Why a venture fund backed by Mark Zuckerberg just invested millions in a Finnish food delivery startup

Jeremy Kahn
·4 min read
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Finnish food delivery startup Wolt announced yesterday that it raised $530 million from a group of investors led by Iconiq Capital, a venture capital firm that manages money for some of Silicon Valley’s biggest names, including Mark Zuckerberg and Jack Dorsey.

Other investors in the funding round included such well-known firms as private equity titan KKR, a fund from Goldman Sachs, and two funds associated with Swedish private equity firm EQT, not to mention some of Europe and Israel’s top venture capital firms. The latest funding brings the total amount the Helsinki-based company has raised since its 2014 founding to $856 million, and comes on top of $108 million it raised from some of the same investors in May last year.

What’s so special about Wolt? In a crowded field of tech-enabled food delivery companies, Wolt stands out for having managed to profitably serve smaller cities and towns. Meanwhile, many European competitors such as Deliveroo, UberEats, and foodora, have primarily found success in densely-packed major cities.

Wolt has targeted a chain of 123 smaller cities and towns in 23 countries, mostly running in a corridor that stretches from Scandinavia and the Baltics down into Central and Eastern Europe. (Although the company also recently expanded into Japan, and entered Germany where it will face stiff competition from other food delivery companies, including the DAX-listed Delivery Hero.)

Wolt said its annual revenues tripled during the past year to $330 million —helped in part by rising demand for home delivery due to the pandemic. The company lost $38 million (it is still a high-growth startup after all). But that loss is a fraction compared to the $434 million that its larger rival Deliveroo lost in 2019, despite doubling its revenues.

First mover advantage

Being able to quickly turn cashflow positive in these less dense markets isn’t easy. An analysis from investment data company Dealroom and mobile app data firm Priori Data Insights found that companies such as UberEats or Deliveroo could make pre-tax profits of about $4.85 per order on average in Europe’s large cities, but would lose $3.64 per order trying to serve less dense areas.

The same analysis also found it was much more profitable to be the market-leading delivery app in any geography, since new entrants had to spend heavily on marketing, which severely ate away most of the potential profits. That’s another reason Wolt has tended to go to cities and countries where the other big delivery players, such as Deliveroo or Delivery Hero, aren’t yet present.

Wolt says it’s figured out how to serve smaller markets with better use of artificial intelligence-enabled demand forecasting and delivery routing software. If it truly has, that same formula may enable the company to eventually enter places such as the United States, where much of the demand is in the sprawling low-density suburbs. That’s one of the main reasons Wolt has attracted so much interest from big U.S. venture capital backers.

Like many food delivery companies, Wolt has also used the pandemic as an opportunity to expand beyond restaurant delivery into couriering groceries and general retail merchandise. The company plans to use money from the latest fundraising round to double-down on this segment of the market.

Still, it will require much deeper pockets than Wolt currently has to remain an independent player in the delivery space in the long-term. A global wave of consolidation in the industry, begun in 2019, has continued. Amazon’s $575 million purchase of 16% of Deliveroo was cleared by British regulators last year and JustEast Takeway (itself the result of the merger of Just Eat and Takeaway.com) bought U.S. rival Grubhub in a $7.8 billion deal.

Even with its latest funding, Wolt doesn’t have that sort of cash. But its technological prowess and mastery of less dense markets may be an attractive target for one of the larger players in the future.

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This story was originally featured on Fortune.com