Sequoia Capital and Andreessen Horowitz Face Significant Losses on Instacart Investment
Sequoia Capital and Andreessen Horowitz, two prominent venture firms in Silicon Valley, are set to take a major hit on their investment in Instacart, a grocery delivery company. The deal closed in 2021 when tech stocks were soaring.
In its latest IPO prospectus update, Instacart revealed its plan to sell shares at $28 to $30 each, valuing the company at around $10 billion at the top end of the range. This is more than 75% lower than the valuation when Sequoia and Andreessen invested in early 2021. At that time, Instacart sold shares for $125 each, giving the company a valuation of $39 billion. The demand for Instacart’s services surged during the COVID-19 pandemic.
Instacart’s Growth Slows Down Amid Changing Market Conditions
Since then, Instacart and its investors have experienced slower growth. While revenue increased 200% in one quarter and nearly sevenfold in the previous quarter, the company’s growth rate has significantly slowed down. Instacart has been focusing on increasing its headcount by 50% and investing more in advertising. However, the reopening of the economy, inflation spikes, and rising interest rates have affected the company’s performance.
Furthermore, venture firms have not seen significant returns from IPOs since before the 2022 market collapse. This is notable considering the record amounts of capital invested by venture capitalists in 2020 and 2021, particularly in areas like cryptocurrency and financial technology.
Instacart’s Valuation Challenge
Instacart’s valuation raises concerns due to the timing of its $39 billion fundraising round, which occurred during a period of high-tech IPOs, including Airbnb and DoorDash. Since late 2021, there have been no notable venture-backed tech IPOs in the US, apart from Instacart and Klaviyo, which have recently filed. Turo, a car-sharing service, also filed its initial prospectus in early 2022.
Sequoia and Andreessen Still Have Potential for Profit
Fortunately for Sequoia and Andreessen, they invested in Instacart during its early days when the stock price was much lower. Assuming the stock price remains stable, there is still a significant opportunity for them to make money. However, due to the lock-up period, the firms cannot start selling shares until 180 days after the IPO.
Sequoia is the largest investor in Instacart, holding a 15% stake on a fully diluted basis. The firm’s $300 million investment could potentially be worth over $1.5 billion at the top valuation. Sequoia led Instacart’s Series A round in 2013, while Andreessen led subsequent rounds along with Sequoia’s participation.
Instacart’s IPO and the Future of Tech Stocks
Although Instacart’s IPO might not reach its peak valuation during the COVID-19 era, investors like Sequoia and Andreessen hope it will generate enthusiasm for new tech stocks among the public. The recent successful IPO of Arm, which reentered the public market after being taken private by SoftBank in 2016, demonstrates the potential for positive market reception.
WATCH: Arm is IPOing profitably
