An industry that once looked like it was reaching its saturation point may yet have room for new entrants after all.

Freshly, a New York City-based startup that delivers ready-to-heat meals, just secured a $21 million  funding round and is on track to be available in more than 90 percent of the U.S. by early next year. The round, led by Insight Venture Partners, comes only a few weeks after San Francisco-based SpoonRocket announced it was folding, prompting concerns that the industry might start consolidating.

Unlike the industry's highest-valued competitor, Blue Apron, which is geared toward customers who just want to receive ingredients but cook their own meals, Freshly delivers single-serving portions that have already been prepared and need only be heated up. It offers subscriptions of six to 21 meals per week, costing about $10 to $11 per meal.

Freshly's model is similar to that of Munchery, but all its meals are prepared in the company's Phoenix facility rather than in local kitchens. They arrive at customers' homes via FedEx (shipping is free) in chilled containers, ready to be heated in an oven or microwave. Each package uses a biodegradable, recycled denim container and ice packs to keep the contents cold. 

Freshly currently delivers to 28 states, but none on the East Coast. Co-founder and CEO Michael Wystrach tells Inc. that's changing soon, as the company is in the process of opening a new facility in the eastern U.S. that should enable it to blanket most of the country.

While other delivery startups such as SpoonRocket began by operating in one city, Wystrach says Freshly has been focused on nationwide expansion from the beginning. That required bypassing an on-demand model. And rather than invest heavily in building out its own delivery services, Freshly decided to partner with FedEx and focused on building a tech platform and facilities that could handle hundreds of thousands of meals each month. "I think that's one of the things that's allowed us to scale as quickly as we have--not doing those last-mile logistics," Wystrach says.

Bucking the trend

Wystrach, a former investment banker, and Carter Comstock, who previously worked in sales for payroll services provider ADP, founded the company in 2013 with about $2 million made up of their own cash, investments from family and friends, and outside funding. It launched in January 2015. With its latest round, the company now has pulled in $30 million in funding.

The company shipped 250,000 meals in June, ranging from grilled flat iron steak with potatoes and spinach to chimichurri salmon with succotash. It delivers breakfast food as well, like omelets or porridge, an uncommon offering in the mainly lunch- and dinner-focused industry.

The shuttering of SpoonRocket, which received $13.5 million in funding between 2013 and 2014, looked to some like a sign of things to come. In March, CB Insights analyst Matt Wong told Inc. that the food-delivery space might be on its way to consolidation. The same month, food industry strategist Brita Rosenheim told CNBC that she expected other startups to exit the space.

And while that still may well be the case, Freshly's latest round shows there's still VC money to be had for promising startups in the space. 

Wystrach thinks there's still plenty of room to grow, for Freshly and others. "SpoonRocket closing kind of set off this feeling of, 'Food tech is dead, food tech is overinvested,' " he says. "Certainly there will be failures, as there are in any industry, but one of the things that we believe in is the absolute enormity of this market.... Distributing food directly to the consumer is a really powerful concept."

Published on: Jul 12, 2016