Goldman Sachs is investing in African tech companies. The venerable American investment bank and financial services firm has backed startups from Kenya to Nigeria and taken a significant stake in e-commerce venture Jumia, which listed on the NYSE in 2019.
Though Goldman declined to comment on its Africa VC activities for this article, the company has spoken to TechCrunch in the past about specific investments.
Goldman Sachs is one of the most enviable investment banking shops on Wall Street, generating $36 billion in net revenues in 2019, or roughly $1 million per employee. It’s the firm that always seems to come out on top, making money during the financial crisis while its competitors were hemorrhaging. For generations, MBAs from the world’s top business schools have clamored to work there, helping make it a professional incubator of sorts that has spun off alums into leadership positions in politics, VC and industry.
All that cache is why Goldman’s name popping up related to African tech got people’s attention, including mine, several years ago.
Bolt, the billion-dollar startup out of Estonia that’s building a ride-hailing, scooter and food delivery business across Europe and Africa, has picked up a tranche of funding in its bid to take on Uber and the rest in the world of on-demand transportation.
The company has picked up €50 million (about $56 million) from the European Investment Bank to continue developing its technology and safety features, as well as to expand newer areas of its business, such as food delivery and personal transport like e-scooters.
With this latest money, Bolt has raised more than €250 million in funding since opening for business in 2013, and as of its last equity round in July 2019 (when it raised $67 million), it was valued at over $1 billion, which Bolt has confirmed to me remains the valuation here.
Bolt further said that its service now has more than 30 million users in 150 cities and 35 countries and is profitable in two-thirds of its markets.
The timing of the last equity round, and the company’s ambitious growth plans, could well mean it will be raising more equity funding again soon. Bolt’s existing backers include the Chinese ride-hailing giant Didi, Creandum, G Squared and Daimler (which owns a ride-hailing competitor, Free Now — formerly called MyTaxi).
“Bolt is a good example of European excellence in tech and innovation. As you say, to stand still is to go backwards, and Bolt is never standing still,” said EIB’s vice president, Alexander Stubb, in a statement. “The Bank is very happy to support the company in improving its services, as well as allowing it to branch out into new service fields. In other words, we’re fully on board!”
The EIB is the nonprofit, long-term lending arm of the European Union, and this financing in the form of a quasi-equity facility.
Also known as venture debt, the financing is structured as a loan, where repayment terms are based on a percentage of future revenue streams, and ownership is not diluted. The funding is backed in turn by the European Fund for Strategic Investments, as part of a bigger strategy to boost investment in promising companies, and specifically riskier startups, in the tech industry. It expects to make and spur some €458.8 billion in investments across 1 million startups and SMEs as part of this plan.
Opting for a “quasi-equity” loan instead of a straight equity or debt investment is attractive to Bolt for a couple of reasons. One is the fact that the funding comes without ownership dilution. Two is the endorsement and support of the EU itself, in a market category where tech disruptors have been known to run afoul of regulators and lawmakers, in part because of the ubiquity and nature of the transportation/mobility industry.
“Mobility is one of the areas where Europe will really benefit from a local champion who shares the values of European consumers and regulators,” said Martin Villig, the co-founder of Bolt (whose brother Markus is the CEO), in a statement. “Therefore, we are thrilled to have the European Investment Bank join the ranks of Bolt’s backers as this enables us to move faster towards serving many more people in Europe.”
(Butting heads with authorities is something that Bolt is no stranger to: It tried to enter the lucrative London taxi market through a backdoor to bypass the waiting time to get a license. It really didn’t work, and the company had to wait another 21 months to come to London doing it by the book. In its first six months of operation in London, the company has picked up 1.5 million customers.)
While private VCs account for the majority of startup funding, backing from government groups is an interesting and strategic route for tech companies that are making waves in large industries that sit adjacent to technology. Before it was acquired by PayPal, IZettle also picked up a round of funding from the EIB specifically to invest in its AI R&D. Navya, the self-driving bus and shuttle startup, has also raised money from the EIB in the past, as has MariaDB.
One of the big issues with on-demand transportation companies has been their safety record, a huge area of focus given the potential scale and ubiquity of a transportation or mobility service. Indeed, this is at the center of Uber’s latest scuffle in Europe, where London’s transport regulator has rejected a license renewal for the company over concerns about Uber’s safety record. (Uber is appealing; while it does, it’s business as usual.)
So it’s no surprise that with this funding, Bolt says that it will be specifically using the money to develop technology to “improve the safety, reliability and sustainability of its services while maintaining the high efficiency of the company’s operations.”
Bolt is one of a group of companies that have been hatched out of Estonia, which has worked to position itself as a leader in Europe’s tech industry as part of its own economic regeneration in the decades after existing as part of the Soviet Union (it formally left in 1990). The EIB has invested around €830 million in Estonian projects in the last five years.
“Estonia is as the forefront of digital transformation in Europe,” said Paolo Gentiloni, European Commissioner for the Economy, in a statement. “I am proud that Europe, through the Investment Plan, supports Estonian platform Bolt’s research and development strategy to create innovative and safe services that will enhance urban mobility.”
The market for companies developing dairy substitutes is really getting frothy.
In December, the startup Perfect Day Foods announced it had raised $110 million in financing for its dairy replacement and now Califia Farms, the producer of a range of oat and almond milk products (along with a slew of coffees, juices, and non-dairy snacks) has raised $225 million in fresh financing.
Investors in the round include the Qatar Investment Authority, Singapore’s sovereign wealth fund, Temasek, Canada’s Claridge and Hong Kong-based Green Monday Ventures (among others).
For Temasek, the deal comes on the heels of an incredibly successful investment in Beyond Meat, the plant-based meat substitute which has partnership agreements with food chains like Dunkin, McDonald’s, and Carl’s Jr. and whose meteoric rise in its public offering was one of the most successful of the IPOs of the last year.
Money from the new investor base, which joins previous investors Sun Pacific, Stripes and Ambrosia in backing the company, will be used to expand its oat-based suite of products and to launch other new product lines. The company said it will also use the money to increase its production capacity, research and development efforts, and geographical expansion.
Founded in 2010, Califia Farms is one of several startups that are making dairy replacements — either using plant-based ingredients or genetically modified organisms to produce the proteins and sugars that make dairy what it is.
Other companies like Perfect Day, Ripple Foods, Oatly have all raised capital to capture some aspect of the over $1 trillion dairy market.
“The more than $1 trillion global dairy and ready-to-drink coffee industry is ripe for continued disruption with individuals all over the world seeking to transform their health & wellness through the adoption of minimally processed and nutrient rich foods thatare better for both the planet and the animals,” said Greg Steltenpohl, Califia founder and chief executive, in a statement.
Barclays served as the financial advisor and placement agent for Califia on the capital raise.
Earlier today, Instacart more widely rolled out its Pickup product, which enables customers to retrieve groceries directly from stores. The announcement comes just a day after Instacart shoppers unveiled their latest action to #DeleteInstacart, another step in the ongoing series of protests against the grocery startup’s wage and tipping practices.
We have fought for fair pay, but Instacart continues to lower it. This current protest only has one small demand — to raise the app’s default tip amount back to 10%. This is the same default setting Instacart had originally, but the company has repeatedly lowered it (as well as resorted to outright theft) to take it away from us. Combined with their recent bonus-cutting act of retaliation, workers are now bleeding out of both sides — our pay is too low AND the default tip amount is too low.
In a statement, Instacart said it’s tested a number of default tip options over the years, including a 10% default, no default and a 5% default. That has been in place for the last two years.
“Ultimately, we believe customers should have the choice to determine the tip amount they choose to give a shopper based on the experience they have,” an Instacart spokesperson said. “The default amount serves as a baseline for a shopper’s potential tip, and can be increased to any amount by the customer.”
In light of a new California gig worker protections law, which Instacart opposes, the greater push into pickup services could be a way for the company to beef up its argument that gig workers are free from the control of Instacart, and that its part-time workers* do the bulk of what Instacart says is its fastest-growing business.
2019 brought more global attention to Africa’s tech scene than perhaps any previous year.
A high profile IPO, visits by both Jacks (Ma and Dorsey), and big Chinese startup investment energized that.
The last 12 months served as a grande finale to 10 years that saw triple digit increases in startup formation and VC on the continent.
