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Rapid Delivery Apps in Los Angeles Are Facing a Reckoning
After a couple of years where pandemic lockdowns made lightning-fast, app-based delivery essential, the industry is facing a shakeout—and apps that promise delivery under 30 minutes are facing an existential crisis.
The so-called “dark store” model – which forgoes the traditional corner store for a sprawling warehouse that delivers through mobile apps – exploded during the pandemic. But many of those companies are now struggling to become profitable, largely because of rising overhead costs.
The Industry and the Challenges
At stake is a multi-billion industry aiming to deliver everything from groceries to convenience items and hot food, through bikes, cars, drones and even robots. Operating from a number of competing platforms, those companies saw sales more than double during the pandemic. Few experts see the industry disappearing entirely, but the sector is widely expected to shrink. The coming months and years will determine which model wins out.
Celia Van Wickel, senior director of digital commerce for analytics and brand consulting firm Kantar Group, told dot.LA she expects the bubble to burst—and soon, as venture firms become more discerning about their investments.
“Valuations are declining [and] money is not being forthcoming to rapid delivery companies,” Van Wickel said. Even as the economic climate becomes more challenging, some companies do have the chance to rise above the fray and gain market share – and satisfy investors – while others could be destined to go bust.
“[Investors] really want to see a profitable model, kind of akin to what we've seen in the dot-com era, where the bubble burst on ecommerce,” Van Wickel said. A lot of money was thrown into these new companies, they weren’t really profitable and then all of a sudden a lot of them collapsed.”
Some venture capital firms were “just investing to invest,” Van Wickel added, to see how the delivery market fared. She predicts they’ll soon become more judicious about who they fund. Burning cash without turning a profit isn’t going to be acceptable in the long term, she added.
Along with slackening consumer demand and less VC investment in the space, nearly every fast delivery company that relies on fulfillment centers, even Amazon, is going to face steep real estate, upkeep and staffing costs. Rapid delivery firms will need to spend big on real estate to operate fulfillment centers across cities that enable them to get to consumers fast.
Image courtesy of Duffl.
Philadelphia-based GoPuff, one of the largest new rapid delivery services to enter in Los Angeles alongside DoorDash, Instacart and Uber (which also offer convenience delivery in addition to food) depends on having quick access to warehouses throughout the region. It bought liquor store chain BevMo in a bid to gain access to lucrative (and hard- to- get) liquor licenses and warehouses. It aims to save money by installing micro-fulfillment centers “within almost every” BevMo store that can service deliveries, its CEO told the L.A.Times. Still, it laid off 10% of its workforce in July after cutting about 3% in March, and shut 76 warehouses. GoPuff originally had plans to go public in mid-2022 at a $15 million valuation, but shelved them.
But GoPuff is not alone. Instacart cut its valuation forecast by 38% in March citing “poor market conditions,” and international rapid delivery startups like Gorillas, Getir and Zapp have also cut staff recently.
The layoffs suggest that rapid growth may no longer be enough.
“The GoPuff CEO basically said, ‘hey, we were getting a lot of investments by just showing top line incremental growth,’ they were growing customers and growing markets and that was okay enough for investors in 2021,” Van Wickel told dot.LA. “But now they're being pressured to really look at how their company is profitable [and] they're being asked to do this very quickly, or their investment will not be forthcoming.”
GoPuff pointed dot.LA to a recent shareholder letter that said it is “already driving 76% [year-over-year] sales growth for the core business.”
“GoPuff is the only company in this space that has proven it can be profitable at a city and regional level,” co-founders Yakir Gola and Rafael Ilishayev wrote. “We are now targeting full company profitability in 2024 while maintaining a strong cash balance throughout.”
An URB-E rider hauls deliveries in Santa Monica. Image courtesy of URB-E
Despite the headwinds, the rapid delivery industry “feels like it's here to stay,” said Alex Vasilkin, co-founder and CEO of Cartwheel, a Hollywood-based startup that makes delivery management software and recently raised a $3 million seed round in April.
“There’s all these dark kitchens opening, there are all these different startups popping up with drone delivery, and scooters delivery and hyperlocal, 15-minute delivery so I feel like there’s more options for customers and so far, we've seen it getting bigger and bigger,” Vasilkin said. Cartwheel works mainly with restaurants, but is looking to find “very big partners in mostly the alcohol space,” its co-founder Magdim Metshin told dot.LA.
The need for rapid delivery isn’t likely to disappear so long as people decide they need items fast and can’t make the trip themselves. The question is now “which companies can iron out their paths to profitability before they’re forced to go bankrupt?,” Van Wickel said.
“I think there's a balance between what the consumer wants and what behavior’s going to change,” she added. “To me, it's all about on-demand. So we're changing the model to an on-demand model… it’s changing the trip occasions out there from stocking up to more grab-and-go convenience models.”
