Hot Startup Gopuff Tries To Raise Money Again

By | 01/09/2022

The $xv billion rapid-delivery outset-up decided to practise business organisation differently from rivals like Instacart. A irresolute environment is testing its model.

Gopuff, which aims to deliver goods to people in 30 minutes or less, operates in 1,200 cities in North America and Europe. It also has retail locations in cities like New York.


Gabby Jones for The New York Times

Erin Woo, who reports on start-ups, is based in San Francisco.

From its beginning in 2013, Gopuff aimed to do rapid delivery differently.

The outset-upwardly’s founders, Yakir Gola and Rafael Ilishayev, based the company in Philadelphia, abroad from other delivery ventures in Silicon Valley and New York. They opened warehouses and bought their ain merchandise, instead of acting as middlemen who connected retailers and restaurants with customers. And they promised speed, delivering food and other items in xxx minutes or less.

By late concluding year, Gopuff had amassed $3.4 billion in funding, bought the alcohol and beverage retailer BevMo! and was valued at $15 billion. This year, it appeared poised to go public.

“We built a sustainable business that thrives and that is set up to win long term,” Mr. Gola, 29, said in an interview terminal month. Gopuff, he added, is “a disrupter.”

Now the question is whether Gopuff has done delivery differently enough. In the past few months, the start-up surroundings has changed from nail to uncertainty, as tech stocks have cratered, inflation has risen, interest rates have increased and the economic outlook has darkened.

In response, Gopuff recently put off its public list and is trying to raise $1 billion in debt that could potentially exist turned into stock. The unprofitable company likewise lowered its drivers’ minimum pay in California. This twelvemonth, it has done two rounds of job cuts, including final month when it laid off well-nigh 450 people, or iii percentage of its xv,000 workers.

Gopuff faces a dismal history of failed delivery start-ups, from Webvan and in the early 2000s to Buyk, 1520 and Fridge No More than in the past few months. Delivery — with high labor and transportation costs, potent contest and lofty marketing expenses — is notoriously expensive and logistically complicated to provide and make money on.

While commitment companies such every bit DoorDash and Grubhub have gone public, many of them lose money, and some have subsequently been acquired. And with the bump in pandemic orders tailing off, many of these companies are striking hurdles. Last month, the grocery commitment start-up Instacart cut its valuation to about $24 billion from $39 billion.

“These companies are fine during a very ebullient and frothy capital markets environment,” said Ken Smythe, the chief executive of Next Round Upper-case letter Partners, which advises investors buying and selling stakes in kickoff-ups. “The world has changed significantly in the by threescore days.”



Gabby Jones for The New York Times

In the interview, Mr. Gola best-selling that commitment was “very logistically circuitous — information technology takes a lot of time and a lot of effort and capital.” Only having warehouses and inventory is the only manner to profit over time, he said, because it allows the company to make money from selling goods and not just charging delivery fees.

“Once you lot can execute, and evidently that’s hard, it wins in the long term,” he said.

Gopuff added that information technology was putting a public offer on the dorsum burner considering the stock marketplace had been volatile and it had plenty greenbacks on hand. The layoffs were part of a global restructuring, it said.

Mr. Gola and Mr. Ilishayev met as students at Drexel University in Philadelphia in 2011. In their sophomore year, they founded Gopuff for college students, offering fast tardily-night deliveries of junk nutrient, condoms and smoking paraphernalia. They leaned into their college demographic with the proper noun Gopuff and an early marketing entrada calling themselves a “one-stop puff shop.” Deliveries were available until four:20 a.k.

To fix themselves apart from DoorDash and Instacart, which connect customers to restaurants and grocery stores via their apps and rely on gig workers, Mr. Gola and Mr. Ilishayev decided Gopuff would buy goods from distributors and wholesalers and have warehouses. Its warehouse workers would be total-time employees, though its delivery drivers and bike messengers would be contractors.

Mr. Gola, who dropped out of college, and Mr. Ilishayev, who graduated from Drexel with a degree in legal studies, became co-chief executives of Gobrands, Gopuff’south parent visitor. To fund the business, they sold used office furniture on Craigslist and eBay. They also offered discounts on orders to attract customers and charged just $2.95 for delivery.

