E690 | Sacha Michaud, Glovo: Scaling a Hyper-Competitive Marketplace (and knowing when to exit)

0:00Welcome everyone to the European VC podcast. Today we have an episode I have truly been looking forward to because we're going to talk to one of the greats of our industry, one of the founders who have truly been building something that I think we can all truly respect and all learn from. So today, with no further ado, Sacha, welcome to the podcast. You're of course one of the founders behind Global. Hey, thanks, Andreas, for the invite. Looking forward to it. Before we start the show, a quick note. If you're building or running a fund, you know it takes the right partners. At EUVC, we only work with sponsors we truly believe should be part of your tech stack.

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2:16Sacha Michaud:This show is not investment advice and the hosts of this episode may be invested in the funds and companies featured. So I promised to get you to share something in the beginning that no one knows, or at least many. And you said, Andres, I actually used to be a racehorse jockey. Tell me about that. Yeah. You know, I left home at 16. My grandparents knew a trainer, and I was – I loved sports as a kid, but I was the smallest guy in the school, and everyone gets from about 13 onwards, 14, was saying, you should be a jockey. So I actually had the contact, and he said, yeah, yeah, I'm at 16, tell him to pack his bags and come and work for me, and that's how it started.

2:59And I rode for about four years in the U.K., And then the last year in the US before I went to Barcelona and built the next stage of my life. Everyone says that there's nothing better than a former sports person, sports athlete, especially if you're looking to find someone with outlier potential, outlier behavior. Talk a bit about that. Is that true? I think sports at a high level requires a lot of discipline. and I think you need a lot of discipline to build, you know, I think any company, even small and large. I mean, it's so competitive out there. I mean, you know, for me, we always talk about the unicorns and these huge companies, but actually for me, I take my hat off to any entrepreneur out there, small and large.

3:42I mean, it's a huge opportunity that you can actually make something successful and live off your own initiatives and not depend on others. I think I take my hat off to everyone in that sense. So I think it does require discipline. So I think there's probably something in there. I mean, I think when I was racing, I literally don't think I took a holiday in five years. I mean, I was just so, you know, trying to be successful. And obviously in the case of racehorse jockeys, you have to be disciplined with what we eat. I have to keep my weight down. I'm not a big guy, but anyway, they're super lightweight.

4:14Yeah. No, extreme sports do require extreme measures and discipline. And obviously, I think there's no better in the business world, no better equation than saying that doing extreme sports is like being a founder in the venture space because nothing gets more extreme than that. All right. So now you're more than 10 years in building global, of course. We will talk about the competitiveness of your specific industry later. But I'd love to just ask you about how you got started, how you met your co-founder back in the days and reminisce a bit. Yes. I mean, so this isn't, you know, it's not the first project I built.

4:50You know, I started my first company, I think it was 20, 25, 26 in, in, in Barcelona. Just, you know, the first one was, um, in 1999, we built a large portal business, which was basically free services on the internet of it. Like Yahoo were used to do when they had search engine, free email classifieds. Um, we built, well, generally the largest Spanish speaking portal in the world. very, very successful in Latin America. Millions of customers using our, you know, for home pages, for email search. We had a chat. We had also some other services and we started to work on a bit of Star Media. We took that company public, went on the NASDAQ.

5:27Then my next project after that was actually in the gaming gambling industry with a company called Betfair, where at the time were one of the leaders. They're now the largest online gambling company in the world called Flutter Entertainment. They acquired a lot of companies and actually changed their names, they're getting huge in the US. And, you know, I thought, I saw what Uber was doing this towards after nine years there. And I saw what Uber were beginning to do with ride hailing about how a smartphone can change a traditional taxi industry and with a great UX of how you could just order a cab.

