4 Startups to Watch From 500 Startups’ Demo Day

500 Startups just graduated its fourteenth batch of companies from its accelerator in Mountain View, California. Co-founded in 2010 by investor Dave McClure, 500 Startups counts 3-D printing startup MakerBot, acquired by Stratasys, and social media marketing startup Wildfire, acquired by Google, as some of its most notablegraduates. 

Postmates CEO Bastian Lehmann On Growing His Business And The Future Of On-Demand

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Postmates CEO Bastian Lehmann is one of my favorite founders. But despite knowing him for years, last week was the first opportunity I’ve had to interview him in front of an audience.

Over the course of an hour-long conversation, we talked about how Postmates has grown to be available in 40 metropolitan markets throughout the U.S., how the demand for on-demand services has changed over the past four years, and how Lehmann sees the competitive landscape shaping up. These are just a few of the key highlights from that discussion.

Listen To Your Customers

The idea behind Postmates was always to enable consumers to connect with local businesses and have goods delivered to them, but it took some time for the company to catch on to the types of good customers wanted delivered.

Prior to launch, the company had signed up a number of local furniture shops to act as delivery partners for their goods. The result was underwhelming, with Postmates only making a delivery or two a day.

It wasn’t until the company launched its ‘Get It Now’ app, which essentially let customers request deliveries of practically anything nearby, that it began to understand customer usage patterns and build around what they were asking to have delivered.

The result was a focus on streamlining the app for requesting deliveries from restaurants and certain nearby retailers. That included creating detailed menus and store inventory listings to make frequently requested goods easier to find and order. Once that happened, the company was on its way to pretty remarkable growth.

Would On-Demand Delivery Work Anywhere?

So far, Postmates has grown to serve 40 different metropolitan markets in the U.S. But how many more markets could it serve? I asked Lehmann that question, mainly wondering how big or geographically dense a market has to be for it to make sense for Postmates to launch there.

As a data point, Lehmann noted that there Domino’s Pizza serves 240 markets throughout the U.S., suggesting that local delivery services could thrive even in many smaller suburban or even some more rural markets.

Even if it didn’t serve those markets directly, Lehmann suggested the company could experiment with making its technology available to third parties who could introduce their own local delivery services based on Postmates’ logistics and routing tech.

Fundraising Isn’t Easy, Even For Fast-Growing Startups

Basti gave a little bit of background into Postmates’ fundraising process over the course of its four-year history. The first investment in the company came from angel investor and AngelList founder Naval Ravikant, who had known the Postmates founders (and had actually tried to recruit them prior to investing).

While the seed funding got the company to launch, it found raising a Series A somewhat challenging. Keep in mind, this was before the huge proliferation of on-demand delivery services from the likes of Instacart, DoorDash, Sprig, and others.

As he told me, it’s easier to raise money as a late mover in an established and pretty well understood market than it is to find investors willing to take a bet on an idea — even one with traction — in a nascent market. Nevertheless, Founders Fund came on board and led its Series A round.

When it came time for a Series B, things were easier, with Spark taking the lead on a $15 million round. But raising the next round of funding wasn’t so smooth. That fundraise came at a time when Postmates was investing in a couple of deals — with Starbucks and Apple — that in the short term put pressure on its margins and made investors skittish.

Six months later, those deals paid off and Postmates was able to raise an additional $80 million led by Tiger Global. The best way to get investors on your side, Lehman said, is to tell them what your financial targets are and then actually hit them.

Why Postmates Delivers Starbucks, Apple, And Everlane

While many on-demand companies are springing up to offer vertical markets of goods or services — think Instacart for groceries, Sprig for lunch, Saucey for booze, and Washio for dry cleaning — Postmates has maintained its blended model of offering goods from a variety of shops, restaurants, and cafes.

The reason for that? According to Lehmann, Postmates offers different categories of products in part as a way to flatten out its demand curve over the course of the day.

Lehmann drew an illustration showing how if Postmates only offered prepared food deliveries, the company would see high utilization for a few hours around lunchtime and then again in the evening around dinner.

But guess what? Customers drink coffee mostly in the morning and early afternoon. As a result, Postmates won’t see quite as dramatic of a dropoff in usage in the hours between those meals, thanks to its deal with Starbucks.

And thanks to retail partnerships like the ones it has with Apple and Everlane, the demand curve flattens out even more. That’s because most customers shop for retail goods in the late afternoon during work, which means the quiet pre-dinner hours for food delivery aren’t quite as quiet for Postmates as for some of their competitors.