Here’s an overview of the 2019 market events that captured attention and capped off a decade of rapid growth in African tech.
The story of the year is the April IPO on the NYSE of Pan-African e-commerce company Jumia. This was the first listing of a VC backed tech company operating in Africa on a major global exchange — which brought its own unpredictability.
Founded in 2012, Jumia pioneered much of its infrastructure to sell goods to consumers online in Africa.
With Nigeria as its base market, the Rocket Internet backed company created accompanying delivery and payments services and went on to expand online verticals into 14 Africa countries (though it recently exited a few). Jumia now sells everything from mobile-phones to diapers and offers online services such as food-delivery and classifieds.
Seven years after its operational launch, Jumia’s stock debut kicked off with fanfare in 2019, only to be followed by volatility.
The online retailer gained investor confidence out of the gate, more than doubling its $14.95 opening share price post IPO.
That lasted until May, when Jumia’s stock came under attack from short-seller Andrew Left, whose firm Citron Research issued a report accusing the company of fraud. The American activist investor’s case was bolstered, in part, by a debate that played out across Africa’s tech ecosystem on Jumia’s legitimacy as an African startup, given its (primarily) European senior management.
The entire affair was further complicated by Jumia’s second quarter earnings call when the company disclosed a fraud perpetrated by some of its employees and sales agents. Jumia’s CEO Sacha Poignonnec emphasized the matter was closed, financially marginal and not the same as Andrew Left’s short-sell claims.
Whatever the balance, Jumia’s 2019 ups and downs cast a cloud over its stock with investors. Since the company’s third-quarter earnings-call, Jumia’s NYSE share-price has lingered at around $6 — less than half of its original $14.95 opening, and roughly 80% lower than its high.
Even with Jumia’s post-IPO rocky road, the continent’s leading e-commerce company still has heap of capital and is on pace to generate over $100 million in revenues in 2019 (albeit with big losses).
The company plans reduce costs by generating more revenue from higher-margin internet services, such as payments and classifieds.
There’s a fairly simple equation for Jumia to rebuild shareholder confidence in 2020: avoid scandals, increase revenues over losses. And now that the company’s publicly traded — with financial reporting requirements — there’ll be four earnings calls a year to evaluate Jumia’s progress.
Jumia may not be the continent’s standout IPO for much longer. Events in 2019 point to Interswitch becoming the second African digital company to list on a global exchange in 2020. The Nigerian fintech firm confirmed to TechCrunch in November it had reached a billion-dollar unicorn valuation, after a (reported) $200 million investment by Visa.
Founded in 2002 by Mitchell Elegbe, Interswitch created much of the initial infrastructure to digitize Nigeria’s (then) predominantly cash-based economy. Interswitch has been teasing a public listing since 2016, but delayed it for various reasons. With the company’s billion-dollar valuation in 2019, that pause is likely to end.
“An [Interswitch] IPO is still very much in the cards; likely sometime in the first half of 2020,” a source with knowledge of the situation told TechCrunch .
2019 was the year when Chinese actors pivoted to African tech. China is known for its strategic relationship with Africa based (largely) on trade and infrastructure. Over the last 10 years, the country has been less engaged in the continent’s digital-scene.
That was until a torrent of investment and partnerships this past year.
July saw Chinese-owned Opera raise $50 million in venture spending to support its growing West African digital commercial network, which includes browser, payments and ride-hail services.
In September, China’s Transsion — the largest smartphone seller in Africa — listed in an IPO on Shanghai’s new STAR Market. The company raised ≈ $394 million, some of which it is directing toward venture funding and operational expansion in Africa.
The last quarter of 2019 brought a November surprise from China in African tech. Over 15 Chinese investors placed over $240 million in three rounds. Transsion backed consumer payments startup PalmPay raised a $40 million seed, stating its goal to become “Africa’s largest financial services platform.”
In the new year, TechCrunch will continue to cover the business arc of this surge in Chinese tech investment in Africa. There’ll surely be a number of fresh macro news-points to develop, given the debate (and critique) of China’s engagement with Africa.
On debate, the case could be made that 2019 was the year when Nigeria become Africa’s unofficial capital for fintech investment and digital finance startups.
Kenya has held this title hereto, with the local success and global acclaim of its M-Pesa mobile-money product. But more founders and VCs are opting for Nigeria as the epicenter for digital finance growth on the continent.
A rough tally of 2019 TechCrunch coverage — including previously mentioned rounds — pegs fintech related investment in the West African country at around $400 million over the last 12 months. That’s equivalent to roughly one-third of all startup VC raised for the entire continent in 2018, according to Partech stats.
From OPay to PalmPay to Visa — startups, big finance companies and investors are making Nigeria home-base for their digital finance operations and Africa expansion strategies.
The founder of early-stage payment startup ChipperCash, Ham Serunjogi, explained the imperative to operating there. “Nigeria is the largest economy and most populous country in Africa. Its fintech industry is one of the most advanced in Africa, up there with Kenya and South Africa,” he told TechCrunch in May.
When all the 2019 VC numbers are counted, it will be worth matching up fintech stats for Nigeria to Kenya to see how the countries compared.
Tech acquisitions continue to be somewhat rare in Africa, but there were several to note in 2019. Two of the continent’s powerhouse tech incubators joined forces in September, when Nigerian innovation center and seed-fund CcHub acquired Nairobi based iHub, for an undisclosed amount.
The acquisition brought together Africa’s most powerful tech hubs by membership networks, volume of programs, startups incubated and global visibility. It also elevated the standing of CcHub’s Bosun Tijani across Africa’s tech ecosystem, as the CEO of the new joint-entity, which also has a VC arm.
CcHub/iHub CEO Bosun Tijani
In other acquisition activity, French television company Canal+ acquired the ROK film studio from Nigerian VOD company IROKOtv, for an undisclosed amount. The deal put ROK founder and producer Mary Njoku in charge of a new organization with larger scope and resources.
Many outside Africa aren’t aware that Nigeria’s Nollywood is the Hollywood of the continent and one of the largest film industries in the world (by production volume). Canal+ told TechCrunch it looks to bring Mary and the Nollywood production ethos to produce content in French speaking African countries.
Other notable 2019 African tech takeovers included Kenyan internet company BRCK’s acquisition of ISP Surf, Nigerian digital-lending startup OneFi’s Amplify buy and Merck KGaa’s purchase of Kenya-based online healthtech company ConnectMed.
In 2019, Africa’s motorcycle ride-hail market — worth an estimated $4 billion — saw a flurry of investment and expansion by startups looking to scale on-demand taxi services. Uber and Bolt got into the motorcycle taxi business in Africa in 2018.
Ampersand in Rwanda
A number of local and foreign startups have continued to grow in key countries, such as Nigeria, Uganda and Kenya.
A battle for funding and market-share emerged in Nigeria in 2019, between key moto ride-hail startups Max.ng, Gokada, and Opera owned ORide.
The on-demand motorcycle market in Africa has attracted foreign investment and moved toward EV development. In May, MAX.ng raised a $7 million Series A round with participation from Yamaha and is using a portion to pilot renewable energy powered e-motorcycles in Africa.
In August, the government of Rwanda announced a national policy to phase out gas-motorcycle taxis altogether in favor of e-motos, in partnership with early-stage EV startup Ampersand.
The past year saw several new funding initiatives for Africa’s startups. Senegalese VC investor Marieme Diop spearheaded Dakar Network Angels, a seed-fund for startups in French-speaking Africa — or 24 of the continent’s 54 countries.
Africinvest teamed up with Cathay Innovation to announce the Cathay Africinvest Innovation Fund, a $100+ million capital pool aimed at Series A to C-stage startup investments in fintech, logistics, AI, agtech and edutech.
Accion Venture Lab launched a $24 million fintech fund open to African startups.
Like any tech ecosystem, not every startup in Africa killed it or even continued to tread water in 2019. Two e-commerce companies — DealDey in Nigeria and Afrimarket in Ivory Coast — closed up digital shop.
Southern Africa’s Econet Media shut down its Kwese TV digital entertainment business in August.
And South Africa based, Pan-African focused cryptocurrency payment startup Wala ceased operations in June. Founder Tricia Martinez named the continent’s poor infrastructure as one of the culprits to shutting down. A possible signal to the startup’s demise could have been its 2017 ICO, where Wala netted only 4% of its $30 million token-offering.
