As the restaurant industry tries to bounce back after a disastrous 2020, we’re likely to see a Boston tech company that supplies it with hardware and software go public.
That company is Toast, founded in 2012 — but for now it’s not talking.
Following a Wall Street Journal report in February that Toast was meeting with investment bankers to get ready for an initial public offering that might value it at $20 billion, just about everyone at the company, people close to it, former employees, and investors has been tightlipped. After multiple e-mails to the company’s founders, Toast spokeswoman Karen DeVincent-Reinbold, told me that they’d “love to catch up later in the year.”
But the story of how Toast steered through the turbulence of last year can’t wait.
I first wrote about the startup in December 2012, when cofounder Steve Fredette met me for lunch in Kendall Square and showed off a system that allowed customers to see their checks on a mobile app, split the bill based on what each ordered, and pay without waiting for the server to make several trips back and forth to the register.
That initial concept grew into a company that supplies a wide range of technology to restaurants, including for scheduling and paying employees, selling gift cards, and handling payments for online and in-restaurant orders.
Toast also sells Android-based hardware of its own design, such as hand-held devices that servers use to take orders and process credit card transaction, and screens that display those orders in kitchens.
Along the way, Toast has been forced to compete with other sharp-elbowed startups such as Square, as well as more-established players such as NCR (founded in 1884 as the National Cash Register Co.) and Oracle.
Toast has done a bang-up job of raising money from investors, starting with New Hampshire entrepreneur Steve Papa. In the early 2000s, Papa ran a Boston-area software company called Endeca, which Oracle acquired in 2011 for just north of $1 billion. Toast’s three founders and its CEO all worked for Papa at Endeca. In the years since Papa bankrolled the company, Toast has raised roughly $900 million. The most recent shot of it, $400 million, came in February 2020 and involved Bessemer Venture Partners, a venture capital firm with an office in Cambridge. Bessemer provided office space for Toast when the company was taking shape, and partner Kent Bennett sits on Toast’s board.
Prior to the pandemic, Toast was the typical “go big or go home” startup, seeking to get its technology into as many restaurants as possible. Its revenue grew more than 100 percent in 2019, but Toast wasn’t profitable.
As cities around the world shut down in March 2020, Toast’s ability to sign up customers flatlined.
“We didn’t have a lot of time to prep at all,” says a former manager, who requested anonymity because of severance terms. “Everyone just stopped buying.”
After spending most of the past eight years trying to hire employees in Boston’s hypercompetitive talent market and in other US cities, Toast decided in early April 2020 to lay off half of its staff — about 1,300 people. Some groups, including the “talent acquisition” team, went from more than 70 staffers to five, says Loren Boyce, a former Toast employee who survived the layoff but left at the end of 2020.
Good CEOs “make decisions quickly,” says venture capitalist Michael Skok. “There’s no advantage in waiting.” Skok got to know Toast CEO Chris Comparato at another startup that Skok had funded, but he has no financial stake in Toast.
“They were quick to assess the potential for a downturn,” Skok says. “They laid off people and reorganized and got focused on what they could do. That was impressive.”
Skok says Toast’s leadership team also talked to customers about what restaurants were going through and what help they needed to support more online and mobile orders, curbside pickups, and deliveries. “Once he got that data,” Skok says, “Chris and the team really made it their true north.”
Toast had already launched Toast TakeOut, an app that allows customers to order directly from restaurants, part of its focus on cashless transactions. But with the pandemic, “it seems like they were very quickly able to bring those things to the forefront,” says the former Toast manager. “It’s hard to do at a company that size, being able to accelerate some of those things.”
Toast also made it possible for restaurants to connect to delivery services such as DoorDash to get meals to customers, allowing them to pay a flat fee for each delivery, rather than a percentage of the order.
Toast benefited as restaurants handled more online orders in 2020, because it collects a transaction fee from credit card payments. Skok says that to outsiders Toast may look like a company selling hardware and software, but it’s “almost a fin-tech company,” referring to a startup oriented to financial services.
It may also have helped Toast when restaurants expanded outdoor seating. It became harder for servers to travel back and forth from tables to inside registers, which made some restaurants more inclined to buy Toast’s hand-held devices. Those allow customers to see their tab and pay immediately with a credit card — or with a mobile phone using a digital wallet like Apple Pay.
Over the course of the pandemic, Toast has encouraged consumers to support local restaurants, and it put up $250,000 in matching funds to help restaurant workers through its philanthropic arm. It also made it easier for Toast customers to use its software to apply for funding from the Small Business Administration’s Restaurant Revitalization Fund.
“Toast did a really good job of building a customer-first culture,” says Rohit Shenoy, a former manager at Toast and founder of Hone Technologies, a startup that assists restaurants with bookkeeping. And, he adds, the company “hired a lot of people from the restaurant industry, so we had the empathy and understanding of how restaurants operate — and could speak their language.”
So when will Toast go public?
Skok, the venture capitalist, says “they’re not driven by a Sword of Damocles issue” and don’t need to make a public offering happen on a specific timeframe. But several other people expect Toast to try to take advantage of the market’s current openness to tech IPOs.
Today, Toast is back in hiring mode; its website advertises nearly 250 job openings, from California to Boston to Dublin. But big issues it is grappling with are chip shortages and other supply chain snafus related to building Toast’s hardware products, such as digital cash registers and Toast Go devices.
“We don’t want hardware to be a limiting factor” for growth, says Papa, the investor and Toast chairman.
The past year was not easy at all, Papa says. Toast’s employees “had to adapt and change” to help restaurants quickly figure out how to serve customers in a more digital way.
Pre-pandemic, “that was a ‘nice-to-have,’ Papa says. “Then it became a ‘must-have.’”