How Else Could Blue Apron Have Raised Funds to Continue to Grow

We are in an age of the "hurry let's IPO before they realize our customer acquisition costs are unsustainable" IPO. Take Blue Apron, for instance. They stated their blended Cost Per Customer is $94 in their prospectus, this # has been parroted all over the place. This little piece of "hope the Analysts dont dig in" masks their most recent quarter costs which exploded to $460 per customer. (1) This is a classic, groupon-like example of somebody figuring out a really profitable niche that's easily duplicate and relies almost entirely on paid media to drive acquisition. The efficiency and sheer scale of todays' online advertising market means that if you're armed with a shit ton of cash you can buy your way into public-market growth. Sustainable it is not. No wonder they don't bother reporting a pesky little detail like "churn" in their prospectus (2) I wonder how much longer companies will be able to get away with this game. (1) https://www.recode.net/2017/6/1/15727182/blue-apron-ipo-s1-a... (2) https://www.forbes.com/sites/neilstern/2017/06/05/meal-prep-...

It's a great time for customers to take advantage of these offers though. I've used over $1000 of Postmates promotional credit and ordered dinners from far-away restaurants that I'd never have the energy to drive to. $15 dinner item with waived $27 delivery charge? Yes please!

Essentially VC is subsidizing part of America's goods then. We could always skip the middlebusiness and just go straight to universal income paid for by these firms.

Just to be clear — most VCs are also getting universal basic income from LPs. Warren Buffet once said most hedge funds were compensation schemes disguised as investment vehicles. The same can be said for the average VC.

> Just to be clear — most VCs are also getting universal basic income from LPs. Fancy definition of "universal" you got there.

Yes, Matt Yglesias once said Amazon is "a charitable organization being run by elements of the investment community for the benefit of consumers"

No. Bezos himself strongly disagreed with that characterization that he included that quote in his annual shareholder letter for 2013 [1]. Along with a rebuttal. "To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast-moving as the one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align. " [1] https://www.sec.gov/Archives/edgar/data/1018724/000119312513...

I really don't see the kind of aggressive growth plan and opportunities that Amazon chased after being pursued by many of these current startups. Amazon, Google, Facebook, they all quickly learned that their current model couldn't sustain their pie-in-the-sky valuations, so they pushed outwards in multiple directions. Blue Apron, as an example, doesn't seem to be doing that. And may not be capable of it. If they had a plan to use their valuation to purchase, automate and control the whole farm-to-table product chain, all while building up advanced technical services that can be sold to other tech companies and startups, that might be a different story. But I'm very skeptical that's the case.

The biggest thing for me is that, if there really is a market for home delivery of fresh food (at least in urban areas)... And there certainly seems to be. There is in the UK and it's growing in the US even if some services like Instacart have their own profitability problems. Meal kits [from the same stores/services] are such an obvious expansion to that and they're already happening. Blue Apron and its dozen or more competitors just seem like such a niche [standalone] offering. I'm pretty darn close to their target demographic and they still don't quite fit my needs. Developing a platform to serve this market presupposes that it's a viable size of market to serve as standalone businesses and I'm not convinced it is.

But universal income will be used by poor people to buy essentials that have low profit margins, rather than an addiction by wealthy people to high profit margin services.

I like the idea of getting free money every month, but it just wouldn't feel right to live on money that was forcefully taken from someone else, even if they do have a lot of it. Maybe somebody will invent some sort of sustainable voluntary UBI. That would be the best.

> it just wouldn't feel right to live on money that was forcefully taken from someone else You're going to be awfully disappointed when you learn how wealthy developed nations were built.

I wouldnt confound humanities violent past with economic growth. Quite the oppposite, growth came in spite of such events. The 1900 century is a very clear demonstration of that.

Is it though? US growth during WW2 was enabled by physical destruction of most competition. The Cold War enabled technological advancement which wouldn't have happened otherwise (just look at space investment pre and post '92). Conflicts hold growth down only when you don't win them.

> (just look at space investment pre and post '92) For some context for anyone curious about this, my summary of the tables at https://en.wikipedia.org/wiki/Budget_of_NASA is the following: It appears that the average annual budget of NASA in both of the periods 1960--1992 and 1992--present is just under $20 billion present-USD per year (ie after adjusting for inflation). The time series behavior is that NASA's budget peaked in the 1960s for the Apollo program at over $40 billion present-USD/year (and so over 4% of the federal budget at the time), then was relatively smaller during the 1970s and 1980s, and finally slightly larger and relatively flat since 1990. Beginning in 1971, the annual budget may be summarized as within 25% of the aforementioned ~$19 billion present-USD/year, noting that the wide range primarily hides growth since then, rather than a decrease. (I have not looked into space investment other than NASA.)

Global GDP had a huge hit during the war, and after peace was achieved growth accelerated tremendously worldwide. The economic growth of both the US and Europe after the war was clearly thanks to peace, not thanks to the spoils of war.

Would you feel better if you were taking from a robot rather than a human? Because that's going to be the reality in about 10-15 years.

>taking from a robot rather than a human ...which is owned by a human. not to mention the ambiguity between a tool and a robot. can we expect SaaS companies to be taxed because their servers are "robots"? that is not to say i'm against UBI, but the justification of "it's okay because we're taking it from robots!" doesn't hold.

