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Sequoia Capital and Andreessen Horowitz, two of Silicon Valley’s most high-profile enterprise companies, are poised to take a large hit on their last investment in grocery supply firm Instacart, a deal that closed in 2021 as tech stocks were soaring.
In its newest IPO prospectus update, filed on Friday, Instacart said it plans to promote shares at $28 to $30 a piece, valuing the corporate at round $10 billion on the top quality.
That’s greater than 75% beneath the place Sequoia and Andreessen invested in early 2021. At that point, Instacart bought shares at $125 a piece for a $39 billion valuation. The supply economic system was booming due to Covid shutdowns, and Instacart’s companies have been seeing file demand.
“This previous yr ushered in a new regular, altering the way in which individuals store for groceries and items,” Instacart finance chief Nick Giovanni mentioned in a press launch on the time.
In the greater than two years since then, Instacart and its buyers have discovered that development throughout that interval was something however regular. Instacart was closing out a quarter in which income surged 200%. In the quarter earlier than, gross sales jumped nearly sevenfold. Instacart mentioned it was getting ready to extend headcount by 50% and bolster funding in promoting.
Sequoia’s Mike Moritz, who led his agency’s funding and lately introduced his departure after 38 years, mentioned in the identical press launch that Instacart was “fulfilling its position as a very important service for shoppers, a dependable accomplice for retailers and an efficient platform for advertisers.” Fidelity, T. Rowe Price and D1 Capital Partners additionally participated in that financing spherical.
Then the economic system reopened, inflation spiked and the Federal Reserved began boosting rates of interest, which hovered close to zero all through Covid. Consumers began purchasing once more in individual on tightened budgets, and with capital prices leaping, buyers started demanding that cash-burning firms discover a path to profitability. Last yr, the Nasdaq suffered its steepest drop for the reason that 2008 monetary disaster.
It’s additionally true that enterprise companies have not seen any actual returns from IPOs since earlier than the 2022 market collapse. The dearth of exits is especially stark as a result of VCs invested information quantities of capital in 2020 and 2021, together with offers at excessive valuations in areas like crypto and fintech.
Even with the altering market circumstances, Instacart has continued to develop however at a dramatically slower tempo. Revenue elevated 15% in the newest quarter from the yr prior, and working bills have come down over that point, permitting the corporate to show worthwhile.
From a valuation perspective, the larger situation is that Instacart raised the $39 billion spherical throughout a record stretch of tech IPOs, and simply a couple of months after fellow sharing-economy firms Airbnb and DoorDash had blockbuster choices.
There hasn’t been a notable venture-backed tech IPO in the U.S. since late 2021, and Instacart and Klaviyo are the one two which have publicly filed lately. Car-sharing service Turo can be on file, however its preliminary prospectus got here out in early 2022.
Fortunately for Sequoia and Andreessen, they started investing in Instacart when the corporate was in its early days and the inventory worth was a lot decrease than it’s at this time. Assuming the inventory worth holds up, there’s nonetheless appreciable cash to be made for restricted companions. Because of the lock-up interval, the companies cannot start promoting shares till 180 days after the providing.
Sequoia is the biggest investor in Instacart, with a 15% stake on a absolutely diluted foundation. The 400,000 shares it bought in 2021 are a small sliver of the 51.2 million shares it owns. In whole, the agency has invested about $300 million for a stake that will be price over $1.5 billion on the top quality.
Sequoia led Instacart’s $8.5 million Series A spherical in 2013, when the worth was simply 24 cents a share, in accordance with the prospectus. Andreessen led the following spherical at $2.98, and Sequoia participated. Both companies have been in the Series C at $13.31 a share and the Series D at $18.52.
Because Andreessen’s whole possession is beneath 5%, its full stake is not disclosed in the prospectus.
Representatives from Sequoia and Andreessen declined to remark.
Not till 2020 did Instacart’s share worth climb to round the place it’s at this time, in a $200 million round led by Valiant Peregrine Fund and D1. Neither Sequoia nor Andreessen participated in that spherical.
Even if Instacart’s IPO cannot carry its valuation anyplace close to its Covid-era peak, it is probably that Sequoia, Andreessen and different enterprise companies are hoping it helps carry public investor enthusiasm for brand new tech shares. Arm, which was taken personal by SoftBank in 2016, reentered the general public market on Thursday and jumped 25% in its debut.
WATCH: Arm is IPOing profitably
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