Can someone please educate me on why investors are interested?

Really rough back of the envelope finance makes this seem like a dog.

14 employees. I read something on HN a few days ago that said to expect to spend 100k/yr/employee on costs. I assume this is something like [salary + taxes + benefits + whatever you have to do for your employee other than the actual dollars that hit their bank]

So that's 1.4M/yr in just employee costs. Considering they raised 1.6M previously, it's probably safe to say the needed the money.

So now if they hire NO MORE, they'll have 3 years of runway. wheee.

The article says they DOUBLED their user base while expanding to FIFTY cities. Say they had 10 before. Uh, that's not a good engagement sign in most cities. So the users in the remaining 40 cities are extremely sparse/uniterested. What is GWU's strategy to reach users and make one city really popular? I'd rather see them get HUGE in one city, then take it to the next.

Trying to get into happy hours and "last minute dinners" seems like grasping for straws because the actual dinner business isn't sufficient. Nobody has made a ton of money on last minute local deals yet, and this reeks of desperation and divided focus when they haven't been able to nail down their core business yet.

I just glanced on NYC GWU. In NYC they're averaging less than 1 public meal per day. NOT A GOOD SIGN. Other comments here indicate that Washington DC is also a flop.

Let's play the "how much is GWU worth" game.
They're not doing very much in NYC, which I would consider to be the top (or at worst 2nd place) candidate for GWU proving success.

Lets be generous and give them 1 meal a day in all of their 50 cities (more than NYC).

To be generous, say they get 10 diners per meal and munch on a 25% referral fee:

$30 meal x 10 diners x 25% == $75

(I just went through a few listings and typically I see far fewer than 10 diners (I saw zero listings with >9 diners))

GENEROUS SCENARIO:
50 cities * 1 meal/day/city * $75/meal * 365 days/year == $1.368M/yr in gross revenue.

realistically, its probably more like:
20 cities * 0.7 meal/day/city * $60/meal * 365days/yr == 306.6k/yr gross revenue.

What do we think grubwithus's operating costs are? well. employee costs alone are 1.4M/yr.

So gross revenues less employee costs and no other expenses, no additional employee growth, gets them, in a VERY generous sales scenario, almost breaking even.

If they couldn't figure out in 1.6M how to scale one city, what gets an investor excited about this?

I don't see how it's their current business model.

Granted, I'm leaving out their soon to be launched happy hours and last minute dinners. The last minute GWU smells like local group deals to me. Groupon can't do it with their scale and only needing ONE buyer, much less an entire table to warrant the grub with us dinner (they have a tipping point before the dinner is "on").

Also, they used to have a model that penalized late joiners (or rewarded early joiners) with price differences, and back of the envelope calculations could show that being worth up O($50) / dinner, but that still doesn't make this a typical venture scale business.

Assuming the people who invested 5mm have less than 100% of the company... say its 25%, that's a 20M valuation on it, which in this internet bubble, doesn't sound terribly high.

I struggle to see the scenario where they turn this into a business where strict discounted cashflows will make this worth anywhere near 20M (i guess at zero rates, they just have to make the money EVENTUALLY).

So for investors to win on this deal, GWU basically need to get acquired. Investors buy in at a 20M valuation not to flip it at 25M.

The only possible acquirers are yelp or groupon type companies that are trying to drive online users to real world commerce. Restaurant syndicates have no interest. at anything less than a 40M sale this is a HUGE failure for investors, and at that price, its probably still a failure for employees, and possibly even the founders.

What are the odds that given the business model and assumptions of profits, this will ever be worth anything in that range to an acquirer?

I must be missing the point here, because i actually think investors are really smart, despite the fact the media coverage about startup frothiness focuses on some seemingly dumb decisions. These guys don't WANT to lose money...

I must have the entire picture wrong for GWU. Please help me see where I'm wrong.