5:58And I, you know, I thought on demand was going to be something huge. And I was looking into that space and I heard that somebody introduced me to Oscar who'd just come back from the US, who was studying in Georgia Tech and had a, you know, very similar vision on where things are going. And he was doing a round, a small round, pre-seed round to get his project started. And I met him. I really liked him a lot straight away. And I said, look, I can invest as well, but why don't we do this together? And that's really sort of how it happened. And pretty much from inception to closing the round, we literally launched the first version of the app in two and a half months.

6:32We didn't call it an MVP, but it certainly turned out to be an MVP because we had to rebuild everything afterwards. But it got us started and got us time to market and got us out there learning and hitting customers quickly. Tell me about then international scaling, because obviously you succeeded massively in Spain. And I think a lot of founders in Europe have gone through that journey of getting their first market right. One thing that you truly nailed and that everyone reveres you for was the fast expansion of global. and, of course, also your nimbleness in getting out when a company or when a country turned out to not work out.

7:10Can you talk about your principles behind that? Yes. So we really believed that we really needed to be a global company to survive. I think it was very difficult just to be in one market. There was a lot of capital around for our industry then. Most of our competitors were closing huge rounds. We were generally struggling with fundraising. I'd say we're always appeared we're a little bit later than our main competitors and a little bit less. And so we really struggled to get lead investors and you'll know about this, but I mean, every round we had to go and get a new lead investor. No, because the lead investor invested in our previous round didn't have enough deep pockets to actually lead the next round.

7:49Whereas many of our competitors, you know, and Latam was, you know, SoftBank with Rappi. I can see that these, these guys, they can produce some good numbers. They're going to follow on with, with even more cash. So it was tough and we had to move very quickly. Can I ask you, is there a learning there for other founders, do you think, that you've got to take on an investor that can go across stages? Or would you say, no, it's just the name of the game. You want someone who's specialized and committed to the stage you're at. And then the next round will always have to sort itself. You can't solve for it by going to a multi-stage.

8:24I think there's a mix. I don't think necessarily there's one size fits all. I think it depends on the portfolio, but there's a massive advantage of having a fund that can just double down on the next few rounds and has that ambition and capital. I think it helps with fundraising. If you're hitting your numbers and you're showing your success, then it saves you starting a new round and starting throwing around decks trying to convince new lead investors. I think that's one of the things that I think most startups that I meet and see, you know, generally when they struggle, it's to find the lead investor.

9:01They have a lot of funds who say, no, no, you get the lead investor and I really like your project. And, you know, it's a vicious circle. So I think there is a huge advantage to getting in with the right VC, if you can. I mean, again, you can't always choose. I mean, people say, I've been asked questions, how do you choose your investors? We beg them. We weren't on the table to actually pick and choose, especially the later rounds. Pretty much our Series A, Series B onwards, I mean, we really had to do it. You know, Oscar in the end was spending 60, 70 % of his time fundraising. You know, that's taking that 60 % off being CEO of the company, right, and running.

9:40Yeah, and that, of course, if we just should stay on that a little bit, But that is clearly a characteristic that was very pertinent and clear for your type of company. Because if any type of company, we knew you guys were super cash hungry. This model was very cash hungry. Everyone was fighting for markets here. And everyone was basically playing the book of blitzscaling, which we all know now is one that's very dangerous to start. Could you talk about your reflections on that? If you think that we as a VC ecosystem, because massive money was obviously lost in this space, do you think that we should have learned something?

10:23We should have known better? Or is it just where we are and now we're going to do it again with AI and it is what it is? I think everything's cyclical. I mean, now, you know, we went from huge investments in growth. Don't show me the bottom line. It's all about land grab and market share. We'll sort out the profitability later to the complete opposite. And at some point we'll probably go, I don't know if it's going to be the hyper growth that was expected 10 years ago, but I think we'll go back to that. I've seen it cyclical. And by the way, I mean, it happened in the first dot-com era, which, you know, I exited to a company was really in that.

