DoorDash Misses $1 Billion Valuation Target
Latest round of investments seen valuing food-delivery startup around $700 million
PHOTO: DOORDASH
DoorDash Inc. is close to completing a round of investment valuing the food-delivery startup at around $700 million, a steep discount to the $1 billion valuation it sought when it began fundraising last fall, according to people familiar with the deal.
Previous investors including Sequoia Capital, YCombinator and Khosla Ventures agreed to invest more than $110 million in the round, the people said. The deal gives DoorDash a premoney valuation, or value excluding the new funds raised, of about $600 million, the same price investors paid in March of last year, the people said.
DoorDash’s inability to raise funding at a higher valuation than its previous round, as first reported by The Wall Street Journal last month, is the latest sign of a broader retreat by venture-capital investors, who have grown more cautious in recent months. The so-called flat round could be detrimental to DoorDash in its effort to attract and retain top talent, as it points to lower expectations for growth.
As recently as October, Sequoia had reached out to other investorsasking them to participate in the new round, according to a person familiar with the discussions. Sequoia told those investors it committed to invest in DoorDash at a valuation of up to $1 billion, one of the people said.
Spokesmen for both DoorDash and Sequoia declined to comment on the fundraising effort.
Sequoia and DoorDash struggled to get enough investors to fill out the round at the $1 billion price, in part because of poor timing.
Venture investors, who at one point last year backed 10 companies a month at valuations of $1 billion or more, have started to pull back on deals they deem too risky. Startups including local-services website Thumbtack Inc., used-car seller Beepi Inc. and e-commerce startup Jet.com Inc. have all had to scale back their valuation expectations in recent months.
Since the end of November, four companies have raised funding at valuations of $1 billion or more for the first time, according to Dow Jones VentureSource.
DoorDash’s Tony Xu hopes to eventually use its software and logistics network to deliver products other than just food. PHOTO: STEVE JENNINGS/GETTY IMAGES
DoorDash was started in 2013 by Stanford University students. The company charges a flat fee of $4 to $7 for each delivery, and works with independent contractors who deliver food from popular restaurants. Its service is available in more than 20 cities.
The company faces a barrage of competition from rival food-delivering startups including Postmates Inc., Sprig Inc., Munchery Inc. and GrubHub. Ride-hailing giant Uber Technologies Inc. plans to expand a full-scale food-delivery service to 10 cities in the U.S. in the coming weeks.
DoorDash may also be struggling to keep its workforce of delivery people happy. The company spends hundreds of dollars on recruitment and referral bonuses on some of its drivers, who end up leaving the service after less than one year, according to an article in the New York Times this week.
The challenge of turning so-called on-demand services into sustainable businesses has led DoorDash and other startups to alter their fees or change their models in recent months. DoorDash recently told its delivery people in Los Angeles it would lower the fees it shares with them to $5 per delivery, from $6. Shuddle Inc., a ride-hailing service for families, told customers over the weekend it would raise average prices by up to 20%. Zirx Consumer Services Inc., maker of a valet-parking app, this month ended its entire consumer business and said it would instead focus on businesses.
DoorDash CEO Tony Xu has said he hopes to eventually use its software and logistics network to deliver products other than just food.
The company hired a new operating chief, Chris Payne, last month. Mr. Payne, a veteran of eBay Inc. and Microsoft Corp., served a short stint as the CEO of dating app Tinder last year.
Before the new funding, DoorDash had raised nearly $60 million from investors including Sequoia, Khosla, Kleiner Perkins Caufield & Byers, Charles River Ventures and Ted Zagat, the son of the founder of restaurant survey provider Zagat Survey LLC.
