Business

Lockdowns Are Lifting, But VCs Remain Bullish on Food Delivery Start-Ups

Taster
  • London-headquartered Taster became the latest food delivery firm to secure a significant round of financing, announcing Thursday it has raised $37 million from VC firms.
  • Finland's six-year-old Wolt announced in January that it had raised a $530 million funding round at an undisclosed valuation, bringing total investment in the company to over $856 million.
  • Two former Deliveroo employees raised $20 million for their 10-minute grocery delivery app called Dija in December, before launching in London in March.

Venture capitalists are continuing to pile in on food delivery start-ups, backing them with hundreds of millions of dollars even though the margins are often small and people can increasingly visit restaurants. In Britain, people can already eat outside in groups of six, and they'll be able to dine indoors from May 17.

Several food delivery companies have boomed during the Covid crisis as they offered people a way to keep eating food from their favorite restaurants and avoid venturing out to the supermarkets.

London-headquartered Taster became the latest food delivery firm to secure a significant round of financing, announcing Thursday it has raised $37 million from VC firms including Octopus Ventures, LocalGlobe, Battery Ventures and Heartcore Capital. It said it intends to use the money to expand across the U.K., France and Spain.

Founded in 2017 by Deliveroo's seventh employee, Anton Soulier, Taster operates five delivery-only digital restaurant brands including Korean fried chicken restaurant Out Fry, Vietnamese street food restaurant Mission Saigon, and vegan burger brand A Burgers. It claims 1 million meals were delivered by its brands last year and that revenues more than doubled, although it refused to share revenue numbers.

Food from these brands can be ordered from takeaway apps like Deliveroo, Uber Eats and Just Eat Takeaway, as well as from Taster directly. But customers won't necessarily know where it's made. While traditional restaurants tend to use their own kitchen, or maybe even a dark kitchen, Taster's brands use kitchens that aren't being fully utilized in other restaurants and hotels. It says that staff in these kitchens are provided with training and that its meals are relatively straightforward to assemble, with complex sauces and other items made before they're sent to kitchens.

"The food category in general is barely online," Soulier told CNBC on Wednesday when asked why so much money is flowing into companies like his. "It's like about 10%. When you look at other industries such as travel, it's like 60%."

The French entrepreneur believes that people are starting to realize the move to online in the food industry has been accelerated by Covid. "When I started back in 2017 people were like: 'What is that? I'm not going to invest in a restaurant business I don't understand.' For this round the discussions were very different because people were completely aware. We had a lot of interest from U.S. VC funds."

Governments around the world are keen to relax Covid restrictions and provide a boost to their ailing economies. French President Emmanuel Macron is reportedly planning to announce an easing of the rules in the coming days, while the Austrian capital of Vienna is planning to loosen restrictions next month. However, Germany this week implemented tough new lockdown rules that could last until June.

Elsewhere in the world, Australia and New Zealand have been enjoying life lockdown free for the last few months, with the exception of a few snap lockdowns, and many countries in Asia including China are also lockdown free, although the number of cases in India has soared in recent weeks.

Rebecca Hunt, an investor at Octopus Ventures, who led the investment, said in a statement that Taster's proposition is "incredibly exciting."

"It's the first digital food brand concept to scale using a licensed partner model," she said. "By partnering with existing experts in food preparation to run local kitchens, it can scale rapidly while ensuring consistency of food quality, as well as operational efficiency. We firmly believe this will be a winning combination and Anton's experience at Deliveroo gives Taster another unfair advantage in this rapidly growing market."

Taster has raised a total of $50 million so far and Deliveroo's co-founder and CEO Will Shu is one of the firm's angel investors. It declined to share its current valuation.

Deliveroo itself raised £1 billion ($1.39 billion) in its initial public offering on the London Stock Exchange earlier this month. However, the company's share price has fallen to around £2.40 over the last few weeks, down from £3.30, leaving many investors disappointed.

Amazon made more from Deliveroo's IPO than anyone else as it led a $575 million funding round in Deliveroo in May 2019 in exchange for a 16% stake. It sold around 23 million Deliveroo shares in the IPO.

Elsewhere, Finland's six-year-old Wolt announced in January that it had raised a $530 million funding round at an undisclosed valuation, bringing total investment in the company to over $856 million.

Groceries vs. takeaways

While many of the early food delivery start-ups focused on takeaways, there's an increasing number that want to deliver groceries from supermarkets and other stores to people's homes. And some, including Deliveroo and Uber Eats, are trying to do both.

There's also a new crop of entrepreneurs that are leaving more established food delivery businesses to launch their own start-ups.

Two former Deliveroo employees raised $20 million for their 10-minute grocery delivery app called Dija in December, before launching in London in March. It's now planning to expand into Spain and France. There's also London start-up Weezy, which raised £1 million in pre-seed funding last August, and at least a dozen other on-demand grocery delivery start-ups across Europe. 

Turkey's Getir is one example of an app trying to do both. The company, which has been backed by venture capital billionaire Michael Moritz, announced last month that it has raised $300 million at a $2.6 billion valuation. The money is coming from Silicon Valley VC heavyweight Sequoia and New York tech investor Tiger Global.

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