10:59And it was the same thing. I mean, you know, they did an IPO. It was the largest IPO then in the history. And they'd raised, you know, 90 million pre IPO, which was the largest amount raised by any company pre IPO in those days. Imagine 99. That's like a seed investment for AI right now. And if, you know, if I took their valuation, they had a 2 billion valuation or something in those days. And if I tell you about their revenues, I mean, you just laugh. I mean, it was just pure. So I think it's very cyclical. And I think we generate markets and people overreact. And it's like, I think we'll go back to probably investment a lot more on growth when they find the playbooks and the things that really work and double down.

11:40Maybe it won't be as exaggerated as it was. All right. So let's go back then to fast expansion and getting out of markets when you see that they don't work. I'd love to ask you if you were to first look at that fast expansion, what are the things that really going through that journey taught you? and you'd say to founders that are tuning in, these are the really important things to have, right? Before you go to a new market. There's two things I think are key is really value what's important about your business. I think too many companies or too many early stage companies actually focus on too many things.

12:15And the reality is what are customers looking for, right? They're looking for their favorite content. And in our case, it was generally restaurants, but not always coming. One thing to remind, Glovo was actually multi-category from day one. So we weren't just a restaurant delivery platform and after COVID moved into groceries and everything else. And we were doing everything from day one. So we've always done groceries. So it's giving the customers, making sure that we have the right content. So their favorite restaurant is on our app. And excellent UX and that's delivery time. And those are the two basic things.

12:51So if you focus on those and forget everything else that are really nice to have and everything, and you focus on excellent execution, and then that's the thing. And I think a lot of companies try and do too many, try and build something too perfect and too wonderful on everything. And consumers are generally interested in one specific thing or two things, right? And just got to get those right. And then the other stuff is nice to have. And now we've got a lot more, obviously, after 10 years. Now the app has all this stuff and it's absolutely wonderful and everything. but at the essence our consumer is still looking for the same thing right he's looking for his favorite restaurant or his favorite store or his favorite product and he wants it you know delivery with no mistakes and if we tell him it's going to be 28 minutes then it's 28 minutes and and then the other thing we did i think was really well and we copied this off the uber uber ride hailing then because they really hadn't launched uber eat so much was the building a playbook of international expansion and and building a launching team so we built a a very small young team, very smart, and they would go to a country, spend three months there, get all the infrastructure ready.

13:56Because remember, Glovo was a tech company, but it's in fact very retail-like. We touched this, we got the couriers, the mobility piece of it, and then you've also got obviously all these retailers, and most of them are small businesses who've probably never sold online. So we had to build that infrastructure very quickly, get everyone on board, and then launch, right? And so we'd have a launching team and they would go country and they'd spend three, two, three months in a country. They'd get that ready, get a GM in and then jump to the next country. So they'd replicate and building on the playbook and using the same playbook or making it even better every time.

14:30And I think we took that lesson out of Uber because that's the way they were launching hundreds and hundreds of countries at one time. And we replicated that. And I think that allowed us to really go very quickly. How did you think about competition when you were going to a market? Did you entirely stay out of a market where you said, now here's Walt, and they're quite well established, will stay out? Or did you say, now it actually means that the market is ripe, and it means that all of the suppliers, the restaurants you talk to, they are all ready, they know what it is, they would just basically plug into your platform as well.

15:06How did you think about competition? For us, it was an important factor because, as I mentioned at the beginning of the conversation, that our capital was limited, right? And so we had to really choose our battles. And a good example is we never entered the UK. We didn't go into Germany. We did actually have a business in France, only in Paris. We never really invested in it, but we were doing quite well in Paris. I think we got to about 10 % market share. But in the end, we didn't have the capital to really win that market with good competitors there. So we definitely, it was a factor of where we would launch an opportunity.

