Samesh Dash of IVP passed on DoorDash because he couldn't reconcile its negative gross margins with its valuation. This highlights the venture dilemma of choosing between a visionary founder with a massive vision and the harsh reality of current, unsustainable unit economics during a heavy investment phase.
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To be truly contrarian, find what's becoming the new "consensus playbook" among startups and bet against it. DoorDash chose a simple marketplace model when competitors were pursuing the trendy but complex "full-stack" ghost kitchen model, which ultimately proved to be the right decision.
DFJ Growth passed on a pre-revenue LinkedIn at a $1B valuation because they lacked a clear revenue signal. This highlights a common VC pitfall: over-indexing on current financial metrics and under-valuing powerful network effects and analogous, proven business models from other tech giants.
An investor passed on a fund that paid 30-40x revenue for startups, believing quality alone justifies price. Three years later, that fund and its predecessors are underwater. This illustrates that even for great companies, undisciplined entry valuations and the assumption of multiple expansion can lead to poor returns.
While competitors viewed capital as a strategic weapon, DoorDash focused on capital efficiency. Their goal was to be twice as effective with every dollar spent on customer acquisition. Lin emphasizes that capital is fuel, but it's useless without a 'fire burning'—a product with real engagement.
Don't just ask customers about their business—independently verify it. When launching Uber Eats, the team couldn't get clear answers on restaurant economics. So they ordered food, weighed the ingredients, and built their own model, giving them the "ground truth" needed to confidently propose their pricing structure.
While massive "kingmaking" funding rounds can accelerate growth, they don't guarantee victory. A superior product can still triumph over a capital-rich but less-efficient competitor, as seen in the DoorDash vs. Uber Eats battle. Capital can create inefficiency and unforced errors.
Use gross margin as a quick filter for a new business idea. A low margin often indicates a lack of differentiation or true value-add. If a customer won't pay a premium, it suggests they have alternatives and you're competing in a commoditized space, facing inevitable margin compression.
Contrary to traditional software evaluation, Andreessen Horowitz now questions AI companies that present high, SaaS-like gross margins. This often indicates a critical flaw: customers are not engaging with the costly, core AI features. Low margins, in this context, can be a positive signal of genuine product usage and value delivery.
The industry glorifies aggressive revenue growth, but scaling an unprofitable model is a trap. If a business isn't profitable at $1 million, it will only amplify its losses at $5 million. Sustainable growth requires a strong financial foundation and a focus on the bottom line, not just the top.
Many founders believe growing top-line revenue will solve their bottom-line profit issues. However, if the underlying business model is unprofitable, scaling revenue simply scales the losses. The focus should be on fixing profitability at the current size before pursuing growth.
