So-called “ultra-high-speed” delivery (UHSD) companies were a staple of the early pandemic metropolitan lifestyle. Apps and services like GoPuff and Instacart offered to have anything from diapers and detergent to cigarettes and beer sitting on your doorstep in 15 minutes or less. Even better, these delivery services minimized customers’ exposure to other risk vectors (read: people) and assisted with effective quarantining. Consequently, the demand for and value of these services exploded overnight. In 2021, InstaCart was valued at $39 billion. In January 2022, GoPuff sought a $40 billion valuation while preparing for its IPO.
But with mask mandates and other pandemic restrictions now easing, and new externalities emerging from the Russo-Ukrainian war, the future of UHSD is looking far less promising. Some GoPuff investors have been seeking to offload their interests at valuations as low as $15 billion. InstaCart may have lost as much as 18% of its market value since its IPO. And in perhaps the most glaring example of the current sea change, UHSD service BUYK Corp. (“Buyk”) has been forced to file for chapter 11 protection and is intending to liquidate substantially all of its assets. Buyk’s unfortunate circumstances raise an interesting question: Are UHSD companies facing a reckoning that will see more of them seeking bankruptcy protection? As the facts underlying Buyk’s chapter 11 filing show, the answer may depend on where these companies get their money.
Buyk launched in New York City in April 2021, and expanded to Chicago in November 2021. It offered a typical UHSD service: Customers/users placed orders for various grocery items, Buyk fulfilled these orders within two minutes, then Buyk couriers delivered them within another 5-10 minutes. What Buyk claimed set it apart in the extremely competitive UHSD space was its ability to efficiently divide orders across multiple deliveries using localized fulfillment based on a user’s location. As recently as January 2022, Buyk was seeking new equity investments of approximately $250 million. Two months later, Buyk terminated all of its employees and filed a voluntary chapter 11 petition, intending to file a liquidation plan within 60 days of its petition date.
So how did Buyk go from being worth purportedly a quarter of a billion dollars to being sold for parts in less time than it takes to have an order of seven-layer dip delivered from Trader Joe’s? For starters, and as Buyk’s CEO acknowledges in his First Day Declaration, Buyk “was the latest entrant to the competitive field of ultrafast delivery firms cropping up in major metropolitan areas.” That “competitive field” includes players like DoorDash, Amazon Fresh and Uber Eats (as well as GoPuff and InstaCart), which are not only more established and better funded, but also famous for burning through cash. To a certain extent, Buyk likely just couldn’t keep up with the high-rollers.
But even more important was the source of Buyk’s cash. The company initially obtained seed funding from Russian investors, including approximately $63.5 million in convertible notes and an additional $11 million in unsecured loans, before seeking the additional $250 million in equity investment. However, facing “mounting indicia of a potential Russian dispute with Ukraine,” Buyk pivoted to a U.S.-based equity raise. This fundraising was apparently going “reasonably well” until Russia invaded Ukraine and cratered Buyk’s hopes. While the company’s founders were not themselves personally subject to the unprecedented sanctions leveled against Russia, those sanctions did prevent them from transferring any funds out of the country, making it impossible for the founders to provide any new funding. In addition, Russia’s invasion of Ukraine soured investor interest abroad, and its equity raise stalled out. Buyk attempted to find a purchaser for an asset or stock sale, but ultimately was left with no choice but to take out a debtor-in-possession loan and file for bankruptcy.
Should we expect to see other, similar chapter 11 filings in the near term? It’s possible. Like Buyk, several other UHSD companies are funded in whole or in part by Russian investors who will be subject to the same restrictions on fund transfers as Buyk’s founders. PETITION, an insolvency industry newsletter, reported last week that UHSD companies Fridge No More and Food Rocket both have deep ties to Russian money and are also suffering as a result. Fridge No More has already shut down its operations (informing its 600 employees over Slack) after concerns that included its “ties to Russia” dashed a deal with DoorDash. Food Rocket, launched in February 2022 by Founder and CEO Vitaly Alexandrov, may face a similar fate and end up killed in the crib. Given the risk factors and ultracompetitive environment affecting all UHSD companies, and the pervasive influence of Russian money in the industry, the likelihood that more of these companies will seek refuge in bankruptcy will increase the longer the invasion and associated sanctions continue.