In ‘Overcrowded’ Food Delivery Market, Venture Capitalists Are Still Hungry for More
Just eight months after raising $40 million from venture capitalists, DoorDash is making another run. The San Francisco food delivery startup is in talks to raise financing at a valuation of at least $1 billion, said people with knowledge of the matter.
Sequoia Capital, which is already an investor in DoorDash, is expected to lead the upcoming round, said the people, who asked not to be named because the discussions are private. The talks with DoorDash, which sends its couriers to restaurants to pick up and deliver customers’ orders, are ongoing, and it’s unclear how much the startup plans to raise.
Food delivery has become a veritable venture capital obsession. Postmates said it raised $80 million in June for its food courier service, and the car-booking giant Uber offers lunch delivery in a dozen cities. Then there are startups, such as Munchery, SpoonRocket, and Sprig, which cook the food in their own kitchens and bring them to customers’ doors.
The market for food delivery via app is “overcrowded,” research firm CB Insights declared recently. A third of all U.S. food delivery companies in operation today raised their first round of funding in the past year, CB Insights said in June.
Many investors, undeterred by the crowds, are racing to separate the winners from also-rans. Some are drawn by the prospect that their picks will gain the attention of a buyer.
Food delivery companies have been attractive acquisition targets. Restaurant review site Yelp acquired Eat24 in February, and Square, the newly public payments provider, bought startups Caviar and Fastbite in the past year or so. Seamless.com owner GrubHub, which held an initial public offering last year, is one of the largest U.S. food delivery companies, valued at $2.2 billion.
In addition to DoorDash, Sequoia is a backer of Instacart, a grocery delivery service, and Good Eggs, which works with farmers to source fresh produce for delivery. Good Eggs has struggled. It closed its operations outside of San Francisco and cut staff in August. Sequoia has long been a proponent of food and grocery delivery, despite long odds. The venture capital firm was an investor in Webvan, the online grocer that became a symbol of the dot-com bubble.
Taco Bell and Dunkin’ Donuts have teamed up with DoorDash to serve customers who can’t bear to move far from their couches. DoorDash will also accept orders from restaurants it doesn’t have formal agreements with. The practice is the subject of a lawsuit filed by In-N-Out Burger in a U.S. court in California this month, alleging that the startup uses the burger chain’s trademark without permission.
In March, DoorDash said it raised $40 million from Kleiner Perkins Caufield & Byers; Sequoia; Khosla Ventures, and Charles River Ventures. That investment valued the company at $600 million, according to CB Insights. If DoorDash’s current fundraising goes as planned, the company will join Instacart and Blue Apron, another grocery-delivery service, as those with valuations of at least $1 billion.