Why are unicorns pushing back IPOs when the Nasdaq is near record highs?

The unicorns are still at it, Vision Fund 2 or no Vision Fund 2.

This week, Instacart announced that it has raised fresh capital at a valuation north of $13 billion. And, on the tail of that news item, DoorDash is looking to add more cash at a valuation that could stretch to a pre-money valuation that exceeds $15 billion, according to The Wall Street Journal.

Both announcements make it plain that late-stage unicorns are still able to attract huge sums despite a putatively uncertain, if recently excitable IPO market.

It’s an interesting state of affairs, as the prices that super-late-stage unicorns are able to charge private investors push their valuations so high that only the largest and richest companies might be able to afford buying them. The result could be a closed M&A window that leaves only an exit hatch marked “IPO.”

Amazon, for example, paid around $13.7 billion for Whole Foods, a chain of U.S. grocery stores that the technology giant also uses as distribution points for parcel delivery. Instacart, the grocery delivery service, is now worth $13.7 billion as well.

As the private company’s final investors won’t want to merely break even on their investment, Instacart

Food delivery giant DoorDash feels like it’s in a similar boat. The firm, which would be valued north of $15 billion if it can match the terms reports indicate it is hunting for, would be worth even more than Instacart. As it loses money, DoorDash is doubly expensive — but how much so depends on what you read and the timeframe in question. I have never heard an argument asserting that the firm was profitable in a preceding period on a GAAP basis.

If you buy it, you have to keep paying for it.

Old plans, new capital

So, it’s IPOs for the two, I’d reckon, unless they are willing to take a lower price down the road.

In a sense, this isn’t a huge surprise: DoorDash has filed privately, but we’ve heard little to no word about when we might see its docs. Instacart made similar noises early this year, even before COVID-19 accelerated its growth as the pandemic pushed many consumers to turn to delivery services to stock their cupboards.

But with DoorDash raising more private cash instead of pushing ahead with its IPO and Instacart now flush with nearly another quarter-billion dollars, their public offerings now appear far off in the distance; why raise so much cash if you intend to list in short order?

The contrast between recent market action, yesterday’s market declines aside and this decision to hold off on going public is confusing. Stocks have set new all-time highs this week, and public investors have shown a willingness to buy shares in growth-y offerings of all stripes and gross-margin light businesses. Isn’t this the moment for unicorns like DoorDash and Instacart to get out?

If they probably have to go public eventually and the markets are hot now, raising private capital and pushing their timing back looks risky. What if the public markets drop 20% again and the appetite for unprofitable IPOs dries up? And what if there isn’t another $200 million or $250 million waiting for the companies at the same time?

To a lesser degree, you could add Robinhood (revalued at $8.3 billion in May) and Chime (revalued at $5.8 billion in December, 2019) to this puzzle as well. If Nasdaq 10,000 wasn’t the time to hit the IPO button, what will be?

More on this when DoorDash raises its next round.