Food & Beverage

Food delivery start-up Postmates cracks $1bn valuation

Shannon Bond
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Postmates CEO on becoming a unicorn start-up and IPO hopes

Postmates, the US online food delivery start-up, has raised $300 million in venture capital funding, boosting its financial firepower against well-capitalized competitors including Uber and SoftBank-backed DoorDash.

The latest round led by Tiger Global Management values Postmates at about $1.2 billion, including the new funds, according to a person familiar with the matter, up from $600 million in 2016. It more than doubles the total funding Postmates has raised in its seven-year history.

The US food delivery market is experiencing a flurry of competition and investment as companies seek to capture the loyalty of a growing group of consumers who are opting to eat at home instead of going out to restaurants. Postmates, Uber Eats and DoorDash are battling it out with Amazon, GrubHub and Square's Caviar to become the platform of choice in cities across the country.

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"What we've seen in the past couple years and specifically in the last year is a real shift in investor and analyst mindset around the space. There's a growing consensus that the market opportunity is bigger than ride-sharing and the margins are better," said Kristin Schaefer, Postmates chief financial officer.

Postmates reported $1 billion in gross sales volume last year and says it is profitable on a contribution margin basis — a metric that measures the profitability of delivering a service but excludes fixed costs such as salaries — in 90 percent of its markets.

The company is aiming to go public next year and will use the funding to "pour on a little gas" ahead of its listing, Ms. Schaefer said.

Postmates will invest in its engineering team and technology platform and expand its offerings. The service is particularly popular in US southwest cities, including Los Angeles and Phoenix. In addition to "doubling down" in those markets, Ms. Schaefer said, the company will push into new regions. It expects its footprint to grow from about half of US households now to 70-75 percent by year's end.

The company will also build out its subscription service, Unlimited, which gives users free delivery for a $9.99-a-month fee. About a third of deliveries currently come from Unlimited subscribers, a figure Postmates hopes to increase by gaining new subscribers and adding benefits to the service.

"It's a page out of Amazon's book," Ms. Schaefer said, referring to the e-commerce company's Prime membership that includes free shipping and digital video streaming.

The recent uptick in investment in on-demand food delivery follows a difficult few years in which companies struggled to close funding rounds amid doubts over whether they could ever become profitable.

Those difficulties appear to have passed. DoorDash raised $250 million led by Coatue Management and DST Global last month, less than six months after closing a $535 million round led by SoftBank, and is now valued at $4 billion.

Uber Eats is growing at 200 percent year over year and is on track to report annualized revenues of $6 billion this year. Dara Khosrowshahi, Uber chief executive, told the Financial Times he expects to increase investment in the service over the next two to three years.

NYSE-listed GrubHub, which merged with rival Seamless in 2013, has a market capitalization of almost $13 billion after its share price has more than doubled over the past year.

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Key Points
  • Postmates is expanding into 100 new cities, encompassing 50 million new potential customers.
  • The company is also deepening its partnership with Chipotle, adding delivery from 300 new locations.
  • The company is in a race with larger on-demand delivery rivals, including Amazon, Grubhub, Uber and DoorDash.