June 17, 2014, 11:03 AM

Grocery delivery service Instacart raises $44 million

The funding will go toward expanding into new regions, improving customer service and experimenting with new delivery models.

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Instacart, a company that enables consumers to order groceries from multiple stores via one web site and get them delivered in about an hour, has raised $44 million.

Venture capital firm Andreessen Horowitz led the Series B funding round, and existing investors Sequoia Capital, Khosla Ventures and Canaan Partners also participated. Aaron Levie, CEO of online data storage company Box, and Sam Altman, president of Y Combinator, which provides seed money, advice and connections to start-ups, also made personal investments.

Instacart founder Apoorva Mehta says the company will use the funds to expand into new regions, to improve customer service and to experiment with new delivery models.

“We’ve proven out our model in 10 cities across the U.S., and it works,” Mehta says. “Instacart’s customer base in every city is growing by double digits monthly, and we’ve developed a great playbook for geographic expansions. This funding will enable us to expand even more quickly and establish a wide, national footprint over the next 18 months.”

After receiving its $8.5 million Series A funding in June 2013, the company set a goal of expanding to 10 major cities by the end of 2014. It achieved that goal last month. Besides its home city of San Francisco, Instacart now operates in New York City, Boston, Chicago, Austin, Los Angeles, Philadelphia, San Jose, Seattle and Washington, DC.It now plans to operate in 17 U.S. cities by the end of the year. Consumers can shop for more than 350,000 items from local grocery stores and large chains via Instacart’s localized web sites, the company says.

Instacart says its sales have grown by 1,500% over the past nine months, though it has not disclosed the dollar amount of sales. The company employs personal shoppers to shop for and deliver grocery orders to consumers via their own vehicles. The company says deliveries sometimes can be completed in as little as one hour.

This strategy eliminates the need for Instacart to invest in inventory, warehouses, trucks and full-time drivers. Stores available via Instacart include Whole Foods Market and Costco. Instacart says it is an independent business and is not necessarily affiliated with, or endorsed or sponsored by the stores that personal shoppers shop on behalf of Instacart customers. Instacart sets its own prices for the items available via its web site and charges a delivery fee of $3.99 for most stores, for delivery in less than two hours. It also offers Instacart Express, a grocery delivery membership that provides free delivery for orders totaling $35 or more for $99 per year.

Instacart says its business model enables the company to expand into a new city in just two to three weeks.

“As we think about the future of e-commerce, groceries are among the last huge untapped opportunities,” says Jeff Jordan, a partner at Andreessen Horowitz. “Mobile is enabling a new way to tackle digital grocery distribution through an execution that I refer to as ‘People Marketplaces.’ This is Instacart’s approach, and we’re betting it will be the winning play.”

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