2019 saw more startups expand products and business models developed in Africa to new markets abroad. In March, Flexclub — a South African venture that matches investors and drivers to cars for ride-hailing services — announced its expansion to Mexico in a partnership with Uber.
In May, ExtraCrunch profiled three African founded fintech startups — Flutterwave, Migo and ChipperCash — developing their business models strategically in Africa toward plans to expand globally.
As we look to what could come in the new year and decade for African tech, it’s telling to look back. Ten years ago, there were a lot of “if” questions on whether the continent’s ecosystem could produce certain events: billion dollar startup valuations, IPOs on major exchanges, global expansion, investment from the world’s top VCs.
All those questionable events of the past have become reality in African tech, even if some of them are still in low abundance.
There’s no crystal ball for any innovation ecosystem — not the least Africa’s — but there are several things I’ll be on the lookout for in 2020 and beyond.
Two In the near term, start with what Twitter/Square CEO Jack Dorsey may do around Bitcoin and cryptocurrency on his return to Africa (lookout for an upcoming TechCrunch feature on this).
I’ll also follow the next-phase of e-commerce in Africa, which could pit Jumia more competitively against DHL’s Africa eShop, Opera and China’s Alibaba (which hasn’t yet entered Africa in full).
On a longer-term basis, a development to follow is how the continent’s first wave of millionaire and billionaire tech-founders could disrupt 21st century dynamics in Africa around politics, power, and philanthropy — hopefully for the better.
More notable 2019 Africa-related coverage @TechCrunch
Seoul and South Korea may well be the secret startup hub that (still) no one talks about.
While often dwarfed by the scale and scope of the Chinese startup market next door, South Korea has proven over the last few years that it can — and will — enter the top-tier of startup hubs.
Case in point: Baedal Minjok (typically shortened to Baemin), one of the country’s leading food delivery apps, announced an acquisition offer by Berlin-based Delivery Hero in a blockbuster $4 billion transaction late this week, representing potentially one of the largest exits yet for the Korean startup world.
The transaction faces antitrust review before closing, since Delivery Hero owns Baemin’s largest competitor Yogiyo, and therefore is conditional on regulatory approval. Delivery Hero bought a majority stake in Yogiyo way back in 2014.
What’s been dazzling though is to have witnessed the growth of this hub over the past decade. As TechCrunch’s former foreign correspondent in Seoul five years ago and a university researcher locally at KAIST eight years ago, I’ve been watching the growth of this hub locally and from afar for years now.
While the country remains dominated by its chaebol tech conglomerates — none more important than Samsung — it’s the country’s startup and culture industries that are driving dynamism in this economy. And with money flooding out of the country’s pension funds into the startup world (both locally and internationally), even more opportunities await entrepreneurs willing to slough off traditional big corporate career paths and take the startup route.
Baemin’s original branding was heavy on the illustrations.
Five years ago, Baemin was just an app for chicken delivery with a cutesy and creative interface facing criticism from restaurant franchise owners over fees. Now, its motorbikes are seen all over Seoul, and the company has installed speakers in many restaurants where a catchy whistle and the company’s name are announced every time there is an online delivery order.
(Last week when I was in Seoul, one restaurant seemingly received an order every 1-3 minutes with a “Baedal Minjok Order!” announcement that made eating a quite distracted experience. Amazing product marketing tactic though that I am surprised more U.S.-based food delivery startups haven’t copied yet).
The strengths of the ecosystem remain the same as they have always been. A huge workforce of smart graduates (Korea has one of the highest education rates in the world), plus a high youth unemployment and underemployment rate have driven more and more potential founders down the startup path rather than holding out for professional positions that may never materialize.
What has changed is venture capital funding. It wasn’t so long ago that Korea struggled to get any funding for its startups. Years ago, the government initiated a program to underwrite the creation of venture capital firms focused on the country’s entrepreneurs, simply because there was just no capital to get a startup underway (it was not uncommon among some deals I heard of at the time for a $100k seed check to buy almost a majority of a startup’s equity).
Now, Korea has become a startup target for many international funds, including Goldman Sachs and Sequoia. It has also been at the center of many of the developments of blockchain in recent years, with the massive funding boom and crash that market sustained. Altogether, the increased funding has led to a number of unicorn startups — a total of seven according to the The Crunchbase Unicorn Leaderboard.
And the country is just getting started – with a bunch of new startups looking poised to driven toward huge outcomes in the coming years.
Thus, there continues to be a unique opportunity for venture investors who are willing to cross the barriers here and engage. That said, there are challenges to overcome to make the most of the country’s past and future success.
Perhaps the hardest problem is simply getting insight on what is happening locally. While China attracts large contingents of foreign correspondents who cover everything from national security to the country’s startups and economy, Korea’s foreign media coverage basically entails coverage of the funny guy to the North and the occasional odd cultural note. Dedicated startup journalists do exist, but they are unfortunately few and far between and vastly under-resourced compared to the scale of the ecosystem.
Plus, similar to New York City, there are also just a number of different ecosystems that broadly don’t interact with each other. For Korea, it has startups that target the domestic market (which makes up the bulk of its existing unicorns), plus leading companies in industries as diverse as semiconductors, gaming, and music/entertainment. My experience is that these different verticals exist separately from each other not just socially, but also geographically as well, making it hard to combine talent and insights across different industries.
Yet ultimately, as valuations soar in the Valley and other prominent tech hubs, it is the next tier of startup cities that might well offer the best return profiles. For the early investors in Baemin, this was a week to celebrate, perhaps with some fried chicken delivery.
Founded in 2012, Nomiku became a plucky Silicon Valley darling by bringing affordable sous vide cooking to home kitchens. A Kickstarter project that same year generated $750,000, several times its $200,000 goal. The company scored a glowing TechCrunch profile the following year, as well, thanks in part to a great backstory.
Today, however, the company noted on its site and various social media channels that it is winding down operations:
Well, I am sorry to say that we have reached the end of the road. It is with a heavy heart (and deep-felt gratitude for your patronage) that we are writing to let you know that we are discontinuing the Nomiku Smart Cooker and Nomiku Meals effective immediately, and suspending operations. While we still believe in the concept, we simply were not able to get to a place of sustainability to keep the business going. Thank you very much for your support, it has meant a lot to myself and everyone here at Nomiku.
“The total climate for food tech is different than it used to be,” Lisa Fetterman said in a call to TechCrunch. “There was a time when food tech and hardware were much more hot and viable. I think a company can survive a few hurdles, and a few challenges [ …] For me, it was the perfect storm of all these things.”
In total, the company raised more than $1.3 million over two Kickstarter campaigns, putting it in the upper echelons of food crowdfunding. In 2015, the startup joined Y Combinator and launched a cooking app called Tender, featuring recipes from prominent chefs.
In some ways, Nomiku appears to be a victim of its own popularity. The company was able to bring a cost-prohibitive cooking technology down to an affordable price point, only to see the market flooded by competitors. Fetterman highlighted some of those issues in a recent Extra Crunch interview.
In 2017, Samsung Ventures invested in the company, with plans to integrate it into its SmartThings connected platform. That same year, Nomiku began to pivot into subscription meal plans, but had difficulty getting the word out. Fetterman says the company was seeking funding toward the end, but ultimately couldn’t make things work.
Even with a buzzy company and a great product, the startup world can still be unforgiving.
Babies have options these days when it comes to what goes in their mouths. No more is it just the standard mush in a jar. Now they’ve got everything from pouches to organic purees delivered right to their parents’ door — and Yumi is one of several startups cashing in.
The company has just announced that it raised another $8 million from several of Silicon Valley’s household names, including Allbirds, Warby Parker, Harry’s, Sweetgreen, SoulCycle, Uber, Casper and the CEO of Blue Bottle Coffee, James Freeman. That puts the total raised now to $12.1 million.
But it’s a tough and saturated market full of products all vying for mom and dad’s attention, and that’s not a lot of cash to go on, compared to the billion-dollar industry Yumi is up against. According to Zion Market Research, the global baby food market could reach as much as $76 billion by 2021. However, you wouldn’t know Yumi was up against such odds if you ask them and their financial supporters.
The advantage, according to the company, is in providing fresh food alternatives, and that “shelf-stable” competitors like Gerber lack key nutrients parents want for their little ones.
