Zume, the former buzzy pizza robot startup that raised $423M from Softbank and other prominent investors, quietly shut down in May 2023. Zume was last valued at $2.25B in 2018 and had ambitious plans to revolutionize the fresh food supply chain and reimagine the pizza business. But two years later, the company laid off 300 people, closed down its pizza business and pivoted to sustainable food packaging, aiming to replace single-use plastics with compostable, plant fiber-based products. Apparently, that plan didn’t work. The company ultimately became insolvent and had to wind down after spending all the investor money.
I first heard about Zume Pizza in 2016. The premise of Zume Pizza is that its pizza will be baked on the way to the delivery location so it will take less time to deliver the pizza and the pizza will taste fresher. This sounds like a cool idea but is it necessary? Do customers really care about getting the pizza a few minutes early and slightly fresher? It’s unclear if most customers could tell the difference. It’s also unclear if customers are willing to pay a premium for this. Customers just want tasty and affordable pizzas delivered within a reasonable amount of time and this problem has been solved by Pizza Hut and Domino’s already. Baking pizza in a moving truck could be a fire hazard and delivering pizzas by truck seemed wasteful. My understanding is that most pizzas are delivered by car or bike. Driving a big truck around with hot ovens inside to deliver pizzas seemed like a giant waste. Nonetheless, Zume Pizza went ahead to build bake-on-the-way pizza trucks and raised $6M Series A funding in 2016 and $48M Series B funding in 2017. Maybe there is something I don’t understand. I could understand investors pouring a lot of money into curing cancer, building AGI or colonizing Mars. But I don’t understand why making delivered pizzas better is a high priority.
Zume Pizza was open for pizza delivery in Silicon Valley, California in 2016. It appeared that their pizza robots are not part of the pizza delivery trucks. From the videos the company shared, it looked like the pizzas were assembled and (half-?)baked in their mountain view location. The pizzas were then loaded onto the pizza trucks and will be fully baked to order on the way to delivery. Customer reviews are mixed. It earned 3.9 stars on average while there are many 4+ star pizzerias nearby. In terms of taste, Zume Pizza didn’t seem to stand out and it didn’t allow customization. Many customer reviews complained that their crust was too chewy. Zume effectively ran a high-tech app-enabled low-margin restaurant business. But customers don’t care about how high tech the pizza is. Customers mostly care about taste, price and delivery time. A pizza with an awful crust is unforgivable.
Pizza robotics is nothing new. Have you ever had frozen pizzas? They are made by impressive automated robotic systems. Zume Pizza’s pizza robots are kindergarten level compared to a frozen pizza production line. It appeared that humans were still doing most of the pizza making at Zume. Zume’s pizza *robots* basically just put the sauce on the dough, spread the sauce and after a human put the cheese and other toppings on it, moved the human finished pizza into the oven with a robotic arm. Frankly, it looked like a college robotic research project. I would expect after $50M of funding, they would have had a fully automated pizza robotic system inside the truck that required very little human involvement for pizza making.
Zume Pizza said it could make up to 300+ pizzas per hour through their semi-automatic robotic line in their Silicon Valley location. Well, a more important question is how many pizzas could they actually sell? Let’s assume Zume could make 5000 pizzas a day at full capacity but is there enough demand for their pizzas in the Silicon Valley suburbs? According to a report in 2015, Domino’s sold 1.5M pizza a day across 11,000 locations. That is about 137 pizzas per store per day. Zume had the capacity to churn out an immense volume of pizza, equivalent to the combined output of 40 pizzerias. Unless it was priced super competitively, it’s unlikely Zume could generate enough demand to absorb the capacity. Apparently, Zume pizzas were priced at the same level as artisanal pizzas. Who are they going to sell all the pizzas to? There’s a reason why food making robots are not widely used in a restaurant setting. What makes a restaurant successful has more to do with the demand side than the supply side. If a pizzeria makes 5000 pizzas but only sells 500 of them a day, that business is not going to succeed.
When I heard about the $375M Series C Funding Zume secured from Softbank, valuing the company at $2.25B in 2018, my jaw dropped. It made no business sense. I was told I was too fixated on Zume’s pizza business. Zume’s goal was to revolutionize the fresh food supply chain. Reimagining the pizza business was just the first step. Though, their reimagined pizza business didn’t seem to perform well. Domino’s Pizza generated $17.5B of global retail sales in 2022 across 20,000 locations with a $13B market capitalization. Zume’s valuation was ~15% of Domino’s current market cap but its revenue in 2018 was probably less than 1% of Domino’s. As a billion-dollar pizza business, Zume surely underwhelmed. As a technology business, their pizza robotics and bake-on-the-way trucks looked amateur. It was just very poor execution. Their vision for revolutionizing the fresh food supply chain sounded like BS. It boggles my mind why investors would sink more money into Zume after the underwhelming launch of Zume Pizza.
It turned out that Alex Garden, Founder/CEO of Zume, was great at cosplaying Steve Jobs. He had that reality distortion field. Softbank’s Masayoshi Son had a short meeting with him and Masa felt he had found the next Jack Ma. He is going to change the world. The brilliant and ambitious Alex Garden is going to revolutionize food just like Jack Ma revolutionized e-commerce in China through Alibaba. Softbank invested $54M into Alibaba in the early days and at a time owned 25% of Alibaba. That stake was worth $100B+ back in 2018. The amazing success enabled Softbank to raise the $100B Softbank Vision Fund to invest in transformational companies and in Masa’s mind, Zume is going to be one of the transformational companies that change the fate of humanity.
