Deliverr’s nearly flat exit price isn’t as bad as it looks

The leading story in technology-land this morning is the multibillion dollar exit of Deliverr, a San Francisco, California-based e-commerce fulfillment startup, to e-commerce giant Shopify.

At first blush, the deal looks like a clear win. What startup wouldn’t want to exit for billions to a company growing as quickly as Shopify? But when we compare Deliverr’s exit price of $2.1 billion against its $2.05 billion final private price set early last year (Crunchbase data), the deal gets a bit more tricky to parse.

After all, no company wants to exit for a flat price, as it implies its most recent investors put their money to work for a period of time for no returns. Given the time value of money, or the time cost in this case, locking up funds at a time when interest rates and inflation are both rising for zero upside is actually a loss.

However, late-stage deals are nuanced in ways that we cannot grok just from the top-line numbers. Perhaps Deliverr’s last round back in 2021 included provisions that ensured its most recent investors would receive a set minimum return in the event of a sale.

If so, the deal could squeeze earlier investors and minor shareholders, like employees, out of some of the value of their stock. If the deal had more fat on the bone, we wouldn’t need to speculate about late-stage terms and their possible impact.

Does that make Deliverr’s exit for a loosely flat price a disappointment? Absolutely not. The startup market’s valuation cycle was at an all-time high last year, meaning that the company raised at or around a market peak. It managed to defend that price in a middle-early 2022 deal, which, frankly, is better than we might have anticipated given how sharply the value of technology revenues have been repriced.

The deal is therefore more a win than a loss, but with stern caveats about how it may impact more modest stakeholders. If Deliverr’s final private round did not include onerous downside-protection provisions, its sale could wind up winsome for all.

We doubt that, given late-stage investors tend to like a little insurance, but the fact that Deliverr managed to cling to the $2 billion mark is certainly more victory than defeat.

Should we read more into the transaction, perhaps as a leading indicator for the type of M&A we might see this year? That’s hard to say, but the deal does at least imply that for some high-priced startups, incumbent public companies flush with dry powder could find some tech upstarts enticing. If that’s the case, well, we could see more Deliverr-style deals this year.

And if these deals consistently come in at flat valuations compared to their final private prices, it would be a form of value conservation. No one investing in private companies wants that return profile, but it surely beats write-downs, yeah?

Finally, The Exchange explored the possibility of corporate venture capital activity last year leading to heightened M&A activity in 2022. Shopify has 11 known investments to its name, so perhaps this won’t be the last time we hear from the company’s checkbook this year.