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Apoorva Mehta’s grocery delivery startup Instacart went public in September amid a prolonged IPO drought that has hit the technology sector. The long-awaited and much-publicised public offering was expected to reinvigorate the IPO market in the US, but the San Francisco-headquartered company’s shares are still trading below its listing price.
Mehta, who stepped down as Instacart CEO in 2021 and subsequently from the company’s board, still owns the largest stake in the firm. The India-born founder is now focusing on his healthtech startup Cloud Health Systems (in stealth mode), backed by Joshua Kushner’s Thrive Capital. In an hour-long interview to ET, he spoke about what he called a “hard journey” building Instacart, fighting Amazon in the grocery business and picking the healthcare segment for his latest venture. Edited excerpts:
Why did Instacart go public at a time when the US IPO market for tech listings was frozen?
Instacart’s financials have been pretty strong for some period of time. When I stepped down as CEO, we had five quarters of positive cash flows while driving growth. The company clocked over $500 million in ad sales and had over $2 billion on the balance sheet. The primary reason to go public was to make sure that employees and early investors receive liquidity. It had always been our intention to be publicly listed at some point. It’s really a testament to the financial stability of the company that allows for it to go public at a time when there was no window.Were you opposed to the IPO?
I want to be very clear about this… I recruited the whole board and brought in an audit chair at the beginning of 2021. I wouldn’t have done that if I didn’t want to go public. I hired the entire leadership team, including the CFO. We had conversations about the right time to go public when we were dealing with Covid-19.
Was this at the time when a flurry of tech IPOs took place, including DoorDash‘s?
That’s right. And we took a call not to go public at that point. We grew by close to 400% during that time frame.
Did you not think that was a good number to take to the public markets?
I don’t think so. The long-term stability of the company is what matters. It’s very easy to look back and say this now. At the time, we were in the middle of the pandemic, Instacart had just onboarded half a million shoppers within a matter of months, but the entire economy had shut down. We had multiple board meetings about this, and only one board member pushed for it, everyone else was against going public. It just didn’t make sense because we needed the right board. Along with it, the priority was to navigate through Covid first and then go public.
Late-stage investors have seen major value erosion (Instacart’s peak valuation was $39 billion in 2021 versus its current $7 billion)…
I don’t think that’s mathematically correct because their clock started in 2021. You can’t expect the clock to end right at the date of the IPO. These investments are like 10-year journeys.
These investors come in pre-IPO and they don’t have the kind of longevity of venture funds…
It will be interesting to see all the investments that were made in 2021 and how they have performed… I don’t think Instacart is an anomaly in this case. We raised a $300 million round, led by Sequoia Capital, in March 2021. Everyone’s understanding at the time was that markets were going to continue to grow.
The Instacart listing was supposed to help the tech IPO market make a rebound, but that has not happened?
A lot of people think about how the market is doing on a particular day or a week. But if you step back and look at a 10-year horizon, markets will adjust based on the amount of value being created by the entrepreneur. I sold a very small portion of Instacart shares during the IPO because I believe in the company.
What made you leave Instacart and how hard was the decision?
I didn’t want my legacy to be defined by one company. Also, I wanted to focus on my new startup fully as an entrepreneur… I did what I came to do at Instacart.
No one believed that online grocery shopping was going to be possible, scalable and make any money. We invented a completely new model, which resonated not only with customers but also people who picked and delivered the groceries. The whole ecosystem adopted the model that we created.
What was it like to fight Amazon?
People thought that full vertical integration, which was Amazon’s model, where you would have your own warehouses, was the way to go.. We thought, not only does that model not scale, it will never make any sense economically. And that was the contrarian idea behind Instacart. It took us many years to prove that was the case. The proof point is showing up in our financials.
Why haven’t big technology companies been able to crack grocery?
I’m just a believer that a small focused team is much better positioned to take on very hard challenges than one division at a larger company. For us, it was existential but for the larger companies, it was one of the many bets, and that is what made a difference.
In India, grocery delivery has been dependent on smaller warehouses inside cities…
That’s obviously not possible in a market like the US, where you have warehouses really far away. Also, the market is very well stored. If you look at grocery stores per capita, it’s actually quite decent. And so the question is, why build a parallel supply chain when you have grocery retailers who have not only the trust of the customers but also the best prices? That’s why we built such a strong partnership with our retailers.
Talk about CloudHealth, you have raised upwards of $40 million but the sector has big players…
I cannot get into too many details as we are still operating in stealth. Our team is about 35 people. What is really interesting to me is that healthcare is an incredibly large market. Grocery was $1 trillion, this is $4.7 trillion, and roughly 5% of the world’s GDP is spent in American healthcare. I wanted to take on something that would impact society in a positive way while creating a very sizable business.
You still hold a large share in Instacart (10%). Didn’t you want to be on the board because there’s so much stake that you hold?
The team’s very well incentivised. The boards are really well incentivised to make sure the company is going in the right direction… I don’t feel the need to be on the board.
What was the hardest phase for you at Instacart till you stepped down in 2021?
There were several… the Covid-19 pandemic was among the hardest… Another big challenge was when in 2017, our largest partner, Whole Foods, was acquired by Amazon. I called an all-hands and I told the team that we’re going in war mode. And that meant that the only thing that mattered at this point was to get all American grocery retailers , big and small, onto the platform in the next six to nine months. I was on the phone with basically every CEO in the entire ecosystem.
A lot of entrepreneurs would want to know how you detach yourself from your startup and start all over again.
I can only speak for myself but when I look at incredible athletes who have won a competition, they don’t just stop playing. They go back to it again because they really enjoy it. I don’t think at any point in my career, I thought I would not be building only one company… so I took three weeks off after Instacart and got back at it. You can’t just turn off your drive.
How is this experience different from when you started Instacart ?
At the time when you’re starting your first venture, no one believes you. You have to earn every single ounce of trust… Second time, you have the opposite problem. Everyone believes you. And you’re like, no, wait a minute. I need real feedback here. What am I getting wrong? You want critics… You’re also thinking about how big this is going to be?
So where do you get that critical feedback?
My relationship with some of our investors is very good, where I just talk to them very openly… I’m just very transparent in terms of why this business could work and why it could not work.
Have you looked at other models of grocery delivery startups in India and Asia? Are you tracking what’s happening in India’s tech sector overall?
I’ve always found that companies which tried to replicate models working somewhere else never really succeed. When you’re thinking about a model for India and China, the retailing ecosystem is very different… Indian entrepreneurs are the best to solve Indian problems, because they’re just so uniquely different.
I am pretty plugged in and the people I’ve spoken to, whether they are investors or founders, feel incredibly enthusiastic about India’s prospects over the next few years.
“We are in a transformative moment in time. And you see, use cases being developed with generative AI, which are significantly different from what we’ve done before. The bottom line is that the responsibility in terms of who does what in AI is kind of distributed across everyone. But by and large, those who created the models have the largest amount of responsibility. That’s the simplest way of thinking about it.”
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