Morning Markets: As ride-hailing earnings detail again how expensive on-demand services remain, DoorDash looks to link up a nine-figure credit facility ahead of its IPO.
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DoorDash is an underappreciated venture capital story. Its recent ability to attract private capital at ever-higher valuations is truly impressive. Regardless of how you feel about the company (its tipping practices have come under moral fire in recent months), the following list is something to behold:
- March 2018: DoorDash raises $535 million in a Series D led by SoftBank’s Vision Fund at a $1.4 billion post-money valuation.
- August 2018: DoorDash raises a $250 million Series E led by Coatue and DST at a roughly $4 billion post-money valuation.
- February 2019: DoorDash raises a $400 million Series F at a $7.1 billion post-money valuation led by Tamasek and Dragoneer (I recently interviewed Tamasek about its investment performance, and when I get a chance I’ll write up my notes.)
- May 2019: DoorDash raises a $600 million Series G at a $12.6 billion post-money valuation.
A list to which we can now add another entry before the company looks to go public. According to Bloomberg this morning:
DoorDash, the app-based food-delivery service, is in talks with banks about arranging a credit facility of about $400 million ahead of a possible initial public offering, according to people with knowledge of the matter.
As the youth of today would say, “tfw u need another $400 million after raising $1.25 billion in 12 months.” To which I would respond “big mood.”
DoorDash is not alone in seeking pre-IPO credit, of course. WeWork, another private capital success story (from a fundraising perspective at least), is raising more credit ahead of its own IPO. In WeWork’s case, the company is widely considered to seek extra funds ahead of its offering to limit the number of shares it will need to sell — and thus limit dilution — to fund its growth.
No one presumes that DoorDash is profitable, but looking for pre-IPO credit groups it slightly closer to WeWork than I would have reckoned, a company that has proven famously unprofitable at times. Debt can be useful. Given a low-rate global climate, borrowing capital can be a cheaper way to access funds when contrasted to equity-fundraising. Though DoorDash hasn’t been shy on that front, as we’ve already seen.
I’m waiting on the day when one of the on-demand companies can make money at scale. On-demand ride companies have proven their ability to grow, but not their capability to generate either positive cash flow or even adjusted profit. And on-demand delivery companies are in a similar boat.
There is an end to private capital being easy to access. I don’t know when that day will come, and neither do you, but at some point all these firms that we’ve covered in a positive light will need to generate their own capital with which they can self-finance. And as we saw this week, companies that do have a path to profitability will be rewarded. And those that have a more difficult path to the black will be dinged.
In the case of DoorDash, it’s still in hypergrowth I reckon. It’s what comes next for the business that I’m more curious about.
Illustration: Dom Guzman.