GrubHub Seamless IPO would benefit early backers

Food-ordering service, which has origin in Chicago, files confidentially for initial public offering, according to Wall Street Journal

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If GrubHub Seamless goes public this year, the stock market debut for the online food-ordering service would generate millions for a bevy of Chicago-area entrepreneurs and investors. They include GrubHub co-founders Matt Maloney and Mike Evans, and Northbrook-based investors Origin Ventures and Leo Capital Holdings.

The Wall Street Journal reported Thursday that the company has filed confidentially for an initial public offering, has met with investment bankers and "could debut" in the first half of this year. Companies with less than $1 billion in annual revenue are allowed to file secretly for an IPO.

Among the many benefits of a confidential IPO is that it allows a company to assess interest among investors before having to put out its financial statements for the world to see. This method also makes it easier for a company to pull out of an IPO if the offering is not generating the kind of interest that it hopes for, without harming the company's reputation.

The books don't have to be released until three weeks before a company's executives start pitching the stock to investors and Wall Street analysts.

Abby Hunt, a spokeswoman for GrubHub Seamless, declined to comment.

Maloney and Evans founded GrubHub in Chicago in 2004. It merged with New York-based Seamless last year and sent more than $1 billion worth of orders to restaurants across the country in 2013.

GrubHub did not skyrocket like Groupon, founded years later and already public. But a slower-growth strategy has given the company time to develop and has allowed it to avoid the volatility and flamboyance that distracted Groupon leadership for many years.

"Matt and Mike have done a great job," said Chuck Templeton, the OpenTable founder who chaired GrubHub's board from 2007 until he stepped down last summer before the merger. "It's the classical venture story. It started off with two guys and an idea. They got an early stage investor involved here in Chicago, Origin Ventures, as well as an investor on the coast, Amicus Capital, and then they were able to continue to execute the business plan."

Bruce Barron and Steven Miller, whose family founded office products seller Quill Corp., founded Origin Ventures and led GrubHub's $1.1 million Series A, or first, investment round in 2007. Origin and Randy Rissman's Leo Capital Holdings co-led a $2 million Series B round in 2009.

Only until the Series C round in 2010 did a large, Silicon Valley venture capital firm, Benchmark Capital, take the lead.

Templeton, who is no longer involved in the management of GrubHub Seamless but remains a shareholder, said the length of time between the founding in 2004 and the first large institutional investment, in 2007, was important. GrubHub, he said, had demonstrated "product-market fit" before any institutional investor came along.

"These investors knew that consumers were buying what GrubHub was selling," Templeton said. "Half the problem with startups is that they can come up with some great, whiz-bang technology that no customer ever wants to buy. But with product-market fit, it means you're investing in growth."

And success begets success, not just for Evans and Maloney, who met while working at another former Chicago startup, Apartments.com, but for the early investors. GrubHub's success meant Origin could raise more money to invest in other startups. Its second fund raised $15.5 million; its third, which closed about a year ago, after GrubHub had become an established brand, raised $45 million.

There are a string of other Chicago startups primed for potential IPOs, but most of them are business-to-business companies. The general public often uses B2B companies' software or products, or benefits from them, without ever knowing it. Meanwhile, GrubHub and Groupon have succeeded at serving the general public.

Chicago has fewer consumer-focused startups that are big enough to consider IPOs. That means the GrubHub-Seamless IPO, if it happens, would be the last one in Chicago for some time to garner widespread publicity. For instance, Deerfield-based software-maker Textura Corp. went public last year. Ever heard of it? Probably not.

"Given GrubHub has had steady growth, that means it will be easy to model that into the future," Templeton said. "Comparables, such as OpenTable and Yelp, have grown at steady rates, whereas Groupon was growing like crazy, and no one knew ultimately how it would grow. With this, investors should have a pretty good idea where it can go."

mmharris@tribune.com

 
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