DoorDash is finalizing a fundraising round likely to value the U.S. food delivery app between $10 billion and $12 billion after the investment, just three months after the company raised money at a $7 billion post-money valuation, said two people familiar with the matter.
The talks suggest the disappointing IPOs of Uber and Lyft may not have killed enthusiasm among late-stage, private tech investors, even in companies burning through cash. DoorDash, along with competitors like Uber Eats, Postmates, and Deliveroo, are believed to be losing hundreds of millions of dollars a year to acquire customers who order from restaurants via their apps and attract delivery drivers. Whether public market investors will be willing to match these rich valuations remains unclear.
Fundraising efforts by DoorDash in the U.S. and Deliveroo in the U.K. show the food-delivery market is still a land grab and the sources of capital have not dried up despite rocky IPOs for other “on demand” companies.
DoorDash is viewed as a leader in the U.S. after seemingly overtaking Uber Eats over the past year, according to Uber investors who track the market closely. The company estimates its food delivery market share at more than 30%, up from around 10% about a year and a half ago, said one person with knowledge of the matter. Another large player in the market is GrubHub, which lets customers order from restaurants that handle their own delivery and also has been building its own network of drivers.
DoorDash has not decided how much to raise, one of these people said, and the talks could still fall apart. Existing investors include Sequoia Capital, Kleiner Perkins Caufield & Byers and SoftBank, which led a $535 million funding round in March of last year.
Postmates, which is smaller than DoorDash and Uber Eats, said in February that it filed an IPO prospectus with securities regulators, though the document hasn’t been made public. The timing of that offering is unclear.
Deliveroo recently announced that Amazon is leading a $575 million round of financing in the company.
The Ride-Sharing Comparison
DoorDash, founded in 2013, doesn’t necessarily need the new money. It has at least $500 million in cash on its balance sheet after recent equity funding rounds, which have totaled $1.37 billion in its lifetime, according to PitchBook. That includes $650 million raised over the past year.
But the company is pursuing the cash now to capitalize on its surge in market share and to raise while market conditions are still relatively favorable, one of the people said.
A spokeswoman for DoorDash and the company’s CEO Tony Xu did not immediately respond to a request for comment.
The U.S. food delivery market is brutally competitive, with some investors wondering whether these businesses will ever make money.
But the businesses have some potential advantages compared to ride-hailing. The companies get paid by the restaurant and the customer, which can lead to better margins.
Food delivery drivers can use old, beat-up cars or motorcycles that cannot be used to ferry passengers for Uber and Lyft. And many food customers are less price sensitive compared to ride-hailing customers, according to investors in both types of businesses.
A year ago, Uber Eats was ascendant in the U.S. market. It expanded quickly by relying on the existing base of drivers for the company’s core business, and often offered faster food deliveries than its rivals. DoorDash, meanwhile, had focused more on serving suburbs and providing a bigger selection of restaurants for customers.
A turning point came in March of last year, when SoftBank invested in DoorDash, despite formal opposition by Uber, The Information previously reported. Softbank had recently become Uber’s biggest shareholder and the deal immediately helped DoorDash compete better with Uber Eats.
Uber Eats, facing the surging DoorDash, experienced a drop in revenue during the second half of last year—a development that weighed on the company’s IPO. Uber Eats generated $403 million in revenue in the first half of the year and $356 million in the second half. The drop occurred despite Uber more than doubling one type of bonus it pays drivers to encourage them to drive for Eats to $466 million in the second half of the year from $221 million in the first half.
To counter the trend, Uber further boosted that bonus to nearly $300 million in the first quarter of this year, or triple the amount it spent in the year-earlier period. And Uber Eats has discussed trying to catch up to DoorDash in terms of food selection by making the online menus of restaurants available in its app, even if it has no formal relationship with them, to make more food available to Eats customers.
—Priya Anand contributed to this article.
—The article has been updated with a more complete description of Grubhub.