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Restaurant Tech

Delivery startups and other unicorns are transforming restaurant tech

In some ways, the restaurant industry is the same as it’s always been. But in others, the age of the smartphone is leading to wholesale changes—and VC investors are taking note.

In the most basic ways, the restaurant industry is the same as it’s always been. You buy ingredients from suppliers, turn those ingredients into feats of culinary genius (or maybe just solid slices of pizza), and sell the results to hungry customers, usually at the slimmest of profit margins.

But in other ways, the business is undergoing a transformation. And, as is the case for so many other industries, the reason for that recent reshaping of the landscape is that we’re living in the age of the smartphone.

Instead of actually going to restaurants themselves, more consumers are using meal delivery apps like Postmates and DoorDash. When customers do dine in, instead of calling for a reservation, they want the ease of apps like Resy and EZTable. The old power of the newspaper restaurant review is fading—now, adventurous eaters are finding new holes-in-the-wall on social media or sites like Zomato. In China, Meituan-Dianping and are using restaurant delivery as a cornerstone of their would-be commerce empires. And consumers’ increasing desire for friction-free eating is contributing to the rise of companies like Chowbotics and Farmer’s Fridge that use machines to prepare and distribute meals.

There are so many billion-dollar companies in the space it can be hard to keep track. So to help, here’s a chart breaking down the creation of new unicorns in the restaurant tech vertical since the start of 2014. Each of the circles below represents a unicorn, arranged by the date each company reached a $1 billion valuation and the size of its most-recent valuation—hover your mouse over each circle for more info:

A whole host of other startups are also involved in the industry-wide makeover, ranging from providers of payment services to marketing specialists to companies focused on food safety. For a full taxonomy of the scene, check out our recent Restaurant Tech Market Map, which breaks down some of the most notable food-focused companies that have combined to raise billions of dollars in VC funding in recent years.

Just how many billions are we talking? Last year, more than $8 billion, according to PitchBook data, representing the pinnacle of a decade-long spike in funding. Back in 2009, the restaurant tech vertical saw just 19 total VC investments worth barely $75 million. As you can see here, the former figure would increase more than tenfold within the decade, and the latter would leap more than a hundredfold:

While it seems like the quantity of new investments may have peaked in 2015, the deal value keeps going up. Combined, those trends perhaps suggest a winnowing of the field, as a wider group of competitors that all raised early-stage funding several years ago begins to mature, and—to put it bluntly—winners and losers begin to emerge. Some companies that once raked in serious cash have gone kaput, while other unicorns continue to raise larger and larger rounds.

The largest of those rounds have been roped in by Meituan-Dianping and, two rivals that are using highly subsidized meal delivery as part of their entrée into a whole host of other commerce services, including other deliveries and payments. Heavily backed by Chinese internet giants Tencent and Alibaba, respectively, Meituan-Dianping and have combined to raise four of the five $1 billion rounds ever closed in the restaurant tech space, led by a $4 billion funding for Meituan-Dianping last April at a $30 billion valuation.

Both companies, though, have since graduated from the true unicorn ranks. Alibaba officially acquired last April, and five months later Meituan-Dianping raised billions more in an IPO.

As meal delivery companies that attained sky-high valuations, those two are far from alone: Most of the biggest rounds and valuations in the restaurant tech space are attached to companies that specialize in bringing food to customers within the comfort of their own homes. India’s Swiggy, Germany’s Delivery Hero, the UK’s Deliveroo and San Francisco’s Postmates and DoorDash are among the other delivery companies to attain VC-backed valuations of $1 billion or more in the past two years.

The latter two have made their share of headlines in 2019. DoorDash raised $400 million at a $7.1 billion valuation in February, a massive step-up from a previous $4 billion valuation just six months earlier. And Postmates filed to go public in February, shortly after bringing in $100 million at a $1.85 billion valuation, positioning the company to join a flood of VC-backed unicorns conducting IPOs in 2019.

Other restaurant-adjacent unicorns have continued to emerge, too. In February, driverless delivery startup Nuro banked $940 million from SoftBank at a $2.7 billion valuation. That’s the same valuation attained a month later by Toast, which makes various payments software and hardware for the restaurant industry, when the company raised a fresh $250 million from the likes of TCV and Bessemer Venture Partners.

There is, of course, another side to the coin. Not every company turns into a unicorn, and the food delivery space has also produced its fair share of companies that raised millions in VC before reaching an untimely demise. The most notable recent example is Munchery, a delivery startup that had previously picked up nearly $125 million from VCs and reached a $300 million valuation in 2015 before shutting down in January and filing for bankruptcy in March. Names like SpoonRocket, Sprig, Maple and Bento also litter the list of one-time investor darlings that have since gone under.

For the investors active in the space, of course, the idea is that the exponential returns on a few home-run investments will outweigh the losses from a few weak pop flies. That same sort of logic seems to apply to the sorts of firms who are on our list of the busiest investors in the restaurant tech vertical. Rather than shops that specialize in food deals, most are generalist investors who invest in a wide array of sectors—including a few of the VC world’s biggest names:

Overall, those 10 firms and the rest of the world’s VC investors have combined to invest nearly $20 billion into the restaurant tech vertical since the start of 2016, including more than $2 billion in 1Q 2019. If that pace keeps up, this year could bring yet another new record for annual deal value in the space.

Featured image via AndreyPopov/iStock/Getty Images Plus

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    Written by Kevin Dowd

    Kevin Dowd wrote The Weekend Pitch newsletter for PitchBook, covering startups, buyouts and the rest of the private market.

    A native of the Pacific Northwest, he’s an alumnus of the University of Washington with a degree in creative writing and journalism. He enjoys books and basketball and, most especially, books about basketball. He feels uncomfortable writing about himself in the third person.

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