Instacart Inc. doesn’t plan to raise much capital in its initial public offering and instead plans to have most of the listing come from the sale of employees’ shares, said people familiar with its thinking.
In meetings with prospective investors in recent weeks, Instacart executives said they didn’t plan to issue many new shares in their IPO, the people said. The sale of mostly employee shares would allow Instacart’s staff, including some of its earliest hires, to at last cash out of some of the shares they have been accumulating.
The move could help Instacart, which was founded in 2012, retain talent by allowing employees more ways to benefit from their shares. Listed shares could also make Instacart more attractive to new employees than startups that have decided to wait for a better market to list.
The decision shows the pressure on some of Silicon Valley’s oldest startups to go public even as technology stocks slump. Until recently, a large amount of investment available through the private market allowed startups to put off public offerings if they wanted to, delaying payouts to their employees.
Companies are putting off listings further as they are worried they won’t get a good price in the current market. Instacart is one of the few companies bucking the trend and in the summer was targeting a fourth-quarter listing.
The IPO market is headed for its worst year in decades, leaving some startups with few options but to spend through their cash reserves while they wait for the stock market to calm. Instacart turned a net profit in the second quarter, which could explain why it is focusing its public listing on the sale of employee shares.
Late last year, hundreds of companies were getting ready to list. Then high inflation, rising interest rates and Russia’s invasion of Ukraine pummeled prices, drying up the appetite for IPOs.
Highly valued startups like food-delivery firm Gopuff and online marketplace StockX LLC have delayed listing plans. Payments provider Stripe Inc., founded in 2010 and last valued by investors at $95 billion, has also yet to go public.
Listed companies similar to Instacart have seen their shares hit harder than most. Delivery companies DoorDash Inc. and Delivery Hero Inc. have each tumbled more than 50% since the beginning of the year. Over the same period, the tech-heavy Nasdaq Composite Index fell less than 30%.
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While Instacart will sell a small percentage of new shares, the bulk of its offering will come from employee shares that will be sold directly to new investors at an agreed-upon price ahead of a stock-market debut. Details of the listing could change depending on market conditions and other factors.
Instacart had previously leaned toward going public through a direct listing, The Wall Street Journal previously reported.
In a direct listing, a company’s shares simply start trading on an exchange on a set day. There is a reference price for where trading could start, but no shares are sold in advance at that price. Existing shareholders can sell their shares, but companies don’t raise any cash by going public.
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Instacart posted strong second-quarter numbers despite rising inflation and added competition from DoorDash and Uber Technologies Inc., which have expanded their grocery-delivery offerings. The San Francisco firm turned a net profit and saw revenue grow 39% from the year-earlier period in the three months through June.
Instacart said earlier this year that it had more than $1 billion in cash and marketable securities and last raised money in March 2021.