The winners and losers in Instacart’s IPO

This week’s Instacart IPO is a big milestone for the tech industry. It’s the first major, venture-backed consumer tech company to hit the public markets since the end of 2021, when interest rates were still low. Other late-stage tech firms that have been delaying their listings, such as Reddit, are closely watching how public investors react to Instacart’s growth story to determine if the IPO window is truly open or not.

It’s also a milestone for Instacart’s roughly 3,500 full-time employees, some of whom are earning generational wealth for making an early bet on a little grocery delivery startup many years ago. For those who joined Instacart in the last few years, things are more complicated.

Joining a startup at the earliest stage gives someone the potential to earn the most outsized upside from the stock. In the case of Instacart, I found this analysis by Billy Gallagher at Prospect (a firm that tries to model the potential growth of private tech stocks) to be illuminating.

After combing through historical equity award values for Instacart engineer roles from job listings and other sources, Gallagher’s conclusion is that “people who joined before 2018 saw outstanding to modest gains” in their stock, while “those who joined more recently saw a serious dip in the value of their equity between when they joined and when Instacart went public.”

His ultimate conclusion is that, after Instacart’s Series B round of funding in 2014, “employees would have earned stronger returns joining FAANG or being paid in cash and putting that money into the market.” Meanwhile, those who joined Instacart during its peak valuation of $39 billion during the pandemic are looking at a roughly 73 percent decline in the value of their stock, given that Instacart went public at a much more modest valuation of $9.9 billion. (These numbers obviously don’t account for things like stock refreshers.)

Now, it’s worth noting that Instacart has made moves to try and offset the steep drop in its valuation. It gave its first companywide cash bonus last year, and its IPO was structured to offer a minimal number of shares to outside investors — a term called the “float” — to avoid diluting employee ownership as much as possible.

What’s more, most of the cash raised from the IPO is going to pay off employee tax bills for exercising their stock. In an unusual move, employees can sell as soon as November if the stock price trades 120 percent higher than the IPO price for at least five of 10 consecutive trading days. (The typical insider lockup period is 180 days, which will apply here as well if that price isn’t achieved — it most likely won’t be.)

Management has been clear that the IPO happened so that employees, especially those who joined early, can finally sell. “We felt it was really important to give our employees liquidity,” CEO Fidji Simo, who joined as CEO from Facebook in 2021, told CNBC. “As you know, this IPO is really not about raising money for us. It’s about making sure that our employees have liquidity on the stock that they worked really hard for.”

Instacart’s SEC prospectus lays out the paydays executives are seeing: ousted founder Apoorva Mehta sold stock worth about $21 million in the IPO and still retains 10 percent ownership of the company, making him the largest individual shareholder. The top three current execs — Simo, COO Asha Sharma, and CFO Nick Giovanni — were collectively awarded millions worth of restricted stock units for taking the company public.

Simo’s current stock package value is about $15 million, though she stands to gain much more if the business meets certain valuation thresholds. At the highest end, if Instacart returns to a $30 billion valuation or more, she’ll get an additional 480,000 shares, which would be worth over $40 million.

Money isn’t everything in life, and I’m sure there are folks at Instacart who joined at the pandemic peak and are still happy with that decision. But if there’s any lesson to take away from the company’s IPO this week, it’s that when you join a startup, timing really matters.

Larry Ellison rarely speaks publicly, save for Oracle’s annual conference, which was held again this week. As the fourth richest person in the world, he wields tremendous influence in politics and business. Elon Musk clearly sees him as a mentor. The two have been close for years, and Musk has modeled his setup at X / Twitter after Ellison, who de facto controls Oracle as chairman and CTO but lets CEO Safra Catz handle what he’s not interested in. Ellison invested $1 billion of his own money into Musk’s Twitter takeover, served on the board of Tesla, and his cloud service is helping power Musk’s nascent OpenAI competitor, X.ai.

I’ve never watched one of Ellion’s keynotes at Oracle CloudWorld, but this year, I took the time to watch the full video. Naturally, he spends most of the more than one-hour talk effusing about generative AI. “Most cool new tech does not get the attention of heads of state and heads of government and everyday people in everyday professions,” he said at one point. “It just doesn’t. This is like Sputnik.”

After pulling up a chair to sit down onstage rather than stand (“Now I don’t have to get down on the ground like Aaron Rodgers.” — He is 79 years old, after all!), Ellison demonstrated an impressively deep understanding of Oracle’s technology and how it relates to competitors.

Much of what he said is way too in the weeds for this writeup, but I did take note of a few interesting moments:

Pour one out for the legal team at Microsoft this week, which accidentally uploaded a slew of highly confidential product road map details and exec emails as part of the FTC v. Microsoft case that is trying to block its acquisition of Activision Blizzard. Even Xbox chief Phil Spencer’s internal memo addressing the leaks leaked to my colleague Tom Warren. Ouch.

If you work in the gaming industry, these internal docs are a gold mine, and you’ve probably seen them already. There are details about the next Xbox, set to come out in 2028, Spencer telling colleagues his dream is to buy Nintendo one day, and much more.

One internal email that got less attention but caught my eye was this one from 2020 by CMO Takeshi Numoto expressing doubt about Microsoft buying TikTok. It’s widely known that Microsoft was pursuing a deal when the Trump administration was threatening a ban, but Numoto’s email gives an unvarnished look at how senior execs evaluate these kinds of decisions — typos and all.

“Tic Tok or any other social network seem to have little in the way of hard hitting (not conceptual) adjacencies that would help us accelerate its growth (reason of us being a better owner since it will be banned otherwise, does not feel like a sound logic),” writes Numoto. “With any existing category, making real inroads into it without sufficient critical mass to begin with seem hard, and I think we all know that you can only do this when there is a macro secular shift that can be exploited (eg — shift to touch in terms of UEX (Apple and Android), or to cloud in terms of app pattern (Azure is now a much bigger infra tech provider than VMware, formerly king of infra on-prem) etc.).”

As I had hoped, the Department of Justice v. Google antitrust trial is unearthing juicy tidbits about the search giant’s business. One particularly interesting moment from the stand this week was the testimony of Google VP of ad products Jerry Dischler, who admitted that the company has increased ad prices quietly over the years to meet quarterly earnings goals.

I remember hearing a similar story from a Facebook employee many years ago. Then, this source was explaining how Facebook — and really all of the huge platform companies — have a lot of wiggle room to temporarily juice user engagement and revenue. To an outsider, it may be surprising that an engineer at a company like Google can tweak some code and make a material impact on earnings, but it’s common knowledge for those inside the belly of the beast.

Another stat I caught from Dischler is that, according to his testimony, Google has roughly 5 million advertisers. I believe that’s the first time a company executive has shared that number publically, and it likely means that Meta — with its more than 10 million advertisers — has the most individual advertisers of any company on earth.

Dischler also revealed that retail accounts for roughly 35 percent of search ads. About two-thirds of Google’s overall revenue comes from search ads, which is another new stat.

Google’s lawyers are well aware that a lot of confidential information is already coming out in this trial, so I’m not surprised to see them pressure the judge to take the government’s exhibits offline. That won’t keep the ones already shared from being in the public record, though. If you’re curious, we have a handy list of exhibits that we downloaded before they were taken down.

A roundup of what else happened in the tech industry this week that you may have missed:

Some interesting career moves I noticed this week:

You win, Dave Clark:

In last week’s issue, I incorrectly said that Dominic Perella was Snap’s first general counsel when, in fact, he was an early deputy general counsel.

That’s it for this week. Thanks for subscribing.