One of the latest tech startups to get a footing in Baltimore is Foodem, a website started by a University of Maryland College Park grad a few years ago that aims to build a transparent marketplace for commercial food buyers and distributors.
Kash Rehman, the founder of Foodem, has been on both sides of the equation in the food industry: he's worked for a small food distributor in Maryland and he's also run his own restaurant in College Park.
Here's what Rehman, 35, learned along the way. As a restaurant buyer, he needed to spend an hour by phone comparing wholesale prices for food (think chicken tenders) by calling different distributors and haggling prices. He needed to do this twice a week, four times a month, to save about $2,400 a month in food costs just by shopping around.
While working for a food distributor in Laurel, on the other side of the coin, he learned that he needed to build out a sales force to support food distribution sales, and their pay was a part of the total customer acquisition cost, of around 6 to 8 percent.
Rehman believes Foodem can be a real-time online marketplace where distributors can save on their new-customer acquisition costs, and restaurants, hotels, and other large buyers of food, can save by buying in bulk from a variety of distributors. Basically, you can plug in your complex food order on Foodem and source it from multiple distributors with one click, Rehman said. Foodem would charge distributors 2 percent of sales they complete to buyers, less than the 6 to 8 percent cost of doing business they currently experience, he explained.
So, here's where this company is currently at: Rehman just got a $75,000 convertible note from TEDCO, the quasi-state agency that supports tech companies in Maryland. He's looking to build out a version 2.0 of Foodem by November.
He's already invested $200,000 of his own money in version 1.0 of the site. He's put together a team of four people, doled out equity stakes to them, and, aside from the TEDCO grant, has been bootstrapping it with his team. They recently moved to the Emerging Technology Center in Canton.
Rehman said it took him a long time and many interviews with prospective partners to build his current team and to motivate them with equity stakes. This is not easy to do in this region, where talented tech people have plenty of employers throwing money at them.
So here is where we get down to brass tacks:
Rehman pumped in $200,000, which is money he says came from selling his restaurant business. Rehman, who is of Pakistani descent, spent $125,000 to hire an Indian software firm to build his version 1.0 of Foodem. He had received estimates from U.S. based firms to build his site that ranged from $250K to $500K.
He couldn't afford that, so he offshored version 1.0 to India.
"Nobody wanted to build this for equity, that's why i had to build it in india," Rehman said.
Now, with version 2.0, he has a vice president of engineering and chief technology officer -- with equity -- who are building the back-end of the web site (the programmatic stuff that website visitors don't see behind the scenes) and a U.S. company that is building the front-end (the user-interaction front-facing side of the site.) He estimates that about 25 percent of the Version 2.0 project is being offshored to an Indian firm, which is building "anything in the middle" on the website, from search functionality to ad-serving integration.
I asked Rehman if he saw a problem with TEDCO of Maryland funding website development that was being done, at least in part, by an overseas firm. He said he didn't think so, because building the site is costly and the majority of the financing is staying in the U.S. while future jobs, such as sales positions, will be U.S.-based, he said.
I called up Rob Rosenbaum, the executive director of TEDCO, and he said this type of scenario isn't his "first choice," but it's the "current reality of the software industry."
"Ultimately what's going to happen is [Rehman] is going to generate local sales and generate local commerce that goes through the site," Rosenbaum said. "We still see plenty of economic development" coming from the growth of a business such as Foodem, he said. "He's supporting local farms, local restaurants."