Farmstead Raises $7.9M to Support Nationwide Growth

Farmstead, the Bay Area internet grocer now expanding in the Carolinas behind a “dark store” strategy, has raised $7.9 million in Series A funding it said will accelerate national expansion.

The new funding, led by Aidennlair Capital with participation from Y Combinator, Gelt VC, Duro, Maple VC, Heron Rock, 19 York, Red Dog Capital and others, brings total funding to $14.5 million for the San Francisco-based company, which touts a proprietary AI-powered model to facilitate efficient order fulfillment and free delivery of affordably priced groceries in markets where it does business—and as a software offered to other food retailers.

Farmstead said its business has grown swiftly this year behind a consumer trend to adopt grocery delivery amid the global pandemic, with founder and CEO Pradeep Elankumaran saying earlier this year that orders increased by roughly 500% in San Francisco once shelter-in-place orders were issued there in the spring. The company this week made its first deliveries in the Charlotte, N.C., market as part of its first expansion outside of the Bay Area and said it has begun taking names for a waiting list of shoppers in the Raleigh-Durham market. Farmstead is partnering with Alex Lee Inc.’s wholesaler Merchants Distributors Inc. to on a supply deal in the Carolinas and is reportedly operating out of a 30,000-square-foot warehouse near Charlotte.

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Farmstead said its delivery-centric warehouses, which it describes as a “dark store” model—can serve customers in a 50-mile radius. It says that offering eases geographic expansion. Around 75% of its customers are on a weekly recurring delivery program which reduces complexity and helps Farmstead offer groceries at what it says are better prices than stores.

“In order to fix grocery delivery and make it profitable, Farmstead took the bold approach of breaking the traditional model and starting completely from scratch, while opening up Grocery OS to other retailers,” said Tim Reynders of Aidennlair Capital. “There is an inevitable path to growing an impactful and powerful company, and we see that potential with Farmstead—we’re excited to work with Pradeep, [co-founder] Kevin [Li] and team to grow the company nationwide.”

“The Farmstead team worked hard in 2020 to perfect the dark store model and the underlying proprietary technology that makes Farmstead so incredibly efficient,” Elankumaran added. “We are laser focused on expanding Farmstead’s national brand and adding more partnerships with grocery chains, helping them increase their daily delivery capacity while driving long sought-after profitability with each order. This industry has been stagnant for long enough—customers demand change and we are building the foundation for sustained e-commerce growth in grocery while exceeding their expectations.”