Throwback Thursday: Repackaging delivery services

Editor’s note: With Deliv announcing this week it raised $28 million in funding from UPS Strategic Enterprise Fund, Upfront Ventures and others, we’re re-posting a sector analysis story on the delivery space that originally published in the January 2015 issue of VCJ.

There’s no better cautionary tale of high-tech delivery service than Kozmo.com.

Founded in 1998, it promised free one-hour delivery of everything from a Snicker’s bar to a ballpoint pen. It raised $280 million in venture capital. But in 2001, it crashed and burned and a lot of VCs lost money.

After dot-com flops like Kozmo—and the similarly famous flameout of grocery delivery business Webvan—investors are once more betting on express-delivery services.

Deliv, a startup that enables retailers and mall operators to offer same-day delivery to customers, raised $12 million in funding led by RPM Ventures.

Meanwhile, Parcel recently secured $1 million in seed funding for a service that takes delivery of items you’ve ordered online, then drops them off at your place in a one-hour window of your choosing.

WunWun, a new startup that is currently raising a venture round, is hoping to raise the bar higher. The company is promising “whatever you need whenever you need,” by employing real people who will buy and deliver anything you want for a $15 fee, provided it’s small enough to be carried on a bicycle.

Another up-and-coming startup is Curbside, which just raised $9.5 million from Index Ventures. The company allows users to order from its retail partners (including Target), then drive by and pick up the merchandise at a curbside kiosk or inside the store.

A variety of food-delivery startups have also received investment, including Munchery with $28 million and DoorDash with $17 million.

But express delivery investments are not just helping consumers receive items at their doorstep, but ship them as well. Case in point is Shyp, which raised $9.2 million in Series A funding from investors, including Homebrew and SherpaVentures. Shyp targets senders, offering to pick up items, pack them and ship them anywhere in the world.

And then there is Flirtey, which raised $2.1 million in venture capital to become the world’s first drone delivery service—but for now just in New Zealand, where drone regulations are more laxed. It is also ready for takeoff in the U.S. market, pending FAA clearance.

This time around, however, investors are confident the delivery companies are different. Similar idea, new package.

Tony Grover, managing director at RPM Ventures, said that the resurgent interest in the delivery space is driven by a confluence of events: smartphones, convenience and sharing economy.”

“The first is the ubiquity of smartphones,” he said. “Then you add in consumers having less time and seeking more convenience and that need for instant gratification. Then you have companies pioneering the sharing economy.”

Grover said that Deliv is leveraging all these trends. So far, it has announced Macy’s, Bloomingdale’s and a number of malls as partners. It pools inventory at central pick-up points, such as shopping malls, and its network of delivery drivers works on a freelance basis, similar to the network of Uber drivers.

The delivery model is now being disrupted in a number of directions. Ecommerce is growing at an 11 percent rate, according to comScore, and local retailers everywhere are looking for a way to compete with Amazon, which is driving them to take customer service to the next level. Most of the new-generation delivery companies are aimed at helping them do that.

“Of course there’s a lot of scar tissue around delivery investments. The venture industry dipped its toe before with some very infamous flameouts.”

Tony Grover

Managing Director

RPM Ventures

Deliv has a business model that can achieve same-day delivery at the right price points for consumers, which the company says is about $5 to $7 per delivery for customers in a 15-mile radius of a particular mall or retail store.

“The question we ask is, will a soccer mom in Kansas buy it? If you hit a price where a Walmart shopper is willing to have something delivered the same day to their door, then you’ve hit on something,” Grover said. “You’ve passed the Midwest sniff test and have something that’s immensely scalable and will address a gargantuan market.”

Grover believes this is where the Webvans and Kozmos went wrong in the old days, because they had all these physical assets.

“This is also where FedEx and UPS can’t compete, because they have huge built-in infrastructure costs,” he said. With its fleet of freelance vehicles, Deliv doesn’t have that problem.

Another driver of delivery investment is the rapid rise of mobile commerce. It’s growing at a 47 percent clip, according to comScore. And this was the thesis behind Chicago Ventures’ investment in Curbside. While Amazon paved the way for desktop ordering and home delivery, mobile consumers now want things faster.

“Twenty years ago the definition of instant gratification was the Polaroid camera,” said Chicago Ventures Partner Stuart Larkins. “Today everything is instant. So why not ecommerce?”

Curbside is instant ecommerce, made for those shoppers who just can’t wait for home delivery. They order on a mobile device, then drive to the retailer to pick up their merchandise. This way delivery is free for consumers. Curbside’s major cost is its on-site employees, who carry customer purchases from, say, Target, out to the Curbside kiosk in front for customer pick-up. Curbside collects a service fee on every transaction.

It’s not all smooth sailing, of course. There are risks for these new delivery companies, the big one being the long lead sales cycle in signing on large retailers.

Another is hiring and keeping employees who will provide customers with a pleasant experience. Deliv, for example, must hire drivers who represent Bloomingdale’s and give shoppers a Bloomingdale’s-like experience.

Shyp, meanwhile, is aimed the sending of the package and its entry into the delivery system. Its drivers, or “heroes,” as Shyp calls them, show up at customers’ door, pick items and whisk it off for packaging, then ship it via the lowest-cost option. No more boxes, tape or bubble wrap. No more driving to the Post Office.

“Shyp takes the friction out of the process,” said SherpaVentures Managing Partner Scott Stanford. “You just open the Shyp app and snap a picture of the item you’d like to be sent away. Then the picture is sent out to Shyp’s network of contracted employees, any of whom can elect to pick up the package.”

“Twenty years ago the definition of instant gratification was the Polaroid camera. Today everything is instant.”

Stuart Larkins

Partner

Chicago Ventures

For one item, the charge is a $5 pick-up fee, plus the amount charged by the shipper, whether it’s UPS, FedEx, DHL or USPS. For two or more items, there is no fee. Shyp makes money by charging the retail rate for shipping, then shipping in bulk at the discounted rate. FedEx and UPS are happy to have a company like Shyp bringing more volume into their systems, Stanford said.

Shyp’s costs are its drivers and its warehouse, where packages are processed. Shyp’s risks are consumer acceptance and scale.

So which way to the exit? Stanford expects Shyp to go public. Grover and Larkins name the usual suspects, such as Google, which is getting into shipping via its Google Express.

Alternatively, Larkins projects possible acquisition of Curbside by one of its big-box retail partners. Grover lists legacy players like UPS and FedEx as potential buyers. Or posits a deal with Uber, which has entered the delivery market with UberRush.

Express delivery in the United States is a $70 billion market and growing, according to Research and Markets. That should provide ample space for exits—and for new entries, as ecommerce continues to accelerate.

“Of course there’s a lot of scar tissue around delivery investments,” Grover said. “The venture industry dipped its toe before with some very infamous flameouts.”

But VCs walked away largely intact. And today’s sharing-economy model, paired with consumer demand for instant gratification, makes it a lot easier these days for VCs to deliver on their investments.

Tom Stein is a Palo Alto, Calif.-based contributor. He can be reached at tom.stein@yahoo.com.

To download an Excel file of startups in the space, as of January 2015: Select VC-backed targets providing instant delivery of food and other goods