
Deliveroo raises $385M in new funding - beNjiox
https://techcrunch.com/2017/09/24/deliveroo-raises-385m/
======
mattmanser
I find it funny they're claiming some sort of AI system will help them make
better margins.

In my city, Nottingham. all the deliveroo people gather in Trinity Square
waiting for jobs. There's obviously no special AI needed.

I do think though that it raises the issue that they should be paying for
their own business premises and stop using our public spaces as their company
waiting spots.

~~~
croatially
Their logistics solution is just not as advanced as it can be. That's just
common startup logic, the hardest problem will be solved with more money and
good people and SV network has good people.

They need combinatorial search and some travel time data, live re-search when
new orders come in. For this to work well they need to predict new orders in
advance, this means they need data on the spatial distributions of orders
through time (which now they certainly have).

They practically need to solve a variant of a problem that Uber has. Their
delivery drivers load much more "passengers" but have static pickup points
(known restaurants so there's only variance in the delivery point, pickups are
pretty much static).

It's an interesting problem to solve, given that this kind of logistics
research is practically invisible and I can't name any papers that dealt with
this problem in any advanced way.

If done properly, then they've solved the logistics problem for on-demand
companies that have enough data.

If solution is some ad-hoc mutated monster then it is just a chance for
someone else to get the other pieces of cake.

~~~
robk
Your dismissal of a non SV company's innovation is embarrassing for you. The
tech here is as good or better as anyone in the Valley.

~~~
croatially
Sorry if I was unclear, I had no intention to imply that their innovation is
weak, or that SV has anything to do with that. It's pretty clear they have
access to SV network, despite being based in London.

------
albertgoeswoof
Currently there is a £2.50 fee for deliveries in London with Deliveroo. Even
with extreme optimization a Deliveroo rider can't possibly make more than 3-4
"proper" deliveries in an hour (food gets cold fast! And when it gets returned
deliveroo & the restaurant suffers) so maybe they can generate around £10/hour
in revenue for Deliveroo. Then you need to take out costs for the driver,
development, marketing, integration withe restaurants, etc.

So where is Deliveroo's margin on that? There isn't one, and there's no way
they can pay delivery drivers as actual employees (which the law will
eventually catch up with by the way), even at minimum wage you'd need to cover
£15+/hour to include holiday pay, sick pay, insurance and other standard
benefits.

MAYBE, delivery drones / robots will arrive before the funding runs out, but I
doubt it very much.

~~~
hellofunk
I have no doubt Deliveroo gets a percentage cut on the cost of the food, too.
That can really add up all by itself.

~~~
boyce
Deliveroo take 30% (or at least did when a restaurant I ran looked in to it)
and you can't charge extra according to their terms

------
cs702
All these new delivery startups remind me of Kozmo.com, which raised quite a
bit of money from high-profile investors (including Fred Wilson and Amazon[1])
and even filed for an IPO in 2000. Kozmo.com described itself this way in its
IPO filing:

 _" We enable consumers to order a variety of entertainment, food and
convenience products over the Internet for free delivery in under one hour.
Our promise of under one hour delivery is designed to satisfy a consumer's
desire for immediate gratification. We focus on selling frequently purchased,
high margin items with well-known brand names. Additionally, we recently
initiated a business-to-business service to enable select retailers to provide
their customers with an expedited delivery option on a fee-for-service basis
through our distribution networks."_[2]

If you've never heard of Kozmo.com, it's because the company went bust. The
business grew very quickly... but only as long as there was freshly raised
capital coming in. When the flow of fresh capital stopped, the company
couldn't find a way to become profitable.

Here are some articles chronicling Kozmo.com's swift rise and even swifter
fall:

[https://web.archive.org/web/20040821125230/http://www.manufa...](https://web.archive.org/web/20040821125230/http://www.manufacturing.net/scm/index.asp?layout=articleWebzine&articleid=CA184173)

[https://www.forbes.com/2000/06/22/mu3.html](https://www.forbes.com/2000/06/22/mu3.html)

Deliveroo doesn't look _that_ different from Kozmo.com... or does it?

\--

[1] [http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-
new...](http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-
newsArticle_Print&ID=81108&highlight=%20press%20release)

[2]
[https://www.sec.gov/Archives/edgar/data/1075749/000091205700...](https://www.sec.gov/Archives/edgar/data/1075749/000091205700012562/0000912057-00-012562.txt)

~~~
whipoodle
I work for a company worth billions. I've talked to entrepreneurs who "already
tried the idea" for the sort of business I work at.

I guess how you execute matters, or something.

~~~
gist
Among other reasons Kozmo failed a) prior to smartphones and b) when there
were less people using the internet.

~~~
user5994461
Broadband didn't exist in the year 2000. It is fair to call that the pre-
internet era.

