
Instacart Is Raising North of $100M at a $2B Valuation - minimaxir
http://techcrunch.com/2014/12/05/instacart-2b-kleiner/
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encoderer
We use instacart, and it's great for the small weekday shopping trip. Maybe in
our home we're just more selective grocery shoppers than most, but I would
never use them for meat and even much produce. Meat, for example.. I've asked
for boneless chicken breasts from the butcher and instead i've gotten
prepackaged shrink-wrapped, and recently I requested a single double-cut beef
tenderloin and instead got 2 single-cuts. In both cases, InstaCart made amends
(50% refund) but I have a meal to cook: I don't want a refund, I want what I
ordered.

Another reason we couldn't move totally to IC is how they handle credit cards.
We get 6% cashback at grocery stores using the Amex Blue Cash card. (And have
a 5% cashback Visa for the stores that don't take Amex). Unfortunately, IC
charges come thru as internet services, not grocery. So that's a 6% price
increase right off the top, in addition to mark-ups on products and delivery
fees.

We purchased their "prime" and will continue to use the service, but i still
have the dream of being able to replace all my in-store grocery shopping.

~~~
skrebbel
I'm from abroad. What's this "cashback" thing that I keep reading about? They
give you money back onto your credit card, after you paid? Why don't they just
give you the discount right away? And what do credit card companies have to do
with grocery stores?

~~~
diroussel
The credit card company charges the shop a transaction fee for using the card.
The retailers allow this as it increases the chance of someone making a
purchase, especially bigger purchases.

The credit card company sets out in it's terms of business that the shop must
not have a surcharge, and must charge the list price for good paid for by
credit card. This is so that using a card is attractive to the customer.

The card fees can be quite high. High enough for there to be more money than
the transaction really costs, and the credit card company can then offer some
of this money back to customer to entice them to use this card rather than
some other card that doesn't offer cash back.

The end result is that customers who pay cash are subsidising the prices of
those who pay by card.

It's hard to break the cycle because if a shop doesn't offer payment by card,
not many people will shop there as people don't carry much cash.

Amex have the highest fees. I don't know why shops even allow amex.

~~~
encoderer
Shops allow Amex because wealthy people use Amex. Not exclusively of course,
and I certainly don't consider myself wealthy. But Amex cardholders charge far
more than the industry average.

Also it's not just the ppl paying with cash subsidizing card usage. Cards that
offer >1% cashback are usually more difficult to get, and targeted toward
higher-spenders. These benefits are subsidized by the people using cards with
no benefits.

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somberi
Instacart prices are consistently more expensive than having it delivered from
the stores directly (including a shipping fee). Here in NYC, where grocery
prices are already expensive, it aches me to pay even more.

Seems like NYtimes (1) had done an article on Instacart being expensive (and
Instacart's FAQ says that they add a markup)

Google Express is not a competition yet. They do not carry many popular
products / perishables.

(1)-
[http://www.nytimes.com/2014/05/22/technology/personaltech/on...](http://www.nytimes.com/2014/05/22/technology/personaltech/online-
grocery-start-up-takes-page-from-sharing-services.html?_r=0)

~~~
apoorvamehta
Hey! This is apoorva from Instacart. Our prices for most stores are the same
as the store and we are working on getting other stores to have the same
prices as well. Stay tuned :)

~~~
badusername
Which stores are they? I mostly shop at Whole Foods and Costco, if those
prices are exact, I wouldn't mind throwing more business Instacart's way.

Oh yea, losing 8% cashback at wholefoods that Amex gives is a sting in the
back of the mind too. You should work on fixing that.

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HorizonXP
Absolutely proud of what Apoorva, Brandon, Max, and the entire team have
built. I remember working on their first Android app back in Max's apartment.
They're truly deserving of their success so far.

Can't wait to see what they do next with this war chest.

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nwenzel
Congrats Apoorva and team! Wow.

Instacart wasn't first. Webvan was around over a decade ago. More proof that
ideas aren't worth much. Execution is everything.

