Amid some of the commotion in the food tech sector, on Tuesday New York-based Freshly, a meal delivery startup, announced it raised $21 million in a Series B round led by Insight Venture Partners.
Prior investors, including Highland Capital Partners and White Star Capital, also participated.
The infusion of funding will go towards some of the plans Freshly CEO and co-founder Michael Wystrach spoke about in April with Xconomy. Moreover, he says this deal may ease some of the scrutiny laid of late on food tech.
“We think this is hopefully a counterbalance to some of the noise,” he says. Wystrach acknowledges that some companies will obviously fail, but he believes the size of the overall food industry, which he estimates to be $1.3 trillion, means there is plenty of room for disruption. “This is going to be a huge market with a lot of different winners in it,” he says.
Freshly previously expanded its coverage from nine to 28 states. With the latest funding, Wystrach says, the company is on track to take its service nationwide by the beginning of next year. “This deal ensures we have the proper capital to do that,” he says.
The latest investor in Freshly also brings to the table a fair share of experience in food tech. Insight Venture Partners has in invested such companies as Delivery Hero, a Berlin-based online food ordering service, and Boston-based catering marketplace ezCaterer. “It’s great to bring on a partner who has a lot of knowledge in the space,” Wystrach says. “That’s what Insight does.”
Along with expanding its reach, Freshly plans to grow its staff, especially on the technology side, Wystrach says. The company designed its entire e-commerce system in-house, including warehouse management, he says, and there are more ideas in the works.
“We’re starting to design and build out functions for predictive algorithms, which help make recommendation engines for consumers,” Wystrach says. Freshly is also working on software to help users track their calories and nutrition. “All of those things we’ll be able to double down on with this round, and hopefully accelerate the development much faster than we planned,” he says.
Making that happen will mean expanding the tech team, especially bringing in more full-stack engineers, Wystrach says. Over the past 18 months, Freshly has grown its entire staff from 15 to about 150, he says. The company is actively seeking new hires with plans to at least double the New York-based part of the team in the next six months. “We’re hiring as fast as we can here,” he says. “We have 20 or 30 job listings as of today.”
Freshly will need those extra hands to help it scale up and try to catch the eye of more consumers. There are plenty of companies hungry to take bigger and bigger slices of the meal delivery market—such as Berlin-based HelloFresh, another of Insight Venture Partners’ investments; New York-based Blue Apron, which so far has raised nearly $194 million; and Plated, yet another New York startup that serves up dishes from chefs. Each company tries its own spin on the idea, but the general concept is to deliver meals that are steps up in quality from the typical takeout food.
Investors were in a veritable frenzy in 2015 chasing so-called meal kit startups, collectively pouring $445 million into this sector according to CB Insights. Superstar singer Beyoncé got into this scene as well last year, partnering in 22 Days Nutrition for its home delivery service for vegan meals.
From a broad industry perspective, food tech is, excuse the pun, heating up with specialty accelerators emerging such as New York-based Food-X and Startupbootcamp Foodtech, which is due to launch this November in Rome.
The activity in the sector is not confined to the US; last week meal delivery startup Holachef in Mumbai, India raised $1.95 million in its latest funding round.
Naturally whenever a wave of companies pursues similar strategies, it raises concerns of frothiness—with an inevitable cool down to follow. CB Insights, in its report based on activity as of mid-May, anticipates a sharp falloff is looming with 2016 funding for meal kit startups expected to come in below 2014 levels.
There have been some rumblings of indigestion from different parts of the sector. Berkeley, CA-based SproonRocket shut down in March and divvied up some of its assets. That same month, DoorDash CEO Tony Xu was busy refuting reports that his company, a Y Combinator alum, had raised a down round versus its prior valuation. Then in April, Uber nixed the instantly delivery lunch option of its UberEats app for New York customers.
Wystrach put into perspective some of the growing pains his sector faces much like other startups. “In the last six months there’s been some negative sentiment, around companies having a hard time getting financing,” he says. The companies that landed funding deals, he says, have solid businesses, which by extension he believes shows Freshly’s caliber.
The food sector will probably see consolidation, he says, and Freshly is “actively looking for opportunities.” For now the company is sticking with its plans to grow organically, but Wystrach says the door remains open for conversations.
