Earlier this week, Blue Apron, a New York-based meal-kit subscription service, launched its IPO roadshow. With an implied valuation exceeding $3 billion, Blue Apron’s IPO has set the stage for New York’s largest VC-backed exit to date, ahead of Etsy, OnDeck, and Yext, and roughly 33 percent above its most recent private valuation of $2 billion in June 2015.
At the high end of its pricing range, Blue Apron plans to raise as much as $587 million. The company has previously raised $235 million in four rounds, with Bessemer Venture Partners (approximately 24% pre-IPO ownership), First Round Capital (10.5%), Stripes Group (6.5%), and Fidelity Investments (6%) as key existing investors. Blue Apron’s IPO includes 100 percent primary shares and no secondary sales as all existing investors are planning to hold on to their shares. Below, we illustrate Blue Apron’s cap table.
In our opinion, Blue Apron’s IPO raises three key questions:
What does the Blue Apron IPO mean for the IPO market in general? The headline is that the IPO market has clearly rebounded in 2017 – and the cherry on the top is that private valuations are holding up well in the public markets. Blue Apron is the ninth VC-backed tech company pursuing an IPO in 2017. Each of the prior eight 2017 IPOs (Snapchat, Cloudera, Okta, MuleSoft, Yext, Appian, Alteryx, and Carvana) is trading above its respective private valuation today. Furthermore, all of them are technically real, live “unicorns” (companies with billion-dollar liquidity events). Another notable observation is that, at five years old, Blue Apron will be the youngest IPO in the 2017 cohort to date. All in all, we have witnessed more unicorn IPOs in 1H:2017 than in 2015 or 2016. In fact, 2017 is turning out to be the “Year of the Unicorn,”, at least in the first half of the year. As far as trading trends are concerned, 2017 IPOs could very well exceed the records established back in 2012–2013.
What does the Blue Apron IPO mean for investor appetites in food-tech? Recent private investment trends in the food-tech space have been mixed at best, which has led to significant debate about the disruptive potential of VC investments in food-tech. To date, home runs in food-tech have been rare, and the truly successful companies haven’t disrupted the core food preparation business. OpenTable and GrubHub have done well among public food-tech investors: GRUB shares have been up 40 percent in the past year, and OpenTable was acquired by Priceline for a hefty premium in 2014. However, recent high-profile food-tech down-rounds and shutdowns include HelloFresh, Maple, Sprig, DoorDash, and Munchery. These companies serve as reminders that sustainable unit economics and food-tech don’t always go hand-in-hand. Blue Apron’s marketing spend trends and customer cohort data are flashing mixed signals, generating more questions than answers about sustainable unit economics. If Blue Apron is to continue successfully beyond its IPO, it will have to convince the public markets that it can achieve profitable and sustainable growth. On the other hand, if Blue Apron succeeds as a public company, it could open doors for other food-tech companies such as Instacart and Postmates.
Why invest in Blue Apron now? Investors certainly have plenty of reasons to be cautious: the profitability outlook, an uncertain addressable market opportunity, potential competition from “Amazon Foods,” and – most importantly – the valuation. However, we believe that long-term investors can make a credible case for investing in Blue Apron’s IPO at a roughly $3 billion valuation, for the following reasons: (1) Blue Apron benefits from clear demographic, behavioral, and secular tailwinds (e.g., more millennials, more mobile phones); (2) a subscription commerce offering is more attractive when it comes to food (and diapers) versus fashion or apparel; (3) although Blue Apron hasn’t been profitable on a cumulative basis, the company did provide evidence of a pathway to profitability in 2016; and (4) Blue Apron’s vertically integrated approach creates a deeper moat and arguably greater long-term profitability potential.
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