It is an oft-stated piece of conventional wisdom in venture capital that most investment firms will get 1 deal right and make a big return on it for every 4 or more they get wrong. In other words, you are lucky to see 20% of your investments make enough money to pay for the 80% of mistakes you made picking the others, plus a profit. If that is true it means, of course, that the risk venture capitalists take by investing in seemingly wacky ideas needs to be covered by the sure bets (the things you can’t possibly lose money on) plus the little bluebirds that come from the wacky ideas you fund because well, who the hell knows, it just might work.
As I consider the announcement made this week about Sequoia Capital’s investment of approximately $10 million in a new start-up called The Melt, I note that it is tough to figure out which side of the risk profile ledger they are putting this one on.
The Melt is a new restaurant idea based on the idea that people just love themselves a good grilled cheese sandwich. The concept is as simple as that—a nationwide chain of shops (goal: 500 within 5 years) that sell grilled cheese sandwiches (5 types!) plus soup to dunk them in. Simple, perhaps, except that this grilled cheese sandwich is the geek love child of all that is completely insane about the Silicon Valley lifestyle. Check out this excerpt from the actual announcement at the Pure Digital Conference this week, where journalist Kara Swisher interviews Founder and Chief Meltrepreneur Kaplan:
10:05 am: Kaplan: “We created a set of applications and mobile technology to allow you to order your Melt anywhere.”
10:06 am: Kaplan explains that you can order your Melt anywhere, any time, and then, when you are ready to eat, you walk into a Melt store, and get your order within a minute.
10:07 am: Kaplan says the whole audience is going to get grilled cheese and be happy. Now he moves on to the how.
10:08 am: Kaplan says the real innovation is a machine that makes the Melt. The real idea is to make the next generation of fast, casual restaurants.
In a Bloomberg article about The Melt, Kaplan explains that he has had a specialty machine developed to prepare “perfectly toasted sandwiches in less than a minute” and that the concept will combine local, social and mobile commerce. The company will tweet its specials and have a special smart-phone ordering app so you can order your favorite e-sammy and GPS your way to the closest spot to pick it up. The restaurant can track your location as you slow down your Prius, so the sandwich is warm and you have less than a 1-minute wait time to pick it up.
All I can say is, “Thank God,” because if I had to wait the usual 5 minutes for a grilled cheese sandwich I might miss something on Twitter. I’m not sure if anyone has realized that if the machine takes a minute to make the sandwich, you would only wait a minute to pick it up if you ordered it at the counter too, but that takes all the fun out of it I guess. Why would you order at the counter if you could text your order while driving to The Melt, distracted by your GPS’s directions to get you there. In my mind’s eye I see that all techno-grilled cheese sandwiches will actually be eaten on Segways by people wearing ear-buds and Skypeing with their investment advisors, having paid for their techno-lunch via Square or in unexercised stock options.
This story is only as weird as it sounds because of context. Kaplan’s last gig was founder/CEO of Pure Digital Technologies, which made those mini-video cameras called the Flip Phone. Many ascribe that invention the credit for why You Tube really got rolling—it became possible for anyone to own a video camcorder, to take it anywhere and very simply upload video to the site. Kaplan is a true Silicon Valley techno-success story, as he sold his videocamera company to Cisco for $590 million (only to see Cisco shut it down two years later).
So now, based on his success in the tech realm, Kaplan is leaping out of the fire and into the frying pan. Who knows, maybe his idea is that The Melt will be another gateway-style technology enabler? By making it possible for anyone to get grilled cheese anytime anywhere in less than a minute while on the run, diet and wellness sites everywhere might take off, enabling their newly plumped but happy members to receive tweeted work-out plans that they then post to Facebook. Maybe this investment is really Sequoia Capital’s sinister method of driving traffic to HealthCentral, a site that “empowers people to improve and take control of their health and well-being” and which features diet and exercise content.
However, the question I keep asking myself is, “was getting a grilled cheese ever really that complicated?” Is this idea meeting a screaming market need? You can walk into virtually any restaurant and get a grilled cheese even if it’s not on the menu. Grilled cheese is the number one menu item in any restaurant that a kid would ever get taken into and those don’t generally cost $7, as the 5 choices at The Melt will. Is The Melt a sure bet in a time when fast food is under fire? Would this sandwich even fit on the new food plate that replaced the old food pyramid? Carls Jr. has built an entire advertising campaign around the fact that they are selling a $6 burger for $3.99 so you don’t have to give away all your stock options to eat a fast, high calorie, high fat meal. Was the grilled cheese, which many think of as a nostalgia meal, really crying out for Internet-ification? Is the pure irony of adding high technology to grilled cheese the very thing that will make it less than cool? In other words, is this really a $100 million (or $1 billion) idea or is Sequoia’s backing of The Melt just a $10 million favor for a guy that made them a hell of a lot more than that already?
In response to the question, “what the hell? Kaplan says, “People have a reaction to grilled cheese that is different than other food groups and is more similar to chocolate than hamburger. They talk about loving grilled cheese; they don’t talk about liking it.” He added that grilled cheese makes people happy, implying it is, therefore, the obvious business opportunity. Good point—sex, drugs and rock and roll have been making people happy AND lots of money for years. I think that a serious challenge to the slam-dunkitude of Kaplan’s plan, however, is that he appears to be targeting the 25-45 hipster technorati crowd when I think his core market is 3-5 year old toddlers and 18-22 year old stoners. These are the people for whom not getting a grilled cheese STAT could lead to a major life crisis. Rather than strategically position The Melt stores around San Francisco and Silicon Valley, they should be adjacent to college campuses and pre-schools, in my humble opinion.
Well, I’d write more but I gotta go. My daughter just texted that she is on her way home and would I please make her a grilled cheese sandwich. Hmmm….maybe this Kaplan guy is onto something. Anyone got $10 million I could borrow?