I'm pretty confounded as to why UBI has become so popular. Many people already get a ton of social services from the government. Don't see how getting $20k of UBI per year is better than getting free medical care from Medicaid and subsidized housing from HUD, both which likely add up to the same amount. Don't see why UBI has to be in cash instead of services.

Because: - While it makes sense to restrict some free money to healthcare and retirement (because many people don't plan long-term), for most other services it would be adding complexity and waste. Individuals can allocate money between their basic needs better than state bureaucracy can. Or phrased in another way - UBI in services significantly restricts your authonomy as a person by making all spending decisions basically for you. If you were getting food stamps, you couldn't e.g. decide to eat ramen for two months in order to save up money for fixing your car or buying a computer. - Service-specific welfare usually implies means testing, which is inefficient, requires huge bureaucracy to work, and - most importantly - it's incredibly dehumanizing. It's no fun when, in order to get additional $50 a month, you have to subject yourself, your family and your extended family to interviews from social workers, who'll surveill and comment on the most private aspects of your life. UBI is a popular concept because it means to be universal, i.e. no means testing.

I think I can rephrase your points into more basic principals: - Freedom: UBI gives individuals more freedom in how to spend their subsidies. - Privacy: By eliminating means-testing, we eliminate the governments intrusive accounting of an individual's life. - Efficiency - Spending: People can allocate their UBI more efficiently than the government can allocate funds on services. - Efficiency - Means-Testing: The process of means-testing is expensive and a bureaucratic drain on resources. The first two I entirely agree with; the third I'm not sure about, but the last I'm almost certain is untrue. Means-testing is expensive overhead, but that process is definitely less expensive than giving everyone the benefit. If it weren't, the government would already be giving everyone Medicaid. I suspect the real proponents of UBI are advocating for freedom and privacy more than anything else.

Services are inherently more inflationary than cash because as long as the customer (government) pays, you can add more and more services to only marginal benefit of the served. On the other hand, cash means that nobody is entitled to receive it except the recipient, which spurs competition to get their money, resulting in better services and lower costs.

Because of the U in UBI. Conventional benefits pay for proof of need, they reward incapability. A terrible incentive.

The U removes the incentive to seem/feel incapable. Positive incentives stay, except maybe working to not starve, but that one is already eradicated with conventional benefits. I haven't seen anyone advocate a "exclusive universal basic income", where other forms would not exist.

the fact that the robot is owned by a human is precisely why we need basic income. otherwise, it simply leads to a rich-get-richer spiral, as the already-rich are in the best position to develop and/or purchase ways of automating production.

It is the weirdest anthropomorphism to give robots a soul for the hope of being able to exploit them.

It seems like a lot of people have already responded to your comment, but as the original poster, I feel obligated to add on. My answer was of course a simplification, but yes, fundamentally I think as we step into the future, we not only should but need to be taxing the owners of automation. Because if we don't, inevitably, wealth will become so concentrated within the hands of a minority that the overall functioning of our economies will simply stop working at some point. The current capitalistic based systems we have set up depend on continuous and increasing spending/consumption in order to function. There's nothing inherently wrong with following this method. In fact, I personally think it's fine. The issue, however, is in the fact that as automation continually replaces humans, money starts getting "stuck" as allocated spending pools from consumers increasingly diminishes. Sure, in the beginning, it'll look great on paper as corporations and businesses enjoy massive cost savings/increased net profits. But at some point, there will come a tipping point where there literally won't be enough money in circulation to support the economy. Think about it, what happens when 30+% of the human population becomes unemployed due to automation? And 30 is honestly a very optimistic number in my opinion. I could easily see unemployment rising to 50, 60, 70, 80, even 90+%. Do you realize how few people we actually need to be working? 99% of the work done today by humans both blue collar and white collar can and will be automated. Sure, I guess when no one has money to spend, corporations/businesses will inevitably be forced to lower their prices to near zero values, and the "invisible hand of the market will have made all good". But think about how ugly and messy that transitionary period will be. No profit driven entity will just willingly lower their prices like that. And in the meantime, people will starve starting from the bottom up, from those with the least privilege, opportunity, and means to escape the encroaching unemployment that awaits them. All a Universal Basic Income does is speed up the inevitable while circumventing the mass starvation, rioting, and violence that will occur without it. And if you can think of a better solution too, I would honestly love to hear it because this isn't some far away issue. We're going to see massive upheaval in the next 5-10 years, starting with self-driving as it decimates the rural American population. Huge swaths of small towns all across America are almost 100% dependent on the trucking industry and the inflow of truckers that stop along the way to spend their income there. When truckers lose their jobs, those small towns go with them. If your answer is to tell them to move somewhere else or find a new job, what about those who can't? For example, how is a 50 year old truck driver who has spent his entire life driving trucks supposed to, on zero income mind you as they no longer have a job, go back to school and learn how to code when he or she likely barely finished high school 30 years ago? And no, even if you choose to completely disregard the inherent value of a human life opting to let people who are unable to successfully transition starve as a solution, you still aren't scot free. Because, what do you know, angry restless starving people riot and protest! Though I personally think it's important that everyone has the right to fundamental basic standards of living, even if you could care less about whether the person next to you starves to death tomorrow, the purely selfish individual still supports a Universal Basic Income. Any other move is a losing play.