“Our goal is to change the standards for childhood nutrition, and completely upend what it means to be a food brand in America,” Yumi co-founder and CEO Angela Sutherland said. “This group of visionary leaders have all redefined their categories and now we have the opportunity to work together to reimagine early-age nutrition for the next generation.”
Will that bet pay off and help this startup stand out? Sales continue to rise and have risen by 10 times in the last year, according to the company — we’ve asked but don’t know what those sales numbers are, unfortunately. However, Yumi’s bet on fresh and delivered could prove to be just what parents want as the company continues to grow.
“As a parent, Yumi’s mission immediately resonated,” said co-founder and co-CEO of Warby Parker Neil Blumenthal . “As we’ve seen at Warby Parker, and now at Yumi, there is a massive shift happening in the world of retail. There’s now a new generation of consumers who are actively seeking brands that reflect their values and lifestyle — the moat that big, legacy brands once enjoyed has evaporated.”
Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. Last week, we looked at how Alibaba and Tencent fared in the last quarter; the talk in Silicon Valley and Beijing this week is on Y Combinator’s sudden retreat from China. We will also discuss the enduring food delivery war in the country later.
The storied Silicon Valley accelerator Y Combinator announced the closure of its China unit just a little over a year after it entered the country. In a vague statement posted on its official blog, the organization said the decision came amid a change in leadership. Sam Altman, its former president who hired legendary artificial intelligence scientist Lu Qi to initiate the China operation, recently left his high-profile role to join research outfit OpenAI. With that, YC has since refocused its energy to support “local and international startups from our headquarters in Silicon Valley.”
What was untold is the insurmountable challenge that multinationals face in their attempt to win in a wildly different market. Lu Qi, who wore management hats at Baidu and Microsoft before joining YC, was clearly aware of the obstacles when he said in an interview (in Chinese) in May that “multinational corporations in China have almost been wiped out. They almost never successfully land in China.” The prescription, he believes, is to build a local team that’s given full autonomy to make decisions around products, operations, and the business.
A former executive at an American company’s China branch, who asked to remain anonymous, argued that Lu Qi’s one-man effort can’t be enough to beat the curse of multinationals’ path in China. “All I can say is: Lu has taken a detour. Going independent is the best decision. When it comes to whether Chinese startups are suited for mentorship, or whether incubators bring value to China, these are separate questions.”
What’s curious is that YC China seemed to have been given a meaningful level of freedom before the split. “Thanks to Sam Altman and the U.S. team, who agreed with my view and supported with much preparation, YC China is not only able to enjoy key resources from YC U.S. but can also operate at a completely independent capacity,” Lu said in the May interview.
Moving on, the old YC China team will join Lu Qi to fund new companies under a newly minted program, MiraclePlus, announced YC China via a Wechat post (in Chinese). The initiative has set up its own fund, team, entity and operational team. The deep ties that Lu has fostered with YC will continue to benefit his new portfolio, which will receive “support” from the YC headquarters, though neither party elaborated on what that means.
The food delivery war in China is still dragging on two years after the major consolidation that left the market with two major players. Meituan, the local services company backed by Tencent, has managed to attain an expanding share against Alibaba-owned Ele.me. According to third-party data (in Chinese) provided by Trustdata, Meituan accounted for 65.1% of China’s overall food delivery orders during the second quarter, steadily rising from just under 60% a year ago. Ele.me, on the other hand, has lost nearly 10% of the market, slumping to 27.4% from 36% a year ago.
In terms of monetization, Meituan generated 15.6 billion yuan ($2.2 billion) in revenue from its food delivery segment in the quarter ended September 30. That dwarfs Ele.me, which racked up 6.8 billion yuan ($970 million) during the same period. Both are growing north of 30% year-over-year.
This may not be all that surprising given Alibaba has arguably more imminent battles to fight. The e-commerce leader has been consumed by the rise of Pinduoduo, which has launched an assault on China’s low-tier cities with its ultra-cheap products and social-driven online shopping experience. Meituan, on the other hand, is fixated on beefing up its main turf of on-demand neighborhood services after divesting its costly bike-sharing endeavor.
When both contestants have the capital to burn through — as they have demonstrated through heavily subsidizing customers and restaurants — the race comes down to which has greater control of user traffic. Meituan holds a competitive edge thanks to its merger with Dianping, a leading restaurant review app akin to Yelp, back in 2015. Dianping today operates as a standalone brand but its food app is deeply integrated with Meituan’s delivery services. For example, hundreds of millions of users are able to place Meituan-powered food delivery orders straight from Dianping.
Alibaba and Meituan used to be on more friendly terms just a few years ago. In 2011, the e-commerce giant participated in Meituan’s $50 million Series B financing. Before long, the two clashed over control of the company. Alibaba is known to impose a heavy hand on its portfolio companies by taking up majority stakes and reshuffling the company with new executives. That’s because Alibaba believes that “only when you operate can you generate synergies and really create exponential value,” said vice chairman Joe Tsai in an interview. “Whereas if you just make a financial investment, you’re counting an internal rate of return. You’re not creating real value.”
Ele.me lived through that transformation. As of September, Alibaba has reportedly (in Chinese) completed replacing Ele.me’s management with its pool of appointed personnel. Ele.me’s founder Zhang Xuhao left the company with billions of yuan in cash and joined a venture capital firm (in Chinese).
Meituan’s founder Wang Xing had more unfettered pursuits. In a later financing round, he refused to accept Alibaba’s condition for portfolio companies to eschew Tencent investments, a strategy of the giant to hobble its archrival. That botched the partnership and Alibaba has since been gradually offloading its Meituan shares but still held onto small amounts, according to Wang in 2017, “to create trouble” for Meituan going forward.
Prosus Ventures last week filed a hostile offer for British food delivery startup Just Eat, an attempt to defeat a unanimous rejection from its board and simultaneously fend off a bid from rival Takeaway.
The giant Naspers spinoff said it was willing to pay as much as $6.3 billion in cash to lure Just Eat, one of Europe’s largest foodtech players.
Prosus’ major bet on online food startups shouldn’t come as a surprise; the recently-listed subsidiary, whose parent firm has invested in companies in more than 90 nations, has shown a great appetite for food delivery startups globally.
How deeply Prosus believes in foodtech is perhaps on display in emerging markets such as India, one of the most buzziest nations for the investment firm, where the unit economics doesn’t work yet for almost any internet startup and probably won’t for another few years.
Prosus Ventures’ investments in food delivery startups globally
Last year, South Africa-based Naspers led a $1 billion financing round for Indian food delivery startup Swiggy. The investment firm contributed $716 million to the round, just shy of the roughly $750 million that Swiggy’s chief rival, Zomato, has raised in its 11 years of existence.
TechCrunch spoke with Larry Illg, CEO of Prosus Ventures and Food, and Ashutosh Sharma, head of investments for India at the venture firm, to understand how significant foodtech is for the investment firm and the bets it is making in India.
“We had a thesis on food delivery globally,” said Illg, describing the company’s first search for a food delivery company in India. “We knew that at least one big player will be there in India in the future. We went around the town and spoke to a lot of startups.”
And then they found Swiggy. But, Illg said, it was a very different Swiggy from the one that currently dominates the Indian market. “So here was a food delivery startup that was already profitable. The only challenge was that it was operational in just six cities in India.”
And thus began Naspers’ journey to convince Swiggy to expand its service nationwide. Now operational in more than 130 cities around the country, Swiggy today competes with Zomato, UberEats, and Ola-owned FoodPanda (now known as Ola Foods).
Prosus Ventures’ Sharma, who heads India business, cautioned that it is early for food startups in India. “I want to say we are on day one, but it might as well be day zero. The number of smartphone users in India who are ordering food online is still less than 2%,” he said.
But even this nascent category has attracted some tough competitors. While UberEats and Ola’s Foods are struggling to make a significant dent, Swiggy and Ant Financial-backed Zomato are locked in an intense battle.
Both companies, according to industry reports, are losing more than $20 million each month. Zomato was burning about $45 million each month a year ago, Info Edge, a publicly-listed investor in the startup revealed in its recent earnings call with analysts.
Illg is not really bothered with the frenzy cash burn in India’s food delivery market, and said Prosus has no shortage of cash, either.
That cash might come in handy very soon. A source at Zomato told TechCrunch that the company is in talks to raise as much as $550 million in a round led by Ant Financial .