~~~
mchristoff
I'd say the lesson here isn't just execution, it's timing.

~~~
mikeyouse
To provide some figures for your point, Webvan was founded in 1999 when there
were ~100M internet users in the US. Instacart was founded in 2012, when there
were over 250M internet users. The success of these services is definitely a
question of achieving sufficient scale to break even, which is much easier
with a nearly 3x larger market.

[http://i.imgur.com/44lkXHa.png](http://i.imgur.com/44lkXHa.png)

 _Edit:_ Clearly it's not the only reason they've succeeded, they've smartly
avoided all the capital infrastructure that Webvan relied on and mobile
devices have improved tremendously but when you're talking about tenths of a
percentage points in penetration, tripling your TAM is huge.

~~~
qq66
The major difference is not the size of the market. The major difference is
that Instacart piggybacks on the existing grocery store network, meaning that
they don't have to pay for the overhead of a big warehouse. That lets them
scale up with their user base instead of having to invest a lot of money up
front in warehouses.

~~~
Animats
So does Safeway. The trouble with doing this out of grocery stores is that the
order system doesn't know what's in inventory, and some fraction of your items
won't show up.

Amazon Fresh is doing this with their own warehouses and robots. They know
their own inventory, and will probably crush these manual-picking operations.

~~~
bduerst
Amazon has never had to deal with their own delivery fleets before, or
perishable goods in their warehouses. While it's true Amazon has other revenue
streams, Fresh is still just an experiment at this point.

It's a race to see who can take the market, and Amazon is taking a slower,
infrastructure based approach. It will be interesting to see if they will see
it through to the end.

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minimaxir
> _The raise will value the startup at $2 billion, or more than quadruple the
> $400 million valuation of its Series B financing from June._

Quadruple? In less than 6 months?

