Instacart has raised $400 million in Series D funding to fuel the ongoing expansion of its grocery shopping and delivery service — news that comes as its market is being targeted by Amazon and others.
The funding round puts the estimated total value of Instacart at $3.4 billion, up from $2 billion in its previous round. The latest round was led by existing investor Sequoia Capital, along with Wellcome Trust, Y Combinator Continuity, Andreessen Horowitz, FundersClub, Khosla Ventures, Kleiner Perkins Caufield & Byers, Initialized Capital, Thrive Capital and Valiant Capital..
Instacart COO Ravi Gupta told the Financial Times the company plans to serve 60 U.S. markets by the end of 2017, up from the current 35. “We are going to accelerate our growth, and blanket the country with Instacart,” he said. The funding will also fuel software and service upgrades to enable more personalization options.
This funding news comes off as a bit of a surprise for a few reasons. For starters, other startups in the same space reportedly have had a lot of trouble raising new funding. Specifically, Postmates reported having a "super, super difficult" funding round) and DoorDash, according to published reports, faced similar challenges. These experiences seemed to fit with the idea that the market had become too crowded to support all the players making a bid for it. Except, Instacart just challenged that theory, and without showing a profit — though Gupta told the Financial Times the company has drastically reduced in burn rate by half over the last 15 months.
The funding also arrives after a pretty turbulent year for Instacart, in which it angered its personal shoppers and customers for changing its online tipping policy, angered its personal shoppers again for fiddling with its pay rates, and in general tried on so many different alterations to its model — buy online, pick up in-store, reducing the role of cashiers — that it appeared to be strategically quite manic at times. Investors must feel this was all part of a refinement process, rather than a lost company casting about for something that worked.
Finally, there is the Amazon effect. The e-commerce giant has already been offering Prime Now grocery delivery and is now going about reinventing the entire grocery store model with Amazon Go. The giant is definitely in Instacart's backyard, so Instacart's investors must be subscribing to the theory that Amazon will tremendously elevate the market's water level, lifting all boats in the process, and not necessarily torpedo Instacart while it's at it.
Grocery shopping/delivery services and on-demand delivery in general are all the rage right now. Everybody's trying it. Not everybody will win, but Instacart has convinced a number of investors it has what it takes to survive. Having another $400 million in its pocket certainly will help its odds.