Postmates CEO Bastian Lehmann has set ambitious goals.
At a conference in May 2015, Lehmann touted the 2 million deliveries his on-demand-anything startup had reached and said profitability was possible by 2016. That June Postmates raised $80 million in a series D round that valued it at $450 million, and a few months later Lehmann said the San Francisco company would seek funding again beginning in January.
But 2016 has proved a sobering year. Postmates has yet to become profitable and long ago pushed its target date to 2017. In the meantime it has struggled to recruit and retain workers, to integrate restaurants and stores into the platform, and to make the low margins of delivery viable. Postmates aims to be an affordable convenience but so far its efforts to make instant gratification cheap have come up short. In August, Quartz reported that Postmates was alienating many consumers with high fees and misleading price estimates.
Behind the scenes, Postmates has also had trouble securing the additional funds it has chased for the better part of this year. Sources familiar with the matter told Quartz that Postmates has been in talks to raise a Series E round of at least $100 million, a figure that has also been reported by Bloomberg and TechCrunch. The funding is being led by Founders Fund, the venture-capital firm co-founded by Peter Thiel and an existing Postmates investor. It would value the company at around $450 million, the same as its series D valuation, sources said.
Even at that price, Postmates has had a tough time finding interest on the terms it hoped for, and has packed the round with deal-sweeteners such as warrants, the sources told Quartz. A warrant is a type of derivative that gives its holder the right to buy or sell another security—typically equity—at a preset price before it expires. Postmates’ proposed funding terms for this latest round contain “substantial” amounts of sweeteners, the sources said.
Such arrangements can quietly make deals more attractive to investors in order close a round without forcing a startup to officially drop its valuation, a move usually perceived as a sign of faltering. In such situations, it’s often “a game where everyone knows the pricing has gone down—but it’s almost like the emperor’s new clothes, no one wants to say it,” explains Aswath Damodaran, professor of finance at NYU’s Stern School of Business. Startup employees with options or shares in the company often suffer the worst dilution of the value of their holdings under these circumstances.
Postmates did not respond to multiple requests for comment. One source familiar with the matter described the funding round as “oversubscribed,” saying that “means having to drop investors, or ask investors to invest less, in order to hit the capital that the company wants to raise.” It’s unclear whether the round remains open.