How much worse could it be, compared to getting money for working hard on pointless zero-sum advertising pipes? Don't get me wrong, there is a certain base demand for advertising where it adds value to an economy, but beyond that it is just zero sum redistribution. I do like my ad-money and the skills I maintain working for it, but like much of the services economy it is mostly a redistribution scheme, one where everybody attacks the pie with a vastly different size of spoon. Massive amounts of resources (at the end of the chain: limited natural resources) are spent on those spoons.

They're not forcefully giving you UBI. They're investing. No consumers no business no rich people. Economy comes crashing down. Just like Ford increased people's wages and lowered work hours so they had time and money to buy Ford cars ;)

Do you feel bad for using any of the multitude of tax-payer funded services available? Taxes are already pretty divorced from use of the services they pay for. People with more money than you have had more of it "forcefully" taken from them to pay for the roads, emergency services, and so on that you use.

If a gang member tells you he will severely hurt you unless you give him your money, and you give it to him without any fight, did he take it forcefully? If the government tells you "give me your money or we will lock you up in a cage for years with people who will likely rape you", and you give it without any fight, did the government take it forcefully? I would argue that even though force was not used, the threat of force is enough to say it was taken forcefully.

Which most people would not use if this service was optional and adevertised beforehand priced at the amount they pay in taxes. You can't properly price the service into your economic activity if it's forced onto you.

> You can't properly price the service into your economic activity if it's forced onto you. Couldn't agree more. The ONLY way to price AT ALL is through willful participation. With government services, this is not the case and that explains why they're often exorbitantly priced and suck at the same time; two components that are mutually exclusive in a laissez-faire environment.

Hence why ISPs are so reasonably priced and good quality. /sarcasm I understand balking at governments paying for services the private sector can deliver on (though oftentimes that still requires a level of regulation to ensure that monopolies don't develop), but not when it comes to services that the private sector either can't, or at least -really really shouldn't- be handling. And there are a lot of those, even things that the private sector currently handles (such as pharmaceuticals, where without a monopoly there's no reason to invest in drug research, but as you move toward a monopoly you get price gauging a la Epipen, Shkreli, etc; taxes funding drug research without seeking to maximize shareholder profit seems a much better approach).

And post IPO, pension funds and 401k's crowd in, give the VCs liquidity... Thus completing the cycle and enabling the VCs to do it all over again.

Anybody remember Kosmo? There was a brief period around 2000 when you could order a candy bar to be delivered, and they'd waive the delivery charge. (Webvan, though, was a good idea. They just botched the rollout, with 3% market share in 30 cities, instead of 30% market share in 3 cities. Their VCs pushed them into that. Webvan's former fulfillment people quietly went to work, developed Kiva distribution center robots, sold them to many online commerce companies, got bought by Amazon, and are now involved with Amazon's grocery delivery operation.)

Unfortunately I live a bit too far from the nearest major city to take advantage of a lot of this VC-subsidized gravy train. (There are a lot of deals floating around these meal kits but they're still not really a bargain.) Another thing with Webvan--and we'll have to see how this plays out in the Food Delivery 2.0 phase we're in now--is that fresh food delivery really was a premium offering. But it wasn't clear how many people were willing to pay a premium for it. There are a lot of services people will buy if you sell them below cost. Logistics, scale, and just learning what works and what doesn't may change all that. On the other hand, high-quality food delivered to your door is probably not going to appeal to your typical coupon-clipping Walmart shopper however efficient your operation is.

Another thing with Webvan [...] is that fresh food delivery really was a premium offering. But it wasn't clear how many people were willing to pay a premium for it. The premium doesn't have to be particularly high, in areas with a decent customer density. In the UK, Ocado can deliver a full range of supermarket groceries without needing to mark up the goods, and with a delivery charge below ~$5 with a ~$50 minimum order. And they make a profit while doing it.

And Peapod is only about $10 (for orders over $60)--and that's with me being far enough out of a city that I can't get Instacart or most services of that type. An effective ~10% adder on prices that are probably not rock bottom is still more than a fair number of people will want to pay. But I agree it's hardly a 1%er luxury item. I'd probably use Instacart if I could get it. I just didn't find Peapod all that compelling when I was using it because of an injury.

Even $94 seems high to me, but $460?! I don't have any context for those figures though, does anybody know of a common cost per customer acquisition across industries/products? Maybe my intuition as a humble programmer is way off, but that seems incredibly high.

The only way you can evaluate customer acquisition costs is to have the other number their lifetime value (LTV). In a 'goods' business it costs you $X to make the good and sell it (COGS) and people who buy it (after averaging sales, incentives, etc) as the average selling price (ASP), so to the extent that ASP > COGS you make money selling your widgets. A service business like this (or cable TV or whatever) has a customer acquisition cost (CAC), or the cost to get someone to sign up. and a life time value (LTV) which is the amount that customer will spend with you over the lifetime of their relationship with you. To the extent that LTV > CAC it tells you whether or not the business is viable. In both cases, when the ratios are wrong, the company loses money faster by either selling more widgets or getting more customers.

