Without even trying, Chicago-based GrubHub has raised $20 million in new venture capital, bringing to $34 million the amount of private investment in the company, chief executive Matt Maloney said today.
“We didn’t go out looking at all,” Maloney said. But following the company’s round of $11 million last fall from Benchmark Capital in Menlo Park, Calif., other venture capital firms started calling.
The latest funding round, led by DAG Ventures in Palo Alto, Calif., and Benchmark Capital, will allow the company to hire about 100 new workers this year, primarily in Chicago, while also increasing its investments in marketing and mobile product development, Maloney said. Investors have been attracted by the size of the restaurant market and how GrubHub is addressing it, he said.
How much capital is necessary?
But the deal raises the question of how much capital a company really needs. Maloney said he considered the question and decided to go for the money because it will allow GrubHub to be more aggressive in its growth. But some of the funds will likely end up in the bank for future use, Maloney said.
Money in the bank puts GrubHub in a strong position for future expansion, said James Schrager, clinical professor of entrepreneurship at the University of Chicago’s Booth School of Business. “This is a very good sign for GrubHub,” he said. It means another set of independent eyes believes the company has strong prospects.
It also could indicate GrubHub is considering going public in the future, he said. “This is a way to be very confident when you line up your IPO,” Schrager said. “Typically you want to have a reasonably large amount of money raised even if you don’t have a purpose for it.”
The capital serves as insurance, Schrager said. That way, if the public markets don’t deliver, the company would still have capital on hand to fund its growth. “If you go public or you don’t, this will come in handy in one way or another,” Schrager said.
GrubHub currently has more than 13,000 restaurant listings on its website, but plans to boost that to 80,000 listings during the next three months, Maloney said. “We have a whole team collecting data and working overtime,” he said. The company processed more than $85 million in food orders last year, generating about $8.3 million in revenue, Maloney said. GrubHub expects to process about $200 million in food orders in 2011 as it works to double the number of markets it serves to 26 from 13 currently, he said. Restaurants pay a commission of about 15.5 percent on orders they receive from GrubHub.
Maloney and partner Mike Evans launched GrubHub from Evans’ apartment in 2004 when they got tired of ordering the same pizza. GrubHub aggregates menu information from local restaurants and allows users to order takeout food directly from the site, reducing errors. When mistakes do occur, GrubHub’s customer service team pledges to straighten them out, Maloney said.
New focus on mobile
While paper takeout menus have been GrubHub’s biggest competition to date, Maloney expects more growth to come as the company’s mobile technology makes ordering on-the-go more convenient. Mobile food orders accounted for about 10 percent of the company’s sales at the end of 2010, up from 2 percent in 2009, when GrubHub launched its iPhone app. The company is projecting more than 20 percent of food orders will come from mobile by the end of 2011 as its Android app, now in testing, catches on.
“We see mobile as a huge opportunity,” Maloney said, because not all consumers have access to their computers when they want to place an order for restaurant delivery using GrubHub. The company’s mobile apps use Global Positioning System technology to help consumers find restaurants near their location.
To handle the expansion, the company is currently hiring technology, customer service and sales reps, Maloney said.
— Ann Meyer
Post last updated at 4:55 p.m. March 9.