Troy Wolverton/Business Insider
DoorDash CEO Tony Xu said the most difficult fundraising round to raise was the company's first.
- The hardest funding round DoorDash CEO Tony Xu ever had to raise for his company was its seed round, he told Business Insider in a recent interview.
- After DoorDash graduated from a startup accelerator program, Xu spent more than 10 weeks trying to raise funding for his nascent company, and money grew short.
- The company finally ended up raising $2.5 million from a collection of high-powered investors.
- Xu learned some lessons from the experience - the importance of operating efficiently and to focus on what he could control.
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SAN FRANCISCO - Seven years after launching DoorDash, CEO Tony Xu now has a fair amount of experience raising funds for his company in both good times and bad.
DoorDash was part of Y Combinator's accelerator program, raised seed funding after that, and has since gone on to raise seven formal rounds of venture financing - bringing in some $2 billion altogether. The company had to accept a down round in 2016, selling shares for less than it had in a prior round, and was out fundraising last summer and fall even as the public markets were souring on other big, money-losing startups, including Uber, Lyft, and WeWork.
Last month, it filed to go public right before the market's started collapsing in response to the coronavirus pandemic.
But Xu never had a tougher time raising funds than the first time he went out trying to raise them, Xu told Business Insider in an interview at the company's headquarters earlier this month.
"Our seed round was by far most the difficult round of financing," Xu said. By the time the company finally secured the funds, DoorDash "was days, weeks away from running out of cash," he added.
Xu and his cofounders launched DoorDash in early 2013 as Palo Alto Delivery, offering food delivery from area restaurants in the city near Stanford University's campus. After being accepted to and then completing Y Combinator's incubator program in the summer of 2013, Xu went out looking for backers.
Xu spent more than 10 weeks trying to raise funds
Many of DoorDash's peers in the program raised funds in a matter of days, if not hours, he said. But Xu struggled to convince investors to back the company. DoorDash's model was untested and unproven. Unlike other, similar services, which concentrated on dense urban cities, the company planned to focus on suburban areas like Palo Alto, which typically had few food delivery options.
Ten weeks after the end of Y Combinator, Xu still had nothing to show for his efforts.
"You've got to remember, we started the company with tens of thousands of dollars," he said. "And so 10 weeks of nothing, even when you're paying yourself nothing, still doesn't mean you have much left in the tank."
Not long after that, Xu and DoorDash finally secured the financing.. Keith Rabois, then at Khosla Ventures, and Saar Gur of Charles River Ventures, decided to co-lead a $2.5 million seed round for the company and helped assemble a collection of high-powered investors to back it.
Rabois and Gur "were the angels who came together and made that round happen," Xu said.
He learned lessons from the experience
The difficulty Xu had in raising that round was instructive for him and the company. DoorDash learned to do more with less, he said. That's something it's had to contend with repeatedly as it's gone up against better-funded challengers, particularly Uber Eats.
But he also learned to focus on what he can control and to not fixate on the things he couldn't. Founders can't control what the market or financing environment are like when they're trying to raise funds, he said. They can't control what people say about their companies.
"You shouldn't worry about those things," he said. Instead, he added. "You should worry about how do you build a great product. And then later on, as the product grows, how do you build a great company, because ultimately building a great business is the best way to compete."
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