DoorDash Shrugs Off Tipping Controversy, Raises $400 Million

(Bloomberg) -- In the last month, a pair of food delivery startups were battling complaints about their tipping policies. Customers and workers chastised the companies for unfairly using tips to subsidize worker pay. As the furor grew, one of the companies, Instacart Inc., changed its compensation policies to match some of workers' demands.

Meanwhile, the other company, DoorDash Inc., stood firm. It still uses tips from customers to offset some of the minimum payment that a worker gets for each delivery job, in which “Dashers” travel to restaurants or stores and bring food to customers. That decision apparently hasn't harmed DoorDash's reputation in the eyes of investors. The company said on Thursday that it received a new round of funding that values it at $7.1 billion.

In an interview Thursday to promote the investment, DoorDash Chief Executive Officer Tony Xu defended the tipping practice, which has been in use since 2017. Xu said internal data show that under the current pay model, Dashers stay on the platform longer, are more satisfied with their jobs and make deliveries in a more timely manner. He blamed recent backlash on Instacart's implementation of its own policy.

“We've had this around for two years now, and it's unfortunate that the activities of others have mischaracterized what we've been doing for two years,” he said. “There was no coverage of this two years ago. But all of a sudden there's coverage because of an experiment that another company ran.”

Investors haven't been deterred. Dragoneer Investment Group and Singapore's state-owned investment firm, Temasek Holdings Pte, together led the new $400 million investment in DoorDash, the company said. The $7.1 billion valuation is up from $1.4 billion less than a year ago. The deal caps an eye-popping year of fundraising for DoorDash, which raised $535 million in March and $250 million in August.

DoorDash is racing against bigger names, such as Grubhub Inc. and Uber Eats, in a market where companies are ready to burn billions of dollars to win. Postmates Inc., another food-delivery company, has said it plans to go public this year.

The tipping controversy ignited after Instacart workers coordinated with labor groups to raise awareness of the issue, which the grocery delivery company had put in place last fall. This month, Instacart reversed course. It said it would separate tips from guaranteed pay and grant back pay to all workers for the months the policy had been in place.

Despite pressure on DoorDash to follow suit, the company said it would stick to the current policy. In the interview Thursday, Xu said, “100 percent of tips go to Dashers.” That's an oft-repeated line from the company but one that doesn't tell the full story. “In no way does DoorDash benefit economically from this model,” Xu added.

But when a customer tips a Dasher through the app, that money is used to offset the amount that DoorDash would otherwise pay directly to that worker. And that happens often: DoorDash told Fast Company last week that in 85 percent of orders, the customer leaves a tip.

Worker advocates say DoorDash is misleading customers. In many cases, a 15 percent tip results in no additional pay for a delivery worker compared with what DoorDash would otherwise pay. “Nobody thinks they are tipping DoorDash when they place a tip,” said Sage Wilson, a spokesman for Working Washington, which helped plan the Instacart tipping campaign. “Their policy is pretty transparently deceptive.”

To contact the editor responsible for this story: Mark Milian at mmilian@bloomberg.net, Anne VanderMey

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