VCs Turn Up The Heat On Restaurant Tech Investment

Investor appetite continues to grow for “restaurant tech” companies as more restaurateurs digitize their ordering, payment and delivery systems. And next on the menu is the sector’s biggest tech challenge—the kitchen.

“Digitization of the kitchen is a sexy concept right now because there’s a lot of pain there in the industry,” said food tech investor Adam Struck, founder and managing partner of Struck Capital.

Restaurant employees are under more pressure than ever in a competitive market with razor-thin margins, Struck said. “You also have a massive sort of restaurant labor shortage. So people are trying to use core technology innovation to just streamline operations.”

In an industry where many kitchens run on paper orders and recipes printed from Word documents, restaurant tech companies are seeing more opportunities in the back of the house. By digitizing the kitchen, a restaurant can not only store recipes, track orders and manage inventory, but also reduce food waste, cut costs and tap new revenue streams.

Restaurant tech as a whole has seen a steady rise in venture investment, from about $800 million in 2017 to $2.3 billion in 2021, according to Crunchbase data. While the number of deals per year slipped lower in 2020 and 2021, the value of individual deals increased.

Companies targeting the restaurant payment process scored especially big in 2021. Examples include San Francisco payments and accounts payable platform PlateIQ, with a $160 million Series B round in November, and QR code payment app Sunday, which raised $100 million in its Series A round.

On the delivery side, Belgium-based Deliverect raised $150 million in Series D funding in January 2022, bringing the company’s valuation to $1.4 billion.

Particularly tasty to investors is Uber founder Travis Kalanick’s CloudKitchens, which raised $850 million in a single November funding round, bringing its valuation to $15 billion. While technically a real estate company, Los Angeles-based CloudKitchens provides kitchen space, infrastructure and software to delivery-only food brands.

The concept of digitizing restaurant kitchens is attractive to VCs like Struck, who was one of the earliest to invest in food delivery platform Postmates. His firm also recently led a $6.5 million initial funding round for New York-based culinary software platform Meez Culinary Solutions. Struck calls Meez’s recipe management system a “Trojan horse” for introducing  technology to the entire kitchen.

“It’s not just about how chefs document their recipes, it’s how they collaborate, how they train with video modules, and how they think about yielding and cost conversions on a per-recipe basis,” Struck said.

When Josh Sharkey launched Meez—a play on mise en place—with 20 paying customers in December 2020, he found the concept a tough sell to investors. But the company quickly gained traction, partnering with restaurant groups and the Institute of Culinary Education. Meez has grown to more than 750 paying customers, employs 18 and plans to add another eight or nine employees this year, mostly tech developers.

Mark Shulgan is managing director and head of OMERS Growth Equity, which he launched in 2018. His team stepped into restaurant tech that year with an initial investment in restaurant POS and payments firm TouchBistro, then led that company’s $119 million Series E funding round in 2019.

OMERS Ventures1 joined Deliverect’s massive funding round in January.

Fixing what’s broken

While the pandemic has slowed growth in the sector, Shulgan said, it hasn’t stopped. New restaurants continue to open and they are more likely to adopt new technology. He believes the best restaurant tech helps increase revenue while finding new efficiencies.

“We want to see that they’re solving a real pain point for restaurateurs,” said Shulgan of future restaurant tech investments. Chefs and owners seek technology that cuts or reduces administrative tasks so they’re spending more time on the restaurant’s environment and customers.

TouchBistro Chairman and CEO Samir Zabaneh considers his company nearly ready to go public, but may raise another private round first due to strong investor interest. While its software aims squarely at a restaurant’s POS with online ordering, payments and customer loyalty programs, TouchBistro’s future growth is simmering in the back of the house.

“Inventory and staff are 70 percent to 80 percent of the cost of a restaurant,” Zabaneh said. “Not many restaurateurs know what it costs to make a hamburger versus something else. The other part is showing them data on the profitability every hour of the day if they want it … and we’ll send them alerts on the labor cost as a percentage of revenue.”

While many restaurant tech companies offer a specific tech solution to individual restaurants, Denver-based Nextbite (rebranded from Ordermark last November) takes a very different approach. The company raised $120 million in an October 2020 funding round led by SoftBank Vision Fund, and has used the money to aggressively scale, already growing this year from 90 to 350 employees.

Founded in 2017, Nextbite creates delivery-only restaurant brands and then partners with thousands of existing restaurants to cook the food in their own kitchens. Nextbite’s software—still called Ordermark—gathers all the food delivery platforms into a single tablet, which they ship to the restaurant with a printer. The company now manages about 20 brands, some created in partnership with celebrities—HotBox by Wiz is a collaboration with rapper Wiz Khalifa—and all designed to integrate smoothly into an existing kitchen.

“The restaurants already have these fixed costs. The rent is fixed, the lights are already on, the staff is already in the kitchen,” said Nextbite CEO Alex Canter. “There are slow days of the week where restaurants can handle an extra 10, 20, 30 orders a day if they have the demand.”

While point-of-sale, payment and delivery technology continue to drive much investment in the restaurant tech industry, the kitchen is still the place where most restaurants succeed or fail.

“I’ve operated a lot of restaurants where there’s an assumption that saving on third-party delivery services and optimizing fees are going to be the biggest impact on the bottom line,” said Meez’s Sharkey. “But I’ve found in my experience that execution, consistency and productivity have the biggest impact.”

Illustration: Dom Guzman

Clarification: This story has been updated to reflect that it was OMERS Ventures that participated in the Deliverect round, not OMERS Growth Equity.