Doordash CEO Tony Xu is a consolidator in the new industry of food delivery

During the depths of the Covid pandemic, restaurants across the country face an existential crisis; Doordash CEO Tony Xu had an unconventional proposal. He wanted to cut the fees.

Chief Business Officer Keith Yandell was worried that such a move would become a huge hit in profit ahead of the company’s planned IPO. However, Xu has created a compelling case.

“If restaurants don’t thrive, we can’t,” Yandell told CNBC in a recent interview, recalling Xu’s perspective at the time. “We need to gain leadership positions.”

The company ultimately sacrificed more than $100 million in fees, Xu said.

Since launching Doordash on Stanford University’s campus in 2013, the now 40-year-old CEO has navigated the infamous cutthroat low margin food delivery business, building the company Wall Street treasured for nearly $90 billion today. This year, stocks emerged as high-tech beloved people, increasing by 23%, but the Nasdaq has been primarily in tariff concerns that year.

More than four years after the IPO, net profits have been small. But that’s not in the way of becoming an industrial unionist for Xu. It uses a combination of cash and new debt to drive acquisitions at a time when major technology transactions are short. Earlier this month, Doordash scooped UK food delivery startup Deliveroo for around $3.9 billion and $1.2 billion at Restaurant Technology Company Seven Room.

“What we delivered for our customers yesterday is probably not enough for what we offer for them today,” Xu told CNBC’s “Squawk Box” after the deal was announced.

This week, Doordash announced the pricing of its $2.5 billion conversion obligation, saying that the proceeds could be used in part for the acquisition.

The San Francisco-based company has a history of scooping up its competitors to increase its market share. In 2019, he purchased food delivery competitor caviar from Square for $410 million. block. About two years later, Doordash said it was paying $8.1 billion to international shipping platform Wolt. The deal was the last major deal to this month.

When Doordash entered the food delivery market, they had to face off against Grubhub and Seamless. The combined entity was purchased last year by restaurant owner Wonder Group. 2014, Uber We have launched Uber Eats.

“This is a very competitive market and I think merchants have options,” Xu said in an interview with CNBC. “Our focus is always on innovating and bringing new products to the standards and expectations of our customers.”

Doordash did not make Xu available for interviews for this story, but provided a statement on the company’s acquisition strategy.

“We are very loud, very patient and are conscious of the fact that for most companies, transactions don’t work in hindsight,” the company said. “We tend to push tips as we see opportunities to bring value to our customers, expand our potential to empower local economies around the world and follow a path to strong, long-term returns on capital.”

Doordash was differentiated early by cornering suburban markets with fewer delivery options, but other players attacked the city centers. When Covid closed restaurant meals in early 2020, Doordash took advantage of booming demand for delivery. Revenue more than tripled that year, up 69% in 2021.

Co-workers and early investors believe in a customer-first focus on most of Xu’s success. Gokul Rajaram, who joined Doordash through the acquisition of Caviar, described Xu as “the best operational leader in the United States.” Amazon Founder Jeff Bezos.

Restaurants do not see Doordash universally as an alliance. The committee can reach 30%, which is a big cut in the forkover. Many restaurants reluctantly paid high fees for Doordash’s dominant market share. This reached an estimated 67%. In 2021, the company introduced three-tier pricing and introduced a 15% basic option for more price-sensitive companies.

Doordash requires a high fee to stay black. The company’s contribution profit as a percentage of total market volume is less than 5%.

A colleague who has known Xu for decades says food delivery entrepreneurs haven’t changed much since the company’s early days.

Yandell said Xu once received advice from his young daughter. All employees, including Xu, must complete their orders and process support calls each year as part of the company’s Wedash program.

In some countries known for the dignity of wealthy founders, Xu has a very different reputation.

Early workers recalls Xu being lifted up to a team event with a dilapidated Green 2001 Honda Accord or taking part in a company’s knockout basketball game called “Knocks” next to the Palo Alto animal hospital. Xu has also personally approved all offers to the company’s first 4,000 employees.

Xu spends many mornings answering customer service complaints. He often dropped off his kids at school and shoved them up in the evening before jumping on a phone call with the International Region, a colleague says. Xu is an avid Golden State Warriors basketball fan, but there is a soft spot for the Chicago Bulls who spent many years in Illinois. Once or twice a week, I narrow down Xu on my morning run. They often do so while traveling to explore various neighborhoods and shops.

Xu was born in China and moved to Champaign, Illinois in 1989 with his family. Growing up, he played basketball and mowed lawns to save for Nintendo. He told Stanford’s views from the 2021 top podcast that his parents’ stolen teaching him how to “make your way into something better.”