TechCrunch reported earlier this year that Zomato is quietly setting up its own supply chain to control the raw material its restaurant partners use. Two sources familiar with Zomato say the food delivery startup is thinking of expanding beyond delivering food items.
Earlier this year, Swiggy announced that its delivery fleet can now move just about anything from one part of the city to another. The service, called Swiggy Go, is currently limited to select cities. Zomato plans to replicate this, sources say. Neither of these developments have been previously reported.
Additionally, cloud kitchens are current area of focus for Swiggy. This week, the company announced it has established more than 1,000 cloud kitchens in the country, more so than any of its rivals.
Illg said cloud kitchens are crucial for a country like India, which has a low density of restaurants. “We have the visibility of all the market dynamics,” he said. “We can look at a location, comb through the data and know what kind of restaurants and food supplies would work there.”
Amazon may have stopped selling its Dash buttons for consumers, but it’s not done with dedicated Dash hardware: The company is launching its new Amazon Dash Smart Shelf today. Aimed at small businesses rather than individuals, the Dash Smart Shelf is also even more automated than the Dash buttons, as it uses a built-in scale to automatically place an order for re-stocking supplies based on weight.
Available in three different sizes (7″x7″, 12″x10″ and 18″x13″), the Dash Smart Shelf is just 1″ tall and can basically be placed under a pile of whatever stock of supplies you commonly run through while operating a business. That could mean printer paper, coffee cups, pens, paper clips, toilet paper, coffee or just about anything, really – and Amazon’s replenishment system can either be set to automatically place an order when it detects that on-hand supply has fallen below a certain weight, or you can just have it send someone in your organization a notification if you’d rather not have the order happen automatically.
The Dash Smart Shelf connects via built-in Wi-Fi, and can be powered either connected by cable to a power outlet, or via four AAA batteries, providing flexibility as to where you want to put it. Using the web or the Amazon app, you then sign in with your Amazon Business account and just pick what product you’re using on the scale that you want to top up. And if you find that your staff doesn’t like the coffee selection, for instance, you can easily change up the brand or product your’e re-ordering from your account, too.
Dash Smart Shelf isn’t available immediately for anyone to purchase directly, but instead Amazon is going to be working with select small businesses in a trial pilot this month, with the plan being to open up general availability to any Amazon Business customers that have a registered U.S. business license beginning next year. If people are keen on getting Smart Shelf into their business, they can sign up directly with Amazon to be noticed about availability.
Uber says the number of legal demands for riders’ data made by U.S. and Canadian authorities has risen sharply in the past year.
The ride-hailing company said the number of law enforcement demands for user data during 2018 are up 27% on the year earlier, according to its annual transparency report published Wednesday. Uber said the rise in demands was partly due to its business growing in size, but also a “rising interest” from governments to access data on its customers.
Uber said it received 3,825 demands for 21,913 user accounts from the U.S. government, with the company turning over some data in 72% of cases, during 2018.
That’s up from 2,940 demands for 17,181 user accounts a year earlier, with a slightly higher compliance rate of 73%.
Canadian authorities submitted 161 demands for data on 593 user accounts during 2018.
Uber said that the rise in demands for customer data presents a challenge for the ride-hailing company, previously valued at $82 billion, which went public in May. “Our responsibility to preserve consumer privacy while meeting regulatory and public safety obligations will become increasingly complex and challenging as we field a growing number of government requests for data every year,” said Uttara Sivaram, global privacy and security public policy manager at Uber.
The company also said it disclosed ride information on 34 million users to U.S. regulators and 1.8 million users to Canadian regulators, such as local taxi and transport authorities. Uber said it is mandated to give over the information to regulators as part of the “bespoke legal and regulatory requirements to which we are subject,” which can include pickup and drop-off locations, fares, and other data that may “identify individual riders,” the company said.
Uber isn’t the only company fielding a record number of demands from governments. Apple, Amazon, Facebook and Twitter have all reported a rise in government demands over the past year as their customer base continues to grow while governments become increasingly hungry for companies’ data.
But Uber’s figures offer insight into only the largest portions of its businesses — its consumer and business ride-hailing services, food delivery and electric scooters — and only covers North America, despite operating in hundreds of cities around the world.
Despite the rise in overall law enforcement requests, Uber said it “has not received a national security request” to date.
Such disclosures are rare but not unheard of. Most national security demands, such as orders issued by the Foreign Intelligence Surveillance Court and FBI-issued subpoenas, are coupled with secrecy rules that prevent the companies from disclosing anything about the demand. By proactively posting these so-called “warrant canary” statements, companies can quietly reveal when they have received such orders by removing the statements from their websites.
Apple famously used a warrant canary in its first transparency report in the wake of the NSA surveillance scandal, as revealed by whistleblower Edward Snowden. In 2016, Reddit quietly removed its warrant canary suggesting it had received a classified order.
Although the First Amendment protects government-compelled speech, the legality of warrant canaries remains legally questionable.
An earlier version of this report incorrectly stated Sivaram’s title. This has been corrected.
A little over a year after the dissolution of the once high-flying blood testing startup Theranos, another startup has raised over $27 million to breathe new life into the vision of bringing low-cost blood tests to point-of-care medical facilities.
Unlike Theranos, Truvian Sciences is not claiming that most of its blood tests do not need clearance from the U.S. Food and Drug Administration, and is, in fact, raising the money to proceed with a year-long process to refine its technology and submit it to the FDA for approval.
“More and more consumers are refusing to accept the status quo of healthcare and are saying no to expensive tests, inconvenient appointments and little to no access to their own test results,” said Jeff Hawkins, the president and chief executive of Truvian, in a statement. “In parallel, retail pharmacies are rising to fill demand, becoming affordable health access points. By bringing accurate, on-site blood testing to convenient sites, we will give consumers a more seamless experience and enable them to act on the vast medical insights that come with regular blood tests.”
Hawkins, the former vice president and general manager of reproductive and genetic health business at Illumina, is joined by a seasoned executive team of life sciences professionals including Dr. Dena Marrinucci, the former co-founder of Epic Sciences, who serves as the company’s senior vice president of corporate development and is a co-founder of the company.
Image courtesy of Flickr/Mate Marschalko
As part of today’s announcement, the company said it was adding Katherine Atkinson, a former executive at Epic Sciences and Illumina, as its new chief commercial officer, and has brought on the former chairman of the Thermo Fisher Scientific board of directors, Paul Meister, as a new director.
The ultimate goal, according to Hawkins, is to develop a system that can be installed in labs and can provide accurate results in 20 minutes for a battery of health tests from a small sample of blood for as low as $50. Typically, these tests can cost anywhere from several hundred to several thousand dollars — depending on the testing facility, says Hawkins.
Using new automation and sensing technologies, Truvian is aiming to combine chemistries, immunoassays and hematology assays into a single device that can perform standard assessment blood tests like lipid panels, metabolic panels, blood cell counts, and tests of thyroid, kidney and liver functions.
The company’s system includes remote monitoring and serviceability, according to a statement from Truvian. Its dry reagent technology allows materials to be stored at room temperature, removing the need for cold chain or refrigerated storage. According to a statement, the company is working to receive a CE Mark in the European Economic Area and submitted to the FDA for 510(k) clearance along with a “clinical laboratory improvement amendments” waiver application to let the devices be used in a retail setting or doctor’s office.
“We don’t believe that single drop of blood from a finger stick can do everything,” says Hawkins (in opposition to Theranos). “Fundamentally as a company we have built the company with seasoned healthcare leaders.”
As the company brings its testing technology to market, it’s also looking to compliment the diagnostics toolkit with a consumer-facing app that would provide a direct line of communication between the company and the patients receiving the results of its tests.
Truvian’s data will integrate with both Apple and Google’s health apps as well as reside on the company’s own consumer-facing app, according to Hawkins.
“At the end of the day precision medicine is going to come from integrating these data sources,” says Hawkins. “I think if we pull off what we want we should be able to make your routine blood testing far more accessible.”
Brava had a lot of things working in its favor as startups go. It was founded in 2015 by serial executive John Pleasants, whose past stints have included as co-president of Disney Interactive Media Group, COO of Electronic Arts, and CEO of Ticketmaster.
