Grocery shopping app Instacart raised a whopping $400 million yesterday, a financial round led by Sequoia Capital. According to research firm Zirra, which uses A.I and machine learning technology to analyze private companies, Instacart’s valuation has reached at least $3.2 billion. Zirra also produced a full report on the delivery company, available here.
This may sound the daily headline of the “unicorn that raised hundreds of millions,” however, Instacart is a unique company in its offering and business model. First, the company is profitable in 25 of the 35 cities where it operates, which is not bad for an on-demand company that deals with grocery products, a low margin industry.
Second, the company has developed three different channels of income: a double delivery fee from the shop and the customer and a promotion platform for coupons and branded products.
This is not just a large financial round – it’s one that is more than half the size of the total funds raised since the company was founded in 2012. It is the right time to do so, and maybe even a little late: The company isn’t profitable, but it’s growing quickly and shows profitability in some of its markets. According to sources close to Zirra, the gross profit per order can be as high as $7 in some of Instacart’s market.
This is done by using Instacart’s algorithms that compute the most efficient way to collect products and deliver them. According to data published by the company, in 2016 it increased efficiency by 20% and decreased late deliveries by 25%.
The big round is good news for the company after a long period of bad PR. Some “1099 employees” said that the company treats them as full-time employees, demanding them to participate in workshops while paying them as if they were freelancers. Others blamed the company for making arbitrary salary cuts every now and then, pointing to the fact that Instacart is struggling to be profitable, at least in some markets.
This caused the company to lay off dozens of employees, which may indicate aggressive hiring or a decrease in revenue. All of this has led Instacart to increase their prices. The $400 million round should calm the price hike a bit, opening a new window for Instacart to expand and attract many new customers and retailers in new locations. [Read here Zirra’s full report on Instacart]