The U.S. restaurant industry 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 $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 the valuation it received in the round, but Tony Smith, its co-founder and CEO, confirmed to TechCrunch that it is an up round.
“We’re excited that [the business] continues to grow and that we have very supportive investors behind us,” he said. For 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 new usage figures. Last year, we reported that its software was being used in 40,000 locations, and that is still the number it is sharing today. The company was reportedly set to generate revenue of $100 million in 2023, based on per-location pricing that starts from $469 per location per month.
Based out of Irvine, California, Restaurant365 provides restaurants an all-in-one platform to manage their accounting, inventory and workforce, along with an analytics suite to help understand trends within the business — essentially everything except point of sale transactions.
Smith said the plan is to use the new money to continue expanding the startup’s suite of products, as well as its customer base following the acquisition of ExpandShare, a training platform for restaurants, in April. “We are also earmarking some funds for future acquisitions,” he added.
Although Restaurant365 is used by both independent restaurants and larger chains, Smith said another big focus will be building tools catering to “major hospitality brands.”
Unlike a lot of people who try to solve problems in industries they’re familiar with, Restaurant365’s founders have little to do with the world of food service. “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 an obvious 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 a pretty sore problem for restaurateurs: They operate on very thin margins (one reason why so many restaurants eventually die), and they have to use a patchwork of software to get things done.
The co-founders may not have known much about restaurants early on, but they knew they had to graft that knowledge in to fix the problem. “We immediately surrounded ourselves with restaurant folks to fully understand the problems they were facing,” Smith said. 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 said, Restaurant365’s market is quite crowded with everything from point solutions to all-in-one approaches. Bigger players include Toast, Lightspeed and Crunchtime (no relation to TechCrunch!).
Smith claims his startup is the only one bundling the functions that it does. Indeed, many of the other companies targeting the food service industry start with solutions for 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 added.
Will Griffith, a founding partner at investor 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.”
Still, 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 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,” he added.