Postmates Sees Amazon, Not Uber, As Its Biggest Treat

Over the last five years, Uber has been very aggressive in its expansion into new geographies and vertical markets. While it started out as an app for hailing a black car on demand, it’s now experimenting with food delivery, courier services, and is even investing heavily in self-driving cars.

But when asked about the competitive threat Uber poses, Lehmann said he’s actually more worried about Amazon. While Uber knows logistics at the local level, Amazon has been making working to move closer and closer to its customers through the launch of offerings like Amazon Fresh and Amazon Prime Now.

With more customer data around the types of goods customers want than anyone else, and the ability to streamline distribution of those goods, Amazon could take aim not just at Postmates, but at the ecosystem of local retailers that the company partners with.

From a Hackathon Win to a Hyper-Growth Company

Screen Shot 2015-10-27 at 9.04.00 AMToday’s guest post is by Tiago Paiva, the CEO and cofounder of Talkdesk, the world’s leading cloud-based call center software solution. When he isn’t running a high-growth startup, he enjoys reading, snowboarding and playing with his dog, Buster.

 

 

 

It all started with a laptop.

I had recently graduated with my master’s degree in computer science from the University of Lisbon. My intention was to found a startup – to create an innovative product that could change the world – but the startup scene in Portugal hadn’t taken off yet. I spent hours every day working on various entrepreneurial projects, brainstorming business ideas, listening to “This Week in Startups” and scouring the Internet for a way to break into that space. I even had “The Noob Guide to Online Marketing” and S1s from recent SaaS IPOs hanging on my wall. One day, while looking into successful startups, I saw a blog post for a Twilio-hosted hack-a-thon in which the first prize was a MacBook Air.

I wanted that laptop and everything it represented.

That was 2011. Four years later, I’m the CEO of a hyper-growth startup that has raised over $24.5 million from top VCs such as DFJ, Storm Ventures, 500 Startups and Salesforce Ventures. My company now has more than 120 employees and over 1,000 customers. We just moved to a beautiful building in downtown San Francisco.

So, what happened? Well, first things first: I won that laptop.


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I had a simple idea. I set out to create a cloud-based call center software solution that would streamline the annoying, expensive and otherwise unpleasant process of interacting with customers over the phone. I wanted this solution to provide comprehensive, real-time information about the customer so agents could personalize and expedite conversations. And I wanted all of this to occur in the browser so that companies could have their phone support infrastructure up and running in minutes, not days or months.

I enlisted the help of a colleague from the University of Lisbon, Cristina Fonseca. Together, we worked towards my vision and called the result Talkdesk. Our prototype took first place at the Twilio-hosted hack-a-thon and we won that laptop.

Prize in hand, I realized that we had created something that was addressing a big market need. There was no other simple cloud-based call center software available at that time. Taking the laptop and going home without turning this prototype into a company would be a huge mistake. That’s when Paul Singh, one of the judges at TwilioCon, approached me and invited me to join 500 Startups’ third batch. How could I turn him down? So I stayed in America.

500 Startups was my first exposure to the culture that I had spent so much time studying from the outside. The early-stage entrepreneurs, like myself, who were laser focused on turning their idea into a reality. The mentors, VCs and other influencers in Silicon Valley. The late nights, whiteboard sessions and offsites – I loved every bit of it. It was there that I realized that the dream I had for so long was mine for the taking.


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In November 2011, before 500 Startups’ Demo Day, Talkdesk attracted the attention of an investor from AngelList, Alex Khein. Weeks later Talkdesk had $350,000 and wind in our sails. We wouldn’t raise funds again until 2014 – and at that time we had the same money in the bank as when we received the Angel Investment. How did we do it?

We were hungry (not just because we were stretching one Mongolian BBQ meal into three), lean and we knew that if we were going to make it we had to listen to, learn from and go above and beyond for our early adopters. This meant that I had to get over my hesitancies about speaking to customers over the phone and get my hands dirty. I decided to serve as the lead and only team member for Talkdesk’s marketing, sales, customer success and customer support departments for the first two years – all while leading product development. While taking this extremely lean approach was important, what was even more critical was that I was gathering data from our customers that would help shape the future of Talkdesk into a product people would love.

