Paving the Way for Africa's Next DoorDash: Y Combinator's Bet on Food Delivery Startups

in #africafestival9 months ago (edited)


Since 2021, Y Combinator (YC) has demonstrated keen interest in African food delivery startups, particularly within its recent cohorts. Could this strategic investment drive the emergence of Africa's own DoorDash? Reflecting on history, DoorDash, a San Francisco-based food delivery startup, participated in YC's summer batch back in 2013. Just five years later, it secured a unicorn status by raising $535 million in a Series D round at a $1.4 billion valuation. By 2019, DoorDash's valuation soared to over $12.6 billion.

In 2020, DoorDash made a historic IPO debut on the New York Stock Exchange, valuing the company at $39 billion. This marked Y Combinator's first-ever exit surpassing $10 billion for a portfolio company. Such success, however, wasn't always obvious; Paul Buchheit, a YC partner, admitted to initial skepticism about DoorDash's potential.

Y Combinator has since replicated its food delivery investment strategy on a global scale, particularly in Africa where it has supported approximately 94 startups in the food and groceries delivery sector. Among these, eight African startups, primarily Nigeria-based, have been beneficiaries of YC's backing.

The accelerator has maintained its commitment to innovation by recently supporting six African startups in its bi-annual accelerator program. These startups predominantly focus on fintech services, with one exception—Chow Central, a Lagos-based virtual restaurant chain provider that generates around $80,000 in monthly revenue.

While YC-backed startups garner attention, other players in Africa's food delivery arena include Jumia Foods, Bolt Eats, Glovo, Orda, Eden Life, and Jise. However, the market is fiercely competitive, exacerbated by economic challenges such as reduced purchasing power and rising food costs. For instance, the recent fuel subsidy cut in Nigeria has impacted logistics-related services.

Despite these hurdles, entrepreneurs and investors, including Y Combinator, remain optimistic about the potential of cloud kitchens in Africa. The platform-to-consumer online food delivery market in Africa is burgeoning, with a projected reach of 53.8 million users by next year, and the industry anticipated to be worth $7.45 billion by the end of this year.

"The aim of YC and any other investor is simple; to identify the next DoorDash in Africa and replicate similar success—Doordash’s revenue rose to $2.1 billion in Q2 of 2023," says Johnpaul Nwobodo, an Investment Associate at Proximity VC. He highlights the nascent nature of last-mile delivery and the need for robust logistics infrastructure. Currently, location-specific approaches allow startups to offer efficient services, accounting for factors like traffic congestion.

In a promising trajectory, Y Combinator's commitment to African food delivery startups could potentially catalyze the emergence of a groundbreaking African counterpart to DoorDash, contributing to the region's economic growth and technological advancement.

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