Instacart

Investing in Instacart was perhaps the hardest decision I had to make as a venture capitalist.

It was April 2014, and the company was raising its Series B. And by the time we saw the pitch, they already had multiple term sheets. We pulled from my prior marketplaces experience and dove into their business quickly to develop a point-of-view on the opportunity.

First, there was a LOT to like about the company:

• The market size was, and remains, huge. Grocery is the largest retail category in the U.S., and in 2014, it had the lowest digital penetration of any category.
• Instacart was taking a unique approach to tackling this category, using a four-sided marketplace dynamic:
  • By partnering with physical grocers, they were able to leverage those partners’ existing investments in construction and inventory. Instacart didn’t need to build and stock warehouses.
  • On the shopper side, Instacart was leveraging the emerging gig economy, which was enabled by the strong penetration of smartphones in the U.S.
  • For consumers, on-demand delivery of groceries with only modest fees was a very compelling offer.
  • Over time, Instacart planned to build out an advertising revenue stream with CPG companies, offering them effective performance marketing with a primed, high-intent audience.
• The company’s early performance was impressive, and even more impressive was that almost all of the consumer-side growth was organic. Their GMV had almost tripled over the preceding three months and the early performance of their new markets exceeded that of their early markets. Early deal conversations with grocers had the potential to further accelerate growth and improve economics over time.

But there also were concerns:

• Many companies had tried and failed—spectacularly!—to build digital grocery businesses in the U.S. Remember Webvan and Kozmo?
• Instacart would be competing with multiple very strong and very well-resourced incumbents also targeting the digital grocery opportunity.
• The deal was expensive relative to traction. The company was still at a very early stage. With only 40 employees, they had just started to expand outside of San Francisco, Chicago, and Boston. There wasn’t a ton of game film on key issues including growth, new market performance, nor the ability to sign and scale grocer partnerships. They had impressive GMV growth and strong cohort revenue retention, but their unit economics were upside-down.

Beyond the metrics, co-founder and CEO Apoorva Mehta had great founder/product fit. Prior to founding Instacart, Apoorva was a fulfillment optimization software engineer from Amazon. He was the perfect leader for a concept that would require constant optimization to be successful.

CFI has long had an investment theory that we should invest behind strengths of a business model and opportunity, not lack of weakness. Instacart is a case study of this. Focusing on the former was key to our investment decision.

The more I got exposed to the details behind the Instacart business, the more it reminded me of OpenTable (where I had been CEO from 2007-2011). Both needed to convince businesses to join the platform with the promise that they would drive incremental revenue. Both offered consumers a ton of convenience through their service. And both had the potential to establish network effects if they were successful. The OpenTable story had ended well, and I became increasingly convinced that Instacart had the same potential.

We ended up issuing a term sheet on the round and were delighted when we won the opportunity to lead. Nine years later, and Instacart has just gone public. Has it been easy? HELL NO! My two most memorable bumps along the way:

• Instacart’s first deal with a leading U.S. grocer was with Whole Foods, who quickly became Instacart’s largest partner. So imagine the FUD that was generated by Amazon’s announcement that it was purchasing Whole Foods. Amazon had been signaling large ambitions in grocery, and they just stole our largest customer. With the benefit of hindsight, however, the Amazon/Whole Foods tie-up was actually a strong positive for Instacart as every other leading grocer in America immediately recognized that they needed a digital strategy. Most turned quickly to Instacart.
• The COVID pandemic turned everyone’s world upside-down. Grocery delivery immediately became an “essential service” and all digital grocery players in the U.S. were challenged to rise to a massive need (and opportunity). Instacart performed exceptionally well, scaling their operationally intensive model to grow GTV from $5.1 billion to $20.7 billion from 2019 to 2020.

HUGE shout outs to the Instacart teams that turned a small start-up into a digital grocery juggernaut over the course of the past nine years. It truly has been a team effort.

• Apoorva did everything you could hope for when backing a founder. He was seemingly fearless, channeling David against multiple grocery delivery Goliaths. He willed Instacart into a market leadership role with the help of his early executive team, including Nilam Ganenthiran, Ravi Gupta, Sagar Sanghvi, and many others who contributed enormously over the years. We can’t thank him enough for his vision, dedication, and effectiveness. In his final notable act as CEO, he selflessly entrusted the company to Fidji Simo, a highly capable and strategic leader for its next phase of growth.
• Fidji hit the ground running as the new CEO. She’s also built out a top-notch management team that stands ready to keep innovating and driving toward Instacart’s mission, including COO Asha Sharma, CFO Nick Giovanni, and CBO Chris Rogers.

We’ve been privileged to be along for the ride at Instacart, and what a ride it’s been!