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THREAD Webvan
One of the posterchildren from the 1999 Tech bubble. How bad was it really?
Quick Recap: WBVN inc. in '96, began ops 6/2/99, initial S-1 8/6, IPOed 11/5/99 with LTD revs of $4.2mn. Growth N/A, GM% -6%, adj. EBITDA mgn of -5000% day 1 mkt cap of $8bn. Ch11 7/8/01
One of the posterchildren from the 1999 Tech bubble. How bad was it really?
Quick Recap: WBVN inc. in '96, began ops 6/2/99, initial S-1 8/6, IPOed 11/5/99 with LTD revs of $4.2mn. Growth N/A, GM% -6%, adj. EBITDA mgn of -5000% day 1 mkt cap of $8bn. Ch11 7/8/01
Conclusion: Going slow and achieving dominance in a geography is better than the scatter shot, unfocused approach. Maybe in a different time, Webvan could have succeeded but it is impossible to tell because this business barely got off the ground before it went bankrupt.
Given the Capital intensive nature of the business, Webvan really just starting to see revenues in 1999, when funding dried up in early 2000 was a death sentence for the company.
History and funding
Webvan was founded in 1996 by Louis Borders (co-founder of Borders books). It raised its Series A in the fall of 1997 at $9mn pre from Sequoia and Benchmark (both VC firms + Borders put in $3.5mn each). The Series B in the spring of 1998 @~$200mn vln
Webvan was founded in 1996 by Louis Borders (co-founder of Borders books). It raised its Series A in the fall of 1997 at $9mn pre from Sequoia and Benchmark (both VC firms + Borders put in $3.5mn each). The Series B in the spring of 1998 @~$200mn vln
Series C in Jan 99 at ~$500mn, and finally a Series D (with Softbank, Sequoia and Goldman) in mid-1999 right before the IPO at a ~$3.6bn valuation.
Webvan raised ~$386mn from VC investors.
At the time of the IPO, the shareholder list looked like this:
Webvan raised ~$386mn from VC investors.
At the time of the IPO, the shareholder list looked like this:
To my knowledge, no private investor, not even Louis Borders who only put in $3.5mn, made money on their Webvan investment though at the peak, his investment was worth ~$2bn on paper. Side note, good reason to not tax unrealized gains.
IPO Recap
Webvan IPOd on November 5, 1999. The deal was led by GS. The stock priced at $15/sh giving it a mkt cap of $~5.5bn. Webvan raised $375mn in the IPO and the stock was up 65% day 1, basically peaking at ~$25/share (it actually peaked ~25 days later on Dec 3 at $25.44).
Webvan IPOd on November 5, 1999. The deal was led by GS. The stock priced at $15/sh giving it a mkt cap of $~5.5bn. Webvan raised $375mn in the IPO and the stock was up 65% day 1, basically peaking at ~$25/share (it actually peaked ~25 days later on Dec 3 at $25.44).
It is hard to even analyze the fundamentals of Webvan during the this time because it only had 2 quarters of data and the Q/Q growth rates were so absurd that I have a hard time even trying to estimate what reasonable forward estimates would have been.
Fundamentals
This venture was EARLY: $4.2 million in net sales through 9/30/99.
Notably, despite disclosing $4.2mn in net sales through 9/30, the financials on the S-1 were only through 6/30 and showed $395k in sales (in basically one month, June, in one city).
This venture was EARLY: $4.2 million in net sales through 9/30/99.
Notably, despite disclosing $4.2mn in net sales through 9/30, the financials on the S-1 were only through 6/30 and showed $395k in sales (in basically one month, June, in one city).
Why Go public?
In 2019, a company going public at this stage in its lifecycle is almost unfathomable. In 2021, maybe it is conceivable (I don't do a lot of work on the lower quality SPACs). Webvan had already raised Series A-D in <24 months to the tune of $400mn.
In 2019, a company going public at this stage in its lifecycle is almost unfathomable. In 2021, maybe it is conceivable (I don't do a lot of work on the lower quality SPACs). Webvan had already raised Series A-D in <24 months to the tune of $400mn.
But this was a capital intensive business. Vans, Warehouses, inventory, etc. Plus Webvan wasn't thinking small. While their initial distribution center was in the Bay Area, they had plans to expand to Atlanta (2Q20), Chicago, Seattle, Dallas, DC and 5 other markets.
What did Webvan do?
S-1 "Webvan is an Internet retailer offering same-day delivery of consumer products (food, non-prescription drugs, general merchandise) through an integrated Webstore, distribution center and delivery system." Basically the Amazon of grocery stores.
S-1 "Webvan is an Internet retailer offering same-day delivery of consumer products (food, non-prescription drugs, general merchandise) through an integrated Webstore, distribution center and delivery system." Basically the Amazon of grocery stores.
