Key Stats: Dispatch Goods on Republic
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Dispatch Goods has been selected as a “Deal to Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10%-20% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to email@example.com.
The present era is undergoing a number of changes. Some of these, like space travel, are significant. Others are less obvious. One example of the less-obvious changes in today’s society relates to consumers’ eating habits. More and more, individuals are not just eating out, they are having their food delivered to them. This may not seem like a big change at first glance. But with tens of billions of single-use packages being used up every year as a result, you can start to see how this might make the world a less-clean place. With companies and individuals alike looking for environmentally-friendly ways to operate, especially with little to no added cost for them, opportunities for the companies that see this paradigm shift coming are opening wide.
Food delivery is at an all-time high. But that’s not all. The space is growing and it’s likely that this trend will continue for at least the next several years. The added convenience for consumers makes this an attractive market for companies all across the spectrum. But there is some downside to consider. The biggest concern is waste. In the US alone, it’s estimated that between 20 billion and 50 billion single-use food cartons are used every year. While some consumers may re-use those cartons for some time, most of the time they end up in a landfill. The situation has gotten so bad that California is even considering outlawing non-recyclable, single-use containers. One company that thinks it has a different approach to this method is Dispatch Goods.
Dispatch Goods is not pushing for companies to use only recyclable single-use containers. It is pushing for them to do away with them all together. In their place, the firm is offering up stainless steel containers that users can request when ordering their food. This is done either through the company’s own app or through another online ordering service (like a client restaurant’s app). Once the food is ordered, it’s delivered to the relevant address, and then the consumer has the ability to drop the container(s) off in collection bins nearby. Dispatch then goes around, collects the containers from the bins. They clean them and then return them to the restaurants they have partnered up with.
There are a few ways that Dispatch hopes to generate revenue. The company hopes to charge between $0 and $0.25 per stainless steel container that it distributes to its client companies. Management also hopes to roll out a B2C component where consumers can subscribe to its app for between $5 and $30 per month. This will allow them to sell their products directly to the consumers in addition to the restaurants. Specifics on this front are fuzzy though, so it’s not exactly clear what kind of value subscribers would receive.
Perhaps the most interesting expansion strategy is to partner up with large corporate clients. In short, management is offering monthly plans to large businesses. These firms essentially pay for the subscriptions for their employees, with the end goal being to cut down on waste. In its first two months partnering with Yelp, Dispatch estimated that their client reduced a significant amount of waste. The reduction was enough that if it were stacked together it would be higher than the company’s 12-story headquarters building. Management claims to have more than 15 large corporate deals in its pipeline. If its estimates are correct, by March of this year the firm will be generating $5,000 per month in recurring revenue. And by the end of the second quarter it expects to have more than 20,000 monthly subscribers due to these pending corporate deals.
There are some concerns that prospective investors have stressed that warrant consideration. The big one is how and to what degree Dispatch can keep track of its containers. After all, the business does not want its end users to keep them. They want them to send them back via their collection bins. As of this moment, the firm has QR codes on each container, but it is looking into other options like RFID, NFC, and Bluetooth solutions. At the end of the day, though, this may not matter. This is because, according to management, 99% of the containers it sends out are ultimately returned to it.
At this moment, Dispatch is still a remarkably small business. The company generated no revenue during its 2019 fiscal year. Its net loss for the year was only $26,759, while its operating cash flows were -$26,727. If current forecasts do turn out to be accurate, then 2020 will be the start of the firm really just taking off. Initially, the company is operating only in the Bay Area, but it does hope to expand to other parts of California. Ohio is also in its line of sight, though why Ohio is an area of interest this early on is a mystery.
A Large Market
The food delivery market is big. Not only that, it’s fast-growing as well. Take, for instance, industry player Uber. During the company’s 2019 fiscal year, its Uber Eats segment saw revenue of $2.51 billion. This was up 71.9% from the $1.46 billion Uber Eats generated a year earlier. After paying drivers and covering other costs, net revenue came out to $1.38 billion during 2019, 82.2% higher than the $759 million seen in 2018. In the fourth quarter of 2019, gross bookings alone were $4.37 billion. This was nearly double the $2.56 billion seen the same quarter of its 2018 fiscal year.
