Couch Potato #5 - Did Instacart Investors Make Money?

Hello Couch Potatoes!

This week let’s take a look at Instacart’s IPO valuation and how it compared to our valuation model published in the last edition. Then, we take a look at returns for Instacart investors across different fundraising rounds. Turns out - venture is not easy! Even if you invest in a home run company.

Lots to cover - let’s dive in!

Instacart IPO Valuation Update

In my last edition, I used a combination of three valuation methodologies to arrive at my IPO valuation for Instacart. Then, it was a waiting game to see how my valuation compared to their actual valuation after their roadshow. Finally, this week Instacart announced that their IPO will be priced at $28 - $30 / share. This range prices in some increased optimism based on ARM’s IPO performance. Based on this range, my valuation was within 1% of their low range and within 2.5% of their mid point. In my opinion, this is within an acceptable range. Especially for my first attempt with a rather naive model. Next week - we will run Turo, a car sharing marketplace that filed its S-1 a few weeks ago through a more evolved version of my model.

Before we move on from Instacart, I want to use this to demonstrate one of the key complexities of venture capital. Getting into a home-run company like Instacart is not enough. Entry price matters.

As the chart highlights, Series F onwards, investors paid a price higher than their final IPO price. Plus, as early as Series C, investors’ cash on cash return are lower than a 3.0x gross - often a fund-wide benchmark for performance.

Marketplace Multiples 9/17/2023

Vertical SaaS Multiples 9/17/2023

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