15:43To answer your question, if there's probably one good operator in the market, we felt we could challenge that and we'd probably launch. So, I mean, a good example is what you meant. You know, those markets were there and we launched after them. But if there's two or three investing a lot, then we would probably choose other battles. and in the end it's probably defined you know the markets we're in we're in today apart from southern europe where we were born and we were early and we did have a lot of competition but we managed to fit it off and done a good job of maintaining leadership here even though we've had a lot of companies come into the market invest a lot of money some leave afterwards i think it was definitely a factor for us and we had to do that and we would choose markets where we we could be leader or co-leader.

16:29And there's a lot of advantages in our business of being market leader or very close to market leader. Yeah. Tell me about the principle then to get out fast when you could see that a market isn't working. What were the both? How did you see that, okay, this market is not for us, we should pull back out? How did you make those calculations, so to say, what was it that really, did you have one key metric that showed you, okay, this is not for us. It's not working. How did you make that decision? Yeah, I think generally growth. If growth's not happening, you're seeing a lot of competition. Brazil's always a great example.

17:06We launched Latin America. We launched in Southern Europe. So we're in Spain, Italy, Portugal, and Paris. And then we launched Latin America and went to about 10 countries, including Brazil. And Brazil, we've noticed very quickly that, you know, the playbooks that were working everywhere else in Latin America and pretty much work we're not really working and and we came to conclusion very quickly a couple of things that made it very different to have the market and made us spend a lot of money very quickly but also leave very quickly when which is obviously the right thing to do and is first of all the company that's been operating there the incumbent iFood is an amazing operator they have great partners they have a great excellent service you know at that point probably had 95 market share great company so we didn't really bring anything super additional on top of that that would actually take their customers and start using global which generally happens when you go into a market with an incumbent who's generally their ux isn't that great they're probably sending the orders to the restaurant the restaurant's doing their own deliveries and then 20 of the orders get lost and then we come in and we just have amazing service and that so i think ifood amazing operator is still there still market leader and at the same time we launched and our two biggest or largest competitors in Latin America, which was Uber Eats and Rappi launched at the same time with huge deep pockets, spending a lot.

18:26So this is like this carnage of three new players. And we just said, look, get out of here. So we quickly left and we focused on the rest of Latin America, which turned out to be the right decision. Would you say that we all in venture, of course, have a very strong thesis and love for network effects. Would you say that network effects have proven out to be important for the last mile delivery market? Or actually it was... I think it's even more extreme. I mean, I can give you the cycle, right? So, you know, consumers will probably choose my app for the two reasons I said, no, I've got the best restaurants or your favorite restaurants and I offer generally a super excellent service.

19:08The excellent service I can control a little bit, but to get the partner. Now, why is the best partner is going to join my platform instead of my competitors. Generally, because I can bring them more orders. How do I get more orders? Offering my customers the best restaurants. So that's a vicious circle by itself. And then, of course, couriers, right? Couriers will make more money. The more liquidity there is, the more orders they're doing per hour. The more hours I can offer them, the more days of the week I can offer them. So it's a vicious circle. So I'll get more couriers who want to work with me instead of another platform because I can give them more orders.

19:39How do I get more orders? Give them the best content. How do I get the best content? Give them. So it's a vicious flywheel there. that is a clear example of network effects, I think, more than any other business I've been involved in. Whereas normally it's a two-sided marketplace, with a service and a thing, and you can work your service and get it right, but this is actually dependent. Tell me about another important piece of all of this, of course, which is, so you have network effects as one core driver, then oftentimes you will do as much as you can to get exclusivity deals. And I feel like in the beginning, I'm actually not sure I'm right about this, but I felt like in the beginning, most often, you'd only have one option.

20:23Like if I want it from that restaurant, it would have to be Walt. If I want it from that restaurant, it had to be Uber. Now, I'm starting to see that there are multiple in one. Am I right in that? Yeah, I think generally most brands will probably work with multiple platforms today. And I think it's part of the strategy of how they feel they want to have the maximum reach. By the way, I think one thing the retail businesses have learned over the last 10 years, and it was a very different conversation I was having with restaurants and stores and supermarkets 10 years ago, was they saw us as actually competition.

