Sequoia and Andreessen to take a huge hit on their 2021 Instacart funding, after a 75% plunge in valuation

Sequoia Capital and Andreessen Horowitz, two of Silicon Valley’s most high-profile enterprise corporations, 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 Friday, Instacart said it plans to promote shares at $28 to $30 apiece, valuing the corporate at round $10 billion on the high 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 had been seeing report demand.

“This previous yr ushered in a new regular, altering the way in which folks 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 traders 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 virtually sevenfold. Instacart mentioned it was making ready to enhance head depend by 50% and bolster funding in promoting.

Sequoia’s Mike Moritz, who led his agency’s funding and not too long ago 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 companion 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 Reserve began boosting rates of interest, which hovered close to zero all through Covid. Consumers began procuring once more in individual on tightened budgets, and with capital prices leaping, traders started demanding that cash-burning firms discover a path to profitability. Last yr, the Nasdaq suffered its steepest drop because the 2008 monetary disaster.

It’s additionally true that enterprise corporations 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 report quantities of capital in 2020 and 2021, together with offers at excessive valuations in areas equivalent to crypto and fintech.

Even with the altering market situations, Instacart has continued to develop however at a dramatically slower tempo. Revenue elevated 15% in the most recent quarter from the yr prior, and working bills have come down over that point, permitting the corporate to flip worthwhile.

From a valuation perspective, the larger difficulty 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 not too long ago. Car-sharing service Turo can also 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 the moment. Assuming the inventory worth holds up, there’s nonetheless appreciable cash to be made for restricted companions. Because of the lock-up interval, the corporations cannot start promoting shares till 180 days after the providing.

Sequoia is the most important investor in Instacart, with a 15% stake on a totally diluted foundation. The 400,000 shares it bought in 2021 are a small sliver of the 51.2 million shares it owns. In complete, the agency has invested about $300 million for a stake that may be price over $1.5 billion on the high quality.

Sequoia led Instacart’s $8.5 million Series A spherical in 2013, when the worth was simply 24 cents a share, in accordance to the prospectus. Andreessen led the subsequent spherical at $2.98, and Sequoia participated. Both corporations had been in the Series C at $13.31 a share and the Series D at $18.52.

Because Andreessen’s complete 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 the moment, 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 raise its valuation anyplace close to its Covid-era peak, it is possible that Sequoia, Andreessen and different enterprise corporations are hoping it helps raise public investor enthusiasm for brand spanking 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.

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