Attempting to reverse-engineer Forerunner Ventures / Floodgate Capital's VC investment in Dumpling
Is Dumpling the next big thing, or another wannabe unicorn?
Note: I do not have any relationship to Dumpling or Floodgate. Any details or conclusions below are from publicly available sources
TechCrunch recently reported on Dumpling’s Series A led by Forerunner, as well as Floodgate and FUEL capital. Forerunner is regarded by many as the premier retail venture investor (Warby, Glossier, Hims, Dollar Shave Club) and Floodgate as you are probably aware, is one of the premier VC firms (Twitter, Lyft, Twitch, Okta, Rappi). Fuel was started by the former CEO of TaskRabbit, so would obviously have deep insights into the gig economy space as well.
So how did Dumpling score an investment from such a stellar trio of investors? Let’s attempt to reverse engineer this to gain insights and hopefully learn a thing or two from osmosis.
What is Dumpling?
In a nutshell, Dumpling allows gig economy (Instacart) shoppers to transition from transactional / one-off relationships with their clientele, to relationship-based and recurring relationships.
Ideally, from a gig worker’s point of view, it’s better for the worker because they have recurring customers, and can set their own hours and prices (including tips). From the customer’s point of view, the ideal scenario is that they get a more personalized (and higher quality) delivery experience at a similar price point, with some added benefits such as knowing more of their order is going directly to the worker.
Would I have invested?
Honestly, probably not. If I had seen a pitchdeck on Dumpling and didn’t know Floodgate and Forerunner were investing, I almost certainly would have passed. There are too many obvious reasons to say no:
Unclear product-market fit: I would be skeptical that customers actually want, or are willing to pay for relationship-based, recurring shoppers (Dumpling) vs. transactional (Instacart)
Unclear supplier-market fit: I would also have some doubts if the gig workers would be in it enough for the long-haul (or if they themselves prefer a transactional platform as well)
Too crowded: many existing (Instacart, Amazon, Shipt) and potential competitors (Uber, Doordash, etc)
So what did I miss?
Knowing that Floodgate/Forerunner invested is kind of like an open-book angel investing test - now that we know there’s probably something special here that we missed the first time around, let’s take another look at where we went wrong in the earlier hypothetical pass on investing in Dumpling. Here are some contrarian or easy-to-overlook reasons to investing that we might have missed:
Advantageous selection is the opposite of adverse selection. In other words, in an ideal state, the best shoppers will select themselves out of Instacart (shoppers hate Instacart) and onto Dumpling (because they would prefer to set their own hours, build up a recurring base of clients, and most importantly, get more $ from Dumpling vs. Instacart).
Built-in distribution part 1. There are a few layers to the onion here. First is that the shoppers that shift over to Dumpling will help with distribution - they literally can drop off pamphlets / advertisements for Dumpling when delivering for other services (see TechCrunch article). This should not be overlooked - many unicorns start with a clever distribution hack (ie. Airbnb crossposting from Craigslist, Paypal on eBay, etc).
Built-in distribution part 2. Right now is a particularly interesting time to get into the space. Obviously Covid has caused a massive boost to home delivery. In addition, Instacart with over $2B raised and other delivery companies have already helped build the market and raise awareness, and Dumpling can piggyback off of both of these.
Competitive wedge in product market fit. Dumpling doesn’t need to take over the market on day one to win. They just need to build a foothold to survive, and while certainly a pretty decent segment of the market likely only wants a transactional experience (Instacart), I would bet that enough of the market (perhaps they are vegan, vegetarian, have certain allergies, are particular about produce, etc) would value having a dedicated shopper for Dumpling to siphon off some lower hanging fruit (no pun intended) of the market.
Competitive wedge in supplier market fit. Unlocking supply is often the key in 2-sided gig economy marketplaces, and shoppers HATE Instacart (that’s what happens when you try to take tips away from your workers — note to other startups: don’t do this). This drastically lowers one of, if not the most important, barriers to entry (unlocking supply) for Dumpling.
Possibly favorable unit economics. One thing I didn’t think about until I thought harder about this is that Instacart spends a lot of $ on technology to show the customer what items are in stock, things like that. It sort of does this because it’s a transactional platform. But, for example, if I were talking to my spouse, I wouldn’t need to see a list of items that a supermarket offers, I would just give a general list of items I want and expect them to figure it out (or call/text me as necessary). Similarly, Dumpling’s shoppers can fill a similar role for its clientele and some customers (in the reviews I read) report that Dumpling can actually be cheaper than Instacart as a result (if you account for the markup on items Instacart charges to mask fees).
Long-term scope. If Dumpling’s platform works in grocery shopping, there are many very large, adjacent markets that Dumpling can go after.
So is it a Thunder Lizard?
Floodgate Capital popularized a term called Thunder Lizard. It looks for startups that, like Godzilla at birth (as a baby lizard), are sorta cute and that no one takes too seriously, but grow up quickly and become unstoppable forces.
Dumpling, in retrospect, has a lot of tell-tale signs. If it works, it will work in a very big way because it can scale quickly vertically, and then horizontally. I almost thought about it like a Shopify for gig workers (lets you build a direct-to-consumer gig economy business) — and I actually saw a comment on the TechCrunch article announcing the Series A that echoed the same thought (so there’s at least two of us that think the same thing!).
In my opinion, the biggest challenge the company faces is whether it can remove enough friction in the matchmaking process (for both customers and shoppers) to steal meaningful market share. If it can, then watch out.