Instacart’s IPO Lesson: Tech Unicorns Shouldn’t Delay Going Public

Instacart, the grocery delivery service, went public on the New York Stock Exchange in late 2021. The debut was one of the most highly anticipated of the year, and it’s been a huge success. The company’s market capitalization has skyrocketed to more than $30 billion, making it one of the most valuable tech companies in America. Instacart’s success is a lesson for all tech unicorns—those startups valued at more than $1 billion—that are considering going public: Don’t delay. Delaying an IPO could mean missing out on an opportunity to make your investors — and yourself — very rich.

 

In the dynamic world of tech startups and unicorns, Instacart’s impending initial public offering (IPO) at a significantly reduced valuation compared to its peak in 2021 serves as a compelling lesson. This article explores the key takeaway from Instacart’s IPO journey, emphasizing the importance of not delaying the decision to go public for tech unicorns. We will delve into the rationale behind this lesson and its implications for companies like Airbnb and DoorDash, which took the plunge into the public markets earlier, as well as provide insights into the evolving landscape of IPOs and the challenges of managing a publicly traded company.

The Lesson from Instacart’s Valuation Rollercoaster

In just two years, Instacart’s valuation plummeted from a staggering $39 billion to a more modest $9.3 billion. While this might seem like a cautionary tale, there’s more to it than meets the eye. Instacart’s IPO journey highlights the unpredictability of market dynamics and the economic climate that can influence a company’s valuation. The essential lesson is that tech unicorns should not hesitate when considering an IPO. The world of public companies demands adaptability and strategic maneuvering, and getting ahead of the curve is crucial.

Instacart Today: A Stronger Business

Contrary to the narrative of a devalued company, Instacart is arguably in a better position today. In the first half of the current year, the company reported impressive revenue of $1.48 billion with a remarkable gross margin of 75%. This trajectory puts Instacart on track for a 60% year-over-year increase in revenue compared to 2021. The company’s margins have also grown by 8 percentage points.

The lessons here are twofold. First, despite a lower valuation, Instacart has built a more robust business model. Second, it has demonstrated resilience in the face of normalized shopping habits and rising interest rates, which can adversely affect valuations. This adaptability underscores the wisdom of going public earlier, as it allows companies to weather market fluctuations while continuing to grow.

Airbnb and DoorDash: The Early Birds

Instacart’s IPO journey closely resembles those of Airbnb and DoorDash, two other pandemic-era winners. Both companies went public in late 2020, and their stock prices experienced significant ups and downs as interest rates fluctuated.

In 2022, Airbnb’s stock fell by approximately 50%, while DoorDash’s stock saw a more dramatic decline of nearly 70%. Even today, DoorDash remains down by over 50% from its first day of trading, while Airbnb has managed to recover, with shares up around 5% from its initial closing price. However, both companies have seen substantial gains in 2023, with their stocks surging by more than 70%.

The Ongoing Challenge of Quarterly Scrutiny

Airbnb, DoorDash, and their leadership teams have now entered their third year of facing Wall Street’s quarterly scrutiny. This ongoing evaluation brings new challenges in areas such as recruiting, retention, and long-term planning. When a company’s value is continually measured in real-time, the pressure to perform consistently and meet market expectations intensifies.

The Distraction of Delayed Exits

While the grind of quarterly earnings reports can be considered a distraction, so too is the uncertainty that surrounds a company’s exit strategy. Delaying an IPO can keep both employees and investors in limbo, unsure of when the company will finally go public. This uncertainty can hamper recruitment efforts and hinder long-term strategic planning.

The CEO Perspective

Instacart’s CEO, Fidji Simo, offers valuable insights into the importance of timing an IPO. Simo, who joined from Meta Platforms (formerly Facebook), was already focused on taking Instacart public when she assumed her role in July 2021. Drawing from her experience at Facebook during its IPO in 2012, she highlights that the true value of a company is realized after going public. Simo emphasizes delivering consistent value to stakeholders and customers beyond the IPO.

Conclusion: Get the Process Over With

In the ever-changing landscape of tech startups and unicorns, Instacart’s IPO journey serves as a potent reminder of the advantages of not delaying the decision to go public. The lessons learned from Instacart’s valuation fluctuations, as well as the experiences of Airbnb and DoorDash, underscore the significance of timely IPOs. Public companies must navigate the complexities of market dynamics, quarterly scrutiny, and long-term planning, making early entry into the public markets a strategic advantage. As Fidji Simo aptly puts it, “There’s real work to be done,” and the sooner a company starts, the better prepared it will be to thrive in the challenging world of public companies.