ZeroCater Raises $12M After Zesty Sells To Square

This morning, ZeroCater announced that it has raised $12 million Series B in a round led by Cleveland Avenue. Romulus Capital and Struck Capital also took part in the capital event.

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In case you aren’t familiar with those investors, some help is in order. Cleveland Avenue is a venture fund based in Chicago that focuses on companies working in the food and services spaces, Romulus Capital is a seed-stage venture firm from Massachusetts that also took part in the firm’s 2016 Series, and Struck Capital is an LA-based venture fund that made its third wager on ZeroCater in the latest round.

The Series B brings ZeroCater’s total capital raised to-date to $17.6 million.That is less than Zesty’s $20.7 million in raised funds accreted before Square bought it last month.

However, ZeroCater’s business is now more than lunch catering for startups. The firm has expanded its geographic footprint (the firm’s press release says that its new capital is “for national expansion,” so expect more of that) and also its product mix.

As TechCrunch wrote in August of 2017:

As time has gone on, ZeroCater has moved gradually upmarket, serving ever-larger organizations, while also expanding to new parts of the country. Now available in San Francisco, New York, Washington DC, Chicago, Austin and Los Angeles, the company is looking for ways to better serve its customers. With that in mind, ZeroCater is launching a new Snacks and Kitchens option, through which it will make a variety of fresh produce, packaged snacks and beverages available to customers.

TechCrunch went on to note that the snack delivery system “charges a per-person[-]per-day fee,” akin to its normal catering work. So, call it a San Francisco startup-y perk, but one that you might be able to roll out without rolling the whole business over.

Three things caught our eye in the new ZeroCater round. First, venture capitalists in the mix were not Silicon Valley types, even though Crunchbase lists Y Combinator, SV Angel, and Keith Rabois as prior investors. So to see ZeroCater go afield for its latest funds is interesting.

Second, the deal comes right after the Square-Zesty deal. Now, funding rounds take time to put together. It seems unlikely that the firm raised the round in response to the Square move unless the acquisition was slow-moving and leaked like the White House. Even without either being in response to the other, we’re seeing both firms find access to new capital at the same time.

Finally, the company drove quite a lot of revenue before its latest raise, according to the firm:

Prior to its Series B, ZeroCater reached more than $250 million in sales with only $5.6 million in outside capital.

As much as I hate to be kind, that’s not bad. Of course, ZeroCater doesn’t have software margins on its food deliveries, so we can’t really grok out how much gross margin that quarter billion generated. But, from a sub-$6 million capital base, it seems obvious that the firm has generated more gross margin than it had raised in external funds. Not bad for a Series A firm.

According to ZeroCater, the new funds will help it expand domestically. Provided that its model works in smaller cities, it will be interesting to see how far ZeroCater will get before Amazon either tries to kill it or buy it.