His “characteristics have become the value of the company,” says Alfred Lynn, an early Durdash investor and partner at the venture company Sequoia.

Xu often attributes his entrepreneurship to his parents. His mother worked as a doctor in China and juggled three jobs in the US for over a decade, saving him enough to eventually open a clinic. His father worked as a waiter while earning his Ph.D. Xu said on the podcast that her mother has a deep understanding of what it takes to run a small business. This was helpful in the early days of Doordash, when he was trying to turn restaurants into customers.

According to employees, Xu has a reputation for detecting hidden talent among her colleagues. Jessica Lux, the company’s chief analytics officer, worked as the general manager supporting Doordash’s Los Angeles launch when Xu led her to a passion for data.

“He believes in leaning on what you really are good at, rather than trying to make a lot of things mundane,” she said.

After Toby Espinosa, Vice President of Advertising at Doordash, he lost his contract with a major fast food company in his early days at the startup, Xu said, “work 10 times more intense and tells him to become an expert in his field. A few years later, the company secured a partnership, Espinosa said.

Grit and struggle defined the early years of Doordash. Google’s voice numbers are directed at mobile phones, but the founding team of four managed distributions, Stanford and Palo Alto.

Doordash emerged from the Stanford Business School course, known as the startup garage, taught by Professor Stefanos Zenios. In this class, students will be asked to present business ideas, test them, and pitch them to investors.

Zenios said Xu stands out for its data-driven approach and natural leadership quality. The team tested two different ideas, including platforms that help small businesses better track marketing effectiveness, he recalls. Zenios called the idea of ​​targeting suburban areas as “great insights.”

Xu and his team joined the Y Combinator in the summer of 2013. Airbnbstripes and reddit. All sessions lead to demonstration day in front of Silicon Valley’s biggest investors.

The Doordash idea thrilled Paul Buchheit, creator of Gmail and partner at Y Combinator. But like many other potential investors, Buchheit was skeptical of the economic model.

“You had a team of talented founders working on what I thought was a potential idea,” he said. “It’s basically a good startup formula.”

On Pitch Day, the company did not attract ventures, but Buchheit later joined as a seed investor.

Shortly after the demo day, Doordash encountered Saar Gur from Charles River Ventures. Gur was looking for a food delivery platform to retreat and was doing due diligence to another company when a friend led him to Doordash.

By the end of their first meeting, they “finish each other’s writing,” Gar said.

Sequoia’s Lin first handed Doordash after the Y-combinator pitch, but was in touch with the team. Lynn said he wanted to see data showing that the platform could penetrate beyond Stanford and Palo Alto and retain customers. He ultimately led two institutional rounds, earning a 20% stake in Sequoia at the time of the IPO.

“Tony always believed that his company would either succeed or find a way to succeed,” Lynn said.

Shortly after the Y-combinator stint, Doordash hit an early failure. Following the Stanford football game, a rush of orders attacked the delivery system, causing massive delays, which he spoke to Y Combinator CEO Garry Tan in an interview this year.

The founder refunded the order, spent a night baking cookies, and drove to a customer early the next morning.

Mistie Boulton, co-owner of Oren’s Hummus, said Doordash still takes that approach. The team begins to meet her quarterly, and she works as a beta tester for new products.

Starting in Palo Alto and then expanding to half a dozen locations throughout the Bay Area, the restaurant was one of Doaldash’s first clients, and had the opportunity to reach more customers beyond the small facilities that frequently have lines sneaking up on the door.

“We just fell in love with the idea,” Boulton said. “The number one thing that encouraged me to work with them was Xu’s passion. He’s really one of the people you can count on.”

Wall Street now relies on XU’s ability to carry out large transactions.

The London-based Deliveroo acquisition marks Doordash’s new efforts to expand its presence overseas, following the purchase of Finland’s WOLT three years ago.

Cash trading from Cebloom, a data platform for managing booking information for restaurants and hotels based in New York City, brings doordash into an entirely new category. Xu told CNBC that Doordash is “a multi-product company currently operating on a global scale.”

Following the announcement of the acquisition, consistent with the disappointing revenue report in March, analysts at Piper Sandler repeated their renewed pending recommendations on the stock.

One reason for the concern is “integrating multiple acquisitions at once could cause some kind of noise in the near future,” they said.

Fix: Previous versions of this story had incorrect numbers for total delivery orders.

Watch: Doordash CEO Tony XU: Deliveroo & Sevenrooms Deals