Instacart's IPO

Sept 2023

Instacart has officially hit the public markets, and, like DoorDash’s debut, it’s arrived during a pretty interesting time. Demand for grocery delivery has been high, and Instacart has become a familiar name. Their numbers look solid, but like any company going public right now, they’re facing some serious questions.

Instacart's Business Model

What to Keep in Mind about Instacart

Groceries are a tough business to revolutionize because there isn't much room to make money (low margins) or grow quickly (low growth), which historically has kept most companies away from the sector.

A Look at the IPO

Now, let’s talk numbers. Instacart opened its shares at $30 each. However, interest pushed up demand, and shares closed at $33 (going as high as $42 at one point). 

At the IPO price of $30 per share:

Market cap: 310M shares × $30 = $9.3 billion

How did Investors do?

The biggest winners were those who invested in the early rounds. Y Combinator and Khosla invested in the 2012 seed round at a $75 million valuation. Their return at the IPO's $9.3 billion valuation was over 12,300%. The biggest losers were Fidelity and T. Rowe Price - the most recent investors.

Let's drill in a bit on Sequoia and Andreessen, two investors that did well when DoorDash went public. 

Sequoia Capital

Sequoia made multiple investments; they led the Series A in 2013 at the same $75 million valuation, and then invested again in Series D at $5.78 billion. They lost alot in their Series I investment but its offset because the early bets were so successful. 

Whats interesting about Sequoia is that they are rather confident about Instacart because they purchased another $400M of stock on the day of the IPO (along with other investors).

Andreessen Horowitz 

Andreessen Horowitz came in during Series B in 2014 at a $930 million valuation, generating a whopping 900% return by IPO. Like Sequoia, they invested multiple times and the early bets should make up for losses on later investments (Series I).

This story is the classic venture capital story. The earliest investors, who take  the biggest risks when companies are just an idea, end up making bank of their trusted investment. Its also shows that venture capital doesnt always get it right. 

Bookrunner Payday

Bookrunners are underwriters that Instacart hired to help them with their IPO. They had multiple and their lead bookrunners were Goldman Sachs and JP Morgan. 

Goldman bought 10M shares and JP bought 5M. BofA bought 1.5M shares and a few other smaller banks also performed underwriting. The underwriters earn $1.65 per share in fees when they sell their shares. 

🏆 Goldman Sachs (9.68M shares): $15.98M

🏆 J.P. Morgan (5.06M shares): $8.35M

🏆 BofA Securities (1.54M shares): $2.54M

🏆 Other underwriters split the remaining fees.

Not bad.  One more interesting tidbit from the IPO filing was that apparently Pepsi bought $175M of shares on the IPO day in a separate private sale. Goldman earned a 1.5% commission for placing the investment. 

🏆 Goldman 1.5%  = $2.625M.  So about $18.5M from the IPO.  

Sources:

Instacart’s S-1

https://investors.instacart.com/static-files/f3fb7580-e03c-4226-87dc-effbd6a07378

IPO filing

https://www.sec.gov/Archives/edgar/data/1579091/000119312523237900/d55348d424b4.htm#fin55348_5

Excellent writeup by Aswath Damodaran

https://aswathdamodaran.blogspot.com/2023/09/putting-instacart-before-grocery-horse.html