Some Food Delivery Apps Starved for Funding



The crowd is thinning in the food delivery start-up space — and more are likely to shutter, industry watchers say.

Starving for funds, delivery app SpoonRocket bit the dust March 12. The reason? The downturn of market and lack of interest in on-demand companies like SpoonRocket from the venture community.

The Bay-area start-up had promised customers fast curbside delivery of prepared meals from a set, rotating menu, similar to services like Sprig and Munchery. But with $13.5 million in funding rounds, according to Crunchbase, it was dwarfed by Munchery’s $117.2 million and Sprig’s $56.7 million.

SpoonRocket, which informed its customers in an email of its demise, did not immediately respond to CNBC’s request for comment.

To be sure, most start-ups in any industry fail. And while it’s too soon to tell whether SpoonRocket’s situation mirrors other underdogs in the on-demand food industry, other start-ups are likely to follow SpoonRocket and exit the space, said Brita Rosenheim, ‎food and lifestyle industry strategist at Rosenheim Advisors.

“There will be consolidation but also less players in the space,” Rosenheim said. “The main reason is in order to make the margins work on this model you really need to get to scale. You need the right funding to get there. Major larger players have funding to get them to scale at any cost.”

Rosenheim has long said the food technology industry has been ripe for consolidation — there are now close to 300 food tech start-ups listed on directory AngelList, for instance. But so far, the industry has managed to stay afloat, with $5.7 billion of funding inflows in 2015, up 152 percent on a funding basis and 102 percent on a deals basis year-over-year, according to research by CB Insights.

In particular, strategic investors have shown interest in the space, withWhole Foods investing in Instacart in February, for instance.

That kind of funding could pave the way for some mergers, according to CB Insights analyst Matthew Wong. It wasn’t long before SpoonRocket was scooped up by Brazil’s iFood, an online food delivery platform in Latin America, according to Reuters’ peHUB.

“For start-ups out there that aren’t going to survive the year, there are soft landings for them, but not for a lot,” Rosenheim said. “The funding going forward will be primarily to support existing players who have the right growth metrics. There’s room for smaller players in the space, and will be funding, but the days of a flurry of seed stage money in this space is over.”

Dominant players are expanding past their niche to reach new customers, Wong said. For example, prepared meal provider Munchery recently launched a meal kit delivery service that competes with Blue Apron. At the same time, companies like Uber have branched out into meal delivery.

The food technology space has hit maturity at a time when when venture capital as a whole is cooling on a macro level, Wong said.

“Funding slowed down in Q4 across the board and scrutiny changed from when it was free flowing in the earlier half [of 2015],” Wong said.

As later stage investors like mutual funds enter the scene, they’ll look beyond the novelty of an idea toward how it is being executed, especially since the barriers to entry in the food delivery industry are so low, Rosenheim said.

“What is the lifetime value of your customer? What are your margins, and are your operating margins positive? What’s the retention? How often are people ordering? What are your plans for growth of additional revenue streams? That would be what they look for,” Rosenheim said.



Reprinted by permission.

About the author: Anita Balakrishnan

Anita Balakrishnan is a news associate at CNBC.

You are seconds away from signing up for the hottest list in New York Tech!

Join the millions and keep up with the stories shaping entrepreneurship. Sign up today.