News, news, news!

Hi, hello it’s one of those occasional Thursdays when I needed an extra day to pull this newsletter together.

But! Beginning with the Wednesday, April 7 edition of Expedite, paying subscribers will receive this newsletter 24 hours ahead of free subscribers. Independent restaurant operators and staff are eligible for free “paid” subscriptions. Please submit your info through this form to be added to the list.

Thanks, as always, for your support. If you’re not already a paid subscriber and would like to be, you can upgrade your subscription here.

Olo files for a $100 million IPO

The company’s S-1 filing illustrates what’s exciting about the future of online ordering.

SaaS (that’s “software as a service”) isn’t the sexiest business, but a long-awaited Olo initial public offering is showing how vital those services are to restaurant operations. Olo has filed for its IPO, seeking up to $100 million. When IPO rumors surfaced a year ago, Olo was said to be seeking a valuation around $1 billion. Since then, the company’s revenue just about doubled year over year. In 2020, it turned a $3 million profit.

Olo calls itself a “leading SaaS platform for on-demand restaurant commerce.” What that means in non-IPO speak is that it provides the software that large restaurant brands need to accept digital orders directly from their apps and websites and dispatch them for delivery. Its customers are 400 large restaurant brands (think: Chili’s, Shake Shack, Milk Bar, Cracker Barrel) totaling 64,000 restaurants. It also uses software to help its restaurant customers take advantage of third-party delivery services, like DoorDash. If this sounds familiar, that’s because it is; there’s a glut of online ordering platforms. But it’s important to consider Olo’s history: It was founded in 2005. That’s over 15 years ago, that’s before the iPhone launched.

Olo counted its billionth order in 2020, and also recorded $98 million in revenue. Still, that led to a net income of $3.1 million for the year. The company lost millions in 2018 and 2019.

The filing is a typical how-this-works, why-this-works rundown of Olo’s business, which has three major functions: Ordering, the platform that allows customers to order online directly from restaurants; Dispatch, a function that matches direct orders with third-party couriers for delivery; and Olo Rails, functionality that helps the company’s restaurant customers integrate business from third-party services like Uber Eats and DoorDash, feeding orders into restaurant point of sale systems. The company makes the bulk of its money from its ordering function — for now.

“As of December 31, 2020, 71 percent of our customers used all three of our modules because these products met their needs and the shifting demands of consumers. However, as we model our opportunity over 15 years into our journey, we believe there is an incredible opportunity to add more restaurant customers, sales volume, and product offerings,” Olo founder and CEO Noah Glass wrote in a letter contained in the filing. The restaurant industry is Olo’s priority, he wrote, but expects the platform will ultimately transfer to verticals like grocery, convenience, and any other industry facing a shift to on-demand commerce.

The company currently integrates with over 100 other technology solutions — POS, fraud prevention, loyalty, and more. During the pandemic, Olo has introduced more in-restaurant technology like kiosks and QR code ordering. (By way of example, Olo was one of the companies behind Shake Shack’s kiosk implementation a few years ago; Shake Shack founder Danny Meyer is an Olo board member and has a stake in the company.) With the addition of more in-restaurant technology (and increased fees per transaction), Olo believes it can expand its total addressable market from $7 billion to $15 billion.

Toward the end of the filing, Olo notes that an October 2020 lawsuit brought by DoorDash in New York State court seeks damages in excess of $7 million. The complaint alleges breach of contract related to fees Olo charged DoorDash. It’s an ongoing case, and many related court documents, including the original complaint, have been sealed or partially redacted. One court filing, dated November 25, 2020 and filed by DoorDash’s counsel, might give some insight into the nature of the complaint: In the filing, DoorDash says it was charged higher fees than its competition to use Olo Rails, which, DoorDash alleges, breached a 2017 contract. In the same filing, DoorDash says it discovered the disparity after acquiring former competitor Caviar in 2019.

Olo provided me the following statement:

We believe the complaint against Olo filed by DoorDash is without merit and intend to defend ourselves vigorously. While we value DoorDash as a partner, this is an ongoing legal matter and, therefore, we are not permitted to discuss it further at this time.

A representative for DoorDash declined to comment.

The companies have successfully worked together — Olo says DoorDash is the “largest digital ordering aggregator” that integrates with its platform, noting that Rails module transaction revenue from DoorDash accounted for 19 percent of total revenue last year. Additionally, Olo says DoorDash “accounted for a substantial majority of our transaction revenue,” from Rails in 2018, 2019, and 2020, according to the filing.