This is of course a good explanation, but I'm actually just curious about the _magnitude_ of the actual numbers here, and across other industries.

Not sure if LTV for blue apron is in their IPO docs or not, but to put that number into perspective: their cheapest plan is $60 per week, so if they hold onto a customer for 6 months, that $1560. 20% profit margin would mean $312. No idea if those numbers are anywhere close to correct. The magnitude of CAC and LTV are only meaningful together. A ferrari dealership might have a $5000 cost to acquire a customer and that would be a bargain, because their LTV is $250k+.

Not sure if I'm the average meal kit customer, but I don't choose to receive them every week. More like once every 2-3 weeks. Just something to consider in a customer's LTV.

According to their S-1, it seems as if their typical customer does indeed place an order pretty much every week. That certainly wouldn't be me. But, then, I think about using some of these services from time to time--but almost always end up driving to the store and picking up my own ingredients.

Affiliate networks will tell you what companies are willing to really pay for a lead, customer, etc. You really need to know BA's churn and LCV etc., though. Nutrisystem pays $140 to affiliates per new customer and gets about $12 in revenue daily from the customer. That is sort of relevant. I wouldn't personally put any money into Blue Apron. They are hiding their churn and dressing up their numbers. I suspect they will blow up or fizzle out.

Are they? What would "not hiding" it look like, a clear statement of it in their S-1, of the form "X is our churn rate?" I'm just not sure what people want. They show cohorts and give a lot of data on aggregate performance, but I agree, the lack of clarity is a bit alarming. Is there some kind of precedent people are comparing this to, a membership-style S-1 with clearer statement of what's going on?

It's a little short sighted though if your only measure is just LTV > CAC. acquisition costs will necessarily increase over time as the user base gets saturated and they churn away. At somepoint, LTVs will decrease because you've already lost your best users.

To throw some actual _data_ into this conversation: From the S-1, this is a 68% COGS business, meaning their unit margins are 32%. You can debate whether some of their opex belongs above or below the line, but let's assume the 32% number is baseline credible. The business had 4.1 orders/customer last quarter with an average order value of $57.23, meaning 73.21 of gross profit per customer. That means they recoup their marketing spend in 6 quarters. The big questions, in my mind, are (1) will people continue to be customers after a period of time and (2) will CAC stay the same, rise, or fall? I think there's more room for disagreement here than people admit. I haven't looked too closely at their IPO pricing, but there is some amount I would pay for a share of stock in this company - it's >$0. I'm just not sure how that number compares to the current share price.

It makes sense. My girlfriend and I have been doing it for about a month. We like the variety, the sense of surprise, and the ingredients are actually fresher than most of the produce at our grocery stores so the price per meal is almost worth it. (Though we'd prefer bringing it down to about $7 per rather than $10. Where the value falls down is in how much of a time sink it is. These meals take a fair amount of prep, and in exchange for all that time you only get two meals. When I cook on my own I usually batch enough to have at least another 2-3 meals worth of leftovers. If they set it up as a channel for weekly meal prep rather than 3 fun new recipes to try we'd be much more inclined to stick with it, but as it is it's just too much work for busy people to do every week.

It's funny because the difference between their current prices and the price people would prefer to pay is exactly their margins, per above.

That is pretty funny. If they provided larger meal sizes it would probably come closer. They'd be able to provide you one meal's type of food (less variety, fewer things to measure, and fewer types of ingredients = easier supply chain management) and you could get 5 or so meals out of one cooking session's worth of prep. It probably still wouldn't come down to $7. But I assume there are people more willing to pay than me out there who would be happy with it.

I know I'd do it if I could lower the per-meal cost by buying more of the same thing. I typically do all my prep work for a whole week of meals on Sunday night so that cooking each night takes 10-20 min. I'd pay for a Blue Apron type service that saved me that work and the trip to the store. Plus, it would be somewhat more environmentally sustainable to ship a week's worth of food instead of just 2 meals. But Blue Apron, as it is now, isn't cheaper or easier than what I do now and it's a nightmare of wasted packaging.

Yeah I had the same experience. Ingredient quality was fine, recipes were pretty good, but prep time was too long for just a weeknight dinner. Makes a good date-night activity, but my wife & I don't have time to do that three times per week.

Ah that would be a deal breaker for us as well (married w/ small child). Leftovers are essential to make the timing work, every bit we have to spend at the stove the kid needs to be kept busy somehow, so batching everything is the only way to stay sane.

That's been sort of my feeling when I've tried it. Three fancy-ish meals during a typical week tends to seem like a bit much. I'm also cooking for one at least some of the time. On the one hand this usually gives me leftovers. On the other hand, I don't have the portion control I'd have if I bought the ingredients in the store and not all their recipes lend themselves well to leftovers. On the other hand, I look at some of the services that more explicitly try to simplify. Those that do more of the pre-prep make sense to me but I also see recipes that make me go: "Umm, I could grab the three ingredients for that in 5 minutes at the store." All that said, I'll probably give these things a try again when I have some periods at home. I don't actually have a good grocery delivery option where I live so it's easier to justify these services on that basis given that they can cut out a visit to the store.

