(Adds details from interview with Instacart CEO, paragraphs
By Heather Somerville
SAN FRANCISCO, March 8 Grocery delivery service
Instacart has raised $400 million in its latest financing round,
the startup announced on Wednesday, as investors show more
enthusiasm for a business model whose viability has long been in
San Francisco-based Instacart has struck deals with Whole
Foods, Costco, Target, Safeway
and about 130 other retailers to deliver groceries to consumers.
Customers can order groceries from those stores through the
Instacart app, and an Instacart driver delivers the food in as
little as an hour.
The most recent financing round is Instacart's largest and
boosts its valuation from $2 billion to $3.4 billion, the
company said. The round was led by Sequoia Capital, Instacart's
earliest venture capital investor. It also backed the defunct
grocery delivery service Webvan, which went bust in the dot-com
Instacart's resemblance to Webvan has put the startup under
intense scrutiny since its launch in 2012. The struggles of
other on-demand delivery services, such as meal delivery firm
SpoonRocket, which shut down a year ago, and PepperTap, an
Indian grocery service also backed by Sequoia that folded last
April, have precipitated a slowdown in venture investing in the
Instacart's fresh funding signals a break from that trend.
The company eased investor fears by reaching profitability in 25
of the 35 markets where it operates, said Apoorva Mehta,
Instacart chief executive and founder. In new markets, Instacart
expects to reach profitability in six months or less.
"Webvan was 20 years ago. Lots of things have changed,"
Mehta said. "People today have broadband connections. People
Instacart has set itself apart from some of its peers by
finding more ways to make money than on just delivery fees, a
famously difficult model. It earns revenue from a fledgling
business of coupon sales and promotions sponsored by brands such
as Nestle, General Mills, Coca-Cola, which are
displayed in the app and target consumers based on shopping
The company also has a subscription service, similar to
Amazon Prime, which accounts for about half of customer
purchases, Mehta said.
Mehta said the company will continue reducing delivery fees,
critical to retaining customers, and eventually the largest
portion of Instacart's revenue will come from the coupon and
Instacart has to date raised more than $600 million from
investors including Andreessen Horowitz, Khosla Ventures and
Whole Foods. The company says this year it will double its
footprint to about 70 markets.
(Reporting by Heather Somerville; Editing by David Gregorio)