Digital restaurant ordering service Olo devours investment from Raine

The Deal
By Laura Berman
January 26, 2016


Restaurant e-commerce company Mobo Systems Inc., which does business as Olo, has received a $40 million cash infusion from boutique investment bank Raine Group LLC.

Under the terms of the deal, announced Jan. 21, Raine took an undisclosed minority stake in Olo. Raine vice president Colin Neville and partner and COO Brandon Gardner will join Olo’s board.

Olo designs a software-as-a-service food delivery platform for restaurants with ten or more locations. Users can order and pay for takeout delivery from their phones, which they then pick up.

The service also tracks users’ orders to recommend additional items based on their order history and to check accuracy. Olo claims customers using its service increase their visit frequency and order size by over 20% on average.

New York-based Olo’s clients include Chipotle Mexican Grill Inc. (CMG), Five Guys Enterprises LLC and Jamba Inc. (JMBA).

Raine is a New York-based merchant bank focused exclusively on the technology, media and telecommunications (TMT) sectors. In addition to providing investment banking advisory services, Raine invests in TMT growth companies.

Raine is “not traditionally a group that backs a tech company or a restaurant group,” said Olo founder and CEO Noah Glass in a phone interview.

“I talked to a number of different firms, some of which were traditional venture capital firms, ranging all the way up to some big mutual fund groups that are doing more private investing,” Glass explained. The search for a funding partner began in the fourth quarter.

He ultimately picked Raine in part because of some relevant experience, including a minority stake in Margaritaville, Jimmy Buffett’s restaurant concept and consumer licensing company.

The funds raised from Raine will be used primarily to expand Olo’s new delivery service, Dispatch. Dispatch, announced late last year, can be used in conjunction with Olo’s platform or with outside delivery systems. Dispatch users can select among time and price quotes from a choice delivery service providers (DSPs), who in turn can track the food’s preparation, pick up the food when it’s ready and deliver it to the buyer.

Glass described Dispatch as “a fleet of fleets” rather than its own delivery fleet, adding that the service “takes all the courier networks and puts them together into one nationwide network, which is important because our brands tend to be national brands which need national services.”

Olo’s venture capital backers include Core Capital Partners, Founder Collective, RRE Ventures LLC, Staley Capital Advisers and PayPal Holdings Inc. (PYPL). Will Dunbar of Core Capital and David Frankel of Founder Collective sit on Olo’s board, as does Danny Meyer, the restaurateur and CEO of Union Square Hospitality Group.

Meyer served for five years on the board of restaurant reservation service OpenTable Inc., experience Glass said Olo values, as “he’s seen what technology can do in the fine dining part of the industry.”

He attributed Meyer’s interest in Olo to his experience with Union Square’s fast-casual burger chain, Shake Shack Inc. (SHAK), which made him realize the importance of “making a better transaction” in the limited service food sector.

When Olo launched over ten years ago, before smartphones, customers texted their orders to restaurants. As technology has grown, so too has Olo. Glass said that consumers use mobile devices for “on-demand services” such as hailing a cab or streaming music, and Olo is “making restaurants on-demand too.”

The increasingly crowded food delivery sector saw rapid consolidation in 2015. For example, GrubHub spent nearly $100 million on three such acquisitions in 2015, while business review website Yelp Inc. (YELP) paid $134 million for online food delivery company LLC.

Glass anticipates an increase in Dispatch services as the next big change to hit the food delivery industry.

“To date, delivery has been limited geographically to major cities,” he noted, pointing out that the only national businesses that regularly offer delivery services are pizza chains. However, “this availability of third-party on-demand fleets of drivers enables a whole new set of geographic availability and a whole new set of food able to be delivered.” Restaurants that have never delivered may be introduced to new consumers who “used to have to order a pizza for delivery, but maybe now they’ll order a burrito.”

“A huge part” of Dispatch is enabled by the growth of taxi startups like Uber Technologies Inc. and Lyft Inc. “I think of us as digital ordering as a service, but they do food delivery or logistics as a service.” Through Dispatch, Olo connects restaurants to those drivers, but “half of that is based on these companies existing and having cars on the road.”

Despite Olo’s plans to expand Dispatch, Glass is “less bullish on food delivery than a lot of other players” and believes that the primary opportunity lies in Olo’s primary business of picking up food from restaurants, which he says comprises 75% of restaurant orders. He also plans to apply that business to non-restaurant local businesses.

“We have experiments going with grocery stores and convenience stores and wine shops,” he explained. “At its core, what our technology does is let you see what’s available at a local retailer, place an order, and pay, and then get it faster when you arrive or get it delivered to you. That idea could be valuable to all kinds of local retailers, not just restaurants.”

Ramona Nee, Michael Weisser, Jacqueline Smith, Daniel Vaczy and Adam Dickson of Weil, Gotshal & Manges LLP provided legal advice to Raine. Olo retained Craig Jacoby, Stephane Levy, Seth Rafkin and Randy Sabett of LLP as its outside counsel. Neither Olo nor Raine retained a financial adviser.

Principals at Raine did not respond to requests for comment.