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Investors curb their appetite for meal-kits

As a culture, we are food obsessed. Cooking shows like “Chopped” and “Top Chef” have devoted followings and many viewers are fanatical about the celebrity chefs themselves.

However, Americans aren’t actually preparing their own meals. Increasingly, consumers are more likely to dine out at their favorite restaurant or use one of the many VC-backed apps to have prepared food delivered to their doorstep.

Despite the downward trend in home-cooked meals, a whole slew of companies have entered the market and are betting that if they remove the friction of cooking, more people will pick up a frying pan. The idea behind meal-kits is simple: The companies handle the meal planning and grocery shopping and then ship the ingredients and recipes to customers. The concept provides convenience for consumers and also creates an opportunity for the companies to take on the multi-billion market for grocery store s .

As a result, the meal-kit sector exploded in 2015, and it seemed like nary a week went by without a newcomer announcing a fresh round of funding.

The low-barrier to entry and overzealous investing created a crowded marketplace with more than 150 players in the United States, according to market researcher Packaged Facts. With those in the space offering little in the way of differentiators, it is hard to imagine a scenario where all these companies can survive. Thus, it has become an arms race to scale to see who can capture and hold onto the most market share.

Currently, the top spot is occupied by New York-based Blue Apron. Last year, the company scored a $2 billion valuation after closing a $135 million Series D round from Bessemer Venture Partners, Stripes Group and Fidelity Investments, bringing its total raised to $193 million. Having deep pockets has allowed the company to scale operations, and it now ships 8 million meals a month in the continental United States.

But the company has formidable competitors in Plated and HelloFresh.

Plated, which is also based in New York, has raised $56.4 million in funding from Greycroft Partners, Formation 8, Great Oaks Venture Capital and Kite Ventures, among others. Berlin-based HelloFresh has its own $2.9 billion valuation to boast. And it also touts a global footprint across seven countries, helping it serve 7.2 million meals in January.

With three giants at the top, it begs the question of whether there is room for startups to compete.

Investors think so.

One area gaining traction is dietary needs. While Blue Apron, Plated and Hello Fresh offer vegetarian options, catering to specific diets has not been their core focus. Some VCs believe this leaves an opening for niche companies.

“The broad players have been established, but we will continue to see more focused players over the next couple of years,” said Amish Jani, managing partner at FirstMark Capital. “Consumers are looking to find services to fit their specific dietary needs.”

One new such player to come to the market is Purple Carrot. Launched last year, the Needham, Massachusetts-based company provides 100 percent plant-based meal-kits for those abiding to a vegan diet.

In May, the company added $5 million in debt financing from WindSail Capital to the $3.8 million in seed capital it previously raised from New Crop Capital, Stray Dog Capital and the chef Mario Batali, among others.

Recently, Purple Carrot told the New York Times that it “ships tens of thousands of meals.”

While vegans are a growing part of the U.S. population, they still represent a small percentage, so it remains to be seen whether the company can reach the economies of scale needed to make the margins work.

San Francisco-based Sun Basket saw an opportunity to provide meal-kits for consumers who are on paleo or gluten-free diets.

In mid-May, the company closed a $7.1 million Series A round of funding led by Paul Allen’s Vulcan CapitalPivotNorth Capital and Robertson Stephens Partners. The round also included Baseline Ventures, the Tyler Florence Group, Rembrandt VenturesCorrelation VenturesRelevance CapitalRoth Capital and Filter14, among other undisclosed investors.

The company has now raised $11.6 million in two rounds of funding to fuel its clean eating agenda.

Despite having less funding than its competitors, the company has already expanded to serve 34 states and said it is adding more than $2 million in annual revenue run rate per week.

For specialty meal-kit companies, these small infusions of venture financing might become the norm, as the big rounds of yesteryear have dried up.

With the overall pullback in investment of venture-backed companies, food delivery has been a victim of waning interests and increased skepticism.

“There has been a lot of crazy investing that was done over the last two years or so,” said Amit Mukherjee, senior associate of New Enterprise Associates. “Investors are realizing that [food delivery] companies have been missing plans and that they need to reevaluate their diligence and analysis process.”

Amit Mukherjee, senior associate, New Enterprise Associates. Photo courtesy of NEA.
Amit Mukherjee, senior associate, New Enterprise Associates. Photo courtesy of NEA.

In the first quarter of 2016, the global food delivery market raised just $159.6 million in venture capital, which was down from its record high of $1.5 billion during the previous quarter, according to data provided by CB Insights. The drop represents the lowest amount of money to be pumped into food delivery since the fourth quarter of 2014.

In the short-run, these smaller companies might find it hard to compete. Food is a low margin business, and the grocery industry that they profess to want to take on has average profit margins around 1.5 percent. To reach the economies of scale to make the model work it becomes a volume game. And even though the market has not reached saturation, smaller and less-capitalized companies will likely find it harder to market against the leaders in the space that have bigger budgets and already enjoy a certain amount of brand recognition.

For some startups, the writing might already be on the wall. Green Chef, an organic meal-kit maker, said it has been approached by two competitors looking to be acquired due to capital scarcity and challenges scaling out the business. The Boulder, Colorado-based company, which has received an undisclosed amount of funding from NEA, said it is not in discussions to acquire any of these companies.

And with Amazon announcing plans to enter the market later this year, it could get even more contentious.

The general food space has also seen some closures.

Spoonrocket, which allowed users to order pre-made food via a smartphone app, shut down in March. The company had raised an $11 million Series A round in 2014 from Foundation Capital, General Catalyst Partners and others, according to Thomson Reuters.

Kitchit, another San Francisco-based food-related company, provided a booking platform for diners to hire chefs for dinner parties. The company raised $7.5 million from Javelin Venture Partners and others, according to Thomson Reuters, before it shut down in April.

Of course, the true test of this business model will come when one of these meal-kit companies decides to go public. While many businesses across tech have touted multi-billion dollar valuations in the private market, most have failed to maintain the same level of value under the scrutiny of the public market.

In what was sure to be a closely watched IPO, HelloFresh postponed its offering in Frankfurt at the end of last year amid dampening enthusiasm among investors.

The next 12 months should prove to be interesting for the meal-kit delivery space. As the market matures, the conversation will shift from one of potential scale to one about actual results. “We are just
off to the races, and it is about how well companies can execute,” Mukherjee said.

Jenna Broughton is a San Francisco-based contributor. She can be reached at

Downloadable Data: Investments in the worldwide food-delivery market

Photo of person eating while looking at food on a tablet courtesy of ©