His plans to create a suite of snazzy direct-to-consumer line of smart hardware and software products, beginning with the Brava oven, also attracted tens of millions of dollars from an impressive line-up of backers, including True Ventures, TPG Growth, and Lightspeed Venture Partners, among others. Indeed, though some sophisticated kitchen devices have come and gone (Juicero), some liked what Pleasants and his growing team in Redwood City, Ca., were trying to cook up, and one of these admirers, apparently, was the Middleby Corporation, a publicly traded commercial and residential cooking and industrial process equipment company in Illinois that just acquired Brava — though neither Brava nor Middleby is disclosing terms of the deal.
We were in touch via email yesterday with both Pleasants and the CEO of Middleby, Tim FitzGerald, to learn what they can share about the tie-up, as well as to ask what happens to Brava and its tens of employees now.
TC: This was a young company. Why turn around and sell it?
JP: The company itself is four years-old and we’ve had product available in market for one year. We’ve been venture funded to date and had the option to continue raising growth capital or merge with Middleby Corporation. Brava’s mission has always been to enable everyone to cook delicious, healthy home-cooked food with minimal time and effort, and we believe the fastest way to achieve this bold goal is through a strategic partnership with someone who can help make that happen.
TC: How did Brava and Middleby come together? Who brokered the first conversation? Was Brava talking with anyone else?
JP: We’ve been in talks with many people about financing, and a select group of strategics about a deeper partnership to achieve our objective. We had the assistance of City Capital in the process, and they made the introduction to Middleby in Chicago.
TC: How much is Middleby paying for the company? Also, is this an all-cash deal?
JP: While not disclosing the total amount, the consideration includes a mix of cash and stock
TC: So what’s next? Will Middleby retain the Brava name or will this be phased out over time?
JP: Brava as it’s known today will not only continue but see accelerated growth and expansion. We will continue to sell the product and support our customers under the Brava brand while further innovating new products and services for our customers.
TF: The Brava name will remain. The product and technology will enhance our existing residential and commercial kitchen appliance portfolio. In Middleby Residential, we manufacture and sell Viking Range and other well-known consumer brands.
TC: How many people does Brava currently employ and how many if any are going to Middleby?
JP: Brava employs 38 people and all will be going to Middleby. I will remain as the CEO of Brava and will also work with other Middleby divisional leaders to leverage Brava’s light cooking platform and services for their existing brands. We’re excited by this because we currently have many ideas and plans for leveraging the Brava technology across new form factors, business segments (residential and commercial) and geographies. This all becomes more feasible with Middleby.
TC: We last talked before the Brava oven was out in the world. How many units did you wind up selling?
JP: We’re closing in on 5,000 customers and expect to have a big holiday.
TC: What were some of the lessons learned with this experience?
JP: People love it. You can see this every day throughout our online communities. It’s not just about the quality of food and the ease in creating it . . . we hear comments all the time about how spouses who hardly ever cooked now do, how kids who never liked vegetables now ask for more . . .
In terms of what people want that doesn’t currently exist, [I’d say] more recipes and programs (we have thousands, but there are so many more we can do) and more flexibility; we can uniquely cook multiple ingredients simultaneously to perfection with our light-cooking technology and this enables lots of fun combinations [but] our customers would like even more flexibility in mixing and matching ingredients.
TC: Any business lessons?
JP: In terms of business lessons, it’s challenging to explain Brava’s full value proposition in a quick ad on social media. We have revolutionary technology that enables a new way of cooking that’s better, easier, faster — and that sounds almost too good to be true.
TC: Do you think the market for smart cooking appliance is big enough at this point? What do you think are the remaining hurdles and how do consumers get past them?
JP: The “smart cooking appliance” market is in its infancy. There are still very few pioneers in the space and household penetration is negligible. But this is all about to change. Once people know someone who can personally attest to the benefits, I fundamentally believe the adoption curve will bend exponentially. People spend a lot of money on household appliances…once they can be “smart” and “chef powered” and deliver well against that promise, why would most people not want a “smart” one versus a “non-smart” one?
TF: We see this market growing significantly with the next generation [of home cooks] who currently rely on and demand a digital experience.
Can cloud kitchens take off in India? Swiggy, one of the country’s largest food delivery startups, is betting on it. The Prosus Ventures-backed startup said on Wednesday it has established 1,000 cloud kitchens for its restaurant partners in the country — more than any of its local rivals.
The Bangalore-headquartered firm said it has invested in over a million square feet of real estate space across 14 cities in the country over the last two years to help restaurant partners of all sizes expand to more locations both within their city and across new cities through cloud kitchens.
Swiggy said it has already invested about $24.5 million in its cloud kitchens business that it calls Swiggy Access, and plans to pump another $10.5 million into it by March next year.
Compared to developed nations like Japan and the U.S., India remains a very underpenetrated market for restaurants. “Even in dense areas, you know you need more restaurants,” said Larry Illg, chief executive of Prosus Ventures, in an interview with TechCrunch.
“That’s the value of creating kitchens for delivery platforms. We have the visibility of all the market dynamics. We can look at a location, comb through the data and know what kind of restaurants and food supplies would work there. Over time, you come to realize the neighborhood and their collective behaviour,” he said.
That’s where cloud kitchens could help. For restaurateurs, cloud kitchens reduce the risk when they look for expansion. “You have figured out the menu, and you know the operations. But you still have to take a big real estate risk when picking the location. Kitchens allow them to de-risk all these factors,” said Illg.
Early signs show that the concept of cloud kitchens is working for Swiggy Access partners. The company said one in three partners has been able to expand to a second kitchen within 90 days of signing up. Many restaurants from smaller cities have also expanded into big cities, the startup said.
Raymond Andrews, founder and chief executive of Biryani Blues, said in a statement that Swiggy Access has enabled the eatery to “expand quickly into newer territories not just in Delhi-NCR but also to Chandigarh. In the six years of our existence, I have found Access to be the easiest way to expand my brand. It’s a game-changer for the industry.”
Swiggy believes that India could emerge as the second-highest number of cloud kitchens after China in the coming years, said Vishal Bhatia, CEO of New Supply business at the firm. A year ago, the company had just 200 cloud kitchen partners.
“The milestone of Swiggy successfully creating over 1000 partner kitchens shows the faith the restaurant partners have in the concept and bolsters our pioneering efforts in enabling more success stories in the restaurant ecosystem,” he said.
Swiggy is also betting that cloud kitchens will help it speed up the delivery time. Swiggy co-founder and chief executive Sriharsha Majety said last month that the company is quickly scaling up “pods” that house cloud kitchens for restaurants in a way that they are “within a 10-minute reach of 99% of their consumers.”
Swiggy added that it is on track to create 15,000 new direct or indirect jobs in the restaurant industry through its Access program by next six months.
The announcement today comes weeks after news broke that Travis Kalanick, founder and former chief executive of Uber, is buying up cheap properties in India and some other markets to scale his cloud kitchens venture.
Indian newspaper Economic Times reported earlier this month that Ashish Saxena, former India head of TexMex Cuisine, franchisee for American casual dining restaurant chain Chili’s Grill & Bar in the country, is working with Kalanick on CloudKitchens, the new venture.
Food delivery firm FoodPanda, owned by ride-hailing giant Ola, earlier this year also pivoted to cloud kitchens. Swiggy claims it leads the cloud kitchens market in the country.
It will soon have another rival to compete with. American e-commerce giant Amazon plans to soon enter the food delivery business in the country.
Cloud kitchens, ghost kitchens, dark kitchens. No doubt by now you know a little about these businesses that are moving into underused or more affordable properties that can be turned into shared workspaces for the purposes of cooking up meals exclusively for delivery.
You probably also know that former Uber CEO Travis Kalanick has been at the forefront of the trend for more than a year, growing his CloudKitchens business as fast as he can, fueled in part by $400 million that he quietly raised from the sovereign wealth fund of Saudi Arabia earlier this year. Sometimes these are in the U.S., in so-called opportunity zones or lower-income areas that, under the Trump Administration, are enabling businesses to set up shop and avoid federal taxes in exchange. Kalanick is also reportedly eyeing big moves into both India and China.
CloudKitchens has competition, though. In fact, among a growing number of rivals, its fiercest competitor is Kitchen United, a Pasadena, Ca.-based outfit that has raised roughly $56 million to date from investors including GV, Fidelity, and the real estate operating companies Divco West and RXR Realty, among others — and which has turned down hundreds of millions of dollars more for the time being.