Garden is a serial entrepreneur. He sold his video game company to Relic Entertainment for $10M in 2004 and later worked for Microsoft and Zynga before he started Zume with restaurateur Julia Collins in 2015. While people might be baffled why Garden was able to raise so much money with so little to show, it could be because we have never met Alex in person and not hypnotized by his reality distortion field. A Bloomberg report gave us some hints how his amazing story telling skills:
Garden’s specialty was pitching to investors. Former employees remember joking about his “jazz hands,” referring to his tendency to spin things as positively as possible. Strategic and retail consultant Brittain Ladd says Garden contacted him in 2017, after Amazon.com Inc. purchased Whole Foods, to ask for help proving to SoftBank that Zume was thinking big enough for Son to invest. “He said, ‘I want to be the Tesla of fresh food, and the Amazon of fresh food,’ ” recalls Ladd, adding that he liked the big thinking but it needed to be backed up by action.
After Zume received the $375M of funding, things started to go downhill. The company didn’t seem to make a lot of progress on the pizza front. Customers said Zume pizzas were better than low quality pizzas but not amazing. They also gave up on the idea of baking pizza on the way to the delivery location. It was too impractical. They parked their pizza trucks in various locations and pizzas will be delivered by regular cars or bikes to the delivery location. Isn’t this basically a delivery-only food truck concept? The company actually attempted raising a new round in 2019, aiming to double the already outrageous $2.25B valuation. But investors were skeptical due to lack of progress, subpar pizzas and the low-margin food truck concept. Their vision for revolutionizing the fresh food supply chain never materialized. Zume eventually shut down their pizza business, laid off more than half of its employees and pivoted to sustainable packaging in 2020.
Zume practically became a vegetable unicorn when the company exited the pizza business. The company basically had no real business at that point and was on life-support relying on its dwindling bank balances. The ugly truth was that Zume never had any product market fit. But it raised too much money. After burning through all the money, Zume shut down quietly. It was not the worst performing investment in Softbank’s portfolio. Softbank only lost $375M on Zume vs. $14B on WeWork. But my personal opinion is that Zume is Softbank’s most absurd investment. Softbank lost a lot of money on WeWork but at least WeWork created a great co-working experience. I loved working in a WeWork office and it helped push other co-working spaces to up their game. I now rented a small office at Spaces that was owned by IWG, the parent company of Regus. Regus was very basic and boring but it’s a decent business. Without WeWork, all of us would have been stuck with ugly looking co-working spaces with fluorescent lights. But IWG launched Spaces to compete with WeWork so now I get to work in a co-working space that feels like an Apple store with high ceilings, polished concrete floors and modern furniture. In essence, WeWork did create something people want. But what had Zume really accomplished? Their pizzas were subpar. Their pizza robotic system is amateur. Their sustainable packaging never gained sufficient traction. It’s mind bogglingly bad after $423M of investments.
Let’s take a step back and think about how much could have been accomplished if Softbank’s $375M was spent more wisely. Here are some ideas that would have worked better.
Investing in startup accelerators like 500 Global, Techstars, StartX, etc to fund 1000 pre-seed startups.
Giving full scholarships to 2,000 exceptional students to attend college
Investing in green energy infrastructure to power 100,000 homes
The ideas above are just some mid-level ideas. Masayoshi Son probably had better opportunities like giving money to Elon Musk, OpenAI, etc. It is unfortunate that the $375M was basically wasted. Though, I do want to recognize that Masayoshi Son made a lot of money by taking enormous risks. He earned the right to make crazy bets after the legendary Alibaba bet. But people tended to become overconfident and less prudent after a big win and his staff probably wouldn’t disagree with him after his extraordinary success. In retrospect, Zume looks like a degenerative bet but it’s possible that his strategy will result in either legendary Alibaba or laughingstocks like Zume. Masayoshi Son already made a mark in history by investing in Alibaba. Laughingstock companies like Zume are just rounding errors for his portfolio. Regardless, he was definitely not happy with the outcome as the mistake should have been avoidable.
Masayoshi Son put a lot of emphasis on founder qualities and Alex Garden successfully cosplayed legendary founder types who have a grand vision and reality distortion field. I still remembered listening to Jack Ma talk back in 2005. I worked at Yahoo! at the time when Yahoo! made a $1B investment into Alibaba! I was very impressed by Jack Ma and thought it would be nice to work for him at some point. I understand what Masa is looking for. As a startup investor, I have also met founders who have similar energy and charisma. But most of them didn’t turn out to be Steve Jobs or Jack Ma. A lot of these charismatic people can talk or fundraise but that’s only half of the equation. They also need to know how to grind and produce results. On top of that, luck is also required to achieve outsized success. But some of the charismatic founders have very poor execution and management skills that giving them money is basically a waste. I don’t blame any pre-seed or seed investors for making bad bets because most of the time we don’t really know until a few years later. But later stage investments are by-and-large spreadsheet based. Investors look at all kinds of metrics to decide if the company can grow into huge successful businesses like AirbBnB or Uber. It boggles my mind how Zume was able to raise $375M. It didn’t appear Zume misrepresented its business. Somehow Alex Garden was able to convince investors that business metrics didn’t matter and his grand vision would just make it all work. Had Softbank done proper due diligence on Zume’s technology, customer feedback and business metrics, the $375M mistake could have been avoided. Softbank got wiped out and laughed at but they really only have themselves to blame. Zume is such a lousy VC bet that it will be studied in the business books for years to come.
Author Note: Dead Unicorn Series is a collection of stories I am working on by deep diving into the stories of once high flying tech unicorns that flamed out. In tech we celebrated successes. But success is a lousy teacher. In my opinion, lessons learned from failures are more valuable and these cautionary tales are more interesting. Hence, the Dead Unicorn Series.
All the stories I share here have no villains. They are just failed (expensive) experiments that advance our knowledge.