In Monday’s Money Matters, Jane King discusses millions in bonuses given to North Carolina Walmart employees, Doordash and Instacart under investigation for tipping policies and Walmart which is now billing itself as a “tech company.”
At least 5,000 tech workers could become millionaires after their companies go public later this year, according an analysis from a big data realtor in Silicon Valley.
Compass big data realtor Deniz Kahramaner estimates that at least 5,000 employees across eight companies — Airbnb, Instacart, Lyft, Palantir, Pinterest, Postmates, Slack and Uber — could become millionaires after their company goes public in 2019.
“All these IPOs are coming, and $150 billion to $250 billion are going to be unlocked in market capitalization over the next two years,” explains Kahramaner. “All those newly rich tech employees are going to have a significant impact on the real estate market.”
A new record
This year’s 5,000-plus tech IPO millionaires would surpass the estimated 1,000 millionaires who emerged in 2004 from Google’s (GOOG, GOOGL) IPO and the 1,000-plus millionaires in 2012 after Facebook (FB) went public. That this year’s crop will surpass those time periods probably isn’t surprising given the number of companies marching towards an IPO in 2019. But it does speak to sheer amount of wealth that’s about to flood the San Francisco Bay Area.
The markets where all that wealth could be felt most? Real estate and rentals. Kahramaner projects that up to 2,400 of those tech millionaires could potentially purchase properties priced at $1 million or under, while on the very high-end, just over 200 millionaires may purchase properties priced $10 million and over. These purchases will likely drive the local real estate market further. In fact, Kahramaner predicts that no San Francisco property will be priced under $1 million in five years, as a result.
Anthemos Georgiades, CEO of the apartment rental listing site Zumper, which tracks rental pricing trends across the U.S., says that while he foresees a measurable uptick in rental pricing this year in San Francisco of around 10%, these new tech millionaires won’t all jump on real estate once they’re able to sell their shares. (Employees are usually subject to six-month lockups post-IPO that keep them from selling their shares.)
The biggest impact
“The biggest impact from the imminent 2019 IPOs will be felt on the luxury end of the residential rental market, with the most likely zip codes affected being those within a short commute from the new public companies’ headquarters, like Uber and Airbnb,” Georgiades explains, pointing to San Francisco neighborhoods such as South of Market.
However, some of these millionaires, many of whom will be millennials, may opt to spend their money on rentals or experiences instead. A Zumper rental survey published last November indicated that 33% of renters now don’t believe the American Dream involves home ownership. The company surveyed 5,339 respondents in the U.S. last year across all 50 U.S. states.
“The mainstream argument is that the newly liquid employees will all buy homes overnight, but this is unlikely to be true,” Georgiades contends. “There will very likely be a measurable uptick in home prices this year in SF, but there are also some headwinds that will balance some of this out. … We will see many millennial employees invest their capital in experiences like traveling instead of real estate assets.”
Be that as it may, that won’t stop realtors, vying for some of that IPO money, from trying.
To calculate the number of IPO millionaires, Kahramaner devised a general capitalization table, one which breaks out startup equity distribution among early employees, based upon discussions with members of YCombinator, the 14-year-old startup incubator with alumni such as Airbnb, Dropbox, and Stripe. He assumed the valuation of each IPO company would be equal to the latest venture capital financing round. (Uber’s valuation, for instance, would be $72 billion.)
Kahramaner also assumed two stock dilution factors for each of the eight companies approaching an IPO: that each financing round the startup held diluted the company’s stock a certain percentage (10% for the initial seed round, 22% for Series A) and that executive hires, like Uber hiring CEO Dara Khosrowshahi in 2017, diluted employee stock value further. After the dilution, if a $72 billion company has an employee with 1% stock, for instance, that employee becomes worth $720 million upon IPO — at least on paper. Jake Jolis, a partner at VC firm Matrix Partners, said the methodology was sound, as did Selma Hepp, VP of Business Intelligence at Compass real estate.
