ChowNow brings in $2M Series A extension, $1M venture debt to fuel rapid growth of its mobile ordering platform

By Michael Carney , written on June 11, 2013

From The News Desk

It’s been a busy year for Los Angeles-based ChowNow, which offers restaurants a mobile and Web ordering and marketing platform. The company has more than doubled its team to 30 employees, growing in all departments, and is coming off of its best month in history in terms of restaurant signups. As a result of this pace, the company has raised the first $1.19 million of a planned $2 million Series A-1 round.

The extension financing was led by Series A lead investor GRP Partners with the participation of several existing investors and the addition of new investor Kensington Capital. According to CEO Christopher Webb, the structure of the round allows those existing investors who have not already committed one month to take their pro-rata rights after which GRP will fill the remainder of the $2 million round.

The decision to complete this round was made in a single board meeting, according to Webb, during which the company and its advisors realized the opportunity to accelerate its existing growth. The round was completed at “an uptick in valuation” from the Series A round, the CEO says. The company, which is an alumnus of Santa Monica’s Launchpad LA accelerator, is also finalizing an additional $1 million of venture debt, with multiple term sheets in hand.

The mobile ordering space has had its own share of headlines recently, with category leaders Seamless and GrubHub announcing a merger less than a month ago. For Webb, the above merger was welcome news, as ChowNow and the combined Seamless-GrubHub offer complementary, rather than competitive products. More specifically, Seamless-GrubHub offers diners a single destination website and mobile app (per platform) within which to discover a network of local dining options. The company then takes a commission on every transaction facilitate through its platform.

phone_shotChowNow, on the other hand, creates custom apps and websites for each restaurant and assists them in attracting diners to those portals. The startup charges restaurants a flat SaaS fee for access to this platform. One advantage of this model is that it doesn’t require network effects, meaning ChowNow can target small towns and other markets with limited density that would be ineffective for Seamless-GrubHub or any other company with a similar model.

Many in the industry have predicted an IPO for the combined company in the next year or two, which would further validate the space and the company at its helm. Webb expects this consolidation at the top of the market to incentivize others looking to enter the space to move quickly, either through partnerships or acquisitions, both of which could work in his company’s favor. ChowNow has built an API which it uses internally, and which is “90 percent documented” according to Webb for potential third-party use.

Part of ChowNow’s recent success can be traced to its decision late last year to begin building an in-house marketing agency to help its clients attract diners to their mobile ordering platforms. ChowNow now employs five people whose full time job is to leverage each restaurant’s CRM data to target offers and promotions according to consumer behavior. For example, infrequent customers may be targeted with discount offers, while regular diners are more likely to receive notifications of menu changes and special events. In all cases, the company keeps each restaurant’s CRM data siloed from those of others on its platform.

While the enterprise market has been in vogue among entrepreneurs and investors, ChowNow, like Seamless-GrubHub, is finding enormous success in the often-maligned SMB (small- and mid-sized business) market. The company’s current challenge is to continue scaling its sales and customer service departments to support its rate of growth. Webb is hoping that additional of $3 million will be the the injection of fuel and motor oil that this high-rev engine needs.