Initial public offerings are back, warts and all.
After a two-year dearth of new listings, shares of the grocery delivery company Instacart closed their first day of trading on Tuesday at $33.70, up 12 percent from their initial public offering price of $30. The performance signaled that investors were eager to take a chance on young tech companies — but only at the right price.
Instacart’s market capitalization, including all outstanding shares, totaled $11.1 billion. But even with the early stock price pop, the company’s valuation remained a far cry from the $39 billion that investors assigned it in the private market in 2021. It was a painful loss to investors who had bought in at that peak, sending a harsh reality check to other start-ups that raised money at inflated valuations.
Fidji Simo, Instacart’s chief executive, said the valuation reflects the changes in public stock prices, even as the company has improved its performance in the last two years, including by turning a profit.
“The markets will always ebb and flow,” she said, adding that she was more focused on what she could control.
The tech and finance industries had eagerly anticipated new I.P.O.s in hopes they would usher in more listings. Inflation and rising interest rates, alongside a broader downturn marked by layoffs and other cuts, deepened investor skepticism of tech companies, leading to a virtual freeze in I.P.O.s for the past two years.
Just 144 companies went public in the United States in that time, raising $22.5 billion, down from 397 I.P.O.s that raised $142 billion in 2021, according to Renaissance Capital, which tracks new listings.
Things began changing last week when Arm, a chip designer owned by SoftBank, went public. Its stock was priced at the top of its proposed range and jumped 25 percent on the first day of trading. Many hoped Arm’s I.P.O. would encourage more investors to pour money into tech again.
A backlog of companies are eager to tap the public market. More than 1,400 private start-ups, together worth more than $4.9 trillion, could be candidates, according to EquityZen, a marketplace for private stock. Among them are the social media company Reddit, the ticketing start-up SeatGeek and the car rental company Turo.
Klaviyo, a marketing software start-up, is also set to go public this week. Investors valued the company at $9.5 billion when it was privately held.
Investors have often been skeptical that the highly valued tech companies of the last generation — called “unicorns” for their rare billion-dollar valuations — could turn a profit.
Both Instacart and Klaviyo have defied that expectation. Instacart made $428 million in profit on $2.5 billion in revenue last year, partly because it had expanded beyond its core grocery delivery business and into ads and software services. Klaviyo lost money last year but turned a $15 million profit on $320 million in revenue in the first half of this year.
Taken together, they showed that the bar for what investors expect in a company’s going public is higher than it was. “Profitability will be key,” said Kyle Stanford, an analyst at PitchBook, which tracks start-ups.
Ms. Simo said public market investors had raised questions about Instacart’s future growth, but placed a very large premium on its profits.
“The turnaround we’ve accomplished in the last two years mattered enormously,” she said.
Instacart’s path has not been easy. Founded in 2012 as a service that connected customers at home with contract workers who shopped and delivered their groceries, it has faced scrutiny — along with other gig companies like Uber and DoorDash — over whether its contractors should be treated as employees and whether they are fairly compensated.
Customers flocked to Instacart’s app during the early days of pandemic lockdowns, but its growth plunged in mid-2021 as people returned to grocery stores, prompting questions about the long-term sustainability of the business.
Apoorva Mehta, Instacart’s co-founder and chief executive, stepped down that summer and Ms. Simo, a former Meta executive, took over. Under Ms. Simo, Instacart has increasingly focused on advertising and grocery software businesses, which has helped the company make money.
As the company’s shares began trading, Mr. Mehta reflected on the company’s ups and downs. “The first few years of the company, it wasn’t clear to the industry that Instacart was here to stay,” he said. “I don’t think that’s a question any longer.”
As part of its I.P.O., Instacart sold shares to investors before its formal “road show” pitches. PepsiCo, one of its advertising customers, was among them, buying $175 million shares. That move “sent a strong signal” to the market, Ms. Simo said.
The investment firms Sequoia Capital and D1 Capital are among Instacart’s largest outside shareholders, with Sequoia owning a 19 percent stake and D1 Capital 14 percent. Mr. Mehta holds an 11 percent stake, now worth roughly $976 million. As to his plans for the windfall, he said, “That’s the billion-dollar question.”
Meredith Kopit Levien, The New York Times’s chief executive, sits on Instacart’s board.
Instacart celebrated its listing by ringing the Nasdaq opening bell at its San Francisco office with more than 1,000 employees and “a lot of food,” Ms. Simo said.
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