Screen Shot 2015-10-27 at 9.03.39 AMFor the first two years, this was Talkdesk’s culture. My team of engineers in Portugal was helping me provide 24-hour phone and email support. I was not only doing demos all day long, I was also onboarding new customers, troubleshooting and customizing Talkdesk’s configuration to their use case – and using this experience to fuel product development. This approach allowed me to keep my fingers on the pulse of our customer base and to create a product roadmap that was based on feedback and data.

I quickly found out that the provision of this type of VIP, customer-centric service had a trickle down effect for us. Our early adopters loved us and were fiercely loyal to Talkdesk. They appreciated our responsiveness, which meant that they were tolerant as the software evolved to better meet their needs. As word-of-mouth referrals increased, our customer base grew organically. This allowed us to spend exactly $0 on marketing, relying only on customer referrals and direct and organic traffic to our website.

Once we hit $1M ARR, still working off of our Angel Investment, I knew that all of my hard work – staying up late every night, being away from home, working without a salary – was going to pay off.

In the past few years, Talkdesk has gone from selling call center software exclusively to SMBs to signing deals with huge, publicly traded companies like Box, Qualis and DemandWare. Our company has grown 10x year-over-year and shows no signs of stopping.

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But I’ll never forget what it was like to be the head of that lean, scrappy startup. I am intimately aware of what it feels like to be in that space and to wonder what’s going to make the difference between success and failure. Looking back on this experience, there’s a straightforward answer: customer service.

Providing excellent service to our customers was a main factor influencing Talkdesk’s growth and, I believe, essential for the growth of any early-stage startup. Talkdesk would not be what it is today if it had not been for our customer-centric mindset from day-one. I know this because I lived it and because we created our product to help teams do exactly what we did. Now I feel like it is my turn to give this knowledge to early-stage startups wondering, as I did, what is going to make the difference between making it and not.

That’s why we created the Talkstart Program. It’s designed to help facilitate the development of customer service departments in startups – to provide a leg up to the next generation of dreamers with Noob Guides on their walls. We are working with accelerators, incubators, co-working spaces and VCs to offer up to three free Talkdesk licenses and a VIP onboarding coach to qualified startups. Our team will help startups implement Talkdesk, integrate it with a CRM, helpdesk or other tool, and begin to build a foundation of customer service excellence.

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I’m proud that 500 Startups is participating in the Talkstart Program. Only a few years ago, I was one of many participants in their third batch. Now, I’m running a hyper-growth startup and finally getting a chance to give back to the 500 Startups community that helped me out when Talkdesk was just an idea I had to win a laptop. I hope that all of the startups in the current and future batches will thrive and I hope that Talkdesk can be a part of their development as customer-centric businesses.

Oh, and did I mention that, these days, every member of my team gets a Macbook Air on their first day on the job?

About Talkdesk

Talkdesk is easy-to-use cloud-based call center software that enables businesses to provide excellent customer service with phone support. The intuitive web-based interface and robust call center functionality, including IVR, skills-based routing and comprehensive reporting, make it possible for your agents to have real-time, personalized conversations with customers. With Talkdesk, you can create your call center in minutes and integrate it with a variety of top business tools, including Salesforce, Desk.com and Zendesk. Visit www.talkdesk.com to learn more. For more information about the Talkstart Program, visit https://www.talkdesk.com/talkstart.

 

 

Silk Road was the fastest growing online marketplace ever — here’s why

First, what is Silk Road?

THIS:

silk road site

NOT THIS:

silk road map

Silk Road, the anonymous, dark web, Tor protected, drug marketplace lived for over 2 years online. Eventually the founder, Ross Ulbricht, was caught and arrested. Silk Road 2.0 emerged. After the FBI shut the 2.0 site down, there was a 3.0.

Now there are around 50 separately affiliated marketplaces that sell drugs online, including Agora, Amazon Dark, and Silk Road 3.0.

Over $1.2 billion dollars (9.5 million bitcoins) was transacted on Silk Road 1.0 in a little less than two years.*

On average, they took a 10% fee on every transaction, so the business made over $120 million in that same time, plus the increase in value of Bitcoin. Those are numbers that most marketplace businesses (or any business in general) wish they had.

Silk Road no doubt had a secret sauce, and it’s a strategy any startup can use.

Trust Made Silk Road Successful

BEFORE:

drug-dealer

AFTER:

silk road reviews

Silk Road works for the same reason Airbnb (accommodations), Uber (ride sharing), or Getaround (car sharing) work… trust and efficiency.

