Apoorva Mehta
Apoorva Mehta

You know what they say about history: “Those who don’t know history are doomed to repeat it.”

Well, let’s hope that Sequoia Capital — one of the biggest backers of dot-com poster child Webvan — have learned from past mistakes. Today, the Silicon Valley venture capital firm emerged as the lead investor in Instacart.

The San Francisco online grocery delivery company, led by former Amazon.com software design engineer Apoorva Mehta, is looking to succeed where Webvan failed.

The company just scored $8.5 million, with Sequoia’s Michael Moritz, who sat on the board of Webvan, leading the deal. Others involved include Khosla Ventures, Canaan Partners, SVAngel and Paul Buchheit, the creator of Gmail. In one of the more colorful quotes from a VC that we’ve seen, Moritz said he thinks Instacart will succeed where Webvan failed.

“Having been involved in Webvan, Sequoia is painfully familiar with what it takes to be successful in the grocery delivery business,” said Moritz. “Until we encountered Instacart, we had still been receiving outpatient therapy for our Webvan fiasco but the doctors say – and we agree – that because of advances in technology and a most imaginative approach, there is little danger of a relapse. Apoorva and his team are the first to have cracked the code on how to make same-day delivery great for customers and all other stakeholders.”

Instacart’s secret sauce is a lack of infrastructure — the heavy-duty stores, trucks and people needed to build out a delivery business. Instead, the company is following in the path of crowdsourcing companies like Lyft and SideCar, partnering with personal shoppers who will run to the store to pick up your orders and drop them at your house.

Wal-Mart also is reportedly testing that concept.

In an interview with GeekWire last month, Mehta explained how Instacart was different from the Webvans and Amazon Fresh, which is in the midst of its own expansion. The company partners with local shoppers, and grocery store retailers like Safeway, Costco and Whole Foods.

“When you think about the old conventional model, which are like the Amazon Freshes of the world, they require the infrastructure. They require the fact that you have to have a warehouse and a fleet of trucks in all the zones that they go to. For us, it literally doesn’t require any infrastructure. We can launch new cities within days. And that’s what we did for Berkeley and Oakland.”

Instacart plans to use the new funds to expand into 10 cities by the end of 2014. (No word yet on whether they will be coming to Seattle, but I’d bet on it, since it would be fascinating to see Instacart competing head-to-head against Amazon Fresh on its home turf). Update: We heard back from Mehta who says Seattle is in the list of expansion cities.

As a result of the deal, Moritz is joining the board of Instacart.

We’ll see if this deal requires therapy like Webvan — in which investors lost hundreds of millions of dollars in perhaps the biggest bomb of the dot-com bust.

Previously on GeekWire: Q&A: Instacart CEO on competing with Amazon Fresh and the future of grocery shopping

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Comments

  • Scarlett_Ang

    I remember when WebVan took over HomeGrocer. HomeGrocer did many things right, the biggest was having the same driver delivering to your house. When Webvan changed that, not knowing who was going to show up at my house was a HUGE turn off, and I ended up dropping my service because of that.
    These home delivery services, especially if the driver enters the home, needs to really think about the customer. They don’t like strangers in their house. They want the same person week after week. I would have even paid more to make sure I had that security. I think these companies think too much about the bottom line and not the quality of service people are looking for.

    • johnhcook

      HomeGrocer and its peach-labeled delivery trucks were beloved around Seattle, and I know a lot of folks still have the magnets on their refrigerators.

      I’ve interviewed HomeGrocer founder Terry Drayton in the past about the failures of the company, which eventually was acquired by Webvan.

      He maintains that it was a good idea. The problem was that HomeGrocer expanded too fast — in other words it got too caught up in the “Get Big Fast” mentality of the dot-com boom era.

      BTW, Terry Drayton has a new stealth company called Storrage that we just wrote about. Check it out here:

      http://www.geekwire.com/2013/homegrocercom-founder-terry-drayton-home-delivery-startup-storrage/

  • Guest

    Instacart will shop for and deliver groceries to your door within 2 hours for $3.99. If they’re sending a man to drive to a store and buy groceries (including a wait in line while on the clock), then to drive to the customer’s home, there is no way that they can turn a profit with prices like this. In Northern California, where the minimum wage is $8/hour, the delivery charge will barely cover a courier’s time. Remember that the courier would also expense mileage: at 56.5 cents per mile, a 4-mile round-trip to Whole Foods will eat up half the delivery costs just with car usage.

    A service like Instacart might have value at a boutique hotel or condominium building where there is a concentration of less price-sensitive customers. Until critical mass is achieved, though, this service will bleed cash.

    • Guest

      Correction: in San Francisco, the minimum wage is $10.55 per hour. The service is cool, but the economics are impossible.

    • Kevin Gibbon

      They make the money elsewhere.

      Imagine you controled the spend of thousands of shoppers. What kind of deals would you be able to work out with the grocery stores?

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