VCs are mounting the pressure on tech investments in restaurants

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Investor appetite continues to grow for “restaurant technology” companies as more restaurateurs digitize their ordering, payment and delivery systems. And next on the menu is the industry’s biggest technological challenge: the kitchen.

“Digitizing the kitchen is a sexy concept right now because there’s a lot of pain in the industry,” said food tech investor Adam Struck, founder and managing partner of Struck Capital.

Restaurant workers are under more pressure than ever in a competitive market with razor-thin margins, Struck said. “You also have kind of a massive labor shortage in restaurants. So people are trying to use basic technological innovation to just streamline operations.

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In an industry where many kitchens operate with paper orders and recipes printed from Word documents, restaurant technology companies are seeing more opportunities at the back of the house. By digitizing the kitchen, a restaurant can not only store recipes, track orders, and manage inventory, but also reduce food waste, reduce costs, and tap into new revenue streams.

Restaurant technology as a whole has seen a steady increase in venture capital investment, from around $800 million in 2017 to $2.3 billion in 2021, according to data from Crunchbase. While the number of transactions per year decreased in 2020 and 2021, the value of individual transactions increased.

Companies targeting the restaurant payment process scored particularly high in 2021. Examples include San Francisco’s payments and accounts payable platform PlateIQ, with a $160 million Series B round in November, and QR code payment app Sunday, which raised $100 million in its Series A round.

On the delivery side, Belgium-based Deliverect raised $150 million in Series D funding in January 2022, bringing the company’s valuation to $1.4 billion.

Particularly investor-friendly is Uber founder Travis Kalanick’s CloudKitchens, which raised $850 million in a single funding round in November, taking its valuation to $15 billion. Although technically a real estate company, Los Angeles-based CloudKitchens provides kitchen space, infrastructure, and software to delivery-only food brands.

The concept of digitizing restaurant kitchens is appealing to VCs like Struck, which was an early investor in food delivery platform Postmates. His firm also recently led a $6.5 million first round of funding for New York-based culinary software platform Meez Culinary Solutions. Struck calls Meez’s recipe management system a “Trojan horse” for bringing technology throughout the kitchen.

“It’s not just about how chefs document their recipes, it’s how they collaborate, how they train with video modules, and how they think about yield and cost-per-recipe conversions,” said Struck said.

When Josh Sharkey launched Meez – a set-up game – with 20 paying customers in December 2020, he found the concept a tough sell to investors. But the business quickly gained traction by partnering with restaurant groups and the Institute of Culinary Education. Meez has more than 750 paying customers, employs 18 people, and plans to add eight or nine more employees this year, mostly technology developers.

Mark Shulgan is Managing Director and Head of OMERS Growth Equity, which he launched in 2018. His team entered restaurant technology that year with an initial investment in the payments and point-of-sale company of restaurant TouchBistro, then led that company’s $119 million Series E funding round in 2019.

OMERS Ventures1 joined Deliverect’s massive funding round in January.

Fix what’s broken

Although the pandemic has slowed industry growth, Shulgan said, it hasn’t stopped. New restaurants continue to open and they are more likely to adopt new technologies. He believes the best restaurant technology helps increase revenue while finding new efficiencies.

“We want to see that they solve a real problem for restaurant owners,” Shulgan said of future investments in restaurant technology. Chefs and owners are looking for technology that reduces or reduces administrative tasks in order to spend more time with the restaurant environment and customers.

TouchBistro CEO Samir Zabaneh considers his company almost ready to go public, but may launch another private round first due to strong investor interest. While its software is aimed squarely at a restaurant’s point of sale with online ordering, payments and customer loyalty programs, TouchBistro’s future growth is simmering at the back of the house.

“Inventory and staff make up 70-80% of the cost of a restaurant,” Zabaneh said. “Few restaurateurs know what it costs to make a hamburger compared to something else. The other part is to show them profitability data every hour of the day if they want…and we’ll send them alerts on labor cost as a percentage of revenue.

While many restaurant tech companies offer a technology solution specific to individual restaurants, Denver-based Nextbite (renamed Ordermark last November) takes a very different approach. The company raised $120 million in an October 2020 funding round led by SoftBank Vision Fund, and has used the money to scale aggressively, already this year growing from 90 to 350 employees.

Founded in 2017, Nextbite builds delivery-only restaurant brands and then partners with thousands of existing restaurants to cook the food in their own kitchens. Nextbite’s software, still called Ordermark, brings together all the food delivery platforms in a single tablet, which they ship to the restaurant with a printer. The company now runs around 20 brands, some created in partnership with celebrities – HotBox by Wiz is a collaboration with rapper Wiz Khalifa – and all designed to fit seamlessly into an existing kitchen.

“Restaurants already have these fixed costs. The rent is set, the lights are already on, the staff are already in the kitchen,” said Alex Canter, CEO of Nextbite. “There are slow days of the week where restaurants can handle 10, 20, 30 extra orders a day if they have the demand.”

While point-of-sale, payment, and delivery technologies continue to drive a lot of investment in the restaurant technology industry, the kitchen remains where most restaurants succeed or fail.

“I’ve operated many restaurants where it’s assumed that saving on third-party delivery services and optimizing fees will have the biggest impact on the bottom line,” Sharkey de Meez said. “But I’ve found in my experience that execution, consistency and productivity have the biggest impact.”

Drawing: Dom Guzman

Clarification: This story has been updated to indicate that OMERS Ventures participated in the Deliverect round, not OMERS Growth Equity.

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