Instacart's IPO teaches tech unicorns a key lesson — don't wait
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Instacart is expected to make its public debut next week, with a filing on Monday showing the company could be valued at up to $9.3 billion.
Back in 2021, the company was valued at $39 billion.
And though the company has seen its valuation taken down at several points over the last two years, the biggest lesson this headline discount teaches other tech unicorns on an IPO track is that they should not delay in going public.
The hard work of running a public company is about navigating the ebbs and flows of markets and the economy that are well beyond any management team's control. Better to get the process going early to avoid periodic distractions about potential future exits.
Now, in many ways, the Instacart going public today is a better business than the one that raised money at a valuation four times higher two and a half years ago.
In the first half of this year, revenue at Instacart totaled $1.48 billion while gross margins reached 75%, putting full-year revenue on track to rise about 60% from the $1.83 billion seen in 2021 while margins are up 8 percentage points.
But back in 2021, Instacart was riding the tailwinds from a pandemic that had dramatically shifted shopping habits, consumers that were flush with cash, and a low interest rate environment that boosted valuations across the investment universe.
Two years later, shopping habits have normalized — Instacart's total orders grew less than 1% in the first half of 2023 when compared to the same period in 2022 — and interest rates have risen aggressively.
All else equal, higher rates mean lower valuations. And few periods in market history have seen future growth discounted as aggressively as we've seen over the last two years.
Investors discounting future growth, however, doesn't make public markets entirely inhospitable to slower growers. It merely adds a constraint on management teams that might otherwise wave away shifts in the landscape were they not held to daily marks.
Take Instacart peers and fellow pandemic-era winners Airbnb (ABNB) and DoorDash (DASH), for instance.
Both companies made the leap to go public in late 2020. And both companies saw their shares rise sharply before correcting hard in 2022 as interest rates rose.
In 2022, Airbnb fell about 50% while DoorDash stock lost nearly 70% of its value. And DoorDash is still down more than 50% from where it closed on its first day of trading, while Airbnb has fared better, rising about 5% from where shares closed on their first day of trading. This year, both stocks are up more than 70%.
Airbnb, DoorDash, and their leadership teams are now entering a third year facing the quarterly scrutiny of Wall Street. Recruiting, retention, planning, and other functions can all look quite different when there is a real-time value assigned to your business rather than an intermittent, loosely held mark from a venture fund or any other institutional investor.
And while the grind of quarterly earnings reports is often maligned as a distraction, so too is keeping employees and investors in limbo about when an exit might finally come.
Instacart raised money at its peak valuation in March 2021, just months after the public debuts of Airbnb and DoorDash. Its CEO, Fidji Simo, was named to the role in July of that year.
At the time, coverage of Simo's appointment was already focused on what her role would be in taking the company public. Simo joined from Meta Platforms (META), which was then known as Facebook, and had been at the social media giant during its IPO in 2012.
"Facebook's IPO was just a moment in time and what happened afterward was really what mattered," Simo told Reuters, "which is delivering a lot of value to people and that is really what I am going to be focused on."
Unlike the distinct moment that is a company's IPO, however, the challenge of actually running a business never goes away. All the more reason to get the process over with — there's real work to be done.
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