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Six months ahead.

Mucker Capital

A Startup Tackles Express B2B Delivery (and Tens of Rivals)

DropoffSean Spector is a brave soul. Spector is the CEO and cofounder of year-old, Austin-based Dropoff, a same-day delivery service that’s targeting small and mid-size businesses that don’t necessarily want their sensitive documents being delivered by a harried bike messenger who has other places to be. Customers pay a bit more than they might to a traditional courier company but they get a high-touch service in return, from screened “agents” to a slick mobile app that providers customers real-time tracking and the ability to rate their messenger, among other things.

The company, which is launching today with $1.85 million from Austin Ventures, Silverton Partners, Mucker Capital and others, says it’s targeting an underserved niche in the $8.7 billion same-day delivery market. While it’s making food deliveries, for example, it isn’t dropping off sandwiches to office workers but rather hauling over the catering to the 200-person office party. While it’s delivering flowers, its messengers aren’t bringing them to consumers’ doorsteps but to wedding venues.

Still, Dropoff — which has made “thousands” of same-day business-to-business deliveries since it began testing its service in spring — has a good many competitors, including 39 that are listed on AngelList alone. I talked yesterday with Spector — who previously cofounded the online game rental service Gamefly — about how Dropoff breaks through the noise. Our chat has been edited for length.

How many employees do you have? Are your messengers full-time employees? How are they paid? And who owns their modes of transport?

We have 16 full-time employees, across marketing, finance, technology and sales. Our couriers are independent contractors who get a percentage of each delivery. Most of them work a full day, eight hours, seven days a week and they can earn $20 or more per hour. They own their own bikes, cars, and vans, which we use depending on the speed required of the delivery and its size; they also [pay for their] own insurance, though we [provide them with additional] insurance. All are thoroughly screened and vetted and arrive in uniform.

You’ve chosen a tough business to enter. Everyone is jumping into same-day delivery.

It may seem that way, but once you look behind the curtain, it’s very different, what we’re doing. If you think about sensitive documents, expensive medications, floral arrangements for a big wedding, different types of mission-critical things that need to be delivered and tracked, it’s a whole different process.

How do you come up with your rates?

We did a ton of research to understand how the current industry works, then modified it based on what makes the most sense for our model. But loosely, it depends on how quickly you need something, the distance we’re traveling, and the weight of what we’re delivering.

I want catering trays, I’m five miles away and I want them in two hours.

It will cost you under $20.

You raised $1.85 million in April, though you’re just announcing it today, and you have plans to expand nationally from Austin. Are you actively seeking an A round yet?

It’s fair to say we’ll be in the market in 2015.

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VC Erik Rannala on the “More Cautious” L.A Startup Scene

erikrannalaL.A. has been receiving a lot of attention from investors lately, as local venture capitalist Mark Suster enthusiastically observed in a detailed overview of the market yesterday. Indeed, as Suster noted, SVAngel’s David Lee and early Twitter investor Chris Sacca are among a small but growing number of investors who’ve relocated to L.A. to capture its upside.

Erik Rannala certainly gets it. Rannala was a product manager at eBay who went on to spend nearly three years running the seed-stage firm Harrison Metal with his former eBay colleague Michael Dearing. The gig, in Palo Alto, was great. But when another former eBay colleague, Will Hsu, proposed working together in L.A., where Rannala’s wife grew up, he leapt at the opportunity, forming the L.A-based accelerator MuckerLab with Hsu in 2011. (The two have since raised a $20 million seed fund called Mucker Capital.)

As far as Rannala is concerned, there’s a lot of love about the L.A. scene. For one thing, entrepreneurs are “more cautious with their burn because capital isn’t nearly as plentiful in L.A. as in the Bay Area, or even New York.” He likens their mindset to someone “growing up during the depression . . . even when you eventually have infinitely more capital, it’s harder to shake the frugality that was learned the hard way in leaner times.”

Many entrepreneurs in the Bay Area “haven’t experienced that,” he notes.

Valuations are also “more reasonable,” Rannala says, insisting that “dollar for dollar, you’re getting more for your money down here than in the Bay Area at the top of the cycle.”

Rannala thinks it’s a little easier for L.A. entrepreneurs to escape the groupthink of Silicon Valley, too. “We’re seeing a lot of entrepreneurs here who are looking at existing industries that are getting software enabled [and figuring out how to expedite their transition] rather than doing purely derivative things like social,” though there’s plenty of that, too.

As an example, Rannala points to Santa Monica-based Surf Air, a members-only airline that offers unlimited flights for a $1,750 a month. The venture-funded company started flying last year with three used single-engine turboprops that seat seven passengers. It recently ordered 15 new Pilatus PC-12 NG aircraft. (*MuckerLab wrote the company’s first check. Surf Air has gone on to raise $18.8 million altogether.)

Everything said, Rannala, who still travels regularly to the Bay Area, is trying to be pragmatic about L.A.’s boom times. Though he doesn’t think for a minute that “LA is a flash in the pan” – for a long list of familiar reasons, he argues that the tech ecosystems in both L.A. and New York “are not short-term phenomena” — he also notes that a “shortage of indigenous local capital up and down the stack,” could mean problems if the market turns.

Bay Area investors are “inclined to invest outside the Bay Area right now, particularly when it comes to companies that are further along,” Rannala observes. “It’s [to be determined] how this evolves when we’re at the bottom of the cycle.”

*An original version of this story reported that MuckerLabs was not an investor in Surf Air. Apologies for the mix-up.