TCT Exclusive: Pradeep Elankumaran, Co-Founder/CEO @ Farmstead

We’re thrilled to announce this week’s exclusive with Pradeep Elankumaran, Co-Founder and CEO of Farmstead! An engineer at heart, Pradeep served in a variety of product and engineering roles across monetization (Yahoo!) and growth (Lyft) before going on to found Farmstead in 2016. A 2x YC founder, Pradeep is no stranger to founding companies, raising money, and building incredible products that customers love. We sat down to talk all things cap table related, including:

Pradeep (right) pictured with co-founder Kevin Li (left). Photo Credit - SFBT

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TCT: How did you start out with regards to your career?

I studied Physics and Astronomy in college with a focus on computational astrophysics. This turned into an interest in writing code, and I started my tech career as an intern at a now-defunct search engine in Washington DC. After that, I joined an engineering consulting firm as their first employee writing code for multiple other companies, getting my first taste of how startups were executed. 

Next was my first YC startup with a focus on photo sharing and printing, which was acquired by Lyft where I ran their driver growth product team reporting to their CEO, helping them grow new markets.

I then transitioned into the Yahoo Growth team a year before they sold to Verizon, helping them ship a new silent-video messaging product called Livetext, and also worked on early technology to stitch together live video with digital ads.

You’re the co-founder and CEO of Farmstead, an AI powered farm to digital doorstep grocery delivery startup. Despite joining a market that is already dominated by companies like Instacart and Walmart, you are confident Farmstead can succeed. Can you tell us more about your business model and approach in taking on this market?

Farmstead started after my daughter turned two, had a crazy growth spurt and kept drinking enough bottles of milk that I had to spend hours at supermarkets each week. My co-founder Kevin Li & I are technical enough to really dislike doing the same things over and over manually. There were no viable solutions, and we wanted to solve this problem once and for all. 

We posted on Nextdoor in Mountain View asking if anyone was interested in a weekly milk/eggs/yogurt/bread delivery service. In two days, two hundred people said yes. After we spoke to most of them, it became clear there was a huge unserved, hidden market. 

The majority of customers in the trillion-dollar grocery space are what we call “mid-market” shoppers. They typically shop at Safeway, Kroger, Wegmans, Trader Joe’s. Sometimes they shop at Whole Foods, and other times Walmart. They usually have tight weekly budgets of ~$100 and have a very hard time breaking that budget. They don’t care for fees and have been well-trained by traditional e-commerce to expect no delivery fees. These customers have historically never had great online grocery options that helped them keep to budget, which is actually the primary reason that online grocery was pre-COVID about 5% adoption.

In order to get this trillion dollar space online, we have to deliver them the promise of e-commerce, but specifically for grocery — lower prices than stores, free delivery to doorstep, and a perfect experience every time with no other fees. Very difficult.

When we launched, the unit of scale for online grocery was the supermarket, a very difficult entity to deliver profitable e-commerce orders out of. Supermarkets don’t have strong digital inventory control (if any), which leads to out of stock issues on food you want to buy. They also have a store map geared towards retail shoppers, not e-commerce order production. Worse, they are not run by operators who understand last-mile delivery dynamics well. Online orders out of supermarkets tend to be deeply unprofitable, with a customer experience that’s unsatisfactory.

Instead of stores, Kevin and I decided to vertically integrate all the components of a perfect online grocery experience. We leased smaller-format warehouses and orchestrated orders using custom software we wrote just to solve this problem. Our code is designed to work with perishables smartly, and orchestrates inventory control, supply sources and quality-assurance so our team members can pick and pack you a perfect order each time. Then we connect drivers who deliver to you and to your neighbors at the same time on batched delivery routes, for free. Finally, we kicked off marketing using digital performance ads, which started the flywheel of growth and stellar retention.

Customers now get the same prices as the store, don’t break their budgets with additional fees and start coming back to our “Weekly” milkman-like program, getting deliveries once a week with full flexibility. 

As the number of customers increase, the data provided by their usage and our inventory control allows us to cut down food waste dramatically at these locations — under 5% relative to supermarkets’ 35% — and drive efficiency and profitability. 

Our new unit of scale for online grocery, the “Farmstead hub” can be spun up rapidly and inexpensively. We connect digital demand to each hub, and are opening at least 15 new markets in the next 12 months. 