I can't read WSJ, so I don't know if they address this, but I wouldn't be surprised if people find favorite recipes over time and then just go to the store and buy the ingredients. I've never tried Blue Apron, but that seems pretty likely given their business model.

I wonder what fraction of that 60% are people who come to realize that doing your own shopping and cooking is actually not that hard, in addition to being way cheaper.

Yeah. I kind of appreciate these services as a way to introduce people to home cooking, but I imagine most people end up a grocery store at some point and realize they can get an onion for a couple cents instead of a couple dollars.

It's really hard for me to believe that there are a lot of people who keep getting three meals or so a week for six quarters. I'm sure they exist but I see a lot of people tryig this for a while and then dropping it or at least taking a break. This is also a bit different from that HBO subscription that you know in the back of your head you're not using all that much but the pain doesn't reach the threshold of calling up and canceling. These are groceries either rotting in your refrigerator or guilting you into spending a fair bit of time to prepare food when you don't really want to.

I wonder how they define a current customer. I haven't used Blue Apron for a while but, with a lot of these services, if you want to make it so that "don't send me anything else until I explicitly tell you to" you have to cancel. Added: Interesting. I originally read orders as meals but it does seem be a typically $60-ish order. Which means that their typical customer does seem to be someone who uses the service as an ongoing subscription. I'm not sure if I'm surprised or not but, assuming I'm reading their S-1 correctly, their customers seemingly tend to be all-in or they drop the service.

These days it's really not a great idea to buy a stock at IPO. There's no shortage of idiots out there who are bidding up the price because they equate a good product with a good business.

I'm not 100% sure this is the right way to calculate costs, but those numbers seem reasonable to me: You give people their first shipment free, which you'd normally charge $60 1-in-3 people continue after that, so your cost to acquire 1 customer was $90. Tack on an extra $4 for the ads that got them to sign up. If 1-in-7 people continue, you get into the 400s. Those numbers seem pretty believable to me.

What you charge $60 for shouldn't cost you $60, but I generally support the point. I think you're downplaying the $4.

Plus all the initial marketing costs to get those people to sign up in the first place. Which, for an expensive service like this, where very few people are interested, seem significant.

(Not to imply that it's a bad service - just meaning that the CAC is a lot higher for Blue Apron than an iOS app - they have fewer, but more valuable, customers.)

So the higher the pricepoint of the item, the harder it is to actually acquire a customer. To convince someone to buy subscription to a $60 box of food is quite the endeavor. You also need to be wary about how they exactly calculate CPAs based on ad buys. For instance, if they just comissioned a large scaled TV ad buy, that's millions of dollars they have to pay now. TV advertising has a long tail of user acq as it takes time for the message it wear in to a user. So if those millions hit in the billed quarter, they could still get customers in a later period and the CAC would change.

Channel-specific CPAs become very fuzzy and downright misleading the higher up the intent funnel you get. Things like display, TV, etc. are notoriously difficult to measure the exact impact of. Thus, looking at all marketing expenses rolled up is really the only safe way to capture all that value for this sort of math.

Wow at $460 CAC you'd have the retain the customer for well over a year before you made that back (assuming 2 weeks of Blue Apron at $60/week per month with ~30% margin).

It's a lot easier to forget to cancel a software product you don't use than to ignore all the rotting groceries piling up in your kitchen.

Maybe this comment points to a larger misconception: that some people will fall into the trap of analyzing Blue Apron as something of a tech company?

Which is why they targeted tech investors for money... people that know what they're doing wouldn't touch it.

I work for a B2B SaaS startup and it costs us around $1500 to find, acquire, and onboard a client that brings in a minimum of $5K/yr. That cost is projected to approach $500 over the next 24 months.

Think of insurance. It has the highest Google keyword cost of any industry iirc. Something like $200+ CPC since LTV is so high.

The acquisition cost number is irrelevant. It could be $5,000.00! All that matters is you make money from the customer after all the expenses are taken into account. It's like the old adage: would you give me a quarter if I give you a dollar?

Average revenue per customer is flat. Marketing costs increasing. Average repurchase rate seems to be flat. Yikes. Also this: > [W]e anticipate adding additional products and increasing the portion of our marketing expenses focused on brand awareness and customer retention in order to drive increased customer engagement and growth in our net revenue from existing customers When marketing is for "brand awareness" and "customer retention" that reads "we don't know how to acquire new customers profitably so the problem must be our brand". And brand awareness marketing is _very_ expensive.

Honestly repurchase rate being flat is kind of surprising as they make it extremely difficult to cancel and even shadily dodge requests to cancel by deferring you for a long period of time instead until a surprise shipment you didn't ask for shows up. The reality check is a good thing for a business that thinks it's okay to treat their customers like that.

I didn't have any trouble canceling after one order but the subscription aspect is definitely something I don't like about most of these services. To the degree I use them at all it's going to be on an occasional basis when it fits with my mood and my schedule. Trust me. If I want to send you $60 for some pre-kitted meals, you'll be the first to know. I absolutely do not want to have to remember to opt-out of some subscription service.

