Postmates confirms $140 million funding round at $600 million valuation

As we first reported last month, on-demand delivery app Postmates raised additional funding in a round led by Founders Fund, with participation from existing investors. The company is now confirming the total came out to $140 million, giving the Postmates above a $600 million post-money valuation.  Brian Singerman from Founders Fund will be joining the board.

Despite Postmates’ “very fast growing” business, CEO Bastian Lehmann told TechCrunch that it was a challenging environment to raise financing. We’re seeing a “fundraising environment that has cooled, specifically in the on-demand space. We had to overcome this,” he said. TechCrunch has learned that some investors were offered warrants and additional incentives to participate.

Once a hot investment category, venture capitalists turned sour on the on-demand space because many startups struggled to make their unit economics work.  Postmates, in particular, was one of the companies that had a lot of naysayers in VC community.

But earlier this year, TechCrunch obtained a pitch deck with Postmates financials, which showed accelerating revenue and healthy gross margins. This is largely because they figured out how to monetize their business beyond delivery fees. About 6000 merchants pay for better placement on the app and to be featured in the Postmates Plus Unlimited program, which encourages members to place larger orders in lieu of delivery charges. Major corporations like Apple and Starbucks have also paid to integrate Postmates’ API into their ordering platforms.

“We have a unique business model and it allows us to grow parts of our business very fast without sacrificing margins across the board,” Lehmann told TechCrunch.

Now completing over 1.5 million deliveries per month, the company could hit profitability as soon as next year, “if we choose to do so,” claimed Kristin Schaefer, Postmates’ vice president of growth and strategy.  But she said the new capital will mostly be used to improve engineering and expand to new markets. Emphasizing their efforts to compete with Amazon Prime, Schaefer said “Unlimited is probably the product we are most excited about.”

But Amazon is not their only competitor. From DoorDash to GrubHub, there are countless delivery apps and Uber has become a formidable opponent, with the expansion of Uber Eats.

“You will see us become very aggressive in defending and growing our market leadership,” said Lehmann.

At one point there was chatter that Postmates was shopping itself, but the company won’t comment on acquisition possibilities.

An IPO is “absolutely an option we have in mind,” said Schaefer, indicating that it would likely be at least two years out.

Said Lehmann, “this is one route we could take, but not in 2017.”