U.S. grocery delivery app Instacart is considering going public through a direct listing.
People familiar with the matter claim Instacart is concerned that it could leave money on the table through a traditional initial public offering (IPO).
The move would make Instacart the latest company to snub an IPO, for decades the primary path to a stock market debut, because it risks pricing its offering too low compared to where its shares end up trading.
In a direct listing, companies go public without raising money through a stock sale.
Shares of newly listed U.S. companies that went public through an IPO ended trading up 36.2% on average on their first day last year, compared to 17.2% in 2019, according to data firm Dealogic.
Investment bankers say they often struggle to price in the impact of huge investor demand for popular consumer names, such as home-sharing start-up Airbnb Inc and food delivery app DoorDash Inc, given the limited initial stock float of these companies.
Some venture capital investors, such as Benchmark general partner Bill Gurley, say bankers keep IPO prices low to favor their Wall Street clients.
Instacart has no short-term need for cash after raising $265 million in a private fundraising round earlier this week. The company’s business has benefited from more consumers shopping groceries online more to cook at home during the COVID-19 pandemic.
Investment bankers working on Instacart’s listing have estimated that it could be valued by the stock market at more than $50 billion, two of the sources said. Instacart said earlier this week its latest fundraising round valued it at $39 billion.
The San Francisco-based company has yet to make a final decision on how it will go public, the sources cautioned.