Does its founder, a tech veteran turned restaurateur Jim Collins, not understand the opportunity before him? It was one question among many that Collins answered last week at a StrictlyVC event in San Francisco where he dazzled the crowd with his comic timing — and his tactics. The interview — conducted by former TechCrunch editor and now CNBC reporter Lora Kolodny — also provided one of the best overviews we’ve heard to date of what this fast-ballooning industry is really about.
On Collins’s background:
I did tech companies for a bunch of years and sold the last one off about 10 years ago, and i said i never want to work with venture capital people again. [Laughs.] That’s sort of true but not completely. Honestly, I was burned out, it was a grind.
[One day] there was a restaurant up the street for sale. I walked up the street and bought the restaurant and then came home and told my wife, ‘I bought the restaurant.’ And so we had a conversation that [that decision] might entail a lifestyle change where I was going to be gone every night, and I was at the restaurant every night for about a year and a half getting it going, but I absolutely fell in love with the restaurant business.
On how he came to run Kitchen United:
[Our restaurant] is in Montrose outside of Los Angeles, in a sleepy community that most people in Los Angeles have never heard of, and about a year-and-a-half ago, we started getting people at the door, saying, ‘Yes, I’m from Postmates’ or ‘DoorDash’ or ‘UberEats’ and ‘I’m here to place an order.’ Because we weren’t signed up on any services, I was like: What is that? I was so far outside of my past world that I didn’t even know what it was. But all of a sudden, it was a thing and [it was growing], and one day, a headhunter who I knew well called me up and said, ‘Hey, I want you to take a look at food thing.’ So he sent me a job description (that was honestly terrible) for the CEO role at Kitchen United, so I went and met the founders — the two folks who were with the company at the time — and I kind of fell in love with them and felt like it was a big idea that we could go after.
What they pitched him on, and why he didn’t think it would work:
The original business plan was, ‘Robots and autonomous cars are going to change the food business, so we need to be ready for that, so let’s build kitchens!’ And I said, ‘I think that’s actually true . . . in 10 years. The problem that the restaurant industry is experiencing because of the explosion of the shift in consumer demand and consumption isn’t a robots-and-autonomous-cars problem. It’s a proximity problem, and proximity is a problem we can solve tomorrow while we’re waiting.
What Kitchen United is building exactly:
We build kitchen centers. Basically you go into a space that’s $25 per square foot that no one has rented in 20 years, so we’ll take that space and put a bunch of kitchens in it. We also install a lot of technology — IoT, conveyer belts, all kinds of display information; we use machine learning to understand fire times — a whole series of things that go into deploying a kitchen center. Then we build a pick-up center in the front of the space that’s kind of the retail interface where drivers from Ubers, Postmates, DoorDash, Cavier, GrubHub (and seven other services can pick up the food) and [consumers can also grab pick-up].
There’s a thing called shared kitchens, which means that I’m going to go and cook in a space this morning, and when I’m done, somebody else is going to walk in this afternoon and cook in that same space. That’s not our business. Ours is effectively creating four-wall spaces for known restaurants to operate inside of our facilities for the purpose of extending their reach to meet new markets for delivery and consumer pick-up.
On whether Kitchen United is raising more money soon:
I don’t think so. We closed our Series B about six weeks ago.
It’s weird to be an entrepreneur in this world. There are two different operating methods that you’re encouraged to pursue if you’re going after a hot space. You’re either encouraged to be the biggest and fastest and to take as much money as you possibly can so you can be the biggest fastest, right? Or you’re encouraged to work hard and build a great business and then once you’ve built a great business, go out and get lots of money so you can build it.
Honestly, I felt like this business was so complex, that we had to learn about elementary stuff, like, where do we build these? Where’s the right place to put ’em? When we first started, we had meetings with big investment firms that were saying, ‘We’ll put $250 million against a $750 million valuation right now.’ That was the first conversation, when it was really like, we’ll put $8 in against whatever [laughs]. But when we were having that conversation, I’m flying home, thinking, $250 million? How would I deploy that? And they’re saying, ‘Well, you just go out and buy a bunch of warehouses in opportunity zones, and put kitchens in them, and it’ll be a great business! It’ll be awesome and you’ll own the market!”
Except warehouses in opportunity zones are too far away from consumers for food to get there fast enough for consumers to want to order from those restaurants. So I would have deployed $150 million in venture capital on brick walls and dry wall and stoves and vents and plumbing — like, ugly stuff. And once that stuff is deployed, it isn’t like it’s so easy to pick it up and move it someplace else.
How Kitchen United competes, if not in a land grab:
Most conservative projections for this space over the course of the next four years are that we’re going to go from somewhere around $30 billion today to around $230 billion, so people come along and people say, ‘This guy is in this business and he’s got all this money’ or ‘This company has raised this much to put to work; does that make you nervous?’ And the answer is, if we go out and build 3,000 of these things, we build like the fourth-largest restaurant chain in the U.S., we’ve only addressed about 40 percent of the total market. So when I look at it from a pure antiseptic, practical perspective, the fact is we need other people in the space, helping us solve the problem. And honestly, to the extent that other people are learning from us and getting better, and we’re learning from others and getting better, I think the competition isn’t a bad thing, I think it’s a good thing. (Here, Kolodny teased him for his “very diplomatic answer.”)
On what makes Kitchen United distinct from its long and growing list of rivals:
First, we decided the U.S. is a giant market, so we decided to focus here on the U.S., despite requests probably once a week from somebody saying, ‘Come to Saudi Arabia’ because it turns out it’s hard to build kitchens anywhere in the world, and we’re pretty good at building them.
The other thing we did . . .[is decide to play nice with Kitchen United’s two biggest customers — major food chains and delivery services]. I don’t want to boil the ocean. I don’t want to be a restaurant; I don’t want to cook food for consumers. There are 800,000 restaurants in the U.S., so let’s let them cook food and let’s come alongside them and help them expand what they are doing into new areas. . . . Our whole job is to expand the inventory for the [delivery] marketplace, expand the addressable market for the restaurant, and expand options for consumers so that we have a great business for all the various markets that we’re serving.
On the criteria to become part of Kitchen United:
We don’t work with startup restaurants. We don’t work with people that only have one location. When we started, we didn’t know what would work so we brought in all kinds of restaurants and ended up having to kick most of them out because either they didn’t know how to be a restaurant or they didn’t know how to be a multi-location restaurant. This is true of the ghost kitchen community as a whole: if you’re a restaurant and you don’t already have a consumer connection and an audience and a following and you try to open in a space with no consumer interface, no storefront, you have to climb a giant mountain.
There are some virtual restaurant brands. We have one in our location in Chicago. They were people who had operated multi-location restaurants and had a tremendous amount of internet marketing savvy and skill, so we decided to let them operate and they’re actually doing pretty well, so that’s an interesting new wrinkle.
On whether anything disqualifies a business from using Kitchen United as a platform:
Yes, a lot of large chains that will say we want to be in Kitchen United. We were at a big real estate development conference in Las Vegas and there were probably 20 chains that talked with us about being in KU and probably 18 of them would not qualify.
You’d like to think [that’s on a nutritional basis]. One thing we’ve learned isn’t to filter what the American consumer wants; our job is just to provide a path for them to get what they want.
The actual challenge is giant chains that have very little ability to create an online connection to their consumer. If they don’t have sophisticated online ordering interfaces, if they haven’t deployed the right technologies into their ERP and their ordering infrastructure and all the stuff that goes into the back end, then they aren’t going to be a good fit for KU because of the operational problems they have to overcome is just too great.
On how Kitchen United uses the data that’s running through its operations:
It’s a hot topic. We’re pretty careful. KU is a partner to our restaurants, and so we learn information through our own order channel. We don’t derive much information through the marketplace channels. There’s sort of a misnomer that when the marketplaces deliver orders . . . all we know is a consumer name, we don’t know an address or any of the other information. So you don’t get a lot of data like that.
Information we do get is stuff like how many chicken sandwiches a Chick-fil-A is selling or whatever. And you might think, ‘Oh cool, so you’ll just make a chicken sandwich [of your own] when Chick-fil-A closes down and you’ll sell it to the public.’ The restaurant world is very nervous about that; it’s a big topic in this space. If you go to restaurant conferences, there are a lot [accusations of], ‘They’re stealing my data.’ I’m the guy on stage saying, ‘It’s their data [the delivery marketplaces]. They attracted the consumer, they got the order from you. It’s their data. They aren’t stealing your data, it’s their data; you chose to allow them to sell your product on their network.’