NOTE: An earlier version of this article said, “Compass big data realtor Deniz Kahramaner estimates that at least 5,000 employees across eight companies — Airbnb, Instacart, Lyft, Palantir, Pinterest, Postmates, Slack and Uber — could become millionaires after their company goes public in 2018.” That timing has been changed to 2019.
More from JP:
For a moment, it seemed like the food delivery app DoorDash would get away largely unscathed over allegations that it was pocketing its workers’ tips. Now, with an official investigation and a tech worker boycott, there’s a growing problem for the company over its tipping policies.
Last month, DoorDash — along with other food and goods delivery services such as Instacart and Amazon Flex — were accused of using workers’ tip money to subsidize base pay. The policies weren’t new but found fresh scorn after one case went viral, in which an Instacart shopper was paid a $10 tip for an order but only netted 80 cents in base pay from the company. Instacart ended up changing its policies to make sure tips don’t subsidize base pay, and its CEO apologized to workers. DoorDash and Amazon, meanwhile, stood firm by their current pay policies.
While labor advocates were in an uproar over allegations of shady tipping policies, it hasn’t stopped DoorDash from raising money. A few weeks ago, the company received another $400 million in funding. The new round valued DoorDash at a cool $7.1 billion, roughly five times what it was valued at a year earlier.
Instacart was publicly pressured into changing its policies, but from the outside, it may seem like the private financial market has rewarded — not punished — DoorDash for its pay practices, which the company denies are unfair.
Here’s how the model works: DoorDash shows its workers — whom the company refers to as “Dashers” — a guaranteed amount they will receive for delivering an order before they accept it. That guaranteed amount takes into account things like the size of the order, driving distance, traffic, and overall time spent.
The controversy is around whether DoorDash is essentially subsidizing a substantial portion of the guaranteed amount it promises drivers per order through customers’ tips, rather than paying out of its own pocket. This becomes especially problematic according to critics when the driver gets a relatively large tip, and that tip allegedly subsidizes all or most of the guaranteed minimum amount DoorDash is paying the worker.
In 85 percent of cases, the company uses tip money in combination with its own payments to pay the guaranteed amount it quotes workers per order, according to numbers the company shared in a recent article in Fast Company. DoorDash guarantees it will contribute at least $1 per order, but beyond that, tip money can be used toward the total guaranteed amount. However, in 15 percent of cases, customers don’t tip, and DoorDash pays the full guaranteed minimum amount, according to numbers shared in the same article.
The company maintains that, overall, its workers are happier with its current pay system, and one DoorDash worker, Josh Roberts, wrote a Medium post in favor of the current pay policies. DoorDash says internal data shows that 80 percent of workers actually prefer it to an older pay model, phased out in 2017, that was, according to some drivers, more straightforward about tipping and a had flat delivery pay regardless of size, distance, or complexity of the order. The company also shared that net pay to its drivers is about the same as it was under the old model.
A spokesperson for DoorDash emailed the following statement:
Since we implemented our pay model in 2017, Dasher satisfaction has increased while average delivery times have fallen. Dashers tell us they prefer the model because they know the details of the delivery and how much they’ll earn in advance, and Dashers are fairly compensated for every delivery, even when a customer leaves little or no tip. In 2018, with this model, Dashers in the U.S. earned an average of over $17.50 per active hour including tips. DoorDash never reduces pay based on a customer tip—we only increase pay if the tip is small or the order is especially difficult.
While it’s true that DoorDash doesn’t necessarily reduce its workers’ pay based on tip, many, including two DoorDash workers in a class-action lawsuit filed last month, argue that the company is redirecting tip money meant entirely for delivery workers toward the company’s share of what it guarantees to pay workers for an order.
“DoorDash is taking the tip and basically offsetting their own cost with that tip,” said Jim McDonough, an attorney for the class-action suit with the law firm Heninger Garrison Davis.
According to some DoorDash workers, DoorDash’s app makes it difficult for drivers to review how much they were tipped per order, as other delivery apps like Instacart do, which leaves them more open to claims of misdirecting customers’ tips toward the company’s costs.