Startups that seem poised to weather the storm are the ones that can control every aspect of the business – including supply, warehousing, distribution and, crucially, their apps. Usually, they’re seeking buyouts from larger companies that have existing infrastructure in place for this exact reason.
“I don’t think we have quite a winner yet; I think there’s [companies] that are more set up to win,” Van Wickel said, adding that it’s mostly “the companies that do have some cash on hand today to continue to iterate their business models.”
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Historical documents, records and important artifacts are sometimes locked away in vaults (until a museum or library wants to showcase them), and under restricted access. Thomas McLeod believes that these artifacts hold great value and have the potential to impact communities, so he founded Arkive, the first decentralized, physical museum.
The inspiration for Arkive came from McLeod’s previous company, Omni, a physical storage company acquired by Coinbase in 2019.
“We thought it would always be like utility items and we started getting full sneaker collections, vintage posters, records, comic books that were valuable and we kind of had a panic attack,” McLeod told dot.LA. “The business [Omni] was built around storing bikes, and you can't put a vintage record next to a dirt bike. They just don't store in the same manner.”
McLeod was fascinated by the items and collections that came through the door. To him, it felt like browsing a museum of curated items that everyday people collect.
That’s when McLeod knew he was onto something.
McLeod has built startups before. Past projects included Pagelime, acquired in 2015 by SurrealCMS, and in 2012 LolConnect was acquired by Tencent.
The items in Arkive's collections are hand-selected by members who vote on what items they want to acquire. The organization currently has 300 active users, and there are hundreds on the waiting list. McLeod confirmed to dot.LA that they will increase the number of members admitted to 50 people each week with plans to cap admissions at 1,000 for the first phase. He added that while membership is free today, that will likely change in the future.
People interested in becoming members must apply on Arkive's website, where they will answer individual questions about their interests and occupations.
Arkive's physical, blockchain-inspired museum is coming to Santa Monica. Courtesy of Arkive
Just as museums have a lobby, Arkive has its “atrium.” In this space, every member enters and registers their cryptocurrency wallets. Once registration is complete, members can vote on the blockchain for the artifact or piece of art they want Arkive to acquire. Prior to voting, to ensure they are well informed, members will have the opportunity to learn about each artifact from the artist, the gallery or the collector who previously held the item.
Since there is a surplus of artifacts around the world, Arkive’s team of curators handpick options that are relevant to the current theme: ”When Technology Was a Game Changer.” While each round of voting is different, McLeod said the voting window for members usually lasts five days (M-F).
Arkive has acquired two items since coming out of stealth mode, the first one being the original patent for the ENIAC – known as the world’s first programmable, electronic general-purpose computer. In addition to ENIAC’s patent, members also voted to acquire Seduction (1985), a vintage print by Lynn Hershman Leeson, which will be part of Arkive’s first public exhibition at the Art Basel Miami Beach in December 2022. Once items are acquired, they will be loaned to museums or galleries to be placed on display for the public to enjoy—at locations Arkive members believe have the most significant cultural impact.
“For instance, the ENIAC patent, we would love it if it lived at the Computer History Museum in San Mateo. If we acquired a Frida Kahlo, we would love it if it was in Mexico City or somewhere that mattered to her art or the family that she was a part of,” McLeod said.
The Santa Monica-based startup announced last week that it raised $9.7 million in a seed funding round led by Offline and TCG Crypto. Other participants included NFX, Freestyle Capital, Coinbase Ventures, Not Boring Capital, Precursor, Chainforest, Coil, Julia Lipton, Joe McCann, Chris Cantino, Marty Bell and Paul Veradittakit.
“People who committed were all the way in and did not hesitate to support and be a part of the journey,” McLeod said. “It got us the right people that are in it for the long haul and really care about not just the business but the potential cultural impact that it could have. So having the right investors to me is more important than just money.”
Some of the funding will be allocated towards expanding the team, but a majority of the capital raised will go into acquiring more artifacts. McLeod said Arkive has three more acquisitions lined up in the next three months, but the eventual goal is to acquire two pieces a month.
Correction: An earlier version of this piece misspelled Thomas McLeod's last name.
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Decerry Donato is dot.LA's Editorial Fellow. Prior to that, she was an editorial intern at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.
In Los Angeles—like the startup environment at large—venture funding and valuations skyrocketed in 2021, even as the coronavirus pandemic continued to surge and supply chain issues rattled the economy. The result was a startup ecosystem that continued to build on its momentum, with no shortage of companies raising private capital at billion-dollar-plus unicorn valuations.
In order to gauge the local startup scene and who’s leading the proverbial pack, we asked more than 30 leading L.A.-based investors for their take on the hottest firms in the region. They responded with more than two dozen venture-backed companies; three startups, in particular, rose above the rest as repeat nominees, while we've organized the rest by their amount of capital raised as of January, according to data from PitchBook. (We also asked VCs not to pick any of their own portfolio companies, and vetted the list to ensure they stuck to that rule.)
