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Instacart’s IPO price target delivers startups a dose of reality

The price range makes one fact obvious: Revenue multiples of formerly VC-backed companies have cratered.

Instacart‘s IPO is seen as a bellwether for public investors’ demand for startups. So far, it’s telling the entrepreneurial world what was already obvious—that revenue multiples of formerly VC-backed companies have cratered as investors lack faith in their future growth.

Instacart is targeting an IPO valuation of up to $9.3 billion on a fully diluted basis, 76% below its last $39 billion private market valuation and a fraction of what it would have received if the company had gone public in 2021.

 


In the years since Instacart rival DoorDash debuted in 2020 at a $41 billion valuation, its price/sales multiple has declined from roughly 25x to around 4x. Using the same multiple, Instacart’s roughly $3 billion in annualized revenue in 2023 would command a valuation in the ballpark of $12 billion, according to our recent analyst note on the IPO market outlook.

Across the broader universe of VC-backed IPOs, the revenue multiple for newly public companies peaked at more than 24x in 2021, and has fallen to less than 8x since.

Targeting a modest valuation could be part of a strategic bet by the company, PitchBook lead analyst Kyle Stanford said.

“An aggressive pricing range would have created additional risk in the event of a below-range pricing, adding poor sentiment on the company as it moves into the public market. This range could help drive interest in the offering alongside the reported insider IPO purchase,” Stanford said.

Like Klaviyo, a marketing automation company that is also pursuing an IPO, Instacart only recently achieved positive operating income. But the grocery delivery company has also recently experienced slowing growth for orders and gross transaction value, Stanford noted.

Over the past decade, investors have paid a premium for growing tech startups and were willing to look the other way on profitability. That premium has declined, but startups are finding that translating growth to profitability isn’t always straightforward.

IPOs are critical to delivering returns to the VC ecosystem. About 87% of the record exit value in 2021 came from public listings, according to PitchBook data. The low number of IPOs since early 2022 has led to a large backlog of VC-backed companies waiting to go public.

Featured image by Justin Sullivan/Getty Images

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