Marketplaces make previously outdated industries relevant again by turning important human psychological factors and ways to conduct business into a platform. Think about the tenets of reciprocity (ratings and reviews), consistency (standard, repeatable process), and scarcity (improved supply and demand dynamics). These were solved with the marketplace.

Thus, Silk Road brought the drug trade into the 21st century.

No longer did a Silk Road user have to deal with shady drug dealers, fake drugs, or drugs that included other chemicals or substances that they didn’t know were there. Silk Road eliminated the need to deal with shady distributors, the fear of buying fake drugs, and ensured that there were not other unknown chemicals or substances acting as a filler in the drugs.

If a dealer on Silk Road sold bad or fake drugs, they were removed from the platform. The highest quality products and users were brought to the top. Scams from any user were dealt with swiftly.

Everyone respected the community in a traditionally gang or cartel related industry. Before you might have been supporting a cartel in Mexico with your drug purchase. Now you were buying direct from another user.** Just like Lyft made the taxi industry safe, fun and friendly again, so did Silk Road for the drug industry.

Never before has an industry needed more transparency and community. The fact that a large segment of drug use is unregulated means people are taken advantage of, or don’t know how to be safe. Combine Silk Road with its forums and Erowid, a drug education resource, and you’ve turned an industry on its head.

Silk Road Grew Faster Than Etsy and Ebay

When Silk Road 2.0 launched eight months after 1.0 was shut down by the FBI, over 13,600 listings of drugs were live on the site.

Silk Road 1.0 reached $1.2B in revenue in less than 2 years before it was eventually shut down.

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Note: Scenario assumes strong growth initially, strongest growth after one year, and a slow down close to shutdown.

Even a site that was buried on the deep web found ways to grow an incredible rates. Some may argue as fast, or faster, as some of the most well known marketplace companies, including eBay, Airbnb, and Uber.

Silk Road did this in a few ways:

1/ Forums. They went to where their customers were: forums, sites, and other online communities that we discussing drug use and dark web sites. Forums also bring about trust, social proof, and familiarity to a previously hard to access/understand industry.

2/ PR. Less than 5 months after the conception of Silk Road, Gawker broke the story, thus funneling thousands of potential customers into the dark web site. This added additional social proof as well as heightened trust as a reputable source covered the site and provided details on how to securely access it.

3/ Word of Mouth. There is no other solution that’s better than Silk Road out there. It was a high risk, high reward venture. This drove virality into the marketplace. Demand was extremely strong in this marketplace, but so was supply, and the lack of other solutions (scarcity) led to users working really well together, very fair pricing, and reciprocal relationships.

4/ Community. Silk Road and the drug community have strong bonds. It’s underground, so people want to take care of each other as there’s no regulation. Take the rave and EDM scene and the use of Ecstasy or Molly. Often at these shows or festivals the ‘community members’ take care of each other, educate, and festivals have now even begun to do their own free testing of drugs to check quality. Airbnb and Lyft are also examples of how strong marketplace communities can build a strong business and brand while empowering their customers.

In conclusion, Silk Road did powerful things for its industry. It made it safer, friendlier, more efficient and trustworthy.

That said, the major issue is obvious: most drugs are illegal (with the exception of pharmaceuticals, cannabis in less than 50% of the U.S., and new synthetics that haven’t been scheduled).

Without getting into the education versus enforcement debate, the value that Silk Road provided as a startup marketplace for the drug industry was unrivaled across all industries.

In many ways, Silk Road is a startup smoke test (no pun intended) showing how technology is continually increasing the speed of societal changes at a greater scale. It shows there’s a major need for faster change, but antiquated thinking and government policies are holding back cultural movements.

Modern society has never seen levels of openness and acceptance of personal decisions this high (again, this isn’t a pun), and it’s only going to continue on the back of a cannabis industry that isn’t slowing down.

*The exact value of all Silk Road revenues varies due to the high fluctuation of Bitcoin prices.

**Being an unregulated industry, it is near impossible to trace the exact origins of where every user acquired their drugs.

ABOUT TRISTAN POLLOCK

Tristan Pollock is an Entrepreneur in Residence and Venture Partner at 500 Startups. He was named Forbes 30 Under 30 in 2015, for co-founding Storefront, a marketplace for retail space. His previous company SocialEarth, a media platform for social impact, was acquired by 3BL Media. A Minnesotan living in San Francisco, Tristan frequents the experiential side of life. Connect with him at tristan@500.co.

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