21:02I'm taking customers, instead of walking into the restaurant, they're going to order with me. And I said, no, it's not about that. Actually, you're competing with cooking at home. basically they'll order from you instead of cooking themselves. I mean, that's, and that's, everyone realizes that today. I mean, the way we all use the apps and the way we all go to the restaurant. So I think there's this sense of we're seen as a competitor. And then restaurants in the beginning didn't want to work with multiple partners. They wanted to, you know, test out with one. Now they realize it's about reach.

21:33and we're not just an amazing place to bring them incremental revenue and incremental orders. We're great for branding. So, you know, in some of our big cities now, you know, thousands, sometimes hundreds of thousands of people are looking in my app every day and they're seeing your restaurant. And in my competitors as well, that, you know, they're going into them, they can see restaurants. So there's a lot of branding around them and related to that. And I think what, you know, restaurants is the platforms are generally, it's just, it's a great additional channel to all the other channels that they'll, they'll be working on and they're building their own channels as well.

22:11But it's got delivery or not, it's certainly got, you can order, you know, reserve your table or you can, they can do their marketing through there and they're now running their own CRM. So everything's evolving and I think we're part of that. And I think, and sometimes we'll have preferred partnerships, which means you can work hand in hand, mutually and build, help them build a brand knowing that they're going to only work with you, which is fantastic sometimes. But I think there's a tendency more and more to be multi-channel by most brands. Can you talk a bit about that partnership dynamic with restaurants?

22:41What are the principles that can be deduced from it? Because what you, of course, have is a product towards us as users, but you definitely also have a product towards the restaurant. And the restaurant picks between, am I going to do multi-channel, am I going to do vault alone or am I going to do you alone? Some have microfinancing and those types of things. I don't know if you do as well. Could you talk about that? Yeah, there's, I mean, there's a lot of services, but, but again, it goes down to one or two key things, right? And what, what do they want? They want incremental revenue, incremental profitable revenue.

23:17So, you know, the commissions need to fit into their, you know, to their, to their business units and the unit economics, You know, some restaurants, the cost of product are higher than others. It needs to fit in. What's the average basket size? But I think they're looking for visibility. They're looking for brand and they're looking for incremental revenue. And I think everything outside of that is nice to have, but it's not the key. And then of course they want an excellent service because when, if the service isn't perfect, we all get blamed, right? So I'll give you an example of a restaurant misses a product.

23:51You know, three things to put in, they forget one. Glor gets the blame often from the customer. You know, I'm perceived as the one who made the mistake. Yeah, I've been there. Or the other way around. Now imagine, you know, we have problems with delivery and it's raining and we're saturated and we can't do the delivery times. Then the consumer will sometimes blame the restaurant for that, right? So we're in a complete partnership of doing great UX. And I think those who really value their brand, the ones who really look after the customer when they walk in the restaurant, are very concerned about maintaining that level.

24:25And that's why service and great UX is so, so, so, so important. And those two things. And so what I said at the beginning, it's not just about incremental revenue. That's super important, obviously. And it's the driver. It's UX and good volumes of orders. The rest is nice to have. Yeah, yeah. And as you said in the beginning, just to make it abundantly clear to anyone, the most important thing is that almost all your value to a customer comes from one or two features. And those two, you got a nail and the rest are just nice. Let me ask you another thing because we spoke about getting out of a market and realizing that a market doesn't work.

25:04You said that for you, the clear metric that's signaled we got to get out of here is growth. I think that with your journey in venture and tech, I think you can teach a lot of people how to think about sunk cost. So how do you pull your plug on something that you actually thought would be really good and have plowed a lot of money and time into? Yeah, being radical. I mean, being very mature about, you know, we all have ideas and things we love. And, and, but if the, if the data's not, not coming back and it's, it's really, at the end, you just have to pull the plug on it and focus on, on less things.