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Forage: Putting Food Stamps on the Internet
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Happy Tuesday! Banana Cap portfolio company Forage announced its Series A yesterday. We'll dig into how they're digitizing food stamps and why we're excited.
I also think this week features our best meme cleanser to-date - make sure to click on the last two videos for the full experience.
Forage: Putting Food Stamps on the Internet
Forage is a payment processor that makes it easy for grocers to accept SNAP EBT payments online (also known as food stamps), and also one of my favorite Banana Capital portfolio companies. They just announced a $22 million Series A led by NYCA partners. Other investors include PayPal Ventures, EO Ventures, and Apoorva Mehta, the co-founder and Chairman of Instacart.
The US grocery industry is a $1+ trillion market, 96% of which was still offline until March of 2020. Grocery ecommerce was built on top of existing offline grocery infrastructure, which has led to high prices and poor service throughout the pandemic, and an opportunity for new companies to be built. Many business models have been tried since the dawn of the internet, starting with verticalized dark store models like Webvan in the pre-mobile phone era. Smartphones enabled on-demand marketplaces like Instacart, Uber Grocery, and DoorDash, and COVID brought another wave of verticalized models like Gopuff, Farmstead, and DoorDash’s Dash Mart.
But these models still don’t work for all consumers. Over 42 million Americans rely on $120 billion in annual EBT benefits to buy groceries. In March of 2020, 248,757 stores accepted EBT in-person, but only 89 stores accepted it online online. At the time, roughly 35,000 consumers transacted with EBT online. This was mostly a poor customer experience with a few very large supermarket chains.
By July of 2020, consumers transacting with EBT online increased to 1 million, a large increase, but still only 2% of all recipients at a time everyone was ordering groceries online. This wasn’t just a problem for American consumers, it was also a huge problem for companies delivering groceries. Offering EBT instantly expands a retailer's customer base in each market. It unlocks incremental spend from existing customers and net new customers who can’t otherwise afford to buy groceries online. EBT accessibility also makes brand marketing more effective as retailers convert more customers who otherwise couldn’t use their products, which also makes their delivery coverage routes denser. All of this immediately impacts a grocers bottom-line.
Around this time, Justin Intal, Victor Fimbres, and Anthony Grullon were experimenting with different startup ideas. Anthony lived on food stamps growing up, and Justin and Victor used EBT while living on founder salaries. Eventually, they experimented with an app that consolidated orders from various providers and performed one single EBT-enabled checkout pushed to each one. Realizing that both the unit economics and consumer behavior needed to make multiple separate, small basket purchases wasn’t going to work, they eventually pivoted Forage into a payments business, realizing that the difficulty of accepting SNAP EBT online was the biggest unmet need in the ecosystem.
This is when they met Ofek Lavian, an early investor in and now CEO of Forage. He launched and scaled Instacart’s own EBT business (he says it was very hard), and before that built payments products at Uber. He knew the landscape and existing challenges well, namely Fiserv, which used EBT as a sales channel for its other services. The process took Instacart nine months and a large cross-functional team, most of which was navigating the federal government’s bureaucratic approval processes. The process can take up to 18 months for a team without Instacart's resources.
Forage integrates directly with a merchants existing accounts, making it the most friendly option for tech-first players like Shopify, and many other customers coming online later this year. Forage provides certified and reusable technology that gets merchants up and running with EBT acceptance in as fast as 90 days. For consumers, paying is as easy as any other debit or credit card with an added step of Forage's PCI-compliant PIN solution.
The timing for what Forage is building couldn’t be better. During COVID, the US federal government started investing in infrastructure to put EBT online. Congress allocated $25m to support online EBT infrastructure in the second COVID stimulus package, and a bill started moving through the Illinois Senate in July of 2020 that provided $100m in technical infrastructure funding for its EBT program. And more is likely coming.
After working on EBT payments at Instacart and seeing the impact it had on that business (public FNS data hints "internet retailers" are already doing billions in EBT volume per year), and advising and investing in Forage, Ofek decided to join the company full-time. Many other early employees joined after building EBT integrations at both the merchant and government level. Meanwhile, after pushing customer conversations with practically everyone who sells groceries online, Justin was mentally and physically exhausted, and Ofek stepped into the CEO role.
Getting EBT online is a huge opportunity in itself. And 90% of the 42 million Americans relying on EBT also use other social benefit programs like Medicaid. The US government disburses 19% of US GDP in social benefit programs through specialized payment networks each year. It could hint at what Forage tries to tackle next.
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Getir launches its first in-person supermarket in Amsterdam: On the topic of grocery, the rapid delivery model has faced constant regulatory pressure in Europe. At face value, a Getir supermarket meets all its stakeholders in the middle. In reality, most retailers will eventually be a mix of both online and physical to maximize cash flow per square foot of real estate space, and this was likely already on Getir's road map. More.
What Haystack's Semil Shah is seeing in early stage funding rounds right now:
Lots of talk about the fundraising market cooling. For sure, slower, chillier... yet, I still believe:
-a pre seed founder raising $750k
-a $2M seed round
a reasonable series A $7-10M
They all get done. Plenty of $. If a round doesn't come together. something else is off.
Tesla's 2022 Shareholder Meeting: This video was essentially a victory lap for Elon and Tesla as the Model Y is on pace to be the highest-selling car by revenue this year and volume by next year. What stood out to me was this chart highlighting Tesla's profitability compared to the rest of the industry over the past four years:
Now that its clear to shareholders EVs can more profitable that ICE vehicles, we'll likely see even faster adoption of EV production across the industry.
Pitchbook estimates $290 billion in uncalled VC capital: On one hand, there is still lots of dry powder for founders. On the other hand, many funds cut their dry powder in 2001 and 2002 post-Dot Com Crash, and Josh Wolfe at Lux mentioned this is already happening behind the scenes on last week's Cartoon Avatars podcast. h/t @Shai Goldman for the chart!
US savings rate at lowest levels since August 2009: You've likely seen the charts on US consumer savings rates before, throughout, and after COVID. I liked this one that clearly maps up with stimulus checks and changes in consumer credit levels. Source.
A few openings across the Banana Cap portfolio:
If you're hiring, we're announcing something tomorrow that will hit the newsletter on Thursday. Follow Turner on Twitter or check back on Thursday for the drop!
Strongly recommend clicking on these last two for the full videos:
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