Sorry, but I strongly disagree. As a company grows it may indeed find diminishing returns from scaling direct response channels that previously performed well. However spending to build brand awareness is what helps you reduce costs long term. If your brand is synonymous with the category, you win. It gets you more direct, referral and organic traffic, gets the press writing about you, gets review sites comparing you, etc. It is most definitely expensive, but can be critical to the long term success of a company once they reach a certain size. This is also doubly important in commoditized markets since brand is really the only thing that distinguishes you.

A private company is not prohibited from profit-sharing or giving bonuses based on vested equity.

Non sequitur. You can both (a) cash out shares and (b) leave without an IPO. Heck, normally the company itself will buy back the shares. If they don't, they're not bullish on their future and I wouldn't be either.

Congratulations on getting to the IPO, that is a huge amount of work and worth celebrating. That said, it pretty much defines squeaking through the exit. Interested to read the reorganization they did last year in the S-1 [1] presumably to normalize all of the various rights clauses from previous funding rounds and to dump some otherwise undesirable baggage on what was left, aka "Opco". That they had a 1:10 and 1:5 splits on their early stock and have not done a reverse split prior to the IPO suggests the employees will do ok, assuming they can sell their stock at some point. It seems healthier than the Silverspring Networks IPO (SSNI) which was anemic at best and just got worse over time. Let's hope that they keep their expenses in line and can crack the nut of acquiring new customers more cheaply than their competitors. [1] https://www.sec.gov/Archives/edgar/data/1701114/000104746917...

Why would a reverse split affect employees? Is it only in the case that an employee thinks: • I have 10,000 shares • GOOG is $1,000 • We're going to be the next GOOG • 10,000 * $1,000 • I'm worth $10m I don't see how anything related to % of ownership or intrinsic value would change with a reverse split.

It is simpler than that. If you have 50,000 share option of a tradeable stock and it goes up $1[1] you feel great you just made $50,000! If just prior to the IPO your company does a reverse 50:1 split and you now have options for 1,000 shares of stock and it goes up $1 you, gee, that's nice and all but really it isn't enough to get a new Macbook Pro. The other thing that happens is your strike price goes up in proportion. So if it cost you $1/share to exercise your 50,000 share option its going to cost you $50 a share to exercise your 1,000 share option. [1] of course it has to be above water.

Ya, but if a share of stock was going to go up $1 before a reverse 50:1 split it would go up $50 after the split. Splits are financially meaningless. They're just done to keep the per share price in the range of what people consider "normal."

Splits are a nonsense financial tools for people that can't think in fractions. I can own 0.18 dollars. I should be able to own 0.18 shares.

It is the context that is important here, and the context is 'startup transitioning from privately held to publicly traded'. And the point of view is 'non-founder' employee with incentive stock options. Prior to being publicly traded, stock options at a start up are essentially worthless. If you exercise them you have to pay tax on them, and generally if you did exercise them nobody would buy them from you. So worthless. And while it is perfectly fun to say "everyone says" or "at the last raise" this company is worth $x and my share of that would be $y, if you've been around you know that that number is also grossly inaccurate. Because really there are things like liquidation preferences, assignment to creditors, and all sorts of other legal maneuvers that do one thing, they convert unvested incentive stock options for common stock into a value slightly less than the recycled paper they are printed on. So when you transition from the realm of 'privately held' to 'publicly traded', two magical things happen. First, all shares convert to common stock (although possibly separate classes of stock), and you can sell those shares that you either already own, or you become the owner of by paying the 'strike' price on your vested options and taking possession of them. Always, in that last moment, and Blue Apron was no exception, as the cap table is re-balanced and the company prepares to be a 'real' publicly traded entity, employee stock options get dealt with. In part because there is going to be a new option pool allocated for giving out to new employees or refreshing grants of existing employees, and because sometimes the bankers taking the company make it part of their terms and conditions in order to take the company public. The grand result, the finale if you will, is that on the day the company you work for goes public, you get crystal clarity on exactly how many shares you have options to buy, when you will be able to buy them, and what you will pay for them to buy them. And if that day comes, and on the other side of the opening bell of the NYSE or NASDAQ that day you have more than 10,000 shares in options, with a strike price that is lower than the current price, there is a big psychological pump attached to your brain. I've seen it happen to literally hundreds of my peers as they and I made that switch. And now, while watching the ticker tape on CNBC or the headline news, occasionally the new ticker symbol for your company will go across the bottom with either a +nn or -nn next to it for going up or down in price. And if you own at least 10,000 shares in options it is like watching a car appear and disappear in your future as it goes up and down, or a house down payment, or a college fund. It is potential wealth made actual right in front of your eyes and sometimes it is impossible to take your eye off the ticker. And since movements of a few dollars is common in freshly traded companies it can drive you nuts. During the dot.com days a friend of mine and I would joke about being "up two Porsche's today", "oops, we've lost about a Porsche and a half today" where we had chosen $50,000 to represent the value of one Porsche sports car. And so, if you are in that context (and a bunch of Blue Apron employees are today, just like SNAP employees were earlier) and if this is suddenly your single largest "investment" because yesterday your stock was unsaleable and today you could sell it[1] what happened in that twilight moment between private and pubic can get oddly personal and twisted. That is especially true if there was a big reverse split or if the entire company sort of stepped from one place to another and converted your vested options in the old company into unvested options in the new company. It is also perversely irrelevant what percentage of the company you own if your current option value, after paying the strike price, is more money than you've ever had at one time before. [1] Often there are restrictions and lock ups and black out periods and all sorts of constraints, except as many people know if you don't work for the company. So in the dot com days people would quit, exercise, and sell because once they quit the restrictions came off.

