Blue Apron whiffs on first day of trading

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Blue Apron investors might be shedding a tear — and it’s not from the chopped onions.

The subscription service for at-home cooking closed the day just barely above $10 per share, rounded to just $10.01. This is not only a disappointment for the company, which hoped to raise more money by selling stock at $15 to $17 to share, but also for the new investors who bought at the $10 IPO price.

Most companies target at least a 20 percent “pop” on the first day of trading to kick off their public debut on good terms. The lowering of the offering price combined with the lackluster first day of trading is a bad indicator.

And with a market cap of just below $2 billion, this is a disappointment for the investors who gave the company a $2 billion valuation at the last private round. Venture investors consider breaking even to be a failure. They want big wins that pay for the rest of the startups with poor outcomes.

Although some of the later-stage investors were protected by something called “ratchets,” a phenomenon that has become common in late-stage venture capital. Certain investors are guaranteed minimum returns in the event of an acquisition or IPO, sometimes at the cost of other investors. As IPO research firm Renaissance Capital noted in a tweet, “part of Fidelity’s investment in Blue Apron has a ratchet at a 7.5% discount to the IPO price.”

And early investors like Bessemer Venture Partners and First Round Capital did very well. They invested when shares were worth just pennies.

Bob Goodman, partner at Bessemer Venture Partners, told TechCrunch that he believes in Blue Apron because of its CEO Matt Salzberg. He’s “impressed us with his unrelenting focus on creating a durable business,” adding that the team “tackled real-world issues around food waste and accessibility to high-quality ingredients for all customers.” Salzberg was once an associate at Bessemer.

Yet Blue Apron is hardly alone in the meal delivery space. There are countless competitors, and Sun Basket, Plated and HelloFresh have all gained traction. Some investors even feared that Amazon buying Whole Foods could hurt the growth of Blue Apron. While they have not announced plans to offer meal kits, at the very least they are expected to offer grocery delivery.

The numbers also suggest that Blue Apron has had issues with customer retention. Revenue is growing fast and they brought in almost $800 million last year. But they also are having to spend more marketing dollars for each dollar brought in. Churn could pose a big challenge for their business.

Yet it’s a feat for any venture-backed startup to even make it to the IPO milestone. New York-based Blue Apron has been around for just five years, a faster time to “exit” compared to the vast majority of IPO-bound startups.

And it’s looking like it’s a tough week for tech IPOs in general. Storage provider Tintri wanted to debut today but has postponed its offering.

Featured Image: Michael Nagle/Bloomberg via Getty Images