An investor in Instacart, Capital Group, has repriced its shares in the company, lowering its estimation of the value of the online grocery delivery service. The news follows other, similar repricings by companies like Fidelity, which also own a stake in the decacorn.
It’s really not surprising that one more investor agrees Instacart’s 2021 valuation was too hot. It filed to go public in May a couple months after a new 409A valuation reduced its own internal valuation.
The scale of the repricing, however, is leaving us scratching our heads. If Instacart, which was able to raise aggressively during the pandemic, is actually worth a fraction of what investors calculated last year, what about other unicorns? How many billion-dollar startups aren’t worth that much today? More simply, how many unicorns have now effectively been dehorned ahead of their next funding rounds?
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This question is important, because we often note the sheer number of unicorns, and their value, in the market. Crunchbase, for example, counts 1,372 unicorns today worth some $4.6 trillion. For reference, tech’s big five (Apple, Amazon, Microsoft, Meta and Alphabet) are worth just under $6 trillion today.
If we apply the Instacart discount, such as it is, to the unicorn market, what’s left?
Paper unicorns, penciled valuations
The pace at which new unicorns are minted has declined sharply in 2022, driven in part by fewer mega-rounds, or investments worth $100 million or more. Such huge funding events helped birth a horde of new unicorns in 2020 and 2021, as capital chased yield around the world.
A few things have changed since then, leading to Bloomberg noting in its reporting that a host of Instacart investors have revisited their marks regarding its worth:
Capital Group marked Instacart shares at $45.84 apiece at the end of June, the asset manager said in a report on the website of its New Economy Fund. [ … ] Capital Group’s latest valuation for Instacart is down 62% from its last peg of $119.96 a share at the end of March. T. Rowe has yet to provide an update of its March 31 valuation of $96 a share.
A 62% decline in the value of Instacart is actually not the worst of it. Some tech firms that listed recently have seen even steeper declines — Coinbase is down 84% from all-time highs since its 2021 direct listing, and Vimeo, another 2021-era IPO, is off 87% from its all-time highs.
But let’s stick with Instacart’s valuation change, as it is both fresh and concerns a private company operating at scale. Instacart is the company that startups want to become — large, valuable and heading for an IPO. That makes it the perfect proxy for how investor sentiment is changing in the private markets.
If we apply a 62% discount to a unicorn that was worth exactly $1 billion in 2021, it’s today worth $380 million. A 62% decline in the value of a $2 billion startup works out to $760 million. A startup would have be worth $2.631 billion to endure a 62% valuation cut and preserve its unicorn status.
How many unicorns can remain so after an Instacart discount? Per Crunchbase data, the median unicorn on its leaderboard is worth $1.52 billion. That is far less than our $2.631 billion tipping point. So at a minimum, more than half of the world’s unicorns lose the moniker if they get repriced at a level similar to Instacart.
Digging deeper into the data, the Crunchbase leaderboard includes some 1,104 companies worth $3 billion or less, though as the data includes some rounding, it’s a bit hard to tell precisely where companies land. I think it’s fair to consider that set of companies to be most at risk of losing their unicorn status. That means that just 267, or 19.5% of unicorns, are safe from a 62% discount.
So how many unicorns aren’t mythical creatures anymore? I am a little surprised to say that the answer to that is most unicorns today are at least in the danger zone. That’s not good news for investors, or those of us who live for S-1 filings. The liquidity drought is likely set to continue — who wants to go public when the market is so anhydrous?
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