This post is by Rolfe Winkler from Venture Capital Dispatch
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DoorDash Inc. said Tuesday it raised $127 million in its latest funding round primarily from existing investors, the latest sign of the delivery startup’s struggle to secure a slug of capital.
Early investor Sequoia Capital led the round, joined by previous backers Kleiner Perkins Caufield & Byers and Khosla Ventures, said DoorDash CEO Tony Xu in a blog post.
New investors included Y Combinator’s Continuity Fund, though San Francisco-based DoorDash was birthed from the startup incubator itself in 2013. The other new investor is U.K.-based charitable foundation Wellcome Trust, which invests primarily in biotech and health-care startups. Sequoia contributed $40 million of the total, according to a person familiar with the matter.
“We plan to continue investing in our core technology to build the first software-enabled logistics company,” said Mr. Xu in his blog .
The company’s fundraising took months to complete at a time when investors have soured on lofty valuations. As The Wall Street Journal reported in February, Sequoia sought to drum up investment in the startup at a valuation of $1 billion in October, according to people familiar with the matter. Ultimately the company settled for a valuation closer to $700 million, a so-called “down round” since the company sold its shares for 16% less than during its March 2015 funding.
Mr. Xu said in his blog that it was “testament to the incredible team” that the company hadn’t resorted to “employee-unfriendly terms” to secure its latest capital. He didn’t note that the company gave its investors the ability to block a potential initial public offering if DoorDash can’t at least triple their money from the latest round price, according to corporate documents reviewed by the Journal.
Such terms often lead to additional dilution for venture-backed startups, reducing the value of employees’ equity stakes, when investors negotiate for more shares in order to permit a lower-priced IPO to go forward. These blocking rights are closely related to a so-called “ratchet,” which firms like Box Inc. and Square Inc. were forced to employ when they staged IPOs at lower than expected prices.
DoorDash was started in 2013 by Stanford University students including Mr. Xu. The company charges a flat fee of $4 to $7 for each delivery, and works with independent contractors who deliver food from popular restaurants.
DoorDash isn’t profitable and has struggled to keep some of its delivery staff, known as “dashers,” from remaining with the company for longer than a few months, raising costs to attract and train employees, according to people familiar with the matter.
A DoorDash spokesman said the company is “cash flow positive” in its “earliest markets,” including applicable marketing and overhead expenses. He declined to name those markets. Overall the company operates in 22 urban areas in the U.S. and Canada, according to its website.