Back in 2011, when Scott Stanford and Shervin Pishevar led separate investments in Uber’s $37 million Series B round back in 2011, fellow investors and other friends scoffed.
“Why are you guys investing in a limo company?” the naysayers asked.
While Uber is now operating in 128 cities and valued at $18 billion, Stanford and Pishevar went on to start a venture capital firm called Sherpa Ventures. One of their first big bets was a $28 million Series B round that Sherpa led in a San Francisco-based food delivery startup called Munchery.
And again, the skeptics raised concerns.
“The comments we got on Munchery were eerily reminiscent of what we heard when we invested in Uber,” Stanford said in a interview today.
Even though Munchery, which makes meals and delivers them within one hour, may not experience the same explosive growth as Uber, it’s one of several new food delivery companies that investors see huge potential growth for — and they’re showing it with big investments.
This growing group of venture-backed startups — Munchery, $40 million raised; Caviar, $15 million raised; Spoonrocket, $13.5 million raised — are similar to Uber and Lyft in that they’re using technology to improve a service that has existed for years.
“When you introduce something like Uber or Munchery, you change the paradigm with not only how that service or product is consumed, but how it is provided,” Stanford explained. “If you can change the underlying economics of that delivery platform or that value chain, it puts you in a really interesting position from a financial perspective.”
Similar to how Uber and Lyft let consumers hail a ride by pushing a few buttons on their smartphones, Munchery and others are doing the same for food delivery. It’s part of a growing trend of companies that, thanks to smartphone technology, are providing efficient and innovative on-demand services.
“Consumer expectation has changed as a result of greater connectivity,” Stanford said. “When you think about what the Internet did to media and changed consumer expectation and requirements, the same thing is happening to commerce.”
Munchery isn’t the only food delivery startup that’s attracting consumer and investor attention. In the past month, we’ve written about three new food delivery companies — Peachd, Lish, Munchery — that launched in Seattle. There are countless others that have debuted recently all vying to bring food to your door.
There seem to be two types of delivery companies sprouting up: Those that deliver food made by other restaurants, and those that delivery food made by their own chefs.
Startups like Bitesquad, Caviar, and Peachd fall into the former group. These companies allow eateries to distribute their food to consumers who can now order meals to their homes or offices with a few clicks.
“We are very valuable to the restaurants we work with,” Caviar CEO Jason Wang said. “There is no extra overhead or fixed costs for them, and they can make additional revenue at a very low cost, with a very low risk. As a restaurant owner, it’s pretty much a no brainer to sign up.”
Others like Munchery, Lish, and Spoonrocket use professional chefs who create dishes that are delivered within an hour. These services bring quality meals to your door while also giving cooks a chance to reach consumers outside of physical restaurants they work at.
“Customers care about having a variety of the highest quality food, timely delivery, and a delightful ordering experience at an affordable price,” said Lish CEO Aakhil Fardeen. “Chefs also get really excited about the opportunity that Lish offers them. It gives them an avenue to make extra money — about two or three times what a restaurant job pays them per hour. They love the ability to get direct customer exposure, develop a following, and ultimately to build their brand in the community.”
On top of existing incumbents like Eat24 and GrubHub — along with your typical pizza and Chinese delivery services — it’s becoming a crowded arena.
“It’s a rush right now,” Wang said. “It almost feels like a bit of a land grab. I think eventually, there wil only be a few players that will win the market.”
But, as veteran entrepreneur Matt Mireles outlines in this post, there appears to be room for a variety of new food-related players:
Food is a market like the Internet is a market — it’s too big to be to considered just one “market.” There’s high-end, low-end, middle of the road, Mexican, Sushi, Thai, Burgers, etc. The list goes on and on forever. Witness Jack in the Box ($2.4 billion), Panera Bread ($4 billion), Starbucks ($58 billion), Burger King ($9.4 billion), and more. The list of billion-dollar restaurant chains goes on and on, addressing all manner of market segments. Practically speaking, people don’t want to eat the same thing every day, thus supplier diversity is natural, organic and inevitable. And so it will be with the new fast-food chains who disrupt the old.
The product that these services are providing and delivering — food — is also unique. One number to ponder: Americans spend $151 on grub each week.
“Food is easy to think about,” Munchery co-founder Tri Tran said. “We eat multiple times a day.”
When you consider about how frequently people purchase food, and how technology can improve the way people get their grub, you start realizing why entrepreneurs and investors are giddy about this opportunity.
“The takeout and delivery market today is $70-to-$100 billion, and a small fraction of these orders happen online today,” notes Fardeen. “There will be multiple winners in this space.”
Of course, there will be losers, too. Bitesquad CEO Kian Salehi said that the companies who master the back-end dispatch part of the delivery system will come out on top.
“It’s a low-margin business,” said Salehi, who employs more than 200 in two markets. “Those that succeed will be the ones with the most advanced and efficient technology.”
Stanford, whose venture firm has investments in three other food-related startups, believes that with the amount of people eating every day, and the new demand for having items arrive at your door within minutes, there is room for many players in the food delivery space.
“There are several startups going after food, but there are over 600,000 restaurants in the U.S.,” he said. “If the market has already proven that it can support that many restaurants, I would argue that there is room for one, two, five, or ten more coming at it from a completely different angle.”
When asked if there’s a food delivery bubble, or if the hype simply exceeds reality, Stanford pointed back to his days at an Internet company during the dot-com bubble.
“Back then, we defined a bubble as when any reasonable estimate of future valuation made absolutely no sense,” he said. “That couldn’t be further from the truth from what we’re seeing with Munchery. Their daily unit economics and rapid growth give us tremendous confidence that there is a real business here.”
Related: Food on demand: We tested 7 meal delivery services, and here’s who came out on top