As Gopuff gained traction beyond Drexel students, Mr. Gola and Mr. Ilishayev expanded their product offerings and fix upwardly warehouses in Boston, Washington and Austin, Texas. Starting in 2016, the company raised money from venture firms such every bit Anthos Capital and, later, investors including the Japanese conglomerate SoftBank.

“We saw it in the data: customers coming back multiple times every month, very stiff customer retention, customers who would stick effectually forever, basically,” said Jett Fein, a partner at Headline, a venture capital firm that invested in Gopuff.

In 2020, the pandemic sent Gopuff’s business into overdrive equally people shied abroad from shopping in person and relied on deliveries. Billions of dollars in new venture upper-case letter flooded in.

Mr. Gola and Mr. Ilishayev went on a spending spree. That November, Gopuff caused the California retailer BevMo! for $350 one thousand thousand, giving it a foothold in the state as well as the chain’due south liquor licenses. In Europe, it bought the delivery start-ups Fancy and Dija.

The company besides started offering a $v.95 monthly subscription for delivery and began an advertising business.

Gopuff now has nigh 700 warehouses that evangelize to 1,200 cities in North America and Europe. It too has several retail locations in New York, Texas and Florida, where customers tin walk in and shop.

Merely profits have been elusive. The start-up is non cash-flow positive, which means information technology is spending more than coin than it is taking in, said Scott Minerd, the chief investment officeholder of Guggenheim Investments, which has invested in Gopuff. He added that the company had paused some plans to open new warehouses.

Gopuff spends more on holding and salaries of warehouse workers than its rivals, said John Mercer, caput of global research at the firm Coresight Research. Discounts to concenter customers have also eaten into acquirement.

Gopuff said it made money in its first 3 years. Its 2020 revenue was $340 million, according to a company document for potential landlords that was obtained by The New York Times. The certificate also showed that Gopuff’due south cash residual dropped $111 million that yr to $521 million.

Acquirement totaled $2 billion last yr, Gopuff said. The company also lost $500 million, which was first reported by Axios.

Some of its spending has gone toward handling delivery issues, said iv former warehouse and district managers, 3 of whom declined to be identified because of severance agreements with the company. Several said they had sometimes spent hundreds or thousands of dollars a day on Instacart or at grocery stores to replenish Gopuff’s “never out of stock” staples like bacon, eggs and milk.

At other times, suppliers sent pallets of items like water ice cream that were not needed and could not be stored.

“I would throw away $1,000, $2,000, $3,000 in inventory every bit presently equally I received it considering I had nowhere to put it,” said Anthony Nelson, who managed ii Gopuff warehouses in Houston from 2019 through 2021. “That happened at least once or twice a calendar week at bare minimum.”

Mr. Gola said Gopuff bought items from Instacart or local retailers less than 1 percent of the time and threw out less inventory than the industry standard.

The starting time-up has besides faced questions over its use of gig workers, many of whom sign upwards for shifts with the company and report to managers. (Gopuff disputes that gig workers report to managers.) In 2018, the Labor Department found that Gopuff had misclassified delivery drivers in Pennsylvania as contained contractors.

“Gopuff’s entire business concern model depends on flagrant misclassification of a kind that’south shocking well beyond what nosotros come across even from other gig companies,” said David Seligman, a lawyer who filed a 2017 class-activity lawsuit challenge Gopuff wrongly categorized its drivers as contractors. The adapt was settled in 2019.

In Nov, hundreds of Gopuff gig workers went on strike, said Candace Hinson, a delivery driver in Philadelphia who helped organize the stoppage.

Mr. Gola said the visitor used gig workers equally drivers, rather than hiring employees, because “that’due south what they want.” The company disputed that hundreds had gone on strike and said the workers’ activity had not hurt its business.

In the interview, Mr. Gola insisted that Gopuff would be the company to crack the instant commitment code.

“The world is moving toward instant,” he said, “and Gopuff is at the forefront of that.”