Updated from 12:18 p.m. to include commentary from outside source in the eighth paragraph.
NEW YORK ( TheStreet) -- With Instacart announcing that it had secured another $220 million in a Series C round of funding, the grocery delivery company is actively trying to "bring the physical grocery store online." It appears for right now, investors are willing to believe.
"How do we bring the physical grocery store online?" Nilam Ganenthiran, head of business development and strategy at Instacart explained to TheStreet. "This new capital allows us to invest in technology and expand to new cities, all of which will allow us to bring more and more grocers and retailers online." The new infusion of capital will bolster Instacart's efforts towards shifting the way consumers purchase groceries, digitizing an industry that has long lagged in technology.
San Francisco-based Instacart has now raised funding to date of around $275 million, including this round. The round, which was led by Kleiner Perkins Caufield & Byers, also included Comcast Ventures, Dragoneer Investment Group, Thrive Capital, Valiant Capital and previous investors Andreessen Horowitz, Khosla Ventures, and Sequoia.
Instacart charges either a yearly membership of $99 a year for unlimited deliveries or $3.99 for two-hour delivery and $5.99 for one-hour delivery. It currently operates in 15 markets, but Ganenthiran predicts it will soon be serving customers in most of if not all major metros in America.
The funding will aid in that expansion as well as in hiring new talent to improve the algorithms that pair personal shoppers with consumers in the most efficient and effective way.
According to Mashable, the funding values Instacart at around $2 billion, a massive jump from its $400 million valuation in June. Whether or not the valuation is warranted, Instacart has definitely been seeing growth, with its revenue increasing more than tenfold in 2014 and doubling in the fourth quarter alone. It has also doubled its full-time employee base to more than 100 during those 12 months, as well as secured partnerships with retailers such as Whole Foods Market (WFM) and Fairway Market (FWM) . Instacart also recently partnered with recipe-centric platform Yummly to deliver ingredients for a specific recipe in an hour.
Instacart seems to have tapped into a prime market at just the right time.
"People tried this many years ago with Webvan and Kozmo, so it's interesting to see a lot of activity around this," Tom Caporaso, CEO of Clarus Marketing Group, said. "I think the difference now is that everyone has a computer in their pockets these days. The emergence of the smartphone makes this more interesting."
Despite these achievements, Instacart still faces some challenges. Two that Caporaso raises are consumer demand and scalability. Caporaso isn't sure that consumers will be willing to pay for convenience on a constant basis. Sure, there are emergencies when it would be nice to have a product delivered within an hour, but this may only be an in-case-of-emergency luxury.
"Our subscribers are more interested in saving money as opposed to speed," he said. "I still don't know if demand is there for consumers to need that urgent one hour delivery."
In terms of scalability, Caporaso doesn't see this service functioning as smoothly in the suburbs as it does in the cities, which poses an immediate challenge on expansion.
Another challenge comes in the form of competition. The grocery delivery space has been quickly growing in the past couple of years, with Google(GOOG) - Get Report and Amazon(AMZN) - Get Report taking a stab at it, as well as other startups besides for Instacart, including WunWun and Postmates. Ganenthiran is not worried about the competition, however.
"We think that the other startups are great because they actually are helping consumers understand what ordering online and getting products delivered to their door does," he said. "Once they are introduced, they will seek out the best experience."
Which Ganenthiran obviously believes is Instacart.
One of the things that differentiates Instacart from its competitors, Ganenthiran claims, is that it is focused on providing the technology to connect grocers and customers as opposed to acting as a retailer or a courier service. WunWun and Postmates, he says, act as courier services, while Amazon is itself a retailer. Instacart, on the other hand, works to build partnerships with grocers and serve as the digital middleman.
As Ganenthiran puts it, Instacart is helping retailers battle Amazon by empowering them with the digital tools to reach consumers.
"This is an industry that's a very large and important industry for the overall retail market and it is one that technology, especially e-commerce adoption, has lagged in," Ganenthiran said. "We believe that we can be part of a bigger solution to help meet consumers' needs and help e-commerce adoption in grocery."
--Written by Rebecca Borison in New York
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