Wheelings & Dealings: Online Grocery Delivery Service Instacart Pulls in $44 Million

A person can find almost anything through online retailers, computers, books, and even health products, but there is one industry that has not had a strong presence online; grocery stores. Amazon has been looking to enter the market, with its AmazonFresh service, and its recent investment in Chinese vendor Yummy77, but they might have some fierce competition soon. The on-demand grocery delivery startup Instacart is looking to expand its unique business model to every major U.S. city, and has recently received the funds to support their growth.

Almost a year after their last investment round, in which Instacart pulled in $8.5 million, the company has had another fantastic round bringing in $44 million. Instacart's Series B funding was led by investment firm Andreesen Horowitz.

As part of the deal, Andreesen Horowitz partner Jeff Jordan will be joining the Instacart board. Jordan brings with him a wealth of experience, having served as the CEO of  OpenTable, the president of PayPal (News - Alert), and the SVP/general manager of eBay North America. He also currently serves on the boards of Airbnb, Belly, Circle, Crowdtilt, Fab.com, 500px, Lookout, Pinterest, Twice, and Zoosk (News - Alert).

Other investors in Instacart include investment firms Sequoia Capital, Khosla Ventures, and Canaan Partners, along with individuals such as Box (News - Alert) CEO Aaron Levie, and Y Combinator president Sam Altman.

The decision to invest in Instacart is heavily influenced by the heavy growth of the grocery delivery service seen over the past year. Instacart's revenue growth has multiplied. Originally starting out in one city in 2012, Instacart's service can now be found in 10 cities, including San Francisco, Austin, Boston, Chicago, Los Angeles, New York City, Philadelphia, San Jose, Seattle and Washington, D.C. The company hopes to expand this number, adding 7 more cities by the end of 2014.

Apoorva Mehta, CEO and founder of Instacart as well as former Amazon programmer, is confident that the company will continue to grow, with each new market growing even faster than the last. There are lofty hopes that Instacart will be able to have a presence in every major city across the U.S. by the end of 2015.

Instacarts continuing success is thanks to the company’s unique model differentiating it from the other vendors trying to get their hand on online grocery delivery. Competitors like Amazon, run storage warehouses from which they deliver the goods using their own delivery services. Instacart is going to the middle man, using a crowdsourced system, bringing in personal shoppers who will pick up the groceries from brick and mortar stores and deliver them personally to the customer. In most cases this can take less than an hour.

Such a system cuts out the need, and cost, of building storage facilities or buying product at wholesale for stocking. When a customer needs something delivered, it is bought directly from a store, with an additional charge for Instacart. Set up for this service in a new city only takes about 6 weeks, explaining the massive growth potential for Instacart.

The service also should keep brick and mortar grocery stores happy, as Instacart is not competing with them directly. It also allows customers to choose from their favorite grocery stores, giving them a variety of brands to choose from.

Between their fast set up times, and the large investment from Andreesen Horowitz, Instacart's dream of reaching a wider market may just come true. Already, it seems the company is beating out the competition that relies on warehouse models, with competitors like Amazon reaching a smaller market.