But [also] it’s not as easy as that. You can’t just whip up a fried chicken sandwich and make consumers like it. The world is littered with even more failed restaurants than failed startups.
What happens to neighborhoods — and local restaurants — if Kitchen United succeeds:
The restaurant industry is huge — $800 billion in the U.S., $675 billion if you discount hospitals and stuff like that. [This take-out market] is somewhere around $33 billion this year. So we’re edging into it as a percentage, but if you look at dining room revenue year over year for the last 20 years in the U.S restaurant industry, it grows 1% per year, which is pretty much consistent with population growth. And the same is projected to be the case this year.
So restaurants aren’t dying because of marketplace delivery. Marketplace delivery is actually pulling business out of grocery stores. That’s why you see Kroger and Amazon and other grocery store chains plowing down rows of [goods] and installing warm counters with warm food and you’re seeing grocery chains focus on delivery.
It’s the wild west. It’s a crazy market and I absolutely, positively love it. It’s not a question of what gets me up in the morning. I never go to bed.
Picnic, a robotics startup that focuses on food production, announced today that it has raised $5 million in additional seed funding. The new round was led by Creative Ventures, with participation from Flying Fish Partners and Vulcan Capital.
The company also said it has hired Kennard Nielsen, a product engineer who worked on the first four Kindle Fire tablets, Nike Fuelband, Microsoft Xbox and Doppler Labs’ HereOne from Doppler Labs at previous positions, as its new vice president of engineering.
The new funding will be used for product development, hiring and marketing.
Picnic is known for an automated pizza assembly system that launched in October. The configurable, modular platform currently focuses on high-volume pizza production and can reach rates of up to 180 18-inch pizzas or 300 12-inch pizzas an hour. The system fits into existing kitchen layouts, including food trucks and kiosks, and integrates with Picnic’s software to provide backend data and cloud analytics that help with consistency, speed and reducing food waste.
Picnic operates on a “robotics-as-a-service” model, with users paying for the system on a subscription basis. The pizza assembly system’s first customers were Centerplate, a food and hospitality provider for large event venues, and Washington-based restaurant chain Zaucer Pizza.
In June, Picnic also hired Mike McLaughlin, a food and beverage industry veteran who previously held roles at BUNN, Concordia Coffee Systems and Starbucks, as its vice president of product.
DoorDash is facing a new lawsuit regarding its tipping practices. This time, it’s coming from Washington, D.C. Attorney General Karl Racine. In the suit, Racine accuses DoorDash of engaging in deceptive tipping practices while also failing to provide any relief to workers whose tips were taken.
Racine’s office first opened an investigation into DoorDash’s practices in March 2019. In D.C., the suit alleges DoorDash customers paid millions of dollars in tips that the company used to offset the costs of its payments to workers over the span of two years. Racine’s office is seeking to make DoorDash pay damages and restitution.
“We strongly disagree with and are disappointed by the action taken today,” a DoorDash spokesperson told TechCrunch in an email. “Transparency is of paramount importance, which is why we publicly disclosed how our previous pay model worked in communications specifically created for Dashers, consumers, and the general public starting in 2017. We’ve also worked with an independent third party to verify that we have always paid 100% of tips to Dashers. We believe the assertions made in the complaint are without merit and we look forward to responding to them through the legal process.”
The suit focuses on how DoorDash had been offsetting the amount it pays its delivery drivers with customer tips. DoorDash’s payment structure as follows: $1 plus customer tip plus pay boost, which varies based on the complexity of order, distance to restaurants and other factors. It’s only when a customer doesn’t tip at all, which DoorDash told Fast Company happens about 15 percent of the time, that DoorDash is on the hook to pay the entire guaranteed amount.
In July, DoorDash announced it would change its tipping model, about a month after it doubled down on that same model. In August, DoorDash revealed how its new model would work but it later made clear that it would not be paying back any workers for lost wages.
“There’s no ‘back pay’ at issue here because every cent of every tip on DoorDash has always gone and will always go to Dashers,” a DoorDash spokesperson previously told TechCrunch via email in response to a question about whether or not DoorDash would back pay its delivery workers.
When Instacart changed its tipping practices earlier this year, it retroactively compensated shoppers when tips were included in the payment minimums. DoorDash, however, does not see the need for back pay. DoorDash fully implemented its new policy in September.
Meanwhile, DoorDash is funding a ballot initiative alongside Uber and Lyft to try to ensure it doesn’t have to treat its workers as W-2 employees.
The ballot measure looks to implement an earnings guarantee of at least 120% of minimum wage while on the job, 30 cents per mile for expenses, a healthcare stipend, occupational accident insurance for on-the-job injuries, protection against discrimination and sexual harassment and automobile accident and liability insurance.
This initiative is a direct response to the legalization of AB-5, the gig worker bill that will make it harder for the likes of Uber, Lyft, DoorDash and other gig economy companies to classify their workers as 1099 independent contractors.
I’ve reached out to DoorDash and will update this story if I hear back.
BBQ legend Weber is getting into the connected cooking game with their new SmokeFire grill, which uses wood pellets for fuel and incorporates technology developed by Weber in partnership with appliance startup June for Wi-Fi-enabled smart cooking.
The SmartFire grill, which will be available for pre-order in the U.S. starting on Cyber Monday and which will start shipping early next year, is a first in more ways than one for Weber. Yes, it packs in connected smart cooking — but it’s also the first time Weber has made a pellet grill, a style of outdoor cooker popularized by Traeger, and useful for both low and slow smoking, as well as high-heat grilling like a more traditional coal, natural gas or propane BBQ.
Weber may not have a history of building pellet grills, but it does have a very strong reputation when it comes to outdoor cooking appliances. The business introduced its iconic Kettle Grill back in 1952, and consistency racks up top marks for its range of BBQs, known for their even, consistent temperatures and long-term durability.
This legacy cooking industry heavyweight apparently decided to partner with June once word of the startup’s own Smart Oven started circulating around the office. June and Weber teamed up to test thousands of recipes in the development of the Weber Connect smart grilling software, which provides step-by-step directions ranging from prep through the entire cook, as well as an ETA on whatever you’ve got on the grill, delivered to and controlled from your smartphone.
The SmartFire comes in two sizes, with 24″ and 36″ grilling surfaces respectively, for $999 and $1,199 respectively. The design looks like what you’d expect from a pellet grill — with the interesting choice of locating the hopper wherein you feed said pellets to the back of a small prep shelf on the right side of the grill. If you’re new to pellet grills, they feed these processed wood pellets, which produce great smoke but very little ash because of their high-efficiency burn, in a controlled manner that keeps temperature inside the grill consistent where you set it.
Low and slow is a great way to grill, and having intelligent cooking features to guide you along the way should help alleviate rookie mistakes like over and undercooking. Plus, it’s just exciting to imagine what Weber can do with its first pellet grill.
Bolt Bikes, the Sydney, Australia-based startup founded in 2017, is taking its electric bike platform designed for gig economy delivery workers to the U.S. and UK.
The company is expanding on the heels of a $2.5 million seed round led by Maniv Mobility, European e-mobility firm Contrarian Ventures, individual investors and former executives of Uber and Deliveroo . The company was founded by Mina Nada, former Deliveroo and Mobike executive) and Michael Johnson, a former Bain & Co executive.
Bolt Bikes now provides its flexible subscriptions, which include vehicle servicing, in Sydney and Melbourne, Australia, San Francisco and London. The company sells its electric bikes. But the main premise is to rent them out for commercial use. The electric bikes are rented on a week-to-week contract for $39.
The Bolt Bikes platform includes a the electric bike, fleet management software, financing and servicing. Subscribers get 24-hour access to the bike. A battery charger, phone holder, phone USB port, secure U-Lock and safety induction is included. Bolt Bikes also offers the first week as a free trial.
“Being in the food delivery industry since its inception, we saw that light electric vehicles were the real future of ‘last mile’ logistics, yet no-one was offering the right vehicle, financing or maintenance solution,” Nada said in a statement.
Bolt Bikes has piqued the interest of more than investors. Postmates has been piloting a Bolt Bikes rental program in San Francisco since June.
And the company has aspirations to increase its fleet and to expand to more cities in the U.S., UK and Australia.