Sweetgreen last month raised $150 million, which is a lot—until you consider that it wasn’t even its largest fundraising announcement in the past year. That round followed a $200 million investment 10 months earlier.
It’s the total raised and the company’s valuation that stand out, even in a restaurant business that in recent years has attracted enthusiastic investors who have largely thrown traditional valuation metrics out the window.
According to financial services site Sentieo, Sweetgreen has raised nearly $479 million since 2009, the vast majority of which came in those two aforementioned rounds. That has given the chain a valuation of $1.6 billion.
For the Los Angeles-based company, that’s a hefty sum. It’s particularly large when you consider that Sweetgreen has just about 100 locations, all of them leased. Investors, in other words, are giving the company a valuation of about $16 million per location.
To be sure, investors aren’t putting their money into what the chain is now, but what they think it will be. They are betting there will be a sizable number of Sweetgreen locations spread across the country in the coming years. And they’re also betting that the company’s ability to find new and innovative ways to deliver its food to customers will be a game-changer.
As we’ve written before, investors are willing to pay top dollar for chains that have loyal customer bases and innovative, preferably technology-infused offerings. It helps, though is not a prerequisite, that the company has a takeout strategy.
Even in that sense, however, Sweetgreen’s fundraising abilities are impressive. Venture capital of the type that the company has been able to raise has generally been nonexistent in the restaurant industry until relatively recently.
The Los Angeles-based company’s ability to raise that much cash makes it more like a tech company than a restaurant.
As we’ve seen with the delivery sector, technology companies fuel their growth differently. Investors eagerly pump funds into a company and help it build a market. They fund losses to help these companies build their business. Ultimately, the companies hope someone comes along to give them an exit strategy, either in a buyout or, more likely, an initial public offering.
Many of Sweetgreen’s early investors came from the technology sector rather than restaurants, including Revolution Growth, the fund started by former America Online CEO Steve Case.
And Sweetgreen definitely operates differently. More than half of its customers order digitally. It has acquired a meal kit delivery company. It has launched designated pickup areas called Outposts that could make delivery even more efficient.
The company also has a loyalty program that apparently will give customers a $45 gift bag if they spend $2,500 at the chain over the course of a year—about three salads per week.
As otherworldly as Sweetgreen’s valuation is, however, it’s not entirely out of line. For comparison’s sake, we looked at Shake Shack, which went public in 2015.
The company has an enterprise value of about $3.5 billion, according to Sentieo. That’s about $25 million for each of its 140 company-operated locations. Much like Sweetgreen, those locations are leased.
That said, some of that valuation is tied into its licensed units, which account for another 97 in the U.S. and internationally. Shake Shack is also publicly traded. Being one of the few growth companies available to equity investors has given it something of a premium.
Shake Shack also has average unit volumes that are more than twice those of Sweetgreen. According to Technomic, Shake Shack volumes were about $4.4 million, versus about $1.8 million for Sweetgreen.
The biggest risk for Sweetgreen and its investors is the business itself. The restaurant industry is far more competitive than technology, and consumers are fickle.
Sweetgreen will have to fend off competition and will need to thrive in markets beyond the urban areas that have been its bread and butter over the past several years.
If the company’s fundraising and growth model work, however, then Sweetgreen and its initial investors will have proven a completely different strategy in the restaurant industry.