Meal kit delivery venture DropChef is well placed for expansion after VentureWave’s €2m investment, writes Darren O’Loughlin

DropChef, the Irish meal kit delivery startup, got an appetising early Christmas delivery of its own recently in the form of a €2m equity investment from VentureWave Capital. The investment is the first from VentureWave’s Impact Ireland fund, which aims to invest in ‘tech for good’ businesses that are either Irish or willing to set up significant operations in Ireland.

Celebrities such as Liam Neeson and U2 guitarist The Edge are among the investors in the Impact Ireland fund, as are CPL Resources chief executive Ann Heraty and UBS Americas chairman Bob McCann.

VentureWave’s investment in DropChef is an interesting opening play for the fund, which is planning to invest in up to 15 companies. VentureWave Capital co-founders Alan Foy and Brian Martin are alumni of Blueface, which was acquired by Comcast in early 2020.

Blueface was founded in 2004 and Foy came on board shortly thereafter, helping to successfully pivot the business to B2B cloud telephony. He led an MBO in 2010 via an investment vehicle called VentureWave, whose backers included Lord Iveagh of the Guinness family.

Tech whiz Brian Martin was a senior executive in Blueface, which merged with US peer Star2Star in 2018, before being bought by Comcast. Kieran McLoughlin, the former CEO of The Ireland Funds, is also a managing partner in VentureWave.

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Scaling Potential

The VentureWave principals like what they see in DropChef – particularly its scaling potential, technology and the social merits in championing healthy eating. Financially, the business has been unremarkable so far. Incorporated in 2015, Dropchef Ltd’s balance sheet for the year to April 2019 shows accumulated losses of €67,000 and net worth of €33,000.

Founders Ryan Scott, Roman Grogan and Sam O’Byrne previously sourced €50,000 from Enterprise Ireland after businessmen Martin Casey, Martin McMahon and Drew O’Sullivan invested €45,000 through Leapside Ltd in 2015.

DropChef was one of the Irish early movers in the meal kit delivery arena, a sector that is still nascent here compared with the US and the UK. Customers order from a set menu of weekly meals and are delivered meal ingredients in an insulated box, along with a recipe card. The service appeals to time-poor office workers – Google set up a hub at its Dublin office for employees to collect DropChef meals.

The venture expanded its service beyond Dublin to the rest of Ireland in 2017, using couriers to deliver the meal kits. DropChef promotes the health benefits of its meal plans, and its sustainable producer suppliers. Price options span €42 per week for three veggie meal kits, each serving two people, and €48 per week for a three-meal plan for two people. The family plan costs €65 per week for three meals.

DropChef CEO Ryan Scott (30) says that the business had begun to grow rapidly in the months before the Covid-19 pandemic took hold. Once it did, DropChef’s trade surged, as people looked for healthier options than takeaways during lockdown.

“We had already been investing in the back-end processes to increase our capacity pre-Covid,” says Scott. “Our revenue jumped 170% in the first quarter of 2020 and we are now delivering tens of thousands of meals every month.”

Hybrid Approach

DropChef’s operations are run from a fulfilment centre located close to the 3 Arena in Dublin. The centre was expanded recently to facilitate social distancing and to house more stock. The company’s headcount varies depending on the weekly orders to be fulfilled, but usually numbers between 10 and 15. The business has adopted a hybrid approach to meal kit deliveries, using its own drivers and couriers.

Of particular interest to VentureWave is DropChef’s software, which was developed in-house to manage supply chain, stock inventory, ordering and deliveries. According to Scott: “We identified technical solutions for business functions that might otherwise have required us to hire more staff. Our system is also very efficient and helps us to eliminate food waste – customers often receive food that may have been with us for less than 24 hours. That means a longer shelf life for the ingredients, which means that we can then send more food and have more menu options.”

The pandemic has seen competition increase too, as restaurants around the country pivot to takeaways and ingredients kits to survive lockdown. “I think it's brilliant because it has agitated the market and introduced more people to the concept of a recipe box,” says Scott. “Ultimately, the operation that we run isn’t easily replicated by a restaurant, nor are the systems we have built.”

Scott is watching with interest the consolidation in the meal kit delivery markets abroad. The most recent notable deal was Nestlé’s $1.5bn acquisition of Freshly, which operates a Dropchef-type service in the US. “We will definitely see further consolidation,” says Scott, who adds his attention is focused on building out the business.

Scott says that he had a good relationship with VentureWave’s owners before the investment came about. “We had been putting a funding round together that had already gathered traction before we reached out to VentureWave. They told us they would consider coming in and just taking the full ticket.”

As part of the investment deal, Insomnia founder Bobby Kerr and VentureWave’s Brian Martin now sit on DropChef’s board. “They have a wealth of experience and a great network,” says Scott. “Brian is particularly good when it comes to the tech, building out and developing our roadmap.”

Martin’s view is that the move to purchasing meal kits online will be a permanent shift in consumer behaviour. “DropChef has a really exciting technology platform that helps it to manage everything from the supply chain right down to customer behaviour,” Martin adds. “There's massive growth potential in the business, here in Ireland and abroad. The technology that they're building could be an attractive route to market overseas.”

Data Insights

Some of the VentureWave investment is earmarked increasing the DropChef tech team. “DropChef generates massive amounts of data, and gleaning insights on patterns of customer behaviour could be really interesting,” says Martin.

VentureWave’s €2m will only get DropChef so far. A good benchmark is Gousto, the UK equivalent established in 2011, which to date has raised c.€175m in venture capital. Gousto increased turnover from £13m to £83m between 2015 and 2019 and burned through £48m cash getting there. The operating loss in 2019 was £12.5m, though the company says that it expects to turn a profit for the first time in 2020.

On a per capita basis, DropChef will need capital of c.€13m to match Gousto’s market penetration. First though, the three founders have to prove to investors that they can scale the logistics of their enterprise.

Photo: DropChef founders Ryan Scott (left), Roman Grogan and Sam O’Byrne (right)