Munchery Stiffs Early Backers and Cuts Staff in a Bid for Survival

Pretty much everybody involved in food works like a dog, and gets paid an absolute pittance. That nice restaurant down the street? Their head chef probably makes ~$34,000/year, works 100 hours a week, and sleeps in the kitchen. Oh, and the restaurant is as likely as not to go bankrupt and shut down in <2 years. (And he's not doing it with the hopes that Ricky's Pizza Joint will IPO as the next Facebook.)

Yet, for some reason, people think that this business model has the margin to pay a team of developers, working out of a hip, air conditioned Market Street office, complete with a free beer fridge and a Foosball table.

The competition in this field is just immense. I don't get how any of these companies are going to make any money—Munchery, Ando, CookUnity.us, Uber Eats, and others are all competing fiercely against each other for a relatively low-margin, high-elasticity of demand business. In some ways, Blue Apron, Hello Fresh, and the other box companies are also competitors.

Like you I've used the various discount codes at various times, but they're all too expensive to be worth using with any regularity.

Did none of these companies check, before moving in to "disrupt" the restaurant industry, that there was actually anything to disrupt? Restaraunts are not lazy incumbents growing fat on their unchallenged dominance: it's a cutthroat business. And their costs are almost entirely the food and the labor, which are, for all practical purposes, fixed. There are no margins to steal from here.

Also, that was over a period of almost two years, so 'only' about 1000 a day, and the company claims most of it was donated to charities.

From those two Bloomberg articles, I don't think that's the main reason they need more money.

e.g. the next round could be at $40mm, and if it's priced, then this $5mm note would be at $40mm (minus any discount on the note). or if the next round is at $100mm, then this note would be at $80mm.

it might be to make room for a new shareholder to get a larger stake of the company for a given dollar amount than might otherwise be implied by the current capital structure (a down round).

in some cases, a recap is also formulated to incentivize existing investors to put in more money by setting up a deal where existing investors who don't put in more money will end up with their shares converting to common stock (thereby losing their liquidation preferences and anti-dilution provisions), but those who put in their share (usually pro rata) will maintain comparable preferences to the new investors (or whoever is leading the round). (this is sometimes called pay to play, and it's one of the more common recaps i saw when i was an attorney)

In this case, could be a novel spin on the same dynamics using a convertible note valuation cap: they are raising a down round (their last reported valuation was $300m, so a major down round here), and "Old investors were asked to pony up more money or see their stakes lose their value, according to one person familiar with the matter." it does not go exactly into the mechanism for how the value would be reduced, it might just be through straight up dilution (see note below), but in any case it seems like the ultimate objective is the same: using a new structure to reward new (or returning) investors who are willing to save the company in these (arguably self-imposed!) hard times, and push/punish existing investors who may have lost faith in the company.

one thing I'd note: honestly, they seem to be implying a significant recap, but there's nothing specific in the article that points directly to any particularly unusual mechanisms. In fact, it's possible that this is just be a down round using a relatively straightforward convertible note with a cap, and even in that case the following statements that seem to imply a recap could still be true: "The value of shares that may be doled out to backers later will change depending on the company's subsequent valuation." (that can be true in a regular convertible note deal) and "Old investors were asked to pony up more money or see their stakes lose their value, according to one person familiar with the matter." (weirdly worded, but this could be true for any new infusion of capital). also, for relatively small investments ($5m) on mid/late stage companies, convertible notes are used just because they are fast/easy to negotiate and execute on, so i would not be surprised if this is just something like that - still, a major downround in any case!

If I were a scout for executives, I would make sure that Munchery leadership is engraved in eternity on some no-hire blacklist.

I wonder how pervasive these delusional people are in SV in other industries.