(Bloomberg) — The food delivery startup Munchery Inc. has raised more than $5 million to stay afloat, practically eliminating the stakes of the company’s founders and departed employees, according to a person familiar with the matter. Menlo Ventures and Sherpa Capital, the company’s biggest backers, are among the latest investors, said two people familiar with the deal, who were not authorized to speak publicly.
The company is seeking to raise up to $15 million, two people said. The new financing, which is known as recapitalization, is a decision of last resort for many startups, typically reserved for circumstances when companies want to attract investment by rejiggering ownership.
Munchery has burned through nearly $120 million over seven years, losing more than $5 million a month for a time. The startup has been trying to muster a turnaround effort under the helm of new Chief Executive Officer James Beriker, the former head of recruiting company Simply Hired. He has cut jobs across the company this year to stop the bleeding.
As part of the new deal, shares were issued to investors as part of a convertible note—a loan that can later be exchanged for equity—and, in this case, caps the company’s valuation at $80 million, one of the people said. Investor demand could push the valuation above that threshold. The value of shares that may be doled out to backers later will change depending on the company’s subsequent valuation. Munchery had raised $5.6 million in the round as of February, the person said. It created a new pool of options to retain current employees.
The use of a convertible loan instead of equity in a recapitalization is somewhat unusual. The new round doesn’t give the company a valuation, and its worth is dependent on a future round of financing. Old investors were asked to pony up more money or see their stakes lose their value, according to one person familiar with the matter.
“Our recent financing is affirmation from our investors that we’re on the right track. We are making progress towards growing our business and streamlining operations in 2017,” Beriker wrote in an emailed statement. A Munchery spokeswoman declined to comment on the specifics of the recapitalization or financing round. Menlo Ventures and Sherpa Capital didn’t respond to requests for comment.
In the past four months, Munchery has cut workers, including 30 in January and more after that, according to the people. The company’s founders, Conrad Chu and ex-CEO Tri Tran, no longer have roles at the company.
Tran confirmed that shares of former employees and the founders have lost value. He said he still orders from the company at least once a week. “It’s bittersweet,” he said. “I’m still watching it from afar.”
In September, board member Shervin Pishevar told CNBC the company was “doing incredibly well.” In November, Bloomberg reported that Munchery’s San Francisco kitchen had prepared over 650,000 unsold dishes in a two-year period. The company had told investors it expected to reach $2 billion in revenue by 2019 without raising any more money.
Jeff Housenbold, who was previously CEO at the photo sharing site Shutterfly Inc., joined the company’s board of directors in September and departed in February, according to a person familiar with the matter. Nathaniel Faggioli, the company’s chief operating officer and chief financial officer, has also left, the person said
“We’re very pleased with the new leadership team and the progress they’ve delivered in just a few short months,” the company’s board of directors said in an emailed statement. “We’re excited to invest further to support James and his team as they continue to accelerate the company’s growth.”
—With Brad Stone
(Updates with details on valuation threshold in the fourth paragraph. A previous version corrected the name of the CEO’s previous company.)
©2017 Bloomberg L.P.