Without further ado, here are the 26 L.A. startups that VCs have their eyes on in 2022.
Whatnot was the name most often on the minds of L.A. venture investors—understandably, given its prolific fundraising year. Whatnot raised some $220 million across three separate funding rounds in 2021, on the way to a $1.5 billion valuation.
The Marina del Rey-based livestream shopping platform was founded by former GOAT product manager Logan Head and ex-Googler Grant LaFontaine. The startup made its name by providing a live auction platform for buying and selling collectables like rare Pokémon cards, and has since expanded into sports memorabilia, sneakers and apparel.
Boulevard’s backers include Santa Monica-based early-stage VC firm Bonfire Ventures, which focuses on B2B software startups. The Downtown-based company fits nicely within that thesis; Boulevard builds booking and payment software for salons and spas. The firm has worked with prominent brands such as Toni & Guy and HeyDay.
GOAT launched in 2015 as a marketplace to help sneakerheads authenticate used Air Jordans and other collectible shoes. It has since grown at a prolific rate, expanding into apparel and accessories and exceeding $2 billion in merchandise sales in 2020. The startup sealed a $195 million funding round last summer that more than doubled its valuation, to $3.7 billion.
The Best of the Rest
Nielsen competitor VideoAmp gathers data on who's watching what across streaming services, traditional TV and social apps like YouTube. The company positions itself as an alternative to so-called "legacy" systems like Nielsen, which it says are "fragmented, riddled with complexity and inaccurate." In addition to venture funding, its total funding figure includes more than $165 million in debt financing.
Seizing on the NFT craze, Mythical Games is building a platform that powers the growing realm of “play-to-earn games.” Backed by NBA legend Michael Jordan and Andreessen Horowitz, the Sherman Oaks-based startup’s partners include game publishers Abstraction, Creative Mobile and CCG Lab.
FloQast founder Michael Whitmire says he got a “no” from more than 100 investors in the process of raising a seed round. Today, the accounting software company is considered a unicorn.
Nacelle produces docuseries, books, comedy albums and podcasts. The media company’s efforts include the Netflix travel series “Down To Earth with Zac Efron.”
A platform for virtual concerts, Wave has hosted performances by artists including Justin Bieber, Tinashe and The Weeknd. The company says it has raised $66 million to date from the likes of Warner Music and Tencent.
Sherman Oaks-based Papaya looks to make it easier to pay “any” bill—from hospital bills to parking tickets—via its mobile app.
Based in Marina del Rey, LeaseLock says it’s on a mission to eliminate security deposits for apartment renters.
Emotive sells text message-focused marketing tools to ecommerce firms like underwear brand Parade and men's grooming company Beardbrand.
Based in Long Beach, Dray says its mission is to “modernize the logistics and trucking industry.” Its partners include Danish shipping company Maersk and toy maker Mattel.
Coco makes small pink robots on wheels (you may have seen them around town) that deliver food via a remote pilot. Its investors include Y Combinator and Silicon Valley Bank.
HiveWatch develops physical security software. Its investors include former Twitter executive Dick Costollo and NBA star Steph Curry’s Penny Jar Capital.
Whatnot competitor Popshop is betting that live-shopping is the future of ecommerce. The West Hollywood-based firm focuses on collectables such as trading cards and anime merchandise.
Founded by former SpaceX engineer Karan Talati, First Resonance runs a software platform for makers of electric cars and aerospace technology. Its clients include Santa Cruz-based air taxi company Joby Aviation and Alameda-based rocket company Astra.
Founded by Crowdstrike and Microsoft alums, Open Raven aims to protect user data. The cybersecurity firm’s investors include Kleiner Perkins and Upfront Ventures.
When an actor faces the camera and speaks directly to the audience, it’s known as “breaking the fourth wall.” Named after the trope, Venice-based Fourthwall offers a website builder that’s designed for content creators.
The Non Fungible Token Company creates NFTs for musicians under the name Unblocked. Its investors include Jay Z’s Marcy Venture Partners and Shawn Mendez.
Backed by Mayo Clinic Ventures, Safe Health develops telehealth software and offers tools for enterprises to launch their own health care apps.
Intro’s app lets you book video calls with experts—from celebrity stylists, to astrologists, to investors.
With the tagline “Land the package, not the plane,” DASH Systems is a Hawthorne-based shipping company that builds hardware and software for automated airdrops.
With a focus on sustainability, Ettitude is a direct-to-consumer brand that sells bedding, bathroom textiles and sleepwear.
Along similar lines as Unblocked, Afterparty creates NFTs for artists and content creators such as Clay Perry and Tropix.
Heart to Heart is an audio-focused dating app that “lets you listen to the story behind the pictures in a profile.” Precursor Ventures led the pre-seed funding round.
Frigg makes hair and beauty products that contain cannabinoids such as CBD. The Valley Village-based company raised an undisclosed seed round in August.
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