And now pressure from workers in the tech industry and government leaders could make it harder for the company not to heed calls for more transparency and change around the policies in question. About 200 current and future tech workers, including students at top tech schools for tech recruiting like Stanford and UC Berkeley, signed a pledge as of Wednesday not to work for DoorDash unless it agrees to pay employees a minimum of $15 an hour, after expenses, while on the job.
They also asked the company to provide a more detailed breakdown of pay and to keep gratuities separate from the minimum pay per order. Workers at other tech companies stood outside DoorDash’s San Francisco headquarters last Thursday, talking to full-time employees about how to get their company to reform.
Politicians are taking notice. The city of San Francisco’s Office of Labor Standards Enforcement (OLSE) confirmed it is pursuing an investigation against DoorDash after city supervisor Aaron Peskin filed a complaint. In an interview with Recode, Peskin called the company’s tipping policy “an outrageous business practice” and one that he vows to challenge. If DoorDash is found guilty of violating San Francisco’s labor rules, it could be ordered to pay restitution and fines, and forced to change its policies.
It’s the first time OLSE has launched an investigation into a tech-enabled gig economy company, according to the office’s director, Patrick Mulligan. Investigations can take anywhere from a few months to several years, Mulligan said. Currently, his office has given notice to the company of the investigation and requested documents around its wage compensation.
Separately, Peskin said he has also had conversations with the San Francisco city attorney about potentially suing DoorDash; he told the San Francisco Examiner he is considering drafting legislation on the issue.
Politicians in the state of Washington are also having conversations about protecting gig workers from reported wage theft, according to Sage Wilson, a spokesperson for the labor rights group Working Washington.
Potential recruiting problems
The controversy over DoorDash’s pay policies could limit its ability to recruit top tech talent — especially in a market where there’s a shortage of software engineers and a surplus of tech companies ready to hire them.
When software engineer Anna Geiduschek received an email from a former Stanford classmate, DoorDash CTO and co-founder Andy Fang, trying to poach her to work for his company, she gave an explicit reason for turning him down: her disapproval of the company’s labor practices.
“Classmates don’t let classmates get away with wage theft,” she tweeted with a screenshot of the exchange that was shared widely on the social media platform. Geiduschek, who currently works at Dropbox, was inspired to start a pledge for current and future tech workers, including computer science students at Stanford and UC Berkeley, not to work at DoorDash until they changed their tipping policies and improved pay practices.
For a company like DoorDash, which competes with other startups for engineers like Geiduschek and her peers, there could be a reputational risk for being known as a company that’s accused of dipping into workers’ tip jar — one that might influence tech workers to lend their talents elsewhere, like one of the several other food delivery startups in the area.
“Why is Doordash special when you could work for Postmates or a bunch of other companies?” said Geiduschek.
DoorDash did not respond to several requests for an interview. In a recent Bloomberg interview, DoorDash CEO Tony Xu defended the companies’ pay model, which has been in place since 2017, saying that workers are happier and more efficient than they were prior.
Xu said internal data shows that under the current pay model, Dashers stay on the platform longer, are more satisfied with their jobs, and make deliveries in a more timely manner. He blamed recent backlash on Instacart’s implementation of its own policy.
“We’ve had this around for two years now, and it’s unfortunate that the activities of others have mischaracterized what we’ve been doing for two years,” Xu said of the policy in the Bloomberg interview. “There was no coverage of this two years ago. But all of a sudden there’s coverage because of an experiment that another company ran.”
Xu also said in the interview that DoorDash does not “benefit economically” from its pay model.
In delivery worker forums and interviews with DoorDash drivers, some said they preferred DoorDash’s prior way of paying delivery workers.
“They used to pay out normally, and then they changed their model,” said former DoorDash worker Chris Palmer, who lives in Seattle. “They said it was to make it more fair, more transparent, but it’s just the opposite — there’s no transparency.” Palmer said he quit after he wasn’t making enough money on the platform to get by, working around 70 hours a week but, he said, averaging only $10 an hour in earnings, which is below the city’s minimum wage. He now works at IHOP, where he sees DoorDash delivery workers picking up food from the restaurant daily.
