The world is upside down for the grocery delivery startup, Instacart. The platform announced plans to slash its valuation by 40% on Wednesday, taking its current valuation to about $24 billion from an enviable $39 billion. The recently adjusted Instacart valuation is a reflection of the decade-old privately-held company’s lofty plans to attract talent and adapt to the post-Covid market conditions.
Instacart Turns to Selling Software
In an interview with CNN Business this week, Instacart CEO Fidji Simo said the grocery delivery startup plans to roll out several new software services for its retail partners, including one called Carrot Warehouses, which aims to help grocers support 15-minute deliveries using the right tech infrastructure.
Instacart has also inked a deal with supermarket chain Publix to offer faster deliveries in Atlanta and Miami in the coming months. The new SaaS model will allow retailers to be in charge of inventory management and supply chain management. This comes in the form of:
- E-commerce support: The right tools to help grocers build and manage their stores online.
- Fulfillment support: Instacart staff and new warehouses will help customers handle super-quick deliveries.
- Advertising: The grocery startup will offer support to partner digital retail efforts, and
- Software analytics, and in-store tech support that would allow groceries to be delivered within 15 minutes through its miniature fulfillment centers.
With growing competition from existing unicorns such as Uber and DoorDash, Instacart is left with no choice but to dive into the software side of its operations to boost growth. With the right software infrastructure to enable ultrafast deliveries it can boost its gross margins, and create a stream of recurring revenue from large customers.
Instacart Valuation: A Show of Humility
It’s rare to see a private unicorn adjust its valuation, especially when it is one of the few beneficiaries of the pandemic boom. Instacart’s valuation doubled twice during the pandemic to $39 billion and added 600,000 people as independent contractors under its wings. According to CNN Business, the exponential growth has since begun to stabilize.
Instacart’s valuation is seen as a way to boost the value of equity awards for new and existing employees. Employers are likely to be offered stock-based compensation that could add to their riches if the market interest in the grocery unicorn rebounds.
Tech-enabled gig companies like Instacart, DoorDash and Uber often struggle to make profits in an increasingly tight race to shorten delivery time. Instacart’s new service could help the company create room for more profits and increase investor confidence ahead of its upcoming IPO later this year.
When asked about Instacart’s IPO plans, Simo declined to comment on timing. Although she said that the company plans to go public at some point in the future.
Instacart’s Total Funding
According to market reports, Instacart’s revenues tripled to around $1.5 billion in 2020. The epic growth came with the onset of large capital injections. In June 2020, Instacart raised $225 million at a ballooning valuation of $13.7 billion. A month later, the grocery delivery startup added another $100 million to its cart to that round.
In October 2020, Instacart raised another $200 million pushing its valuation north of $17.7 billion. In March 2021, the company added another $265 million in private capital at a valuation of $38.7 billion. That’s a lot of money from investors, including Andreessen Horowitz, Sequoia Capital, D1 Capital Partners and others.
Other bigwigs in the advertising and delivery businesses, like DoorDash, Meta and Shopify, have also seen the value of their stock plummet in recent months.
