The company says the downturn has had a “dramatic impact” on its local commerce fast delivery business.
Almost a year to the day after the close of a major seed round, Toronto-based GoodGood ceased operations after failing to secure additional capital. The local commerce fast delivery startup announced the news Nov. 21 in a statement posted on its website.
GoodGood closed an initial funding of C$6.5m in November 2021 at a valuation of c.$30m, amid clearer economic skies and a much warmer venture capital funding environment. Over the past 18 months, the company has built five cafes and a delivery network covering much of downtown Toronto.
“While we were confident that our business would be able to overcome many of these challenges, we were unable to secure the capital necessary to continue bringing our vision to life.”
But this year, market conditions have deteriorated significantly and GoodGood has been forced to contend with high interest rates, inflation and the prospect of what could be a prolonged economic downturn. According to GoodGood, although these conditions had a “dramatic impact” on the company, GoodGood’s inability to secure more funding in a much more difficult venture capital environment ultimately led to the company’s loss of fast trade.
“The economic realities of rising interest rates, inflation and an impending recession – economic factors that were not a reality when we began this journey – have had a dramatic impact on our business” , GoodGood wrote in the statement. “While we were confident that our business would be able to overcome many of these challenges, we were unable to secure the capital necessary to continue bringing our vision to life.”
GoodGood had 60 employees (mostly retail staff) this week. The startup told BetaKit that it is currently working to help place them in other local businesses.
Fast delivery startups in particular have been hit hard by the economic downturn. Bigger space companies like Gopuff and Getir have been laying off staff en masse and scaling back operations, while other Canadian upstarts like Vancouver-based grocery delivery company Tiggy, which closed 6.3 million dollars last year around the same time as GoodGood, suspended services in Toronto and Vancouver this summer.
GoodGood was founded in April 2021 by two former employees of Toronto-based social ordering app Ritual, co-founder Robert Kim and senior director of partnerships Kris Linney. Kim and Linney started the fast local trade company after realizing that despite the increased demand for local trade during COVID-19, there was a gap in the market in terms of accessing and discovering handcrafted items like beer and specialty snacks.
“By nature, the [craft] the industry is quite fragmented, and it’s actually hard, relatively hard, to get all of these products easily,” Kim told BetaKit last year.
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Backed by a list of top investors including BKCM, Golden Ventures, Maple VC, Tet Ventures, Shopify’s Farhan Thawar and Digital Main Street’s Chris Rickett, GoodGood’s vision was to help communities “easier access and more quickly to local artisans’ products, by operating physical cafes around Toronto and delivering goods to customers in 30 to 60 minutes.
Internal documents obtained by BetaKit articulating the company’s decision to cease operations note that while GoodGood’s business was progressing, it was not reaching the scale desired by investors and founders.
According to these documents, GoodGood achieved an annualized revenue rate of $5 million in the first eight months of 2022, amassing more than 30,000 users, with stores becoming cash flow positive within six months of opening. But as GoodGood described, the company faced two problems: it still needed to improve its operating margins (to the point of considering private labeling of top-selling items), and the startup had no including delivery.
GoodGood had opened branches in St. Lawrence, St. Clair, King West, Queen West and Davisville. The purpose of these stores was to cover expenses so that GoodGood could earn money on delivery, using its physical locations as a “high-frequency acquisition channel” for its delivery network. According to the company, “the main driver of sales was overlaying our delivery volume, which we weren’t able to do in that time frame.”
In an interview with BetaKit, GoodGood CEO Robert Kim noted that the startup was “a capital intensive business”, adding that the main problem was that it was not yet profitable.
“The business was trending toward profitability but still had some way to go,” Kim said. “With the macro environment dramatically changing, there was a significant gap between the amount of capital we could have raised and what was needed to take the business to the next stage. As a result, we sought out strategic acquisitions and alternatives, and ultimately had to cease operations.
According to documents obtained by BetaKit, GoodGood originally planned to raise $10 million in equity and debt during the summer of 2022, amid a difficult fundraising landscape and a looming recession. As the company noted, “investors’ priorities have shifted.”
GoodGood reassessed its approach, returning in the fall with reduced demand less about growth and more about expanding its runway. After failing to ink a term sheet yet again, GoodGood explored what it could accomplish with $3 million in fresh capital before deciding against going that route.
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“While we had a strong belief in our ability to execute, the path forward would be one of survival and there were too many uncertainties given the economic climate,” GoodGood’s founders said in the documents. “We pride ourselves on doing what is best for our investment partners and did not feel it would be responsible to take on additional capital based on our path forward.”
GoodGood noted that “in order to demonstrate to investors our ability to achieve profitability, we simply needed more time”, indicating how market conditions, falling valuations and changing investor priorities have reduced time horizons for companies that raised significant funding in 2021.
Eigenspace co-founder Jesse Rodgers, who has written extensively about early-stage Canadian startups, told BetaKit it will be difficult for companies that raised a big round in 2021 to raise series rounds. A comparable in the near future.
Kim said the valuation “absolutely” played a part in the company’s struggles.
While he doesn’t know GoodGood’s circumstances personally, the early-career VC told BetaKit that “high valuations can be a curse” because they come with high expectations. “If the market changes, which it did, those metrics you need to hit change again,” he added.
For his part, Kim said valuation “absolutely” played a part in the company’s struggles. GoodGood claimed in documents obtained by BetaKit that it “never pushed a specific assessment, but highlighted our round of funding.”
“We got to significant revenue numbers and execution pretty quickly, but ultimately [the business] was still losing money,” Kim said.
As for why GoodGood chose not to extend its run for another 12 months, Kim acknowledged that the prospect that the company will still face tough economic conditions next year, combined with the fact that the startup doesn’t would not have been able to “grow significantly in this time” played a role in its decision to close its doors.
“I think a lot of companies will face similar challenges, and you add to that valuation pressure, falling capital, all of that, it just becomes a tough discussion,” Kim said.
UPDATE (11/24/22): This story has been updated to note additional insight from GoodGood CEO Robert Kim and documents obtained by BetaKit, as well as context on the broader landscape impact fundraising on early stage startups.
With files from Douglas Soltys. Feature image courtesy of GoodGood.
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