Billion Dollar Unicorns: DoorDash Enters the Club Mired in Controversy

After a hiatus, funding in the on-demand food delivery has picked up this year. DoorDash is a huge beneficiary of this trend, raising $785 million and entering the Billion Dollar Unicorn club.

DoorDash’s Offerings

DoorDash was founded in 2013 in a Stanford dorm room by four students Andy Fang, Stanley Tang, Evan Moore, and Tony Xu. The company wanted to make it simpler for smaller restaurants to leverage the power of the Internet. In its early days, the founders made the first 200 deliveries themselves while operating under the name of Palo Alto Delivery. The four founders delivered food from local restaurants to students on campus.

Today, it is an on-demand delivery service that connects customers with local businesses. Its marketplace service allows consumers to purchase food from restaurants and have it delivered to their doorstep within 45 minutes of placing the order. When an order is placed with DoorDash, the company’s logistics platform sends it to the restaurant and assigns an independent contractor or a Dasher to pick up the order and deliver to the customer.

Today, DoorDash has expanded to over 600 US cities and plans to expand to 2,000 cities by the end of the year. It competes with Uber Eats, Postmates, GrubHub, Caviar, and Amazon.

DoorDash’s Financials

DoorDash allows consumers to join the service for free. But, it charges a delivery fee of $4-$7. DoorDash also earns revenues in the form of a commission from its member restaurants. It recently launched its DashPass subscription service at $9.99 per month for unlimited free deliveries.

DoorDash does not disclose revenues, but market reports suggest that it is unprofitable. It has delivery deals with over 50 top restaurant chains that account for 25% of its sales. This year, it has entered into deals with Wendys, Chipotle, Dine Brands’ IHOP, Red Lobster, White Castle, and Cheesecake Factory, following which deliveries increased 250%. It has also inked a deal with Walmart.

DoorDash has been venture funded so far with $971.8 million in funding from investors including Coatue Management, DST Global, SoftBank, GIC, Wellcome Trust, Sequoia Capital, Wellcome Trust, Continuity Fund, Kleiner Perkins Caufield & Byers, Khosla Ventures, Andy Rachleff, CRV, Haystack, John Doerr, Ooga Labs, Paul Buchheit, Pejman Mar Ventures, Pejman Nozad, Semil Shah, Streamlined Ventures, SV Angel, and Ted Zagat. Its last round of funding for $250 million in August 2018 valued it at $4 billion, a significant jump from an earlier round this year in March when it had raised $535 million in a round led by Softbank that valued it at $1.4 billion. The $535 million infusion by Softbank seems to have opened the floodgates of funding for DoorDash.

DoorDash’s Worries

DoorDash is embroiled in several controversies surrounding the security and vulnerability of their app.

On the customer front, there have been instances where customers have placed orders and paid for them but haven’t received the order nor any refund. There have even been cases where their accounts had been hacked and fraudulent food deliveries were charged to their account. Customers were not reimbursed nor did they get any response from DoorDash.

The most recent controversy is the Dasher scam. A month ago, a story surfaced about a DoorDash driver not getting paid by DoorDash. Turns out that the driver’s pay account was hacked into by a customer who had cancelled the order. Soon that incident snowballed into a massive scam for DoorDash with several Dashers being duped out of their earnings.

Typically, the scammers would create a DoorDash account and place a small order. This would give them the driver’s name. They would then contact the customer service desk asking to connect to the driver. Then they’d pose as the customer service desk and ask for the driver’s email address and password to resolve the issue and give a $300 bonus. Once they get into the driver’s DoorDash account, they would clear out all their earnings through a Fast Pay option. Here’s a detailed step-by-step account by a Dasher on Reddit. Drivers have lost $100 to upto $1000 in the scam.

Initially, the company said it would “attempt to recover this payment and others… (but) unfortunately this is rarely successful.”

It issued warnings to drivers never to give out their account information and set up a more secure login process.

DoorDash Drivers were obviously disappointed with the reaction. They wanted the company to take more responsibility, reimburse their earnings, and make the app much more secure. Following stories in the media, DoorDash has reimbursed the earnings of some of the drivers.

But overall, the security breach and DoorDash’s attitude towards drivers is very problematic. Many drivers still have not been reimbursed. The extent of the damage and the impact on its fundamentals is not yet known.

What do you think of this fiasco and of how DoorDash handled the situation? Have you had any such experiences?

If the driver issue doesn’t get solved such that the drivers are properly reimbursed and made whole, this would become a big long term problem for the company. And if additional scams come about, the company would lose valuation and drivers in big numbers.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.

This segment is a part in the series : Billion Dollar Unicorns