San Francisco-based Postmates, an on-demand delivery app that competes with UberEats and DoorDash, has just secured $140 million in funding led by Founders Fund, valuing it at $600 million.
It wasn’t an easy process for Postmates CEO Bastian Lehmann, who told TechCrunch that the “fundraising environment…has cooled, specifically in the on-demand space.” Nevertheless, Postmates succeeded, likely thanks to its proven track record.
Why the On-Demand Money Dried Up
By late 2016, investors had spent several years pouring money into “Uber for X” startups, companies promising to bring anything from groceries to laundry to your door with a tap. Many of them found the economics harder than the pitch. Every delivery needs a courier, couriers need to be paid, and the fee a customer will tolerate is often too small to cover the cost plus a profit.
That’s the backdrop to Lehmann’s comment. A round that might once have closed quickly now meant answering hard questions about margins, and some investors simply sat the category out. Raising $140 million in that climate said something about how investors viewed Postmates compared with its peers.
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How Postmates Made Money Beyond Delivery Fees
While many other on-demand companies have struggled to grow revenues beyond a delivery-fee-based model, Postmates has been able to bring in extra money by selling premium placements to some 6,000 merchants.
That’s essentially an advertising business layered on top of a logistics business. Merchants pay to be more visible in the app, and that revenue doesn’t depend on hiring another courier. It’s the same idea marketplaces of all kinds use: once you have the customers’ attention, you can charge sellers to stand out.
The company plans to use the new funding to improve engineering and expand to new markets.
The Subscription Bet
The other lever was subscriptions. In March 2016, Postmates had launched an Amazon Prime-style plan called Postmates Plus Unlimited, charging $9.99 a month for free delivery on orders over $30 from its Plus merchant partners. Lehmann pointed to it on Twitter when the funding news broke:
This is correct and we’re not far off with our Unlimited subscription: https://t.co/tuvFUZ5Bh5
— Bastian Lehmann (@Basti) October 31, 2016
A subscription changes the maths. Instead of earning a small fee per order, the company gets steady monthly revenue, and subscribers tend to order more often because each extra delivery feels free. In September 2017, Postmates expanded Unlimited to its full merchant list of around 250,000 merchants and lowered the minimum order to $20.
Postmates currently completes over 1.5 million deliveries a month and claims it’s on track to hit profitability at some point in 2017. Lehmann says an IPO is one option he’s considering for the future, but not in the next 12 months.
What Happened Next
Postmates kept growing. In January 2019 it raised $100 million at a valuation of about $1.85 billion, and in February 2019 it confidentially filed for an IPO with the U.S. Securities and Exchange Commission. At the time, the company said it was completing 5 million deliveries a month, more than three times the figure from late 2016.
The IPO never happened. Instead, in July 2020, Uber agreed to buy Postmates for about $2.65 billion in an all-stock deal. The pandemic had hammered Uber’s ride-hailing business while food delivery boomed, and the purchase helped Uber Eats compete with DoorDash, the market leader in the U.S.
Uber completed the acquisition on December 1, 2020. The Postmates app kept running separately, while its merchant and delivery networks were combined with Uber’s. So the company that once competed with UberEats ended up as part of it.
What It Means for Founders
Postmates’ path is a useful reminder that a “cooled” funding market isn’t the end of the road for a company with real numbers behind it. Lehmann raised money when others couldn’t because Postmates could point to volume, extra revenue streams and a plan for profitability.
It’s also a reminder that an IPO is only one exit. Postmates prepared for the public markets, then sold to a larger rival for more than four times its 2016 valuation. For founders in crowded, low-margin markets, building something a bigger player needs can be just as valuable as going it alone.
Frequently Asked Questions
How much did Postmates raise in its 2016 round?
Postmates raised $140 million in a round led by Founders Fund, which valued the company at $600 million.
Why was the 2016 round hard to raise?
Postmates CEO Bastian Lehmann told TechCrunch that the fundraising environment had cooled, specifically in the on-demand space. Many delivery startups struggled to make money from delivery fees alone.
How did Postmates make money beyond delivery fees?
Postmates sold premium placements to some 6,000 merchants and ran a subscription called Postmates Plus Unlimited, which launched in March 2016 at $9.99 a month for free delivery on qualifying orders.
Did Postmates ever go public?
No. Postmates confidentially filed for an IPO in February 2019, but it was bought by Uber instead.
When did Uber buy Postmates?
Uber agreed to buy Postmates for about $2.65 billion in an all-stock deal in July 2020 and completed the acquisition on December 1, 2020. The Postmates app kept running separately.