Grocery delivery startup Instacart recently closed a $400 million Series D round of funding at a valuation of $3.4 billion. Now, the company is putting that capital to work by accelerating its expansion across the US, and offering free Instacart Express memberships to entice new users wherever it goes.
According to the company’s Vice President of Product, Elliot Shmukler, the company is operating in 41 U.S. markets today and is launching into 4 new markets this week, including Detroit, Columbus Ohio, across Texas’ Rio Grande Valley, and Las Vegas. New customers in Texas and the Midwest will be able to try its Instacart Express membership free for 1 year, he said.
Typical Instacart Express members use the service 4-5 times per month and spend $450 per month on groceries and deliveries through the platform, the company claims. The geographic push and Instacart Express trials will require the company to hire at least 1,000 more shoppers to fulfill orders in new markets, Shmukler said.
Overall, Instacart aims to make its service available to 80% of US households by 2018. When news of Instacart’s latest funding round broke, some Silicon Valley observers cried “bubble,” and compared the company to Webvan, the dotcom era e- rocery that raised $800 million and went public before eventually going bankrupt.
The two companies both had Sequoia Capital as an investor and Michael Moritz as a board member. But that’s about where the likeness stops. Moritz has spoken frequently about the reasons why Instacart’s model works today and Webvan’s didn’t back then.
For one, Webvan failed to become profitable in one market before proceeding to new ones, the investor has noted. Plus, Webvan’s timing was early. Home internet use was growing in the US, but e-commerce was barely nascent and mobile commerce still more than a decade away when it first started. Finally, Webvan fulfilled orders for groceries from its own warehouses, which proved more costly than taking advantage of other groceries’ infrastructure, as Instacart does.
It’s still fair to ask if Instacart’s latest funding round is excessive, and how the company could possibly deliver returns to investors at such a high valuation. Notably, the Instacart Series D looks outsized compared to on-demand delivery startup Postmates, which raised $140 million at a valuation over $600 million last year.
Postmates, which started before Instacart, has been delivering food from restaurants to customers’ doors, as well as groceries. Instacart is focused solely on groceries. Still, the businesses look alike in other ways, with both companies relying on 1099 workers (with vehicles) to fetch and make deliveries to their customers’ doors….