Unlike http://Pets.com , which has a pretty grown up and successful version of it today in CHWY (and therefore can say it was ahead of its time), there really isn't an at scale, successful version of Webvan today.
AMZN tried Amazon Fresh which I believe has been largely unsuccessfully (both from the fact that you never hear about it, and from personally trying it more than a few times and being disappointed).
The NYC region has FreshDirect which I think is a great biz done right but benefits from: Huge urban density, high incomes and lack of car ownership even among the wealthy, income disparity. This was 5+ years ago, but talking with that team, it was cashflow+ at scale.
So this business DOES work. Lastly, we have Whole Foods Delivery and Instacart, which is more of an Uber model (don't own the car, use existing infrastructure, build an app). My personal opinion is the Webvan/FreshDirect model is the better one and a more "Tech" model.
Big automated warehouse, big refrigerated trucks vs. pickers at a grocery store and using existing cars to deliver. Seems low tech. Basically wage arbitrage. But clearly the Webvan model is high cap intensity and should be built slowly to gain efficiencies, customer loyalty, etc.
Management
CEO George Shaheen wasn't what I expected from a startup like this. Apparently in this era, 20-30 yo founder/CEOs were not popular, hiring experienced CEO was. 55 yos, he had spent 32 years at Arthur Anderson and had signed on to be CEO of Webvan on September 19, 1999.
CEO George Shaheen wasn't what I expected from a startup like this. Apparently in this era, 20-30 yo founder/CEOs were not popular, hiring experienced CEO was. 55 yos, he had spent 32 years at Arthur Anderson and had signed on to be CEO of Webvan on September 19, 1999.
This was <2 mos before WBVN IPOed and AFTER the Co filed its initial S-1 (8/6/99). Shaheen left the Co mos b4 it would file for BK. His exit package included a $375k/yr pmt until death (worthless in BK). Shaheen was CEO of Siebel Systems in 2005-2006 before it was sold to ORCL.
Post IPO
Webvan was down before it had a chance to prove itself. By the time the NASDAQ peaked 3/10/2000, Webvan was down to ~$10/sh or $3bn in mkt cap. At 12/31/2000, Webvan was ~$1/sh or down 96% from peak or $300mn vln (about how much they raised in the IPO a year earlier).
Webvan was down before it had a chance to prove itself. By the time the NASDAQ peaked 3/10/2000, Webvan was down to ~$10/sh or $3bn in mkt cap. At 12/31/2000, Webvan was ~$1/sh or down 96% from peak or $300mn vln (about how much they raised in the IPO a year earlier).
Fundamentals post IPO
Webvan had great growth, but on such small numbers it was really hard to ascribe $8bn of value to a Co generating $mns in revs per qtr. Especially with a low GPM profile (~25%) and hugely negative FCF.
Webvan had great growth, but on such small numbers it was really hard to ascribe $8bn of value to a Co generating $mns in revs per qtr. Especially with a low GPM profile (~25%) and hugely negative FCF.
Similar to JMIA today, Investors were looking at a company that would undoubtedly need continual capital raises given ~$100mn/qtr FCF burn against peak cash position of ~$600mn.
Why was Profitability so low? Simple. Capacity greatly exceeded demand (similar to AMZN) with <20% capacity utilization at IPO. Similar to AMZN, this is not a high margin biz. It needs to get to scale, and then potentially monetize in other ways (advertising, or scale benefits).
Webvan was Ambitious. It had a $1bn spend contract with Bechtel to build out facilities in various geos with an estimated $25-35mn of capex per distribution center and a goal to expand to 25 cities. With YEARS to get to + profit unit contributions for each distribution center.
Ultimately this overreach and ambition, FCF Burn to Cash position equation, along with the 2000 Bubble bursting would do Webvan in. On 7/8/2001, Webvan filed for Ch11 Bankruptcy.
Addtl info: In September 2000, Webvan bought HomeGrocer, a competitor that was also losing money, for $1.2 billion in stock. But gained ~$100mn in cash.
Webvan final S-1 11/5/1999 https://www.sec.gov/Archives/edgar/data/1092657/000089161899004914/0000891618-99-004914.txt
Webvan final S-1 11/5/1999 https://www.sec.gov/Archives/edgar/data/1092657/000089161899004914/0000891618-99-004914.txt
Fun Fact: Bob Swan, soon to be former CEO of Intel joined Webvan in 1999 as VP of finance. From 2000 until 2001 he was the company's COO and CFO. In 2001 he briefly became CEO before the company went under.
Fun Fact 2 per eBoys: At $8bn in market cap, Webvan was half as big as Safeway, a company with $34bn in revenues and $2.5bn in Operating Income.
