Instacart Considers Direct Listing After Major Funding Round

US grocery delivery app Instacart is reportedly considering going public via a direct listing, bypassing the standard IPO process, as it seeks to avoid the risk of undervaluation.

Direct listings, which are comparatively rare, bypass the process of raising funds through a pre-offering share sale.

They can be a means of avoiding an offering that prices a company’s shares too low compared to the price at which they end up trading.

In recent months a number of new listings, and tech companies in particular, have seen their shares rise sharply on the first day of trading.

Share demand

Last month Chinese firm Kuaishou, which makes a rival to ByteDance’s TikTok short video app, saw its shares triple in value on their first day of trading in Hong Kong.

Shares in dating app Bumble also rose more than 63 percent in their first day of trading on the Nasdaq in February.

The trend can be seen by some as a lost opportunity, since pre-flotation shares were priced relatively low.

In Instacart’s case, the company is in no short-term need of cash after it raised $265 million (£192m) in a private fundraising round last week, valuing it at $39bn.

The company says it has seen demand surge during the Covid-19 pandemic, as more people shop from home.

“This past year ushered in a new normal, changing the way people shop for groceries and goods,” Instacart chief financial officer Nick Giovanni said last week.

Unconventional route

The company raised $200m less than five months ago, with both funding rounds seeing the company’s valuation double.

Investment bankers involved in working on a possible Instacart listing have estimated the stock market could value the company at more than $50bn, Reuters reported.

Such conditions are leading Instacart to consider a direct listing, although it has not yet made a final decision on the matter, the report said, citing unnamed sources.

Music streaming service Spotify is one of the more prominent examples of a direct listing, having taken the route in 2018, while Slack Technologies did so in June 2019.

Gaming platform Roblox is also set to make its NYSE debut this week through a direct listing, having chosen to do so to avoid undervaluation.

Coinbase Global, Robinhood and robot software maker UiPath are also reportedly considering a direct listing.

Matthew Broersma

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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