“They all look like they’re in misery,” he said. “Every single one of them.”
One San Francisco official is looking to slam the door on DoorDash’s alleged tip theft.
Wednesday evening Supervisor Aaron Peskin, a frequent critic of the local tech industry, verbally asked the San Francisco Office of Labor Standards Enforcement to investigate DoorDash for potential labor violations.
“They call themselves ‘DoorDash,’ I call them ‘dine and dash,’” Peskin told me Thursday. “They may well be in violation of local labor laws.”
DoorDash did not respond to a request for comment.
The San Francisco-based food delivery startup hauled in a $400 million investment earlier this month amid swirling controversy around its practice of using tips from customers for its workers pay, instead of as a bonus on top of pay, according to Bloomberg News.
DoorDash isn’t the only food delivery service to take a public scorching from its workers, and customers over its use of tips toward its workers base pay. San Francisco-based startup InstaCart also was lambasted for the practice, according to Bloomberg, but announced it would change its tipping policy to address workers’ demands for fairness in early February.
DoorDash, however, maintained its tip-garnishing policy for its “Dashers,” company-parlance for its delivery contractors.
And Peskin isn’t the only San Franciscan up in arms over the practice. On Thursday, an advocacy group called the Tech Workers Coalition organized a small group of canvassers to conduct outreach with DoorDash employees right at their doorstep as they arrived to work.
Joe Rivano Barros was one volunteer handing out flyers that read “WAGE THEFT” next to the DoorDash logo, asking for workers to organize on behalf of vulnerable contractors. “With $1.4B in funding, DoorDash can afford to pay its workers fairly,” the flyer read.
“If you told anyone that the more you tipped the (DoorDash) driver the less the company would have to pay, they would be horrified,” Barros said.
And in an interesting twist, Barros said he was in the same Stanford class as Andy Fang and Stanley Tang, the co-founders of DoorDash.
“These people who graduated with me are multi-millionaires now,” Barros said, and “are skimming wages from people making near-minimum wage in a city that is expensive.”
That’s something Peskin aims to stop.
Peskin said he was prepared to pursue other avenues to protect DoorDash’s gig-workers should the Office of Labor Standards Enforcement not find any existing laws protecting contractors from having their tips taken.
Everything’s on the table, he said: Asking state lawmakers to craft laws to clamp down on DoorDash in California, or even suing the company through the City Attorney’s Office.
“If I have to write a law to get this company to act like adults, I will do that,” Peskin said.
On Guard prints the news and raises hell each week. Email Fitz at email@example.com, follow him on Twitter and Instagram @FitztheReporter, and Facebook at facebook.com/FitztheReporter.
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In the wake of Instacart drivers winning some concessions and growing frustration among their gig-working peers at DoorDash, over 100 veteran and newer tech worker activists are pledging not to apply for technical roles at DoorDash unless the company pays its delivery people better. (We reached out to DoorDash for comment but had not heard back by press time.)
“Silicon Valley investors clearly don’t care that DoorDash cheats drivers,” reads the open letter posted on Medium, noting that the company recently raised $400 million in a new funding round. “However, investors do care that their startups can hire the best tech talent to help them execute on their mission.”
The demands match those of Instacart workers who are now organizing a national movement (with the goal of expanding to DoorDash, Amazon, and other companies). They are:
- A pay floor of $15 per hour, after subtracting expenses such as mileage and extra employment taxes that independent contractors pay (an additional 7.56% of income).
- Don’t count tips towards pay, but add them on top. (DoorDash aims to uses tips to cover nearly all of the fee quoted for a job. Here’s an explanation.)
- Provide more transparency on how pay breaks down. (For instance, DoorDash drivers don’t know the amount of the pre-selected tip until after the job.)
“I think it’s a big bomb they just dropped,” said Alex, a DoorDash driver in Arizona, about the petition. (He asked that we not publish his last name for fear of retribution.)
The petition was organized by Dropbox software engineer Anna Geiduschek, who last month tweeted her response to a recruitment overture from DoorDash co-founder and CTO Andy Fang (who is also her former classmate).