Cooking up a Fury

July 31 2020

The restaurant industry is among those most devastated by COVID-19, and social distancing will continue to make many small restaurants unviable, particularly as reduced revenue flows will never cover the rent.

In our research, however, one area of the restaurant industry offers hope and even growth. As restaurants shuttered during social lockdowns in March and April, food delivery soared. An increasing number of those deliveries originated from recently established “cloud kitchens.” More remarkable, most of the restaurants left standing became virtual cloud kitchens themselves, literally overnight.

Cloud kitchens are commercial facilities purpose-built to produce food specifically for delivery. They do not have brick-and-mortar dine-in areas and consist of shared kitchen space with culinary staff preparing meals that are then delivered to customers at home or at work, typically through online delivery companies. It’s an interesting turnabout. Delivery services started out supplying a service to restaurants; now cloud kitchens are supplying a service to delivery firms.

Cloud kitchen is a promising concept to solve the economics of restaurants. Challenged by thin margins, big setup costs, and a lack of flexibility in the traditional sit-down model, cloud kitchens offer solutions beyond the pandemic. Cloud kitchens are much cheaper to set up than brick-and-mortar restaurants; there’s no need for them to be in prime locations, no need for cool designs, and no need for seating space. One estimate we heard was that a brick-and-mortar restaurant in New York City costs $1 million to $1.5 million to set up, while a cloud kitchen can get up and running for $100,000.

There are other cost savings, too, including no need for front-of-house staff such as servers, cashiers, hosts, and bartenders. Restaurant operators simply provide their own culinary staff while the cloud kitchen provider typically offers shared labor support such as cleaning and security.

Cloud kitchens can test new restaurant concepts, menu items, and seasonal brands (for example, a salad brand in the summer) more easily without costly investments. Employing a cloud kitchen model can give restaurants the ability to expand their delivery business in a cheaper and faster way.

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Cloud Kitchens:

Kitchen United is a cloud kitchen company based in Pasadena, California, providing equipped professional kitchen space to restaurants for the preparation of delivery-only meals. KU's service allows bricks and mortar restaurants to expand their food delivery business without adding extra staff or space and allows the creation of restaurants with no dine-in service. In addition to commercial kitchen space, it provides back of house automation and ordering software that accommodates the main delivery services (eg, DoorDash, GrubHub, Uber Eats). The company was initially funded by GV (formerly Google Ventures), which invested $10M. GV also contributed to a $40M series B round of funding that included Fidelity Investments, G Squared Capital and RXR Realty.

San Francisco-based Virtual Kitchen Co joins a growing number of delivery-only food businesses that are leveraging data, on-demand transport infrastructure, and strategically placed kitchens to help restaurants expand their coverage with minimal upfront investment. Virtual Kitchen was founded by Ken Chong, who formerly spearheaded Uber’s marketplace product team, and Matt Sawchuk, who helped launch Uber’s first peer-to-peer ridesharing service before transitioning into a role with Uber Eats in 2016.

Sweetgreen is an American fast casual restaurant chain that serves salads. It was founded in August 2007 by Nicolas Jammet, Nathaniel Ru, and Jonathan Neman. Today, 50 percent of Sweetgreen’s orders come in through its mobile app, which more than 1M people have downloaded. The company envisioned a network of “ghost and virtual kitchens” that would prepare items for rapid delivery, without a public-facing storefront.

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Funding & Deal Highlights:

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Remitly announces that it has raised $85M in equity to double down on its growth. The round is being led by PayU, the payments business owned by Prosus (Naspers’ technology holdings), with participation from DN Capital, Generation Investment Management, Owl Rock Capital, Princeville, Stripes, Threshold Ventures and Top Tier. All are previous backers, and Remitly’s valuation is now $1.5B — an upround compared to its Series E last year.

Vico Therapeutics, a Leiden, Netherlands-based biotech company focusing on the development of RNA modulating therapies for rare neurological disorders, announces that it has raised $31M (€27M) in a Series A financing round. Vico will use this funding to further advance its late preclinical stage Antisense OligoNucleotides (AON) lead platform for the development of therapies for different forms of Spinocerebellar Ataxia (SCA) and Huntington Disease (HD) into first-in-human clinical trials in late 2021. Its early discovery RNA editing platform is directed towards RETT syndrome. The financing was led by Life Science Partners (LSP), co-led by Kurma Partners, and supported by Pontifax, Droia Genetic Disease, Polaris Partners and Pureos Bioventures and Idinvest Partners.

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Millrock Resources Inc. reports that it has secured exclusive rights to two gold exploration projects in the Fairbanks gold mining district in Alaska. These Fairbanks Gold District claim blocks add to Millrock’s existing project portfolio in the Tintina Gold Province, the most prominent of which is the 64North gold project in the Goodpaster District.

Partnerize, the leading SaaS provider of partnership management solutions for global brands, announces the acquisition of Pepperjam, a leading affiliate marketing technology and services provider. The combination of the companies’ technology platforms and service expertise will empower brand leaders to maximize business growth from partnerships, diversify their revenue streams, and offset escalating costs in primary sales and marketing channels.

Azimut Alternative Capital Partners acquires a 20% stake providing private credit manager Kennedy Lewis Investment Management with permanent capital in a deal that closed Wednesday.

Refinitiv, a provider of financial markets data and infrastructure that has served more than 40,000 institutions in over 190 countries, announces on Wednesday it has acquired strategic assets from wealth management cloud platforms provider Advisor Software Inc. (ASI). Refinitiv reports that the acquisition adds key digital functionalities to its wealth management offering including enhanced digital advice capabilities and digital portfolio analysis.

CORE Industrial Partners LLC, a Chicago-based private equity firm, announces that it has formed a new platform called Incodema Holdings, LLC and completed the acquisitions of Incodema, Inc., a precision sheet metal engineering solutions provider, and Newchem Inc., a leading photochemical etching manufacturer. The Company specializes in micro, intricate parts and serves customers from prototype through high-volume production.

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