Instacart Valued at $17.7 Billion After $200M Funding Round

Online grocery delivery is booming during prolonged pandemic conditions, and Instacart in particular has benefited. Within a short timespan this year, Instacart transformed from serving merely as a grocery delivery app to becoming an essential service. The October investment round, led by D1 Capital and Valiant Peregrine Fund, raised $200 million, and puts Instacart’s valuation at an impressive $17.7 billion.

The Latest Round

Instacart’s latest fundraising round is even more notable in light of the fact that the grocery delivery company just raised $100 million in July and $225 million in June of this year. In June, Instacart’s valuation was reported to be around $13.7 billion. Furthermore, Instacart’s valuation has more than doubled since its 2018 Series F round.

The COVID-linked growth success of other food delivery businesses such as Uber Eats and DoorDash has mirrored that of Instacart. Uber’s second-quarter earnings shocked many onlookers when it was reported that Uber’s delivery business is now larger than its ride-hailing business based on adjusted net revenue. DoorDash, one of the largest on-demand food delivery services in the U.S., scored a $16 billion valuation in June. The valuation has since risen even higher.

300,000 New Employees

In April, Instacart famously hired 300,000 workers within a month in order to meet the dramatic spike in demand. Even with such a significant hiring spree, Instacart struggled at the beginning of the pandemic to meet high demand. In some areas, customers experienced difficulty securing delivery time slots. Demand levels have steadied and Instacart has since hired hundreds of thousands of additional shoppers. Now the company is able to deliver on its promise of same-day delivery in many areas. Instacart has also developed more sophisticated models for predicting which items will be in stock and for how long.

CEO Apoorva Mehta observed at the beginning of the pandemic: “Every day, we would see that the volume was 20% higher than the last day. In a matter of a couple of weeks, we were already ahead of our end-of-year goal. A week later, we were ahead of our 2021 goals, and a few days after that, we were ahead of our 2022 goals. And so, at a certain point, we stopped counting.”

Instacart projects more than $35 billion in grocery sales this year. Furthermore, demand has surpassed levels not projected to be reached until at least 2025. Instacart now has more than 1,000 full-time employees along with hundreds of thousands of part-time grocery shoppers.

Instacart Interest in Independent Contractor vs Employee Issues

The debate surrounding Uber and Lyft over their classification of workers as independent contractors rather than employees has impacted Instacart. Others concerned are contractor-dependent food delivery apps like DoorDash. One of the key issues embedded in this debate is that only employees qualify for benefits such as health insurance. In 2015, Instacart faced a class action lawsuit for allegedly misclassifying shoppers and delivery workers as independent contractors. Instacart’s full-service shoppers are generally treated as independent contractors.

The issue reached new heights in 2019 when California Governor Gavin Newsom signed into law gig worker protections bill AB-5. The AB-5 law aims to ensure that gig workers get minimum wage, workers’ compensation, and a host of other benefits if they meet a certain threshold. Proposition 22, a 2020 ballot initiative, emerged in response. In an effort to reach a common middle ground, prominent players in the gig economy donated money to the “Yes on 22” campaign.

How Instacart Works

The company mainly makes money by charging delivery and service fees for every order made on its platform. Instacart also makes money through premium ads on its platform. The company has a membership subscription service called Instacart Express. This service enables regular users to pay a flat annual or monthly cost. Currently, that cost is $99 per year for an annual plan or $9.99 per month for a monthly plan.

Apoorva Mehta, the 33-year-old newly minted billionaire founder and CEO, has played a key role in growing the grocery delivery app. Before founding Instacart, Mehta studied electrical engineering in Canada and worked as a supply chain engineer at Amazon. Upon leaving Amazon after two years, he worked on an estimated 20 failed startups.

Mehta paused to reflect on his unsuccessful startups and concluded that the key factor behind these failures was his lack of interest in the product or problem. Instacart was a turning point, addressing a real-world issue he was truly passionate about solving. Living in San Francisco without a car in 2012, he noticed that the trend toward online purchases was shaping other industries, but groceries were still being shopped for the old-fashioned way. Soon enough, he had coded a simple test version of the grocery app he envisioned and things rapidly progressed from there.

Questions linger about whether Instacart can maintain its current level of operations once the pandemic ends. In April, as communities went into coronavirus lockdown mode, Instacart reportedly made $10 million net profit, but prior to April, Instacart had not turned a profit. In fact, during 2019, the eight-year-old company lost $300 million. The company has made many improvements in response to the dramatic COVID-bump in demand, which could bolster its potential to sustain its long-term success.