Sequoia Capital and Andreessen Horowitz, two of Silicon Valley’s most high-profile enterprise firms, are poised to take an enormous hit on their last investment in grocery delivery company Instacart, a deal that closed in 2021 as tech stocks were soaring.
In its latest IPO prospectus update, filed on Friday, Instacart said it plans to sell shares at $28 to $30 a bit, valuing the corporate at around $10 billion on the high quality.
That is greater than 75% below where Sequoia and Andreessen invested in early 2021. At the moment, Instacart sold shares at $125 a bit for a $39 billion valuation. The delivery economy was booming due to Covid shutdowns, and Instacart’s services were seeing record demand.
“This past 12 months ushered in a latest normal, changing the best way people shop for groceries and goods,” Instacart finance chief Nick Giovanni said in a press release on the time.
Within the greater than two years since then, Instacart and its investors have learned that growth during that period was anything but normal. Instacart was closing out 1 / 4 wherein revenue surged 200%. Within the quarter before, sales jumped almost sevenfold. Instacart said it was preparing to extend headcount by 50% and bolster investment in promoting.
Sequoia’s Mike Moritz, who led his firm’s investment and recently announced his departure after 38 years, said in the identical press release that Instacart was “fulfilling its role as an important service for consumers, a reliable partner for retailers and an efficient platform for advertisers.” Fidelity, T. Rowe Price and D1 Capital Partners also participated in that financing round.
Then the economy reopened, inflation spiked and the Federal Reserved began boosting rates of interest, which hovered near zero throughout Covid. Consumers began shopping again in person on tightened budgets, and with capital costs jumping, investors began demanding that cash-burning corporations discover a path to profitability. Last 12 months, the Nasdaq suffered its steepest drop because the 2008 financial crisis.
It is also true that enterprise firms have not seen any real returns from IPOs since before the 2022 market collapse. The dearth of exits is especially stark because VCs invested records amounts of capital in 2020 and 2021, including deals at high valuations in areas like crypto and fintech.
Even with the changing market conditions, Instacart has continued to grow but at a dramatically slower pace. Revenue increased 15% in the most recent quarter from the 12 months prior, and operating expenses have come down over that point, allowing the corporate to show profitable.
From a valuation perspective, the larger issue is that Instacart raised the $39 billion round during a record stretch of tech IPOs, and just a few months after fellow sharing-economy corporations Airbnb and DoorDash had blockbuster offerings.
There hasn’t been a notable venture-backed tech IPO within the U.S. since late 2021, and Instacart and Klaviyo are the one two which have publicly filed recently. Automotive-sharing service Turo can be on file, but its initial prospectus got here out in early 2022.
Fortunately for Sequoia and Andreessen, they began investing in Instacart when the corporate was in its early days and the stock price was much lower than it’s today. Assuming the stock price holds up, there’s still considerable money to be made for limited partners. Due to lock-up period, the firms cannot begin selling shares until 180 days after the offering.
Sequoia is the biggest investor in Instacart, with a 15% stake on a totally diluted basis. The 400,000 shares it purchased in 2021 are a small sliver of the 51.2 million shares it owns. In total, the firm has invested about $300 million for a stake that will be value over $1.5 billion on the high quality.
Sequoia led Instacart’s $8.5 million Series A round in 2013, when the worth was just 24 cents a share, in line with the prospectus. Andreessen led the following round at $2.98, and Sequoia participated. Each firms were within the Series C at $13.31 a share and the Series D at $18.52.
Because Andreessen’s total ownership is below 5%, its full stake is not disclosed within the prospectus.
Representatives from Sequoia and Andreessen declined to comment.
Not until 2020 did Instacart’s share price climb to around where it’s today, in a $200 million round led by Valiant Peregrine Fund and D1. Neither Sequoia nor Andreessen participated in that round.
Even when Instacart’s IPO cannot lift its valuation anywhere near its Covid-era peak, it’s likely that Sequoia, Andreessen and other enterprise firms are hoping it helps lift public investor enthusiasm for brand spanking new tech stocks. Arm, which was taken private by SoftBank in 2016, reentered the general public market on Thursday and jumped 25% in its debut.
WATCH: Arm is IPOing profitably
