Deliveroo raises US$275m to escalate food-delivery wars

[SAN FRANCISCO] Deliveroo, a London-based maker of an app for ordering take out, announced Friday it has raised US$275 million to fuel growth and take on well-funded competitors.

The deal values Deliveroo at more than US$1 billion, according to a person familiar with term sheet who asked not to be named as the deal is private. The same figure is also being reported by TechCrunch and Sky News.

The cash infusion is on top of another roughly US$200 million Deliveroo raised last year. The considerable fundraising shows what a cost-heavy and competitive market food-delivery has become. In Europe, Deliveroo is competing with Just Eat, a UK-based company valued at more than US$3 billion; Uber, which has been expanding in to the sector; and Delivery Hero, backed with more than US$1 billion from investors.

Deliveroo, founded in 2013, has become one of the top delivery services in Europe, with its kangaroo logo visible on scooter-riding couriers throughout cities such as London and Cambridge. It has expanded elsewhere on the continent, as well as Hong Kong, Singapore and United Arab Emirates.

It's a cost-heavy business - with money needed to expand in new cities and pay drivers - but the company collects a fee on each purchase. The company said it's profitable in several of its "established markets", without being more specific.

The business model has proven attractive to venture capitalists, who last year poured US$5.5 billion into food-delivery companies globally, according to research firm CB Insights. Uber chief executive officer Travis Kalanick, who has raised more money than any other venture-backed startup in the world, sees food delivery as a natural extension for his company's network of cars and drivers already on the road giving people rides.

In taking on Uber, Deliveroo CEO William Shu said his company's strongest advantage is its focus on delivering food, compared to Uber's core business as a taxi service.

"What we're not going to do is pick people up and drive them around," Mr Shu said in an interview.

Martin Mignot, a partner at Index Ventures, an early backer of Deliveroo, said the company's business model works because as it builds a customer base drivers can deliver more meals.

"The more volume you get the better you can utilize the drivers who we are paying by the hour," he said in an interview. "There is massive potential." He said the company is unlikely to enter the US market, however.

Deliveroo received funding from Bridgepoint, DST Global, and General Catalyst, as well as Greenoaks Capital.

The new financing comes on top of another roughly US$200 million Deliveroo raised last year. The latest cash injection will help fuel growth, Shu said. The company has 800 employees and lists 200 job openings on its website. The company wants to build more kitchens that restaurants could use exclusively for providing takeout, he said.

The sizable amount of money going into the sector shows the cut-throat nature of the fast-moving food-delivery business. In recent months, several companies have shut down, while others have been acquired.

"You're going to see things shake out," Mr Shu said.

Fred Destin, a general partner at Accel Partners and an early backer of Deliveroo, said investors are becoming more careful about which startups they back, allowing established companies to raise more money while leaving others without much traction to struggle. Last month, the food-delivery startup Take Eat Easy filed for bankruptcy.

"There's a bifurcation between the best companies that have access to deep pockets of capital and others that are struggling," he said.

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