Zerocater — incubated at Y Combinator back in 2011 (back in the days when YC had just 45 companies in a cohort) — was growing at a fast clip and gobbling up new customers for its office meal delivery service before COVID-19 hit. The pandemic led it to shed 98% of its business and set off a quick scramble to figure out how to extend its shelf life.
But survive it did, and now things are heating up. Zerocater today is announcing a round of $15 million to double down on its business with a wider geographical footprint and more AI and analytics to improve what it does.
This is a Series C, and it is being led by Cleveland Avenue LLC, with Remus Capital also participating. The funds will be used for geographic expansion, growing Zerocater’s footprint to 10 cities across the U.S. and Canada beyond its two current markets of NYC and the Bay Area.
Zerocater also plans to work on a wider slate of “digital cafeteria” services for its users, expanding its in-house “FoodIQ” platform, which uses AI and analytics to personalize menus and improve how Zerocater and its customers and suppliers run their food activities overall.
The funding comes on the heels of a strong year as more people have returned to spending time in their offices, with many companies going back to providing food for those workers as an anchor and also “table stakes” for attracting them in the first place.
Ali Sabeti, the CEO of the company, said that this has led to “tremendous growth” after a very tough couple of years. Zerocater’s revenues grew three-fold in the last 12 months and its own headcount went from a lean handful of people in the spring of 2020 to 50 in 2021, then up to 175 in 2022. It now plans to bring that number up to 200.
Customers today include Slack, Datadog, Splunk, Druva and Robinhood.
Many of the crop of food delivery startups that have emerged over the years — mostly consumer-focused services, with high overhead and/or models that are too easily cloned by competitors — have ended up in a low-margin race to the bottom with tough unit economics to match. Sabeti, however, said that Zerocater has been profitable almost from the start, which is one reason why it’s raised a relatively modest amount over the years compared to many others in the space. (It’s not revealing its valuation, but the startup has raised $38.5 million to date with other backers including Romulus Capital, Struck Capital, SV Angel, Keith Rabois, Yuri Milner, Paul Buchheit and Justin Kan.)
Zerocater’s original concept was a classic two-sided marketplace focused on business users, specifically startups like Zerocater itself that were perhaps too small to invest in building their own in-house eating facilities but tech enough to know they needed to offer food to its employees.
Workers would order meals on an app, which was populated with meal choices from a group of local restaurants — some of which had never provided delivery before. Zerocater acted as a demand aggregator and negotiator, taking a service fee, as well as a cut if it managed to negotiate better prices with the restaurants (customers would still pay the menu fee, and the startup would pocket the difference).
That business started to take off and the company raised money and expanded.
But then, COVID-19 struck. It whittled down to almost nothing during the pandemic, with many restaurants shutting down and the customer list disappearing, too.
“We still had a little business, but it was just biotech companies, those working on COVID testing and essential workers,” Sabeti said.
Then as it rebuilt, it was faced with a new set of realities.
For sure, there are some companies out there that are using the new reluctance by some workers to come into the office as a good reason to reduce office footprints and costs overall. But for those who believe they would work better with people in the same space together, they have to come up with better reasons for having them make the effort.
“You have to have a food program that people value,” Sabeti said. “What will resonate and what will get them excited to come back into the office? It is a different environment than it was pre-pandemic. If the alternative is your kitchen, what you have at work has to be better, and what you want to eat. Otherwise, the employee will not come in.”
Zerocater, to meet that demand, also expanded and streamlined how it operates. It now works with some 450 food providers, which are not just restaurants but catering suppliers and what Zerocater describes as “quality commissary kitchens,” which are shared-use commercial kitchens that sometimes also include so-called ghost kitchens.
Then, using these suppliers, Zerocater provides two basic varieties of service: a “Cloud Cafe” that lets individuals pre-order boxed meals from a daily selection; and a “Managed Cafe” that provides buffet-style offerings with the offerings and amounts also pre-determined by pre-ordering. Alongside those, it lets companies blend those two together, and it also provides its services for one-off events. Food experiences are delivered, designed, and staffed by Zerocater people.
The selections of what comes up on each day’s menu for each customer are where the data science comes into play. Sabeti said the mix is based in part on what employees order on previous days, and in part on what its partners are offering in a given week. In that sense, the Zerocater platform becomes a business intelligence tool for its customers and partners, with insights into what people want to eat and to plan for what it might need to buy in future.
Overall, it is a pretty large matrix that gets created through all of this: Zerocater said that weekly it provides 10 daily cuisines and 70 daily menu items, and that overall the selections span 120+ available cuisines and 20,000 unique menu items.
In the heady days of the 2000s and 2010s, tech and other companies were known to invest as much as $10 million into building elaborate kitchens and dining facilities before even considering the running costs of these once they were set up, with full-time cooks, large rotating menus of food and drink and more.
The attraction for the businesses using Zerocater is that they can offload all the management and provision of food, reducing its overhead. That is something investors think will help the startup grow in the coming years, as even less organizations want to take on those costs themselves and to be more nimble in the current economy, and knowing how a major public health crisis can change everything.
“The pandemic and the shift to hybrid work completely broke how companies feed their teams. The opportunity for Zerocater to transform the $182 billion corporate cafeteria and catering market is immense,” said Keith Kravcik, CIO Cleveland Avenue, in a statement. “Add in the current economic uncertainty and it is clear companies will no longer spend millions building out traditional cafeterias with full-time chefs, guessing what food and how much of it to prepare, and signing 5-year contracts when the in office headcount changes daily or another COVID outbreak could cause a shutdown.”