Shervin Pishevar’s new fund makes its biggest investment to date with Munchery’s $28 million Series B

By Carmel DeAmicis , written on April 10, 2014

From The News Desk

Lest you were undecided about the relative hotness of the on-demand meal space, today's funding news seals it: things are officially heating up. Munchery, the oldest on-demand food startup, has raised a $28 million Series B, in a round led by none other than Shervin Pishevar’s new fund Sherpa Ventures. Pishevar, who participated in the company's Seed and Series A rounds, will be taking a board seat.

The category has been simmering for awhile, with the launch of a handful of compelling companies in the last few years. SpoonRocketSprigChefler, and others run vertically integrated food startups. They hire chefs, rent kitchen space, source ingredients, cook meals, and deliver them to customers. Most of them have raised some pittance of seed venture, and all are hoping to go big — national — or go home. Others still have tried and failed, including Pop-up Pantry.

But it’s such a young vertical that they haven’t gotten much attention from the tech world, despite the fact that some predicted the on-demand food sector would be “the next ridesharing.”

That was merely the calm before the storm. Last week, Greylock stirred things up by placing a huge bet on the space, leading a $10 million round in newcomer Sprig. Sprig’s substantial Series A, the largest investment up until that point in the category, by a firm with as lofty a venture reputation as Greylock, suggested that on-demand food startups were the next big thing. Munchery seals it.

The Munchery round appears to be far and away the biggest investment Sherpa has made to date. Of the $87 million in capital the fund has reportedly closed, $25 million is a significant chunk.

It didn’t take long for the firm to commit apparently. “We pitched for two days and by the second night we signed the terms,” Munchery co-founder Tri Tran says sheepishly. “It’s a hungry space.” Under most circumstances, a two day fundraising period might suggest an emotional rather than logic-driven decision. But Pishevar has been involved with Munchery since its earliest days. He presumably knows the space, and where the proverbial bodies are buried. If anything, the speed of the round suggests that he made Muncher's founders an offer that they couldn't refuse.

Does Pishevar, an early investor in Uber and close friend of CEO Travis Kalanick, believe Munchery could be “the next Uber”?

“Absolutely,” Pishevar says. “Transportation is one category people need every single day and that is an unbounded opportunity…the second area that’s really interesting is food. People need to eat every single day. So that was a logical and obvious choice.”

To risk so much of his fund on this investment, Pishevar must be confident about the sector. Until now Sherpa has focused on seed and Series A rounds. Putting a chunk worth more than 20 percent of the Sherpa's reported warchest into a single company, let alone an unproven one like Munchery is a big gamble.

Pishevar has been known to make big bets on unproven entrepreneurs or markets, but his track record on such deals isn’t airtight. Yes he might net Menlo Ventures amazing returns by leading the $37 million Series B investment in Uber. But he also sunk some of their funds into Fab which has struggled mightily. Like any bold VC, Pishevar takes big risks. His faith in Munchery is further validation of the sector's current appeal, but it’s by no means proof-positive that food preparation and delivery companies can net huge returns and scale successfully.

There’s a million and one risks these companies face. The intersection of the physical and virtual world is far more complicated here than any software company or even transportation platform like Uber faces. And food preparation has its own unique health and thus liability risks. Scaling to other cities will involve hiring chefs, finding kitchens, sourcing food, hiring delivery people, and getting the word out.

That’s why it’s also significant that, in addition to announcing this funding round, Munchery also announced that it will be expanding to Seattle come summer. That makes it the first vertically-integrated meal preparation startup to move to another city. It took six months of planning and preparation, but the Munchery founders are convinced they could roll it out to the next city much faster now that they’ve written the playbook.

Meals must be planned, refrigeration techniques perfected. Shipping carrots is a far cry from shipping code.

“The Department of Public Health is really good and they will shut your shit down,” co-founder Tri Tran says. “There’s no room for messing around.”

[Illustration by Hallie Bateman for Pandodaily]