A year or so ago, it seemed the Uber of everything was entering the marketplace and capturing VC dollars. The conventional wisdom is that with a smartphone, anything could be a click a way — no matter what one wanted that anything to do. Suddenly everything, everywhere was on-demand — food, groceries, tech support, office supplies, rides, pets and candy. Seriously, it seemed that there was nothing that couldn’t be Uberized.
The problem with a investing space that gets swept up in possibilities and what can be done is that investors run something of a serious risk of asking themselves if something should be done. As it turns out, though many things can be Uberized, not everything makes the conversion all that smoothly, or in a way that is as intuitively appealing as Uber.
As Karen Webster pointed out, claims about the transformational impact of the on-demand economy are perhaps a bit overstated, and the “multibillion dollar market caps of delivery companies” may represent a tough of over-exuberance.
“Sure, being able to get my groceries delivered by Instacart (valued at $2 billion) is convenient, but clearly not life-altering. And maybe not even sustainable as a stand-alone business concept. The barriers to entry for delivery companies seem pretty low, as evidenced by the fact that there are now hundreds of them in existence.”
Well, there are now “hundreds in existence” minus one, as the on-demand delivery space saw its latest casualty reluctantly limp off the field this week.
SpoonRocket, a delivery app that specialized in selling pre-made meals delivered hot and ready to go, announced, after some confusion and denials, that their site is officially shutting down as it is unable to raise the capital necessary to go on.
So what went wrong exactly? And what are the lessons for the on-demand market in general?
Missing Customers’ Expectations
There is a famous saying/trilemma that tends to pop up across any project-based ecosystem: fast, good, cheap — pick two. SpoonRocket recently learned that when one is in the food delivery business, good is actually not negotiable even if you happen to get the other two on lockdown.
The businesses premise was simple enough: offer pre-made meals that were cheaper than the normal delivery alternative and that arrived just a bit faster. If Sprig was the sort of gourmet meals on delivery concept, SpoonRocket was more a decent dinner on tap alternative.
So SpoonRocket offered a meal for less that $10 in less than 10 minutes — a system that was based on a group of in-house chefs mixing up bulk portions of meals each day and then sending them out for distribution through cars equipped with warming cases.
Investors liked the concept, dropping $13.5 million into the food delivery startup between a seed and Series A round — and the menu drew some early rave reviews, particularly the grass-fed beef stew and Salvadoran pupusas revueltas.
So what went wrong?
Well, according to reports, early problems showed up with the food in the form of the old fast, good, cheap trilemma.
One TechCrunch reporter who attempted to use the service noted:
“I ordered SpoonRocket a few times soon after launch. However, I and other customers I spoke to found the meats to be sketchy and the whole meals to be somewhat gross. I ended up switching to SpoonRocket’s more expensive and slower competitor Sprig.”
That, it seems, is a switch an awful lot of customers ultimately made, as Sprig is reportedly doing 6x the volume that SpoonRocket was doing in San Francisco.
Running Out Of Money
SpoonRocket’s sites went dark early this week, though the firm initially denied a shutdown and wrote off the inability to book meals to site maintenance.
“We’re just resetting,” founder and CEO Anson Tsui told VentureBeat on Monday. He further noted the company had not made any layoffs and that things would be back to normal in a few days.
Yeah, not so much.
Later reports revealed that SpoonRocket had been in an acquisition deal with an unnamed QSR player that at the last minute fell through, leaving them without any options, as they have mostly spent through all their money.
“It’s been challenging raising capital given the market conditions,” SpoonRocket Co-Founder Steven Hsiao said. “We were exploring different strategic options, but deals fell through last minute. With competitors like Sprig, it’s a challenging arena for us, given the amount of capital we raised, competing with services that have a little more capital.”
Sprig was also once thought to be a potential buyer, though that deal seems to have evaporated before the QSR deal fell through.
The punchline, reports note, was that SpoonRocket had just gotten its meals to a margin-positive place, but unfortunately it was just too little, too late for investors.
And while some of SpoonRocket’s problems were unique (making food consumers didn’t like stands out), some of the startup’s troubles seem to be baked into the on-demand delivery market. Ultimately, needing to differentiate itself from Sprig pushed SpoonRocket to food they were cooking a little too fast and for too cheap — and it was the wrong difference to make. Sprig lives to fight another day, while SpoonRocket is gone.
And it seems as if VCs are losing their love of the big checks. As these week’s anemic investment result can attest to, it seems a lot more of these heads up competitions are in the ecosystem’s future as we all find out which firms can live cut off from free-flowing venture capital.
Investments for week 3-11-2016
To call the investment activity from the week that ended March 11 anemic would be, frankly, an understatement. The total tally was a bit over $51 million, representing the lowest dollar showing thus far in the year to date. B2B barely registered on the landscape, with slightly more than $1 million of activity in the week. That continues a trend where FinTech fund flows have dominated, and the crumbs go toward B2B.
The pickings were slim, overall, and only two deals were above the threshold of double digits, with the biggest one coming to EZBob, through a $28.81 million Series C round that was led by new investor Leumi Partners, and which also had backing from a current investor, Oaktree Capital Management. The firm offers online loans aimed at small and midsized businesses within Europe. Though its five-year existence, EZBob has said it has lent more than 100 million pounds to roughly 8.500 recipients.
Culture Amp, a data analytic platform focused on corporate culture, grabbed $10 million in Series B financing, with activity led by Index Ventures, and with participation from other firms including Felicis Ventures. The funding will be earmarked for expansion into Europe and the U.K,, and a new office will open in London later this month.
We’re not quite at the end of the quarter, but a snapshot, this time of the FinTech realm in March alone, shows that the dominant subset within the sector, by far, has been banking, where 82 percent of all investments in the month have gone, and this is lagged, quite significantly, by alternative finance, at 8 percent.