Almost one year to the day after closing a significant seed round, Toronto-based GoodGood has ceased operations after failing to secure additional capital. The rapid local commerce delivery startup announced the news on November 21 in a statement on its website.
GoodGood closed $6.5 million CAD in initial financing in November 2021 at a roughly $30 million valuation, amid clearer economic skies and a much hotter venture funding environment. Over the past 18 months, the firm built five cafés and a delivery network covering the majority of downtown Toronto.
“While we felt confident our business would be able to overcome many of these challenges, we were unable to secure the capital necessary to continue to bring our vision to life.”
But this year, market conditions have deteriorated significantly, and GoodGood has been forced to contend with high interest rates, inflation, and the prospect of what could be a prolonged economic downturn. According to GoodGood, while these conditions have had “a dramatic impact” on the company, GoodGood’s inability to secure more funding amid a much more challenging venture capital environment ultimately led to the quick commerce firm’s undoing.
“The economic realities of rising interest rates, inflation, and a looming recession—economic factors that weren’t a reality when we began this journey—have had a dramatic impact on our business,” wrote GoodGood in the statement. “While we felt confident our business would be able to overcome many of these challenges, we were unable to secure the capital necessary to continue to bring our vision to life.”
GoodGood had 60 employees (primarily retail staff) as of this week. The startup told BetaKit it is currently working to help place them at other local businesses.
Rapid delivery startups in particular have been hit hard by the economic downturn. Larger companies in the space like Gopuff and Getir have laid off staff en masse and scaled back their operations, while fellow Canadian upstarts like Vancouver-based grocery delivery firm Tiggy, which closed $6.3 million last year around the same time as GoodGood, suspended its services in Toronto and Vancouver this summer.
GoodGood was founded in April 2021 by a pair of former employees of Toronto social ordering app Ritual, co-founder Robert Kim and senior director of partnerships Kris Linney. Kim and Linney launched the quick local commerce company after seeing that despite increased demand for local commerce during COVID-19, there was a gap in the market in terms of accessing and discovering craft items like beer and specialty snacks.
“By nature, the [craft] industry is quite fragmented, and it’s actually hard, relatively hard, to get all of these products easily,” Kim told BetaKit last year.
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Backed by a list of prominent investors that includes BKCM, Golden Ventures, Maple VC, Tet Ventures, Shopify’s Farhan Thawar, and Digital Main Street’s Chris Rickett, GoodGood’s vision was to help communities “access products from local craft makers easier and faster,” operating physical cafés around Toronto and delivering goods from them to customers in 30 to 60 minutes.
Internal documents obtained by BetaKit articulating the company’s decision to wind down note that while GoodGood’s business was progressing, it was not achieving the scale desired by investors and founders.
Per those documents, GoodGood reached a $5 million annualized revenue run-rate through the first eight months of 2022, amassing more than 30,000 users, with stores becoming cash flow positive within six months of opening. But as GoodGood described, the company faced two issues: it still needed to improve its operating margins (to the point of considering the private labelling of top selling items), and the startup hadn’t figured out delivery.
GoodGood had opened locations in St. Lawrence, St. Clair, King West, Queen West, and Davisville. The focus of these stores was to cover expenses so that GoodGood could make money on delivery, using its physical locations as a “high-frequency acquisition channel” for its delivery network. According to the company, “the main driver of sales was layering on our delivery volume, which we were not able to do in this timeframe.”
In an interview with BetaKit, GoodGood CEO Robert Kim noted that the startup was “a capital-intensive business,” adding that the core issue was that it was not yet profitable.
“The business was trending towards profitability but still had a ways to go,” said Kim. “With the macro environment changing drastically, there was a significant gap in the amount of capital we could have raised and what was required to get the business to the next stage. As a result, we pursued strategic acquisition and alternatives, and ultimately had to cease operations.”
Per the documents obtained by BetaKit, GoodGood initially set out to raise $10 million in equity capital and debt during the summer of 2022, amid a challenging fundraising landscape and a looming recession. As the company noted: “investor’s priorities have shifted.”
GoodGood reevaluated its approach, returning in the fall with a reduced ask less focused on growth than extending its runway. After failing to ink a term sheet once more, GoodGood explored what it could accomplish with $3 million in fresh capital before deciding against that route.
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“While we had high conviction in our ability to execute, the path forward would be focused on survival and there were too many uncertainties given the economic climate,” GoodGood’s founders stated in the documents. “We pride ourselves on doing what is best for our investment partners and didn’t feel it would be responsible to take in additional capital based on our path forward.”
GoodGood noted that “in order to demonstrate to investors our ability to achieve profitability, we simply needed more time,” indicating how much market conditions, dropping valuations, and changing investor priorities have shrunk time horizons for companies that raised significant financing in 2021.
Eigenspace co-founder Jesse Rodgers, who has written extensively on early-stage Canadian startups, told BetaKit that it will be hard for companies that raised a large seed round in 2021 to raise comparable Series A rounds in the near future.
Kim said that valuation “absolutely” played a role in the company’s struggles.
While not personally familiar with GoodGood’s circumstances, the early-stage VC told BetaKit that “high valuations can be a curse” because they come with high expectations. “If the market changes, which it has, those metrics that you have to hit change again,” he added.
For his part, Kim said that valuation “absolutely” played a role in the company’s struggles. GoodGood claimed in the documents obtained by BetaKit that it “never pushed a specific valuation, but highlighted our seed round.”
“We got to meaningful revenue numbers and run-rate pretty quickly, but ultimately [the business] was still losing money,” said Kim.
As to why GoodGood opted not to extend its runway by another 12 months, Kim acknowledged that the prospect that the company would still face challenging economic conditions next year, combined with the fact that the startup would not have been able to “grow meaningfully in that time” played a role in its decision to shut its doors.
“I think a lot of businesses will face similar challenges, and you add to that valuation pressure, downward capital, all of that, it just becomes a hard discussion,” said Kim.
UPDATE (11/24/22): This story was updated to note additional information from GoodGood CEO Robert Kim and documents obtained by BetaKit, along with context on the impact of the broader fundraising landscape on early-stage startups.
With files from Douglas Soltys. Feature image courtesy GoodGood.