Instacart made some finance news when it voluntarily slashed its valuation by almost 40 percent, from nearly $40 billion to $24 billion.
That seems quite bad at first blush, but the valuation dip offers a window into the mismatch between venture capital valuations and real-world numbers in the context of an ugly market phase for tech stocks. In short, it’s great news for Instacart employees and potential hires, according to Instacart. In a public statement, a company spokesperson explained why it cut its own valuation with employees in mind.
We are confident in the strength of our business, but we are not immune to the market turbulence that has impacted leading technology companies both public and private. We can’t control the market, but we can control how we respond.
Today we announced to our team that we will be aligning new equity awards—for existing employees and new hires—to an updated company valuation that reflects the current market conditions.
Our team built Instacart into the market leader it is today, and we believe investing in them is the right thing to do. Markets go up and down, but we are focused on Instacart’s long term opportunity to power the future of grocery with our partners.
So, the sky isn’t falling on Instacart, but the market has certainly turned. Another company spokesperson pointed to Shopify, Meta and DoorDash dipping by 60 percent, 40 percent and 55 percent respectively from recent 52-week highs. The latest Instacart valuation came in March of 2021, when it raised $265 million and venture capitalists (VCs) valued the company at $40 billion. That fundraise landed right between a year of explosive growth for tech companies and the recent declines.
The latest valuation is the outcome of what’s known as a 409a, an independent valuation tool commonly used by VC-backed companies that looks at actual business metrics and projections. Using a 409a valuation that is significantly lower than the headline is almost unheard of in Silicon Valley, where all the charts tend to go straight up.
How does this benefit employees?
All this means employees who get equity in the company as part of their compensation package will get more shares at this more realistic price.
“Our teams will benefit from these changes because they will now receive significantly more restricted stock units (RSUs) for the same dollar-value equity grant than they would have under the previous valuation,” said the spokesperson.
If an Instacart employee gets get a hypothetical 10 shares at the $40 billion price, it has little room to grow and plenty of potential downside. With the lower valuation, they’ll get a hypothetical 20 shares at the $24 billion price and ample room to grow.
The spokesperson said “to ensure all new equity is valued t the market reality” the company would update equity awards and refresh awards for the many new hires start with hires from the fourth quarter of last year going forward.
“All this really is employee first, that’s really it. Our busines performance hasn’t changed,” said an Instacart spokesperson. “Nothing is more important to us than top talent, and we want to be sure to do right by them. Meaningfully investing in our teams is critical to our future long-term success.”
The outside world doesn’t often get a glimpse into the bizzarro world of Silicon Valley valuation and compensation like this. But for Instacart, which nearly doubled its employee base last year with more hiring “across the board,” it may prove a savvy move to attract and retain top talent.