Toast takes on the restaurant industry in the United States Bessemer Venture Partners
The phone rang.
Steve Papa, the brilliant founder of Endeca, an innovative data startup acquired by Oracle for more than a billion dollars, had a characteristic piece of advice: three of his best people were leaving and I would be “a total moron not to invest in them”. .”
“Um…what are they building?” I asked.
“It does not matter.” Click on.
I wasn’t ready to invest but I offered Steve Fredette, Aman Karang and Jonathan Grimm the empty desk next to mine…plus unlimited snacks.
I couldn’t have known that the three would soon find one of the biggest releases in Bessemer history, but I knew right away that they were different. They focused on building the “crap” that customers needed, the business model be damned. Most entrepreneurs stick to a Silicon Valley script with slides rising to the right. If this trio had slides, I’ve never seen them. They argued openly in front of me unafraid to show the angst that most founders tried to hide from the VCs.
They became part of our office family, joining us for summer garden parties where we discussed their latest prototyping efforts. It was the most fun I’ve ever had getting to know a team.
I made no secret of my disappointment with their first real idea – a tool that diners could use to order from their phones while seated in the restaurant. I pushed back because I had seen others fail at exactly that. Integration with notoriously fragile restaurant software was a nightmare. And even if they did, what could restaurants afford to pay? It was hard work for little value.
Weeks later they told me they were changing direction. I was relieved. Choose something easier. Build another database maybe. Anything that takes them away from the dreaded restaurant point-of-sale (POS) ecosystem.
“We’re going to build our own outlet,” Steve said with a smile, as if it were obvious.
I wanted to scream. “The three of you are going to build a system to replace a forty-year-old software stack with thousands of required features? A system that has to work every minute of every day or risk putting a restaurant out of business???
“You like it?” they asked.
No. No, I didn’t. I gave them a 10% chance on a viable product and no chance to hit the market.
A few months later, Aman asked me to meet them at a cafe near our office. He asked me to order a cup of coffee and looked at me like a lab rat as I received my cup.
“See? We did it.” Aman said.
I thought it would take them years to build a functioning outlet. They did it in a few months. Leveraging Android, hidden in Apple’s shadow at the time, was a stroke of genius that opened up a variety of cheaper hardware options and gave Toast control of the operating system.
Thanks to their will, they had already convinced several local restaurants to sign.
Still, the business model was DOA. Convincing restaurants to switch to a startup’s system, even with significant benefits, took serious effort, and restaurants couldn’t pay much for the software. I refused to invest, again.
Months later, Aman and I had breakfast. He was excited. In response to restaurant frustration that point-of-sale systems were often out of sync with payment systems (a long-standing issue, not a Toast-specific issue), the team integrated payments into their product.
Had they bothered to ask a VC first, they would have been told it hadn’t been done – given the risk and complexity involved with payments and that they should just stick with the software blah blah blah.
Thankfully they ignored conventional wisdom and thankfully I had the presence of mind to do the math. They were earning real money on payouts and the product experience was vastly improved.
Toast had gone from a great product with a poor business model to an amazing product with an amazing business model. I didn’t lose sight of the fact that they were also catering to one of the largest vertical markets on the planet.
I immediately called my mentor in our firm, Felda Hardymon. “I made a huge mistake not investing in Toast,” I said. “It might be one of the best companies I’ve ever seen.”
“So hand them a term sheet today, and every time you see them until they agree to it,” Felda said.
It took a while, but the team finally let us invest. Our investment memo for the first institutional round of Toast we ran in 2015 said the only thing that should have ever mattered: “We believe this is the best product team in the restaurant POS space. »
The years that followed saw the company grow from hundreds to tens of thousands of customers. Obsession with product fueled Toast’s expansion into ordering, delivery, inventory, new table service hardware, and essentially every aspect of restaurant life. They even built their initial product concept – order and pay at the table over the phone – table stakes for many restaurants offering socially distanced dining.
The bold move to integrate payments paved the way for further expansion into areas once off-limits to software vendors, including pioneering initiatives in payroll and lending with plans for more on the horizon.
CEO Chris Comparato joined just before we invested and helped the team focus more on client success. Chris simply refused to let Toast customers fail. As Chris says, “We grow as our restaurants grow.” Chris’ obsession with customer success remains a driving force behind the business.
Over the years, Toast has assembled one of the strongest teams we have ever seen at Bessemer. This is a far cry from the days of the three founders loudly arguing in our offices while putting a major dent in our snack cupboard.
But much has not changed. Their obsession with building products that matter. The North Star of Customer Success. Their disregard for received ideas in the face of customer needs.
And how lucky I feel to have been invited to take the tour.