(Bloomberg) -- For some investors, the meal-kit dream is still alive.
Sun Basket, a premium meal-kit service backed by billionaire Paul Allen and the consumer-product giant Unilever, has raised $57.8 million, overcoming investor pessimism fueled by the struggles of competitor Blue Apron Holdings Inc.
The funding round, led by the Silicon Valley venture firm August Capital, values Sun Basket at more than $500 million, according to a person familiar with the matter who asked not to be named because the details are private. The company, which tailors meal kits to vegan, paleo and other specialty diets, saw revenue almost quadruple in 2017, recently hitting an annual rate of roughly $275 million.
Meal-kit companies intrigue investors because their use of technology and direct relationships with consumers could squeeze profit from the low-margin grocery business. But they have come under greater scrutiny following the troubled IPO of Blue Apron, which has plunged since going public in June.
Blue Apron, which is projected to hit about $930 million in revenue this year, is unprofitable and has been weighed down by operational issues and high marketing costs, raising questions about the viability of the industry.
“We’re betting that the market sentiment is wrong,” Tripp Jones, a partner at August Capital, said in an interview. Sun Basket is well positioned, he said, because it targets a market niche that’s growing and can command higher prices.
Despite Blue Apron’s stumble, meal-kit companies are still drawing attention as the food industry reacts to Amazon.com Inc.’s takeover of Whole Foods Markets Inc. With more grocery purchases poised to move online, brick-and-mortar chains are boosting their technology spending and trying to lock in customers.
Amazon is eyeing food kits as well: The e-commerce giant filed a trademark application in that area last year, a move that weighed on the shares of Blue Apron.
In September, Albertsons Cos. agreed to buy Plated for about $200 million, giving the grocery chain a vehicle to directly reach younger customers.
Sun Basket, which is not profitable, has turned down a “couple of overtures” from potential acquirers, according to Adam Zbar, the company’s founder and chief executive officer. Unilever previously invested in the business and took part in the latest round, which includes $42.8 million of equity capital and $15 million of debt.
Blue Apron made its trading debut at $10. It now trades around $3, giving the company a market value of nearly $600 million. Blue Apron’s struggles have made it more difficult for Sun Basket to raise money, but its focus on niche diets means it’s easier for the company to find and retain customers, Zbar said.
“There’s been some turbulence in the market, but we’re showing the economics can work,” he said.
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