------
Theodores
I had better pay when I was delivering newspapers as a teenager.

This was many decades ago (when people bought their news on dead tree) and a
lot of inflation as happened since. I didn't see my paper round as a 'proper
job', but I think the inflation adjusted rate comes out to at least double the
£8 per hour that Deliveroo riders claim to make on Glassdoor. I didn't have to
pay rent since I was living with my parents, my income was purely disposable.

Some numbers: late 1980's, my Sunday paper round took five hours and earned me
£30 not counting tips. All done by bicycle. I also had a morning paper round
and an after school round delivering the local paper. On the back of these
'gigs' I also had gardening, baby sitting and other jobs from my clients,
making my childhood wages now seem positively 'over-paid' compared to what
passes for 'gig economy' nowadays.

I believe my take of the newspaper sale was around 20% with a delivery charge
of 5 pence. Bicycles were just for kids back then and working for pocket money
(not paying taxes or expecting benefits like holiday pay) was okay given I was
at school. Furthermore, all my work was chargeable, I was not waiting around
for someone to click on an app.

From this perspective I find it crazy that this Deliveroo phenomenon has
happened. I aspired to do more than ride around delivering stuff in all
weathers. Fortunately I did move on to 'proper jobs'.

The Deliveroo drivers are kind of with the pigeons in terms of London's
pecking order. Although 'gig' economy, they lack the opportunities my humble
paper round offered for 'up-sells' plus there are some venture capitalists
creaming off what should be their cut. How did it all come to this?

------
javiramos
Money Quote: "Deliveroo grew a lot in 2016, with revenue up 611 per cent to
£129 million. But losses were up too — a 300 per cent increase to £129
million. However, the figure to really watch is the food delivery _company’s
gross margin percentage, which sat at just 0.7 per cent._ "

How can an investor, justify this as a solid investment when the gross margins
are 0.7%?

~~~
na85
It's been clear to me for a while that valuations lack any rational basis.

I reached this conclusion shortly after Yo was valued at something like $10
million.

~~~
charlesdm
There still is money to be made in a bubble. Just gotta find some greater fool
to sell the shares to and book that capital gain. Which usually (at the end of
the road) ends up being a pension fund.

------
orf
For those wondering about these numbers, Deliveroo has a great concept, solid
execution and huge brand recognition.

Just-eat (worth 4.6B) connects people to shitty takeaways and has a terrible
website. Deliveroo connects people to restaurants and provides the delivery
service themselves, through bikers (here in London). They have taken this and
spread throughout Europe.

They are going to (and are) completely canablising Just-eat who seemed to run
out of stream and grind to a halt several years ago.

~~~
amyboyd
What makes you think Just-Eat ran out of steam "years ago"?

Stock price is higher than ever:
[http://www.londonstockexchange.com/exchange/prices-and-
marke...](http://www.londonstockexchange.com/exchange/prices-and-
markets/stocks/summary/company-summary/GB00BKX5CN86GBGBXSTMM.html)

They are reporting good growth: [http://www.cityam.com/256734/just-eat-
reported-order-growth-...](http://www.cityam.com/256734/just-eat-reported-
order-growth-36-per-cent-2016-but-shares)

I see lots of Deliveroo bikes around where I live in the centre of London, but
they are basically non-existant when I go to other towns and cities.

Also, Deliveroo started up-scale -- they can't go down to selling cheap
Chinese takeaway food, because it will hurt their image.

Just-Eat started at the low-end and are now moving up-scale without hurting
their image. And even then, plenty of people prefer low-end Chinese food (I
sure do).

~~~
BillinghamJ
Entirely anecdotal, but my perception of Just Eat, Hungry House, etc. is of
consistently crap takeaway food. I do not, and will not, order from them.
Their reviews are completely untrustworthy - you literally never know what
you’re going to get. There is no image to hurt - they’re the lowest of the
low.

In the UK, Deliveroo originally differentiated primarily by only accepting
high quality restaurants, rather than takeaways.

Just Eat, etc. may try to improve their image, offer remotely usable
interfaces, clean up their offerings in terms of food quality, but I don’t
think their reputation will ever recover to the point that anyone in London
etc. would consider them above Deliveroo/Uber Eats.

Not sure how closely these views tally with others, but they are
representative of my friends/peers.

~~~
hdi
Get off your high horse for few minutes.

High quality restaurants? Around Edinburgh the 'highest quality' restaurant
offered is Pizza Express.

~~~
BillinghamJ
I was living in Edinburgh when Deliveroo launched there. It’s a city full of
superb restaurants, many of which are on Deliveroo.

------
marenkay
Another unicorn that can only exist because it uses fake self-employment to
turn their workforce into a cheaper one.

Just like Uber and so many others this only works because for some reason
turning paid work into something that is not even self-sustaining suddenly is
accepted.

