Wednesday, December 14, 2016

Signposts: "Silicon Valley VCs are growing wary of on-demand delivery"

A major piece from Reuters:
Michael Moritz - chairman of Sequoia Capital and one of the most successful venture capitalists in history - says a simple vision led him to invest hundreds of millions of dollars in on-demand delivery startups. 
"The movement of goods and services and people, by easier, more convenient means," he said in an interview. "That's a huge trend, enabled by smartphones."

Led by Sequoia and another blue-chip Silicon Valley firm - Kleiner Perkins Caufield & Byers - venture investors have poured at least $9 billion into 125 on-demand delivery companies over the past decade, including $2.5 billion this year, according to a Reuters analysis of publicly available data.

But that torrent of money has slowed to a relative trickle in the last half of this year, and many VCs have lost faith in a sector that once seemed like the obvious extension of the success of ride-services juggernauts such as Uber.

The bulk of this year's investment - about $1.9 billion - came in the first half of the year. Only $50 million has been invested so far in the fourth quarter, the Reuters analysis found. Several prominent Silicon Valley venture capitalists said in interviews that they now believe many delivery startups could fail, leaving investors with big losses.

"We looked at the entire industry and passed," said Ben Narasin, of Canvas Ventures. "There is more likely to be a big, private equity-style roll up than a venture-style outcome."

Reuters analyzed investment in on-demand delivery startups using publicly available data from the companies, their backers and third-party websites including Crunchbase, PitchBook and MatterMark. The analysis likely missed some investments because private firms and their investors do not always disclose funding details.

Delivery startups continue to grapple with fierce competition, thin margins and a host of operating challenges that have defied easy solutions or economies of scale, venture capitalists told Reuters. Widespread discounting and artificially low consumer prices have made on-demand delivery "a race to the bottom," said Kleiner Perkins partner Brook Porter in an interview.

That firm has not invested as heavily or broadly in the sector as Sequoia, but has backed U.S. startups DoorDash and Instacart and China-based Meican.

This year has seen high-profile failures, including U.S. meal delivery firm SpoonRocket, which went down in March, and PepperTap, an Indian grocery delivery service backed by Sequoia that folded in April. DoorDash, another of Moritz's investments, was able to close its latest venture funding round last March only by cutting the value of its share price by 16 percent, according to data from CB Insights.

The entry of Uber last year into the delivery business with UberEats, for food, and UberRush, for packages, promises to make life more difficult for smaller start-ups. Established logistics companies including Amazon (AMZN.O) and DHL are also exploring local on-demand delivery. 
Sequoia has backed at least 14 local delivery firms, among them four in the United States, five in China and four in India. Sequoia did not respond to Reuters requests for a response to rising VC skepticism of delivery firms.

Venky Ganesan, of Menlo Ventures, said the sector has no clear way to cut costs or boost revenue....MUCH MORE

So, other than that....?