That's not hockey-stick growth, that's just plain insanity.

~~~
mikeyouse
As a comparison, Uber raised money at a $18B valuation in June, and then
closed a round at $40B a few days ago. While a smaller percentage increase,
Instacart's $1.6B increase in value looks pretty trivial compared to Uber's
$22B increase over the same time period.

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mrmch
Woah, as an instacart-lover and yc alum, big props to Apoorva and team.
Joining the rare group of $1B+ YC companies!

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grandalf
Instacart is one of the first businesses I've interacted with as a customer
that I can hardly help telling everyone I know about. It's just that amazing.

And where do they find such pleasantly disposed people to deliver the
groceries???

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flavio87
seems like their executing incredibly well and big congrats to the team. I do
wonder a bit how defensible this model is - it seems to me that safeway
already has most of the infrastructure available to do deliveries and then
could significantly outperform instacart deliveries from safeway in terms of
customer experience for example.

\- they always know what's in stock in which facility when you order, no more
replaced or missing items \- they don't charge the high 20-30% markup that
instacart charges to their customers

in terms of marketing, they could probably have lower cost of acquisition on
scale as well. \- they could market their app in-store very aggressively at
every single checkout counter.

what Safeway is most obviously lacking is a frontend that's as good as
instacarts, but now that instacart has shown how to build it, it should be
easy for safeway to build this out.

maybe they don't have their distribution setup such that they could actually
deliver within 1-2 hours? what else am I missing? how can this be a defensible
business long term?

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deathflute
We used them recently in nyc and user experience was great. However once you
do the math, a 10 - 15% markup on most products in addition to delivery fees,
tips, (or prime) is simply too much if you use them on a regular basis. The
annualized cost for a small family is easily north of $2000.

Now I know that "price is what you pay and value is what you get". So there
are definitely occasions when I will use them. But I honestly doubt that most
of their users realize the true cost of their service.

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serge2k
Just ordered some groceries for tomorrow, hope it goes well. I find myself
constantly too worn out after work to buy groceries, and buying amazon fresh
is only good for some stuff.

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miraj
Any plans for expansion beyond USA?

I hope Instacart is coming to Canada soon. Toronto is an obvious choice.

The other city that would very likely be receptive is Vancouver. They're keen
on the sharing 'economy' \- including a home-grown car-share company called
Modo. There are also a few Whole Foods stores in-town. I also read recently
that cities with fewer cars per residents are more receptive to home delivery
services.

So yes Canada awaits for your arrival eagerly!

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andreash
Interestingly they got rejected by YC in the first place:
[http://techcrunch.com/2012/08/18/how-instacart-hacked-
yc/](http://techcrunch.com/2012/08/18/how-instacart-hacked-yc/)

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charlespwd
This concept is absolutely fantastic. I can't wait to see this cover more
cities. The potential for this is enormous.

Keep it up guys!

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7Figures2Commas
Based on numerous reports, such as this one[1], Instacart Shoppers are
currently being classified by the company as independent contractors.

Apparently, Instacart Shoppers are trained, set a work schedule with the
company, have their work activities controlled through an app, and even wear
Instacart clothing. While classification involves numerous factors, I
personally don't see how any of this passes even one of the most fundamental,
the "nature and degree of control by the employer" test.

Other on-demand companies that use independent contractor classification are
facing class action lawsuits [2][3] over classification and given the general
trends in the courts[4], there's little doubt we will continue to see the
number of class actions alleging misclassification grow.

Putting aside the costs of defending and settling a class action, or paying
damages in an adverse ruling, the real question for investors in any on-demand
company that currently relies on independent contractor classification is what
employee classification would do to the economics of the business. Think of
this as an "employee stress test."

In some cases, on-demand companies are using independent contract
classification to shift costs that have traditionally been borne by
competitors in their markets, giving them an "unfair" pricing advantage. If
they are found to be misclassifying their workers, their ability to compete on
price will be affected.

In other cases, companies charge a premium for a service that offers
convenience. If they are found to be misclassifying their workers and are
forced to pay their workers as employees, the premium charged to consumers
would either have to increase or the company would need to be able to live on
reduced margins.

The effects of reclassification would be particularly significant for
transportation companies. For example, in California, under Labor Code Section
2802, employers are on the hook for expenditures or losses incurred by their
employees "in direct consequence of the discharge of his or her duties, or of
his or her obedience to the directions of the employer." This includes
expenditures related to travel/mileage.

It's going to be very interesting in the coming years to see which of these
on-demand companies continue to thrive because I personally think it's
inevitable that many of them are going to be forced to reclassify their
workers as employees. I suspect some investors aren't giving this enough
consideration in their due diligence.

[1] [http://news.morningstar.com/all/market-
watch/TDJNMW201411076...](http://news.morningstar.com/all/market-
watch/TDJNMW2014110765/update-delivery-startups-echo-dot-com-boom-and-
bust.aspx)

[2] [http://uberlawsuit.com/](http://uberlawsuit.com/)

[3] [http://www.sfgate.com/business/article/Handy-com-
housecleane...](http://www.sfgate.com/business/article/Handy-com-
housecleaners-lawsuit-could-rock-5891672.php)

[4] [http://www.businessweek.com/articles/2014-10-16/fedex-
ground...](http://www.businessweek.com/articles/2014-10-16/fedex-ground-says-
its-drivers-arent-employees-dot-the-courts-will-decide)

~~~
Iftheshoefits
If there is nothing else I've learned from Hacker News it is that there is a
non-trivial percentage of the startup community who not only don't care if a
tech startup breaks the law, but they actively support and encourage it.
Besides that, companies treating contract workers as employees in this way has
been a thing for a long time, and I suspect it will take massive
disgruntlement to fuel an equally massive lawsuit in order to get any of them
to change.

~~~
7Figures2Commas
> I suspect it will take massive disgruntlement to fuel an equally massive
> lawsuit in order to get any of them to change.

As I noted, there are already lawsuits targeting some of these startups and
there are prominent class action attorneys who have publicly stated that
they're eying some of the startups that haven't yet been sued.

To file a class action, plaintiff's counsel needs as little as one lead
plaintiff. If and when class certification occurs, plaintiff's counsel
represents all members of the certified class. Members of the class who don't
wish to be a part of the class must opt out. In other words, you do not need
"massive disgruntlement" to have an attractive class action. Even the largest
of class actions frequently have just a handful of named plaintiffs.

Note that there are practical reasons class action attorneys have not rushed
to sue all of these companies. One of them: with their rapid growth, the
number of potentially misclassified independent contractors is increasing
quickly. Given the applicable statutes of limitations, patience can be
rewarded with a larger class and damages that span a greater period of time.

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ukd1
Congrats to Apoorva!

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thebyrd
webvan