Does nobody have ethical issues with seeing value in devaluing people?

~~~
CPLX
While I strongly agree with your overall sentiment it's worth noting that this
is not a new startup-developed characteristic. The people driving FedEx
delivery trucks to your office are independent contractors too.

~~~
toomuchtodo
Fedex settled for hundreds of millions of dollars for misclassifying Ground
delivery truck drivers as independent contractors.

[http://mobile.reuters.com/article/amp/idUSKCN0Z229Q](http://mobile.reuters.com/article/amp/idUSKCN0Z229Q)

------
mbrookes
What have Deliveroo done differently to be more successful than the food
delivery startups that came before?

~~~
NamTaf
They beat everyone else, including UberEats, to the AU market. I think them
and Foodora were the first two, but they won and UberEats just relied on their
brand to muscle in. Both share the market pretty evenly ehre, from what I can
tell.

I wonder if they did this for many 'secondary' markets to try to beat the big
players or if AU is just a weird case.

~~~
synicalx
In SA, I've really not had any luck with Deliveroo outside of the CBD - it
only seems to work if you're right on top of the restaurants. UberEats seems a
little better, but it still really restricts how far away from a restaurant
you can be, I moved one suburb over (3km?) and lost access to about 10
restaurants that were in my old suburb.

I tend to prefer apps where the restaurants themselves look after the
delivery, EatNow is a good example. They can charge a little more for
delivery, and therefore seem to be willing to deliver further away. And
presumably, it's probably a little fairer on the delivery guys as they got an
actual job rather than just an app.

------
Zenst
Was just reading about them only the other day and how they are losing money:
[http://www.bbc.co.uk/news/business-41347817](http://www.bbc.co.uk/news/business-41347817)

So how they derive such a valuation is very much at odds with actualities.

~~~
pault
Hmm, if that surprises you I have some bad news about the rest of the startup
industry...

------
codegladiator
Is this last-mile delivery funding thing beginning again or the first one
didn't stop ? It hurt everyone except the founders.

------
kin
It sounds like in addition to delivery services where margins seem pretty
tight, they offer cloud kitchen services that partnering restaurants can use
to expand.

------
elvirs
why are they valued in billions? how profitable can an app that facilitates
food delivery become? restaurant still has to charge for their food, customer
still wants to pay minimum and the delivery person still needs to get paid.
what innovation is this app bringing that will cut costs by so much that it
will make billions in profit?

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rdiddly
Jesus, ANOTHER one of these? Why does this space get so much attention from
startups?

"We are making the world a better place by battling first-world temporary
hunger in tandem with the lazy-person mobility crisis."

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common_
Alternative headline: for $385M, investors buy option for a large stake in
Deliveroo if they don't surpass a valuation 'over $2B.'

------
baxtr
Party like it‘s 99...

~~~
i_am_nomad
You mean, party like it's 1099.

------
holydude
Not very sustainable unicorn is it ?

------
juskrey
Like Pets.com never happened

~~~
georgespencer
Very different. Pets.com in Y1: revenue $600k USD, advertising spend $11.5m.

Deliveroo generates significant revenue and is a business/brand that consumers
are passionate about. The bet investors are making is that their gross margin
can increase quickly.

Expect they're doing close to £300m of revenue now, so a 6.5x rev>valuation
multiple is punchy but fair.

~~~
Zenst
£128.56m in sales last year, and a loss of £129m. So very much curious how
they managed such a valuation without over-hype.

~~~
georgespencer
For a crowd who presumably work in startups, folks on here are always weirdly
surprised by how this works. Generate vast revenue, reach scale, cut central
costs. (To be clear, Deliveroo's challenge seems to be cost of sales.)

~~~
martinald
Well, it's a pretty huge loss (more than revenue!

Also, I think people were surprised or amazed that they had no core
profitability. Especially when it's likely COGS will go up with more and more
regulation around their gig economy employees

~~~
T2_t2
Depends what you think the lifetime value of a customer is, plus what the
ongoing cost to retain them is.

I ordered off Deliveroo in Sydney Australia, and they advertise on AdWords
against individual restaurant names. If the Diliveroo brand is strong, and
that AdWords click made me a Deliveroo customer, that is a win. If I always
search and they always pay, this may prove problematic long term.

That's the equation - if $X upfront + $y ongoing < lifetime value then you
have a chance at profitability, assuming you can get overheads under control /
can scale up the offering with minimal growth in overheads (the classic 2X
revenue, 1.5X costs model).

~~~
martinald
I mean the core delivery service assuming 0 marketing, tech, customer service
costs is not really profitable according to their last accounts.

~~~
T2_t2
How is that possible? What is the maths there?

~~~
martinald
Delivery costs are very high?

