On-demand, sure. But not in demand.
Reuters reported that the on-demand delivery sector, which has seen inflows of as much as $9 billion into 125 firms over the past decade from VC firms, is now getting greater scrutiny from would-be investors. And the money may not be coming as quickly or as easily as before.
Of that $9 billion tally, $2.5 billion has flowed into delivery startup coffers this year alone. But behind the headline numbers, VCs have, as Reuters reported, “lost faith” in on-demand delivery, which seemed, not long ago, to meld convenience, speed and mobile technology. VCs vote with their pocketbooks, and a large chunk of the $2.5 billion that has come this year accrued in the first half of 2016, reducing flows headed into the end of the year from a roaring current to a gasping trickle. Reuters noted that a paltry $50 million has come to the sector in the fourth quarter.
What’s got the purse strings tightening? The VCs themselves have become worried that startups might be delivered to the ashcan of investing history, that they could fail, which means money down the drain. The arena is beset with unrelenting pressures that cut across low margins, in turn dictated by neverending competition and what Kleiner Perkins Partner Brook Porter defined as “a race to the bottom” in an interview with the newswire.
Failures include firms far-flung across the globe, with SpoonRocket in the U.S. and PepperTap, based in India, among them. Uber has, of course, gotten in on the action, which makes the competitive pressure even more intense via UberEATS and UberRUSH. It’s hard to do battle with a tech giant that has $15 billion in cash on the books — even for some firms that are looking to deploy autonomous vehicles in efforts to rein in labor costs.
In the end, money is the oxygen of startups, and caution from investors makes that air both precious and … a bit thin.