OK ya, that's all true. And a great description of the psychology of what it's like to be an employee at a company that IPOs. But it doesn't have anything to do with splits. Having 50,000 shares and seeing the price go up $1 is the same as having 10,000 shares and seeing the price go up $5.

Unless you're in an egregiously unfavorable options contract (do these even exist?), an options contract should have the underlying number of shares it pays out adjusted in such a way that a stock split has no effect on your payout in USD.

This is true for stock splits, but not necessarily true of dilution. It's very rare for non-CEO's to receive dilution protection in their contracts.

Is this actually true? If so, why would anyone ever value an options package at anything above zero (assuming they are non-CEOs)?

Because when companies dilute stock they typically execute it so that investors don't lose any money. Their percentage stake in the company goes down, but since the company is raising money at a higher valuation it balances out. This trick doesn't work when dilution results from someone calling options but that's pretty standard and usually doesn't have much impact.

So it sounds like the only insurance plan against being diluted to zero is "I hope they don't fuck me" -- which sounds like a really, really bad insurance plan. I still remain unconvinced that they should be valued above zero.

The execution that Spivak described that causes the investors to not lose money also causes the employees to not lose money. If the value of a company goes up (because it is successful) your share price will continue to rise even if your shares get diluted due to additional financing. There is no "I hope they don't fuck me" involved.

Hi Chuck I didn't get this part of the prospectus either, the language was pretty thick. It's probably some kind of cleanup/recapitalization? Probably wanted to shed some protective provisions or something. Please do comment if you find out more.

"Blue Apron's executives and venture investors own Class B stock, which gets 10 votes per share and gives them control of the company. It sold Class A stock, with one vote per share, to the public in the IPO. It is keeping around Class C stock, with zero votes, to use as acquisition currency and avoid diluting its insiders in the future. Dual-class stock, triple-class stock, nonvoting stock, entrenched insider voting power: All of these are things that investors profess to hate. But in hot IPOs like the one for Snap Inc., which sold nonvoting stock to the public, priced above its offering range, and then jumped on the first day of trading, investors seemed perfectly willing to ignore the governance issues and pay up for startups. And then in ice-cold IPOs like Blue Apron's ... what? Blue Apron cut its valuation by a billion dollars -- and cut the amount of money it was raising by $100 million -- when it repriced this IPO from $15-$17 down to $10. What do you think the discussions were around the voting rights? Did any investor say "I'll pay $10, or $12 if you scrap the triple-class structure"? Did any banker say to the company "this deal is not going well, and we'll need to reprice, but you might get a better price without the triple-class structure"? Or is there just no tradeoff at all between governance and economics: Hot deals get done with bad governance, and cold deals get done with bad governance, but no one can just move a slider to increase valuations by improving governance?" https://www.bloomberg.com/view/articles/2017-06-29/stress-te...

Blue Apron believes its cash and borrowing capacity will be sufficient for at least a year, it said in its revised deal prospectus after lowering its IPO price range. That's crazy they only have a year's worth of runway. I'd imagine that today's tepid IPO is going to make it that much harder to raise additional private capital. Looks like they'll have to take on additional debt financing just to keep the lights on, let alone fuel more growth. That seems to be backed up by the final paragraph: With its reduced IPO, Blue Apron no longer intends to pay down existing debt with the proceeds, according to its deal filing. Instead, the funds will all go toward working capital, capital expenditures and general corporate purposes. If you didn't catch it, there was an excellent discussion about Blue Apron the other day: https://news.ycombinator.com/item?id=14646679

I wouldn't necessarily conclude that they only have one year's worth of runway. Many companies state that they are funded for the next 12 months. It can be pretty boilerplate. See comparison of Blue Apron vs. Apple below. Blue Apron (1): We believe that our existing cash and cash equivalents, together with cash generated from operations and available borrowing capacity under our revolving credit facility, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Apple (2): The Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with its existing operations over the next 12 months. (1) https://www.sec.gov/Archives/edgar/data/1701114/000104746917... (2) https://www.sec.gov/Archives/edgar/data/320193/0001628280160...

This is a big shot across the bow to startups looking to go public. Message: You're not ready to float if you're not floating, i.e. have a viable business model and can fund operations with revenues. Also, having a down round after going public likely rained hard on a lot of people's options situations.

> can fund operations with revenues I trust you mean currently existing ops, if frozen as is. Lots of companies go public while still taking on debt because their ROI in expanding operations is significantly higher than the interest rates. Amazon wasn't profitable for years because of this.

I may be mistaken, but I think existing shareholders are not selling as part of the IPO. The company really needs the money...

I would rather run a sustainable & profitable 100M company than a unicorn billion dollar company with 12 months of runway.

