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On-Demand Grocery Startup Instacart Raises $44 Million From Big-Name Investors

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As companies such as Uber and Airbnb continue to receive valuations in the stratosphere, it's easy to see why the peer-to-peer economy has grown exponentially in recent years. That said, it's a crowded market. But amongst all the noise, one new startup is managing to generate a lot of buzz.

Instacart, the Uber for grocery delivery, announced today it has raised $44 million in a Series B round led by Andreessen Horowitz with participation from Sequoia Capital, Khosla Ventures, Canaan Partners, along with notable investors including Box CEO Aaron Levie and Sam Altman, the president of the tech incubator Y Combinator. This latest round brings Instacart's total amount of capital raised to about $55 million.

The San Francisco-based company lets consumers shop from a range of stores in their area but instead of receiving groceries directly from the grocer, orders are shopped for and delivered by locals who apply to work with the service.

"An order on Instacart results in a shopper going to the grocery store you selected, picking the items on your list, and delivering them immediately to your door," Jeff Jordan, a partner at Andreessen Horowitz, wrote in a blog post, adding that often grocery orders are delivered less than an hour after they're placed.

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While Instacart says its shoppers are paid on a delivery commission (based on a variety of factors including the number of items the customer orders), The New York Times reports shoppers earn between $15 and $30 an hour.

Customers ordering with the service can expect to pay a premium for convenience -- most deliveries come with a $3.99 baked-in fee -- but Instacart makes the bulk of its money through markups, which vary by item but average about 20 percent more than store prices, according to the Times.

Because Instacart's whole model consists of someone going into a store, filling a shopping order and delivering it, the startup sidesteps big costs, such as operating warehouses and fleets of delivery trucks. Google has a similar mode with its Shopping Express service.

Instacart currently offers same-day delivery in 10 cities including San Francisco, New York, Boston, Chicago and Los Angeles. With the new round of investment, the company expects to expand to seven more cities by the end of the year and be in all major cities by the end of 2015.

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