Money-Losing Meal Delivery Startup Munchery Seeks New CEOby
Existing backers have struggled to attract big new investors
Other food-delivery businesses are still losing money
Meal-delivery startup Munchery Inc. is looking to replace Chief Executive Officer Tri Tran, and is struggling to raise new funding to help its search for a profitable business model.
Former Shutterfly Inc. CEO Jeff Housenbold, who recently joined Munchery’s board, is in the running for the top spot. "The board did ask me if I’d consider it and I told them that I would," Housenbold said in an interview.
Housenbold is not the only candidate, he said. "We have an active, ongoing process with an executive recruiting firm."
Munchery last raised money in 2015, valuing the startup at $250 million to $275 million, according to Housenbold.
The company, which operates in a handful of cities and loses millions of dollars a month, has approached investors about a new round of financing but is having trouble expanding its roster of backers beyond existing top shareholders, according to people familiar with the matter. The company has raised $120 million in total so far.
Munchery isn’t the only food delivery startup laboring to find its way. Square Inc. tried and failed to sell its unprofitable Caviar business, and competitor Postmates Inc. has yet to announce a long-anticipated round of financing. Meanwhile, Uber Technologies Inc.’s food delivery ambitions have gone global.
Munchery, which is more than five years old, delivers food that just needs to be heated up, and operates out of four big kitchens. The San Francisco-based startup has changed its business model several times and is pursuing different services. It has experimented with meal kits that require more assembly and cooking at home -- similar to the ones pre-IPO startup Blue Apron Inc. delivers. Earlier this month, Munchery said it will start delivering meals to companies, not just individuals.
Earlier this year, the company was burning about $5 million a month, Housenbold and investor Shervin Pishevar acknowledged. The company has brought its monthly burn rate down below $3 million, Housenbold said.
Several top executives have left Munchery in the past year, including senior vice president for operations and strategy Kris Fredrickson and La Boulangerie founder Pascal Rigo, who had been the company’s chief customer experience officer. In March, Rigo sent the food blog Eater an e-mail that said, "I just did not share anymore their strategy for growth and their ‘vision’ for the future."
In May 2015, Munchery raised about $85 million in a round led by Menlo Ventures, garnering that $250 million to $275 million valuation.
The valuation was previously reported by Bloomberg and other news outlets as $300 million, before Housenhold joined the board. He said this week that Munchery executives didn’t try hard to correct the number because "the higher it is, the entrepreneur looks better." He said he’s setting the record straight now because he believes in "accuracy."
Munchery has sought new funding from outside investors at a price below $200 million, according to a person familiar with the matter. Housenbold said that since the company hasn’t raised a new round yet, any future valuation is speculative.
The last round of financing was a so-called inside round as Menlo Ventures had already led one of the company’s previous rounds. Menlo Ventures and Munchery’s other main investor Sherpa Ventures, led by Pishevar, have struggled to convince new investors to make a big bet on the company, according to people familiar with the matter.
That hasn’t stopped Pishevar and others from making bold pronouncements about the company’s prospects. On Sept. 9, Pishevar told CNBC the addition of grocery industry investor Ron Burkle and Housenbold to Munchery’s board was "a major inflection point in its expansion across the country."
"The business is doing incredibly well," Pishevar said. "We feel very lucky to be able to have them here helping us steer the company."
In an interview with Bloomberg, Pishevar said building the company’s brand will take time. "You don’t build a global brand overnight. What these guys have done is similar to Uber. They have focused on getting this model right in the cities that they’re in. Once they get that right, then you get that flywheel effect of expanding city to city."
Pishevar and Housenbold said Munchery is "contribution margin positive." That means the company makes more money selling food than it costs to make and deliver that food. The number excludes other costs, including marketing.
Current CEO Tran, a Vietnamese refugee who co-founded Munchery, is hopeful.
"We are excited to bring on a world class operator to support our rapid expansion and drive the business forward," Tran said in an e-mailed statement. "I am incredibly excited about our future and look forward to continuing to work with the team to take the business to the next level."