What stands out for me here is not this particular lawsuit, I think big disagreements in this very competitive environment are inevitable. It’s the reminder of how important large third-party delivery services have become to the industry at large, and how quickly it’s happened. Olo launched its Dispatch delivery product in 2015 and Rails in 2017, both intended to work with popular third-party services for the benefit of Olo customers.

Of course, third party aggregators might not be the only way forward; Olo is said to be partnering with Lyft on some deliveries for orders that come directly from restaurants. Still, Olo has proven to be an adaptable and, for many brands, indispensable piece of technology.

Chargebacks and fraud and restaurant closures

A piece in the LA Times this week elicited a strong response after a restaurateur announced she would shutter her popular restaurant in part due to an uptick in purported fraud. Thanks to the prevalence — and convenience — of online ordering, there are more opportunities for bad actors to use stolen credit cards to place huge orders, or, for bad actors to use their own credit cards but then claim fraud in order to get the food for free.

The piece mentioned one order, for hundreds of dollars, placed on Tock. A customer disputed the charge to their credit card issuer. After a couple months, the bank determined the charge was indeed fraudulent, and Tock had to tell the restaurant it was on the hook for over $700. In the re-telling of the story, the chargeback details seemed to get a little muddled — as usual, Tock founder and CEO Nick Kokonas took to Twitter to clarify. (There are many tweets; I like this thread, but encourage you to read through them if you’re looking for context.)

Chris Webb, the CEO of digital ordering service ChowNow, messaged me as I wrote this in response to my own tweet on the topic. According to Webb, ChowNow covers all instances of fraud and chargebacks on behalf of its restaurant customers. “When you’re on the hook you take fraud very seriously and do everything to prevent it. When you’re not on the hook, you don’t prioritize and fraud becomes a big issue,” he wrote. The company has a team of three people dedicated to fraud, he added, and uses a few software tools, too.

To be clear: this type of fraud is not a new issue, and this is certainly not a Tock issue, it’s a restaurant industry (and, really, retail industry) issue. According to Kokonas on Twitter, because of Tock’s “digital logging and ToS” the company wins most chargebacks on behalf of its clients. Unfortunately in this highly publicized example, that didn’t happen. Kokonas also offered his thoughts on how to reduce the chances of this happening again: credit card companies should allow video surveillance and photos to count as evidence in fraud cases; they don’t, he says. And, retailers should check IDs for large orders at the time of pickup — something the restaurant featured in the LA Times piece did not do.

The Toast IPO is coming, say the rumors

The Wall Street Journal reports that Toast is likely to IPO soon at a valuation of about $20 billion. Less than three years ago, I wrote a piece about “unicorn toast” when its valuation crossed into unicorn territory; now here we are. Also on the table, according to the piece, a sale, or a merger with a special purpose acquisition company (a SPAC!). I asked Toast’s co-founder, Aman Narang, about an IPO or SPAC deal when we spoke a few months ago; he reminded me “When the time is right we would consider it. It’s not any more important today than it was two years ago.”

What else is happening?

MrBeast Burger has sold a million burgers in about two months. That’s according to a tweet from MrBeast himself. The virtual chain launched with 300 U.S. locations and expects to expand to 1,000 by this summer.

DoorDash launched an accelerator program for women-, immigrant-, and BIPOC-owned businesses. It’s called the Main Street Strong Accelerator and will provide $20,000 grants to 100 businesses in five cities.

Here’s a stat for you: 91 percent of restaurants have made or plan to make investments in kitchen automation technology. That’s according to a new report from Square. In this case, automation doesn’t mean robots. It means implementing new and streamlined technology in the back of house to improve internal processes.

Postmates’ founder and former CEO Bastian Lehmann went on Clubhouse last week to talk about the Uber acquisition. It was a nice and friendly conversation led by Josh Constine and Kim-Mai Cutler, two former TechCrunch journalists turned investors whose work I greatly respect. I submitted a question that didn’t get asked directly, though Lehmann did sort of answer it in the context of the conversation. I wanted to know what Postmates’ early conversations with restaurants were like, given that they were perhaps the best example of a service that added non-partnered restaurants to its platform. When Constine asked about restaurants’ complaints about third-party services, Lehmann said, and I’m paraphrasing here, that Postmates was built with its couriers in mind, not restaurants. I was perhaps a little less enamored by his response than the interviewers and would have liked to see them drill down a little more on the platform’s responsibility to the businesses it works with.

Zomato, an Indian food delivery company, announced a $250 million investment just months after closing a $660 million series J (J!) round of funding. The company is now valued at $5.4 billion.

What to know about Olo's $100 million IPO