While Uber has been able to capitalize on food delivery, it still accounts for a small piece of the overall pie. According to one source, the global food delivery market was estimated to be worth $107.44 billion in 2019. This should grow 14.2% to $122.74 billion this year. By 2024, the market should expand to around $164 billion. Of this, $86.01 billion will be platform-driven, while the remainder will be restaurant-driven. Another source expects a similar upside, pegging the market opportunity at around $200 billion. Technically, Dispatch should be considered a hybrid here, since it works directly with restaurants, but also has its own platform.
It’s also important to focus on the more immediate market opportunity for Dispatch: the US. After all, that’s where the company’s early growth will likely be. In 2019, the space in the US was $22.07 billion in size. This should grow by 8.7% to $23.99 billion this year. By 2024, the opportunity in the US will have increased to around $29.22 billion. Both restaurant-driven and platform-driven solutions will remain relevant. And both will grow in absolute dollar terms over this timeframe. However, as a percent, platform-driven solutions will decrease from 60.5% of the market to 57.8%. This means the best prospects for Dispatch might be to partner up with restaurants as it has expressed interest in doing.
Terms of the Deal
The transaction being conducted by Dispatch is set up as a SAFE. In short, it’s an IOU for equity, convertible upon the next raise. Through this method, the company is attempting to raise between $25,000 and $1.07 million. As of this writing, the firm has seen $29,550 committed to the deal. The minimum contribution per participant has been set at $100. In exchange for an investment, investors receive the right to be attributed stock upon conversion. This will be at a 20% discount to the company’s future value, subject to a valuation cap of $4 million. For a business with Dispatch’s traction, and especially if some or all of its current corporate deals come through, this appears very reasonable. If anything, it might warrant a higher valuation.
An Eye on Management
At this time, Dispatch has a rather extensive team. In all, it listed nine members involved with the business. The head of the firm is founder and CEO Lindsey Hoell. Prior to starting Dispatch in 2019, Hoell worked as a Medical Device Representative at Shamrock Surgical. Before that, she was a Statewide Coordinator of the Ocean Friendly Restaurant Program at the Oahu Chapter of Surfrider Foundation. The other founder at the firm is Adam Boostrom. He also serves as the company’s CBO (Chief Business Officer). Before joining the firm last year, he was a co-founder of Sonnet 14. That company focused on machine learning and facial recognition solutions. Prior to that, he served as a Senior Team Leader of Fixed Income Trading at DRW.
The Rating: Deal To Watch
After careful consideration, Dispatch has been rated a “Deal to Watch”. The company has a really interesting business model and its early traction is attractive. If management is correct about monthly recurring revenue of $5,000 starting next month, and if it truly does achieve 20,000 subscribers through its corporate pipeline by the end of the second quarter, it might even warrant an upgrade to a “Top Deal”. This is especially true when taking into consideration its low valuation and the attractive space in which it operates. That said, to bank on the possibility of something happening is speculative. Investors would be wise to assume a more conservative course for the firm.
Having said all of this, there are risks involved. Big questions arise pertaining to the value and pricing of its B2C subscriptions. The company also does seem to operate in a space where the value proposition must be clear to all parties involved. Otherwise, it will find itself unable to thrive. Given the nature of the service, it’s uncertain if all parties will see and understand the opportunity present. Another question comes down to continued operational costs associated with collecting, cleaning, and redistributing the stainless steel containers. Not tying or even loosely tying costs to revenue activities creates uncertainty here. All of these issues are worth thinking about before an investor steps in. But on the whole, it appears to offer attractive risk/reward prospects at this time.
About: Daniel jones
Daniel Jones is a graduate of Case Western University with a degree in Economics. He has spent several years as an equity analyst writer for The Motley Fool where he focuses primarily on the Consumer Goods sector but also likes to dive in on interesting topics involving energy, industrials, and macroeconomics, in addition to contributing equity research to publications such as Seeking Alpha.