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Delivery Hero

Online Takeout Giant Delivery Hero Snaps Up $88M Series E, Insight Venture Partners Joins As Lead Investor

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Chalk up another play for scale in the world of online takeout services: Delivery Hero, the German-based startup with operations across Europe, Asia, Africa and South America, is today announcing a $88 million round of investment. The Series E funding, led by new investor Insight Venture Partners, will take the total funding for Delivery Hero close to $200 million raised since first opening for business in 2010.

Delivery Hero now offers delivery for 55,000 restaurants across 14 countries (Germany, Sweden, UK, Korea, China and India being the biggest markets), and it says that has delivered food to some 6 million consumers, generating over $500 million in annual sales for its restaurant partners.

Numbers like these are a mark of how, as the online delivery business continues to mature, the big players continue to get bigger.

Delivery Hero’s funding comes on the heels of U.S. players GrubHub and Seamless merging; while European rival Just-Eat has raised just shy of $130 million. German incubator Rocket Internet has also been busy growing its own multinational entry into the field, Food Panda.

“Long-term there will only be a couple of players,” Delivery Hero co-founder and CEO Niklas Ostberg tells me. “Small local players will have difficulties over time.” That points to Delivery Hero possibly being one of those doing the consolidating, although Ostberg also puts a strong emphasis on organic growth because of overvaluation in the market today:

“[There is] likely [more consolidation to come] but for us [it's] not the priority at this point,” he says. “Valuations will have to go down. It’s still much cheaper for us to grow organically.”

And for that organic growth, Ostberg points out that Delivery Hero — which had just raised $30 million as recently as last July — has access to much more capital if need be.

“We had more than a handful of good VCs pitching for the investment. We looked for someone with marketplace experience, global network and who shares our vision,” Ostberg told me. “Insight fits perfectly into this description, besides having enough capital to double the investment if competition heats up further.”

For its part, Insight Venture Partners — which has invested in a number of e-commerce businesses like Shopify, Privalia, Living Social and more — believes that scale will be what gives Delivery Hero the edge in its category. “We believe the company has the capability to win globally, providing online and mobile food ordering in all major markets worldwide,” notes Jeff Lieberman, MD at Insight Venture Partners.

Although e-commerce businesses that are built on economies of scale often take a while to reach profitability (just look at Amazon as one example), Delivery Hero actually tipped into the black last year around the time of its third anniversary. However, now Ostberg says that it’s going go back into the red because of “big investments.” (Pointing to acquisitions.)

“We will make some big investments and therefore go temporarily into loss,” he says. “The company is only 2.5 years old and it’s too early for us to aim for large profits.” Nor is it time yet to think about IPOs, despite the many rounds of funding to date.

“Our long term plans are to build an amazing service for our restaurant partners and users. In order to do so we might IPO, but it will not happen in 2014. We have enough capital for now,” he says.

Its net revenue run rate is currently $80 million, he tells me, “no longer that far behind” its main competitor, Just-Eat, although some 10 years younger.

Although Delivery Hero has established an operation in Mexico, for now there are no plans to go north of the border. “For now, our main focus will be to do what it takes to win the markets we are active in,” he tells me.

For now, that activity has seen Delivery Hero develop a number of strong markets, with no individual market larger than 25% of its business. “This means we can afford to take on a battle in any individual market. This is not the case for any of our competitors,” he says. (And for the record, Italian is currently the most popular food group, by which I assume he means pizza rather than risotto.)

While companies like Amazon and eBay and even Uber are increasingly leveraging their logistics muscles to move into real-time delivery, often specifically for food, Ostberg rules them out for now as would-be competitors. “I believe delivery of hot food has certain characteristics that makes it very difficult for Amazon or Uber to cover,” he says. “In particular difficult as the main part of our business is coming from small cities.”