexity's sake is not a thing. There has to be, you know, maybe somebody would say, a pot of gold at the end of the rainbow. It has to be something meaningful. The meaningful thing about Atoms Food, or what folks know as Cloud Kitchens, is: can you make the preparation and delivery of a meal, a quality meal, so efficient that it approaches the cost of going to the grocery store? If it does, you do to the kitchen what Uber did to the car, and you go, okay, that's kind of a big deal. But then you say, what do you need to do to get there?

Okay. Well, you need to do e-commerce for online food delivery, which means I need warehouses like Amazon style. Except they're not just for logistics. It's not just picking, packing, sorting, and then putting in a car. You also have to have manufacturing there, too. Manufacturing, also known as a restaurant. People don't think of that, but you go to the Bureau of Labor Statistics — restaurants are manufacturers. Okay? So you have to have manufacturing and logistics infrastructure in the same place. That's real estate.

Then you actually have to have automated production. That's the manufacturing. So food robots, essentially food robotics. And then you need to have robotic couriers. And you do those three things, and then all of a sudden you are getting super high-quality meals, everything you could ever imagine. We call it the internet food court, and it gets to you at the price of going to the grocery store.

So you go, okay, nice. That's a nice story. You go, well, in 20 years — I start with a really easy question. In 20 years, will people be cooking food regularly? And there will be a suite of robotics that basically will make higher-quality meals. Like, they just will be doing a better job than any of us could do. And I think most people, especially those in the robotics space, would be like, of course, that's obvious, that's going to happen.

And you're like, in 20 years, are we going to have — I call them autonomous burritos, like boxes on wheels that hold food at temperature that come to your house? Yes. Everybody will say yes, absolutely. We see Waymos cruising around already. We just need a much cheaper version of that. So 20 years is like the easy one. Then you go, well, what about 10? What about seven? What about five? And so that's when you're bending reality. You're bending it towards now.

So everybody would agree that this is going to happen, and now it's about when and who, and then you say LFG. Now, sometimes you're a little bit early, and I would say we were a bit early on Cloud Kitchens, but you build those bricks, all those things I talked about. We have hundreds of facilities in 30 countries, many hundreds of facilities in 30 countries. Restaurants, because the online delivery market keeps growing, the restaurants are doing better and better, so success is happening.

Right. Well, the restaurant world has high churn. Your churn starts coming down because volume's going up. We have applications that guarantee volume into these restaurants so that we can have successful tenants, which means I'm a successful real estate guy from a business model perspective. The robotics start to work. You know, we're getting a manufacturing line for our robots up in Q4. So, like, the pieces start to come together.

You're like, production is now 50% cheaper. Once we get the robotic couriers, you go from $12 a drop for each meal to 50 cents, a dollar of distribution cost per meal. And now you're taking — okay, $6 out in labor. You're taking, let's call it, $10 or $11 out on the courier, on the real estate, because you're going to get higher volume because you're driving the prices down. You probably save a few bucks, maybe let's call it two or three bucks on occupancy per meal, and all of a sudden you've got like an $8 or $10 meal that's delivered to you all in.

That's true. So that's right. You can't shoplift a robotic courier.

Yeah. And the thing is, is like, look, coming out of '17, things were — it was 150 articles a day of negativity. And so I wanted to be able to build without bringing that negativity into the system, and I wanted the team to be able to build without worrying about what The New York Times was writing tomorrow. Simple as that. And it was the right thing to do.

Now, we had to do hard mode, is we had to recruit cold. And it was always from a recruiter who has a stealth thing in LinkedIn on their signature. Okay. And you had to go get customers with like stealth in LinkedIn, and you're thousands of people big. This is hard mode. And it was interesting. We didn't know how long it was going to go, and you have to trust that no one's going to leak.

You know what happens is, here's the cool part about stealth. If you go that long — and I don't recommend this for anybody, like it's not a very special case. You don't really — I don't, you know, but eventually there's this break in your narrative. Like there was this story arc and it was going, going, and then it's discontinuous. It stops, and there's this — whoops, sorry about that, guys — there's this long period of time now where nothing is filling in.

And what happens then is the media doesn't want to cover a story because it's so hard to discuss a thing that has a gap a few years before it. So it's too hard to do the story and it's too hard to cover it. So you get to this place where it becomes self-fulfilling, where it's easier to be stealth over time because even if somebody tries to leak, nobody even knows what to do with it.

They're just like, I don't even understand. And by the way, we did crazy stuff. So people know it as Cloud Kitchens in the US, but it's casinos in Latin America. And we have different names. That means like magical kitchens, essentially. We have like Kitchen Valley in Korea. We have Flash Kitchen and three other names.

in China. We have, I mean, food stars in London, like, go, it goes, you know, you know, I think it's Kitchen Park in the Middle East. We were going to go with Yala Kitchens, like, you know, it's like a bunch of things like this. So it was very hard to connect the dots.

Yeah.

Yeah.

So look, the vision for digitizing the physical world for me started at Uber, okay? And treating atoms like bits started at Uber. It was sci-fi at one point. I promise you would touch glass and a car would come to you.

And you had satellite view. You're watching this car come to you. That was crazy.

Okay, but it was crazy at the time. Everybody's first Uber experience was a magical moment.

So we, you know, digitizing the physical world was the thing. And this idea of what I would call an atoms-based computer was something I sort of was working on in terms of a framework at the end of Uber, which is CPU manipulates bits, storage stores bits, network moves bits from point A to point B. Okay. Well, CPU manipulates bits. What manipulates atoms? That's manufacturing. Storage stores bits. What stores atoms? That's real estate. Network moves bits from point A to point B. What moves atoms? Well, that's transport, logistics, and those now are your three core computing resources in an atoms-based computer. And you know what? Everything you learn in your computer science curriculum, everything you learn in engineering, it plays in the atoms world. Same frameworks, all the data structures, all the algorithms, it works exactly the same. And I...