Instacart IPO Boom or Bust: Hot Takes from Ben Pidgeon

Sep 22

I have to admit to being fascinated by the machinations around last week’s Instacart IPO.

Given the dearth of IPOs in 2023, Instacart’s IPO is a big deal. Prior to the deal, Instacart had raised more than $2.9 billion in funding over 10 years and 20 rounds. It’s a testament to the grit and determination of the Instacart team and to the staying power of its investors.

There is a caveat. According to Axios, many investors would have been better off just putting money in an S&P 500 index fund. Instacart’s valuation just prior to the IPO was priced $9.3 billion. That’s down sharply from a $39 billion valuation in March 2021. Ouch!

Here are my hot takes on Instacart’s IPO, which is off to a bumpy start.

Observation 1: Building value takes time.

Instacart was founded in 2013 and completed its IPO in 2023. That’s a decade of hard work. As of September 22, 2023, the company had a market cap of $8.31 billion (more on this later). It’s important to remember that for every Instacart, there are many other companies that fail, many fail sooner and some later.

Kudos to the Instacart team for sticking with it and building a successful company. It’s not easy, but it’s definitely worth it if and when you achieve your goals.

Observation 2: Annual revenue and growth rate.

Instacart’s revenue increased nearly 40% to $2.55 billion between 2021 and 2022. That’s impressive growth, especially for a company of Instacart’s size. The company has a large and growing addressable market, and there’s a belief that it’s well-positioned to capitalize on the shift to online grocery shopping.

Revenue growth solves a lot of questions around product market fit and is rewarded in the market AND founders, investors and boards should be conscious about capital efficiency.

Observation 3: Bumps in the road.

Of course, no company’s journey is smooth. Instacart has had its share of bumps along the way. For example, the company was sued by the California attorney general in 2019 for allegedly misclassifying its workers as independent contractors. Instacart overcame this challenge and others and emerged stronger. It’s now one of the leading players in the online grocery shopping market.

Observation 4: Who made a winning bet?

Earlier investors in Instacart are definitely the winners in this IPO. Investors (likely before 2015) are now pretty happy with the outcome.  Sequoia led the Series A in 2013 at $0.24 per share. Later investors (after 2015) paid $125.00 per share in the infamous March 2021 funding round, which valued the company at $38.5 billion.

Brick-and-mortar grocers in the United States accounted for 85.3% of total grocery sales as of January 2023, so 14.7% came from on-line, which includes categories like click-and-collect and delivery. You need to believe that convenience will drive adoption in this market for it to expand.

Observation 5: Signal the IPO market may be returning.

The Instacart IPO is a sign that the IPO market may be thawing. After a slow start to the year, we’ve seen several high-profile IPOs in recent months. This is good news for investors, as it means the path for generating liquidity via M&A or IPO activity may be opening up. 

Observation 6: Smart or lucky.

Instacart clearly benefited from the COVID pandemic. No matter how much diligence an investor could have completed, COVID was a six-sigma event in the way it benefited Instacart. Instacart went from losing $300 million the year before COVID to turning a profit in April of 2020. COVID made Instacart an essential app. This team was in the right spot, at the right time, with the right offering.

What was the perspective of an investor in 2013 who made an early bet in Instacart?

An investor who bet on Instacart in 2013 was taking a big risk. The company was new, the online grocery shopping market was unproven, and there was no guarantee that Instacart would be successful. But the investor saw potential in the CEO’s vision. They believed that Instacart could revolutionize the way people shop for groceries.

Eventually, the investor was right. Can you imagine the outlook for this company in December 2021? Instacart has become one of the leading players in the online grocery shopping market. The company is now worth billions.

Even if you’re not an Instacart user, you should still be excited about the company’s IPO. Instacart is a leading player in the online grocery shopping market. The growth of online grocery shopping is a trend that investors need to continue paying attention to.

If you’re an Instacart user, I salute you. If you’re lazy like me, you can use technology to make your life easier. I just signed up for Instacart. So in that regard, I may be a laggard in technology adoption, but I do see the appeal of Instacart. It’s a convenient way to get your groceries delivered to your door. And it’s especially helpful for busy people or those who have difficulty getting to the grocery store.

Some advice:

If you are an entrepreneur or innovator, listen to your customers, keep building and have conviction around the problem you solve.

If you are an investor, keep your expectations realistic, keep taking risks and find conviction.

Would you like to learn more about VisionTech Angels? Reach out to Executive Director Ben Pidgeon here.