Haha, I'd rather run a sustainable $1m company! Frankly, I'd rather try to get an actual (horsie) unicorn to take off from an airplane runway!

I would never invest in this company. My Mom gave me some extra meals of this type and they are great but you still have to cook them, so they pile up, so you cancel... I don't know anyone that has stuck with the program long term but boy do I hear about how great it is on the ads on all my podcasts.

I don't understand how they will improve their numbers with the scrutiny of the public demanding more share holder value. I'm having blue apron tonight and I think it's a great product. Add salt and pepper to taste.

Tesla/SolarCity will be raising by the end of the year. It happens, a lot. But how/why is a big deal.

This IPO is getting absolutely torched, and for good reason. However, there is a TON of money in foodie culture and food fandom. There's a reason half of your relatives watch the Food Network non-stop. Perhaps once this IPO brings in much needed capital, Blue Apron can start bringing aboard celebrity chefs in promotional deals. Get Gordon Ramsay or Bobby Flay to contribute a recipe, ingredients and a couple YouTube videos and you might have something people will pay for. I'm sure they've thought of this already.

I watch the food network all the time. You know why? Because food is non-political. It's a positive vibe only type of programming: every place guy ferrari goes to is delicious, every dish Gianni cooks is wonderful, and I don't have to deal with the fear mongering that permeates literally every other channel

I generally agree with this. Put another way there's a lot to foodie culture and interest in the Food Network that doesn't involve cooking pre-kitted but relatively complicated meals on weeknights. I suppose there's an argument to be made that none of these services have really broken out because no one has wrapped sexy celebrity-based marketing around their offering. (Added: And some of them have paired with celebrity chefs.) But I'm skeptical. Most of them do the localvore farm to table thing in spades. I doubt that celebrity chef endorsements and videos and a major missing ingredient.

Meh, you see identity politics creep into a lot of the competition shows nowadays. You're right though that it is a good escape.

I don't see the value prop in things like Blue Apron. It seems overpriced for what it is. Between my roommate and myself, we cook every night (trading off nights), and take the leftovers for lunches the next day. $60 for a curated box of groceries for 3 meals just doesn't seem worth it. I spend half that weekly, snacks included.

Blue apron is tasty and fun. I hope they sicceed in some fashion. Seems like the kind of thing young couples would do for a year, and would be a great alternative to spending money and time at restaurants. But they need to get the customer acquisition costs down enough that they make good profit in that first year. After that, people will either lose interest in cooking or get so interested that they do their own shopping and recipes. To get a lot of long-term customers would require a cultural shift. They are probably a bit early, but it might happen.

Blue Apron is a great company with a solid product that could easily make a good profit. The problem is that they can't sell themselves to VCs as a fun way for couples to cook and spend time with each other. They have to disrupt the dinner market, and convince VCs that they have sky-high evaluations.

Presumably there are some economies of scale, startup costs, and minimum volume to make all this work. But, yeah, with some clever PR and promotion you'd think you could get a business of this type to the point where it's a fairly attractive niche business. With less pressure to max out revenue per customer now it could even be a more attractive product that could more easily survive alongside grocery delivery. But, as you say, there's all this growth pressure to win the land grab and dominate the category which puts customer acquisition costs through the roof. [Added: Having said that, I think churn is always going to be a problem with a business like this once the novelty wears off.]

> a great alternative to spending money and time at restaurants You realise that isn't a chore, right? It's supposed to be fun.

Companies go public for 2 reasons: 1) as a way for funders and investors to cash out or 2) to raise money since their other sources have dried out. If the ipo was not enough, I doubt they will be able to raise any more money at any reasonable valuation. They have a tough road ahead.

You're forgetting a major third reason: to have a currency to do acquisitions. If your stock isn't publicly traded, you can't issue shares to buy new companies. Most acquisitions aren't all cash, they're a mix of cash and stock.

Or to supplement capital investments beyond getting loans. Building out a logistics chain for any food company is very expensive.

"In its IPO prospectus, the company warned that it may never be profitable, adding that it anticipates that "operating expenses and capital expenditures will increase substantially in the foreseeable future." Wait, what? Between the ICO craze, the amazing levitating stock market, and things like a company that admits it probably won't ever make a dime of profit being able to IPO, I've been feeling like nothing in the financial world has made any sense for so long that I barely remember when it did.

That's the one thing that's probably pretty standard. Here's Amazon's S-1 from 1997, or over 20 years ago: [T]he Company believes that it will incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significantly from current levels. Although the Company has experienced significant revenue growth in recent periods, such growth rates are not sustainable and will decrease in the future. In view of the rapidly evolving nature of the Company's business and its limited operating history, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as an indication of future performance. http://www.nasdaq.com/markets/ipos/filing.ashx?filingid=3847... (edit:format)

There's little to no reason to downplay risks in the prospectus, so the statements of material risk are always doom-filled. (Prospective investors don't take such statements as final, but failure to disclose a possible risk has a big downside.)

"may never" is substantially different "probably won't ever". The former is fairly common for companies to acknowledge in IPO documents, the latter would be noteworthy, but isn't the issue here

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Source: https://news.ycombinator.com/item?id=14667364

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