What It Takes to Get That Cash

This originally appeared in the July 15, 2020 Expedite newsletter. Subscribe here.

On Tuesday, restaurant tech company Bbot announced a $3 million seed round led by Craft Ventures. Bbot offers digital menus and online ordering and payment options — without another app download or consumer sign-up. (Win!)

“We are helping our hospitality customers redesign their businesses in the wake of Covid-19 and provide a solution that they can continue to use beyond the pandemic,” Bbot CEO Steven Simoni said in a statement.

But what of post-Covid restaurant tech funding? Are investors looking past the pandemic, or looking for solutions that help now? Both? Something else?

In my highly unscientific recent survey of restaurant technology startups, I’ve heard mixed results when it comes to venture capital’s willingness to fund restaurant technology companies right now. Those in favor are excited about the possibility of new technology injecting itself into the way we interact with restaurants today. Others say that pegging revenue to restaurants-as-customers is a laughable proposition.

Simoni told me that companies that are raising on the premise of changing restaurant workflow are having an easier time than others in “nice to have” categories like loyalty or data analysis. Over the last 18 months, he said, Bbot has taken “small checks here and there,” and business was growing steadily. Once Covid hit, the company quickly — predictably — signed on more restaurant customers. Then, “I took the numbers to people who told me no over the years,” he said.

Generally, founder/CEO types say that they’re experiencing behavior that they haven’t before — whether that’s wildly different terms, a pause on entire investment categories, or increased curiosity and/or straight-up pressure from current and potential investors. (That’s the, “Hey, just checking in!” email.) To be fair, I’ve also heard from these same types that investors were wary of backing any restaurant tech company given restaurants’ reputations as low-margin businesses, even before this pandemic disaster.

[Feel free to share your experience: kristen@kristenhawley.com]

In yesterday’s Fortune Term Sheet newsletter (one of my favorites!), writer Lucinda Shen cited new data that showed a 23.2% decline in venture capital deal count from the first quarter of the year. Accordingly, there were 2,197 deals in Q2 2020.

Even amid challenging conditions, there have been some huge funding wins in recent months. DoorDash added to its current pile of cash with another $400 million, at a valuation approaching $16 billion. SevenRooms, a customer relationship management platform that also does a bunch of other things, recently raised a $50 million Series B round to fund its own growth. (Also worth noting, according to the Term Sheet report, that late stage deals — those over $100 million — are actually on track to outpace 2019.)

SevenRooms chief product officer Allison Page addressed the issue in a late June LinkedIn post appropriately titled “How the &#@% does a restaurant tech startup raise $$$ in a pandemic?” She credits her team first. “Championship teams aren’t determined by the W’s on the board; they’re determined by their strength and resilience in the face of adversity,” she wrote. Second, she says, “Our model for restaurants went from being something larger, savvier operators adopted to something all operators will need to adopt to survive.” (Here’s my recent conversation with co-founder and CEO Joel Montaniel about what the company is up to.)

A $50 million Series B and a $3 million Seed round are different, but dollars are dollars, especially in a pandemic that’s threatening the core of the restaurant industry.

“In other tech industries you can raise easier on a pitch deck,” said Simoni. “A crowded saturated space like restaurants can be scary for investors — they need to see revenue.”

What else is happening?

• A recent report from Euromonitor said that the ghost kitchen industry could reach $1 trillion in the next decade, eclipsing a large share of other “traditional” restaurant occasions like drive-thru and “packaged cooking ingredients” like meal kits. The pandemic is escalating this shift as diners become more comfortable with delivery and restaurants rethink their use of physical space.
• Support local restaurants as often as you’re able. And listen to them. They’re telling us what they need.