Dah Makan raises US$1.3mil seed funding, kickstarts expansion

• Investors include East Ventures, Asia Venture Group and Grupara Ventures
• Aims to expand further into Malaysia, add staff to tech team

MALAYSIA-based food delivery startup Dah Makan has announced a seed funding round, raising US$1.3 million (RM5.4 million). Investments were made by global venture capitalists East Ventures, Asia Venture Group and Grupara Ventures, as well as angel investors, including a former CEO of Nestle.

Dah Makan plans to use the seed funds to add more talent to its current 60-person staff and expand further into Malaysia; its services are currently centred in Kuala Lumpur.

In an official statement about the fundraising, CTO and co-founder Christian Edelmann said that the exponential demand growth for Dah Makan’s service and its success in reducing delivery costs gave the startup the confidence to expand into other cities across Southeast Asia.

In a previous interview with DNA in November 2016, CEO and co-founder Jonathan Weins said that Dah Malan planned to be in Singapore and Jakarta by early 2017 and other Malaysian cities besides Kuala Lumpur.

However, Weins has now told Digital News Asia via email that Dah Makan is delaying the international expansion to focus on Malaysia and use the funds raised in this round here, though Dah Makan is already starting to work on the next funding round, which will be used to expand regionally more aggressively.

“There are a couple of exciting things we are still working on for Kuala Lumpur so we want to focus on that a bit longer, which will then also make expansion much faster,” he said.

He also revealed that Dah Makan will use the funds to add to its tech team, specifically engineers with advanced knowledge in machine learning and algorithms, to complement its existing tech team.

“We want to keep our team lean while getting the smartest and most driven people on board who can make our vision come to fruition. It’s really not the number of people in the team but their capabilities and how deeply they care about our vision that makes the difference,” he said.

Hi-tech model

Launched in 2015, Dah Makan is a ‘full stack’ food delivery service, meaning it operates from a centralised kitchen and has its own delivery fleet. Orders are made on its website or app and payments are also handled in-house.

Dah Makan’s delivery system uses a proprietary route calculation algorithm that efficiently plans out delivery routes, allowing it to operate at 30% of the delivery cost or 70% less than Food Panda. This saving transfers onto customers as free delivery and gourmet food at reasonable prices.

According to Edelmann, the Dah Makan tech and ops team worked on creating the algorithm for more than two years, and solved a stochastic open capacitated vehicle routing problem, one of the hardest problems in computer science. “What we have developed has proven 5 times more efficient compared to traditional food delivery competitors, and we are just getting started,” he said.

While Dah Makan is able to service last-minute on-demand orders, very strong pre-ordering behaviour allows the centralised production model to work efficiently. The recently-launched subscription option Dah Makan Prime allows customers to pre-pay for a set amount of meals that can be ordered at any time further, the updates to the logistics technology has made 30-minute delivery time frames for these pre-orders possible.

“The cost of delivering food is high and marketplaces such as FoodPanda or Deliveroo have little to no scale benefits so they need to pass on service and delivery charges to customers in order to make their unit economics work,” said Weins.

Comparatively, Dah Makan states that its four daily-changing meals, priced between US$4.50 and US$6 with free delivery, are 40% cheaper than comparable dishes in restaurants and other existing food delivery options.

The model has been successful; each meal delivered since early 2016 has been profitable. “We are already operationally profitable and see that we can reach bottom line profitability very soon,” Weins revealed.

Future growth

Weins, along with third co-founder and COO Jessica Li, were previously with Food Panda; this experience allowed them insight into the attractiveness of the Southeast Asian market, where 70% of meals are takeaway, delivery or consumed outside the home.

While Dah Makan’s official statement says that it currently serves about 1,000 meals daily, which is the same number Weins reported to DNA in November last year, Weins explained to DNA that as Dah Makan operates only on weekdays, this, as well as seasonal festivities (such as Christmas holidays and Chinese New Year) affects average orders. It did, however, exceed November numbers in January and has already done again so in February, meaning it has frequently served up to 1,500 customers a day.

These numbers are confined to Kuala Lumpur, where Dah Makan has spent the last two years building its sophisticated delivery system that allows it to operate from one central kitchen. To continue providing maximum value to customers, Weins said that Dah Makan will stick to the one kitchen per city model when regional expansion does occur: “We are working on mobile distribution hubs, however, brick-and-mortar presence will be limited to 1 kitchen per city only.”

In preparation for the expansion, Dah Makan has been testing variations of the more than 200 recipes it has developed, supported by insights from customers. Weins said that though tastes differ between regions and even cities, Dah Makan has found that people fundamentally like similar things: rice, pasta, salmon, meatballs and so on.

“Based on this prior knowledge and out ‘taste database’, it should be easy to quickly get 80%-90% of the taste right. The fine-tuning ad menu optimisation will then happen in the first six months based on early customer feedback,” he said. Dah Makan has relied heavily on customer feedback from its beginnings to test and refine its services.

Weins also said that formulating tastes and menus is not the hard part of expansion as the startup’s team of experienced chefs and food experts are more than capable of success. Rather, as Dah Makan’s model demands that prices and costs are kept low, the challenge will be in finding the right positioning and price point, as well as locally available ingredients in new markets.

Dah Makan was able to convince investors of profitability through the current success of its business model; Weins revealed that getting investors on board was easy as the team was able to demonstrate very attractive unit economics, the main things investors are looking for in the current investment climate.

Weins further revealed that Dah Makan exceeded its revenue goal for 2016, which was 100,000 meals served, leading the startup to adjust its target for 2017 to more than four times of last year’s goal.

In going through the fundraising round, Weins said that the biggest lesson the Dah Makan team learned was to start conversations early to build relationships and really get to know potential investors, and speak to other founders who have received investment from the investor. “Investors can add tremendous value so it’s important to get the right people on board.”

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