Mohit Oberoi
Instacart which was among the most widely awaited IPOs of 2022 has scrapped its listing plans amid the turmoil in the broader market. The US IPO market has been virtually dead this year amid the pessimism toward growth stocks.
Instacart, which was founded in 2012 is backed by marquee investors like Sequoia Capital, Andreessen Horowitz, and D1 Capital Partners. The company is in the grocery delivery business.
Instagram had confidentially filed for an IPO with the SEC. The company was expected to list in 2022 only. However, in a memo to employees, Fidji Simo, Instacart CEO said that the listing is “highly unlikely” this year. The story was originally reported by the New York Times.
In the note, Simo said, “The markets still remain closed for new IPOs, which is why there has not been a tech IPO in the last 10 months.” She said that the US IPO market is witnessing its biggest slump in 25 years. Simo added, “We do not need a perfect market, we’re just looking for an open market window.”
There indeed is merit in Simo’s views on the IPO market. According to Renaissance Capital, only 65 companies have IPOd this year, which is almost 81% lower than the previous year. The total IPO proceeds are only $6.7 billion which is 94.1% lower than in 2021.
The US IPO market was quite strong in the second half of 2020 and continued its good run in 2021 as well. However, in the back half of 2021, there were signs of stress in the IPO market.
Instacart Scraps IPO Plans
In its response to Axios, Instacart said, “We are incredibly proud of the work our teams are doing to power the future of grocery with our retail partners, and our business has never been stronger. In Q3, our revenue grew more than 40% year-over-year, and our Net Income and Adjusted EBITDA more than doubled from Q2. We remain focused on building for the long-term, and we are excited about the opportunity ahead.”
The company hasn’t officially commented on shelving IPO plans. The US IPO market has sagged this year as investors have been cold to new listings due to the mayhem in growth stocks. However, there is still investor interest in some of the upcoming IPOs like Chime. We have a list of some of the upcoming IPOs.
Instacart Valuation Has Come Down
The turmoil in the stock market is also manifesting in startup companies. Instacart lowered its valuation from $40 billion to $24 billion in March. Reportedly, the company has now lowered its internal valuation to $13 billion.
Recently, Mobileye also released the terms for its IPO which would value the autonomous driving company at just under $16 billion. The proposed valuation is a third of what Intel was previously aiming at.
Intel bought Mobileye in 2017 for around $15.3 billion. The nearly $16 billion valuation that it is now seeking for the business is only a tad above what it had acquired the company for. However, the markets’ perception of growth assets has taken a hit amid the Fed’s rate hikes.
Given the turmoil in public markets, valuations of private startup companies have also come down. Some of the biggest valuation cuts have come in Alibaba-backed Ant Financial and fintech startup Klarna. TikTok-parent ByteDance’s valuation has also come down. ByteDance is however still the most valued startup company despite losing billions of dollars last year.
SPACs Have Fared Even Poorly in 2022
Renaissance IPO ETF, which invests in newly listed companies, is down by over half this year. The ETF’s performance is a testimony to how IPOs have fared this year. The ETF outperformed the markets in 2020 but is now down sharply from its all-time highs.
The performance of SPACs has been even terrible and many SPACs including two sponsored by “SPAC King” Chamath Palihapitiya have dissolved this year. Companies that went public through SPAC mergers have crashed and almost all of them are trading below the IPO price. In some cases, the drawdown is above 90%.
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This article was written for Business 2 Community by Mohit Oberoi.
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