The on-demand food delivery market has been in the news recently due to the entry of a new player – Uber in the form of UberEats. Today, when a consumer wants to order food, they have multiple options to choose from. They can either visit the restaurant’s site, or an aggregator like Seamless, GrubHub, or to a company like DoorDash, UberEats, and Caviar to get food delivered. UberEats comes with the might of Uber and that has caused smaller, but similar, service provider SpoonRocket to shut down its business. Meanwhile, competitor DoorDash is also facing trouble securing funds at expected Unicorn valuations.
DoorDash was founded in 2013 in a Stanford dorm room by four students, Andy Fang, Stanley Tang, Evan Moore, and Tony Xu. It was set up “with a mission to empower local economies in a connected world”. Essentially, the company wanted to make it simpler for smaller restaurants to leverage the power of the Internet. In its early days, the founders made the first 200 deliveries themselves while operating under the name of Palo Alto Delivery. The four founders delivered food from local restaurants to students on campus. The base model for the service is still the same.
Today, it is an on-demand delivery service that connects customers with local businesses. Its marketplace services allows consumer to purchase food from restaurants and have it delivered to their doorstep within 45 minutes of placing the order. When an order is placed with DoorDash, the company’s logistics platform sends it to the restaurant, and assigns an independent contractor, or a Dasher, to pick up the order and bring it to the customer. The company operates in over 22 cities in both the US and Canada and relies on its logistics algorithm that helps route drivers most efficiently.
DoorDash allows consumers to join the service for free. But, it charges a delivery fee for each order placed through the service. The delivery fee ranges from $4-$7 for each delivery based on the region and restaurant. DoorDash also earns revenues in the form of a commission from its member restaurants. The commission is normally in the form of a mark-up on the menu prices.
It does not disclose revenues, but market reports suggest that it is unprofitable. But it claims to be cash flow positive in some of its earliest markets. It does not disclose which markets these really are.
DoorDash has been venture funded so far with $186.7 million in funding raised from investors including Sequoia Capital, Wellcome Trust, Continuity Fund, Kleiner Perkins Caufield & Byers, Khosla Ventures, Andy Rachleff, CRV, Haystack, John Doerr, Ooga Labs, Paul Buchheit, Pejman Mar Ventures, Pejman Nozad, Semil Shah, Streamlined Ventures, SV Angel, and Ted Zagat. Its last round of funding was held in March this year when it raised $127 million in a round led by Sequoia Capital and with participation from existing investors including Kleiner Perkins and Khosla Ventures. The company plans to use the latest round of capital to increase its market presence and improve its core technology.
Unfortunately though, given the tougher market conditions, while DoorDash was a Unicorn prospect till the start of the year, its billion dollar valuation did not come through. Back in October, the company was hoping to raise the next round at a valuation of $1 billion in October. But the latest round valued it closer to $700 million, close to an earlier round held in March 2015. DoorDash maintains that the “down” valuation was because it did not want to agree to employee unfriendly terms post valuation.
After months of driving skyrocketing valuations, the market appears to have figured the need to be more practical in assigning valuations. The result is evident in the form of the rising number of Unicorpses. As Sequoia partner, Alfred Lin says,
“This on-demand space was very sexy two years ago with lots of companies getting started and today it probably has a negative association to it”.
Additionally, DoorDash is also facing increased competition. There are several other startups, and some with bigger pockets to compete with. Within food delivery, there is Square’s Caviar, Yelp’s Eat24, and of course, UberEats. Above all, UberEats has obvious benefits in the form of a much bigger user base and fleet and a more established logistic model. DoorDash will have to up its game if it plans to continue to remain relevant in the market.