The restaurant industry in the U.S. is expected to pass $1 trillion in sales for the first time this year, despite wider economic pressures on consumers. Now Restaurant365, a startup building tech to manage those businesses, has raised a hot round of $175 million to capitalize on that growth.
The funding is being led by ICONIQ Growth with KKR and L Catterton also participating, all existing backers of the company. Restaurant365 is not disclosing its valuation with the round, but Tony Smith, the co-founder and CEO, confirmed to TechCrunch that it is an upround. “We’re excited that it continues to grow and that we have very supportive investors behind us,” he said. For some context, last year – when the startup raised $135 million – it disclosed that it had passed a $1 billion valuation.
The startup is also not disclosing any updated figures on usage. Last year, we reported that its software was being used in 40,000 locations, and that is still the number it is sharing today. It looks like in 2023 the company generated $100 million in revenues, based on per-location pricing that starts from $469 per location per month.
Based out of Irvine, CA, Restaurant365 competes provides an all-in-one platform for restaurant businesses of different sizes to manage their accounting, inventory and workforce, along with an analytics suite to help understand trends within the business – everything essentially outside of point of sale transactions. Smith said that the plan will be to use the money to continue expanding its suite of products, as well as its customer base on the heels of the company buying and digesting ExpandShare, a restaurant training platform, in April 2023.
“We are also earmarking some funds for future acquisitions,” he added. Although Restaurant365 is used by both independent restaurants and larger chains, another big focus will be building tools catering to “major hospitality brands,” he said.
Unlike a lot of people who jump into the world of building solutions for business users, Restaurant365 does not have its DNA in the world of food service per se. “By the time I graduated college I’d had 12 jobs [only] one of which was at a pizza restaurant, so I wouldn’t say my restaurant experience was robust,” Smith said.
Rather, he was a techie who saw an opportunity to address a clear problem. “My first job out of college was in technology and it was exciting to see the future that software could play in all types of businesses.”
He, along with John Moody (chief strategist) and Morgan Harris (chief community officer), founded the startup in 2011 to address what they discovered was a pretty rough rock and hard place for restauranteurs: they operate on very thin margins (one reason why so many restaurants eventually die: the owners either give up out of exhaustion or they can no longer make the math work because of one variable like rent going up); and they operate on a patchwork of software to get things done.
They may not have started with restaurants in their DNA, but they knew that they had to graft it in to fix the problem.
“As technologists, we immediately surrounded ourselves with restaurant folks to fully understand the problems they were facing,” he continued. He said that included some unlikely going-native market research.
“We’d go to restaurants and wait until they closed at night to talk with the manager, who must have been a little concerned we were stalking them,” he said. “I remember asking for a clipboard so I could count inventory with them, and they probably thought we were crazy, joining in their job for free. [But] it was shocking to learn how complex running a restaurant is from the need to reduce food waste, control costs, and manage labor.”
It did seem like a strong match, though. “The problems restaurants struggled to solve aligned perfectly with our skills, and when we looked at what was available on the market, we knew we could create a more complete solution to help restaurants thrive,” he said. “Restaurant people are so hardworking, and it’s a privilege to work with them and help solve those problems.”
That being said, the market really is very crowded with software for restaurants, from point solutions to those taking an all-in-one approach. Bigger players include Toast, Lightspeed and Crunchtime (no relation to TechCrunch!).
Smith claims that it’s the only one bundling the functions that it does (indeed many others targeting the food service industry start from the position of point of sale, or workforce management, rather than the mix that Restaurant365 provides).
“Our major differentiators are that we’re all-In-one and restaurant specific,” he adds.
Will Griffith, a founding partner at ICONIQ Growth, said that the startup’s attack was the more attractive for how it brought together essential functions in a usable way.
“Restaurant365’s suite consolidates essential functions like accounting, inventory management, payroll, and employee scheduling into a unified system, “ he said in an emailed statement. “Whether enterprise brands are reducing spending or investing, they always need a seamless flow of information to quickly identify areas in need of improvement, be it in staffing or supply management, to consistently and dramatically reduce costs and improve profitability.”
That being said, there is a big opportunity to consolidate, given the huge number of point-solution players in the market.
“When we started the company, we met countless restaurants struggling to get by with multiple disconnected systems that drove inefficiency and limited visibility,” Smith said. “We launched as a consolidated product, and we’re grateful that operators and the market at large validated that strategy in both trusting us with their business, and in demanding technology providers create more complete offerings.
“While we’ve made a number of acquisitions, we also continue to invest heavily in our product development and research teams and will continue to do so. For us the question isn’t whether to add more products organically or through acquisitions. The question is what will add the most value to our customers’ businesses. Then we go out and do it.”