By Aron Solomon
Last month, Instacart, a market leader in consumer grocery home delivery, announced that it has confidentially filed for an IPO with US securities regulators. As FOX Business reported, Morgan Stanley and Goldman Sachs are advising Instacart in their IPO strategy and filing.
Instacart filed confidentially to avoid, at least for now, some of the scrutiny that comes with the public filing, which can be delayed until closer to the anticipated IPO date near the end of this year.
The timing of this raises some eyebrows, as the current market conditions are less than ideal for an IPO filing. Yet Michael Epstein, a New Jersey lawyer, argues that this may be a very well-conceived IPO decision:
“Timing for the Instacart IPO may not be as suboptimal as it appears. Any service that has worked its way into the fabric of so many people’s lives over the course of the pandemic is well-positioned for a phase of dramatic growth.”
The apparent reason for filing confidentially at this point is one that many high-profile startups share as they consider an IPO: their shiny unicorn reputations in startup land don’t always align with their actual numbers. Instacart will eventually need to publish their S1, which is the registration that Instacart will need to file with the Securities and Exchange Commission (SEC) as a prerequisite for going public. This is generally done at least six months before an IPO happens, so if the rumored dates of a very late 2022 IPO are accurate, the S1 would need to be filed in the next month.
In March, Instacart announced that it was dramatically slashing its valuation from $39 billion to $24 billion. The new valuation helped better position the company for their IPO as they could offer equity to existing and new employees at a cad better price. Being able to incentivize a team of a scaling startup in this way can turbocharge growth.
But the numbers aren’t terrible at all, which runs counter to speculation that the company chose to IPO rather than consider a down round, in which they would sell new shares at a lower price than they had sold shares for in the previous financing round. As Barron’s reported in March, Instacart’s 2021 revenue was up $300 million from the previous year to $1.8 billion. More importantly, reducing their valuation positioned them perfectly and helped lay the foundation for the IPO:
“At $24 billion, Instacart is valued at about 13 times trailing year sales; that compares with eight times for DoorDash on the same basis, or 18 times for Shopify.”
This entire IPO is built on the premise that after the pandemic, many consumers will retain certain habits they feel benefited them during the pandemic. Instacart hopes to bank on one of these habits being the ease and time savings that come with using their services. Ultimately, this may be a good bet as companies that have been defined by the pandemic, such as Instacart, had no choice but to get bigger, faster, and stronger, which at least Morgan Stanley and Goldman Sachs feel they did.
A successful Instacart IPO is important not only for Instacart but also for the startup community. With so many food-related businesses having failed during the pandemic, this would be the success story that could help spark a rebound.
Before 2020, Instacart struggled with business model problems and what some perceived to be a stagnation in their executive ranks. Founded by former Amazon engineer, Apoorva Mehta, Instacart’s creation motivated Amazon’s purchase of Whole Foods. Yet last year, a new CEO, Fidji Simo, was brought on to set the company on the path to this IPO.
Instacart isn’t without challenges for the rest of this year, as they need to find ways to meet challenges in a tightening labor market and deal with ongoing global instability that affects consumer prices and supply chains.
Yet the perfect storm of a $265 million financing round last spring, a new CEO last summer, and a pandemic that has lasted far longer than we had anticipated, has Instacart well-positioned for an IPO. Whether late this year or early next year is the optimal timing remains to be seen but absent a sea change in how consumers want to consume, Instacart is poised to seize a moment that they may not have created but once in which they made their presence felt.
About Aron Solomon
A Pulitzer Prize-nominated writer, Aron Solomon, JD, is the Chief Legal Analyst for Today’s Esquire. He has taught entrepreneurship at McGill University and the University of Pennsylvania and was elected to Fastcase 50, recognizing the top 50 legal innovators in the world. Aron has been featured in Forbes, CBS News, Crunchbase, Variety, CNBC, USA Today, ESPN, TechCrunch, The Hill, BuzzFeed, Fortune, Venture Beat, The Independent, Fortune China, Yahoo!, ABA Journal, Law.com, The Boston Globe, NewsBreak, and many other leading publications.
Image by 123RF