“We don’t deliver,” food catering startup Goodybag emphasized in a slide presentation to a room overflowing with investors and journalists.
Goodybag, an Austin-based startup, was among the dozens of young companies that took the stage on Tuesday at the conclusion of Y Combinator’s program, a prestigious startup accelerator in Silicon Valley. And like many of those pitching their businesses, Goodybag’s executives felt compelled to make clear to investors that theirs isn’t yet another food delivery startup with questionable economics.
The effort by Goodybag and others on Tuesday highlight the tougher climate in Silicon Valley for investment dollars. No longer are entrepreneurs jostling to create yet another delivery startup like Postmates, Uber, and others that pay delivery drivers high wages to ferry $6 burritos.
“The economics of what we’re doing are very good and we can scale very fast,” Jay Panchal, Goodybag’s CEO, insisted to anyone listening.
Although it markets itself as a fast and convenient way to get hot meals, much like the maligned food delivery services, Goodybag outsources deliveries to others. About half of its food orders are delivered by the restaurants themselves, while Goodybag relies on third-party delivery services to do the rest.
It makes its money by taking a cut from each order. The company said that it can break even in any market after six months after spending merely $100,000 to get up and running.
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In the last few years, the so-called “on-demand” companies that deliver anything from a home cleaning to a ride to tacos have seen an explosion in popularity. However, their ability to make money from their labor-intensive (and expensive) operations is increasingly coming into question.
Many charge artificially low prices for their services in an effort to attract customers—effectively losing money on each delivery in the process. Over the long run, it isn’t a sustainable strategy.
And the on-demand category has already seen some casualties because of numbers that didn’t add up. Homejoy, a home cleaning service, shut down last summer, as did valet parking services like Caarbon and Vatler.
Now, even at Y Combinator’s own graduation day, at which on-demand companies as Instacart and DoorDash have presented in years past, startups are proactively addressing skepticism about their category. Making money, or at least being on track to in the near term rather than years down the road, is back in vogue
“We actually can be profitable,” Colombian delivery startup Rappi proclaimed during its presentation, tacitly implying many similar services aren’t.
Rappi, which debuted seven months ago and now operates in several Colombian and Mexican cities, bills itself as “the everything store” that is a cross between grocery delivery startup Instacart and delivery service Postmates. Ironically, it simultaneously distances its business from those companies and their unproven economics.
Instead, Rappi says it has positive gross margins—meaning, it makes money on its transaction. The startup takes a 15% commission from merchants for each order, and keeps it all because it pays its delivery staff through the delivery fees it charges customers. It also claims that its operations in a given market become profitable after just 25 days.
Some of the other startups that presented on Tuesday and touted Uber-like services had noticeably untraditional models. Poppy, for example, which provides families with babysitters whenever they want one, charges parents a monthly membership fee instead of taking a cut from the sitter’s earnings.
Still, some skepticism lingers. “Do any of their unit economics even work?” whispered a New York City-based investor during a quiet moment in the hallways.