As customer expectations refine in the next few years, our data and product-led approach to online grocery is well-poised to attract and retain customers nationally.

You’ve noted that the pandemic has accelerated the adoption of grocery delivery by 2-3 years. What other trends do you see consumers adopting in the near future with regards to groceries, delivery and food?

Cutting down food waste at home has historically never had data associated with it. Buying food online means your behavior patterns are more visible to you whether implicitly or directly by using digital products (and also can be productized), helping consumers make better choices on what they buy and when to eat it.

There are new products hitting the market that help track body metrics. I’m a big fan of Levels and Whoop, for example. The data provided by these apps tied to food purchasing decisions can lead to a very personalized experience. Tough to accomplish this when you’re shopping at supermarkets, but a lot easier to accomplish when metrics data is tied to digitized shopping carts for food.

I’m expecting that with better access to information tied to their new digital food purchasing experiences, there will be a renewed focus from consumers on learning more about where their food comes from, along with the impact and ethics of food production.

You recently raised a $7.9M Series A in November, with Aidenlair Capital leading the round. What was the fundraising process like? What advice would you give to Seed Stage founders thinking about raising their Series A?

Farmstead sits at the intersection of food, delivery and tech and is years ahead of the grocery industry. Until recently, we’ve had to educate the market on why this space mattered and how we are going to grow the business. Each fundraise is an exercise in expanding our network until the right combination of new partners are added to the cap table, specifically to help navigate the next stage of growth. For seed stage founders, the Series A raise is all about showing with metrics and narrative how you can reach your next (hopefully much broader) growth period.

You previously led mobile video monetization and Livetext at Yahoo & managed the driver growth product team at Lyft. How did your experience in Growth & PM (Product Management) roles help prepare you for being a CEO? 

Product Managers are organizational leaders. The best leaders build incredibly talented, well-adjusted teams and trust them to push their own limits. This is a tough skill to learn, internalize and put in practice. However, once it’s unlocked, it has a disproportionate impact on not just the team’s results but your personal ability to amplify those results. 

You’re a 2x Y Combinator alumni (S11, Kicksend & S16, Farmstead). What advice would you give to founders considering getting into YC in 2021? 

Focus on your customers first. Learn as much as possible about them and what they need. Build rock-solid relationships with your co-founders. The YC application writes itself after that. 

What are you passionate about outside of work?

I’m an outdoors person. I solo backpack, camp and make landscape photos. I spend many hours a day reading, with a bias towards fiction. I spend as much time as possible with my children.

You seem like a busy person. How do you stay organized? What are your favorite productivity hacks?

With two small children, timeboxing my day is mandatory. All tasks are marked as events on my calendar. I automate repetitive tasks with code whenever possible. A low-tech hack, I leave a Casio watch on my desk with an hourly beep as a reminder for when attention strays.

Switching gears a bit. Have you made any angel investments? If so, how would you describe your own thesis as an angel investor?

I’ve invested in Spin, OneFin, Tizeti and a few others. My decision to invest is directly a function of the strength and formidableness of the founding CEO at that point in time, the health of the partnership between co-founders along with the total addressable size of their market (the bigger the better) irrespective of geography.

What’s your secret for getting on the cap table? 

I don’t usually invest, but when I do, I tend to be one of the very first checks in at the pre-seed stage.

At this stage, I try very hard to be the investor I really wished I had when I was in that position. The speed of my process (I usually decide within hours after an intro call, if not on the call itself), my ability to connect strong founding teams to further seed capital and my offer to help them navigate upcoming challenges as a founding team is what I focus on.

After the initial fundraise, I do my best to drive high-value intros into their inboxes at various stages of the business.

What’s your biggest cap table “mistake”?

If you believe in the company, exercise your pro-rata every time it’s offered to you.

The year is 2030. What’s the state of the grocery industry?

Hardware and software will be much more prevalent, and the need for humans required at every step of the food supply chain will be greatly reduced. Grocery is a prediction game — from producing food down to preparing meals, systems interlock with other systems, cutting down costs to consumers and delivering an experience tailored to each individual. The incumbents who are building the infrastructure for this right now will be the ones winning in 15 years.

Follow Pradeep on Twitter (@pradeep24) for more insights into all things food tech, startups and fundraising!

Sources: Crunchbase, Twitter, LinkedIn