Instacart Was Losing $16 on Every Order Until Its Investor Faced Reality
Sequoia investor Mike Moritz told new CFO Ravi Gupta the startup would go bankrupt, then met with him every Wednesday.
Joys of Compounding · Ravi Gupta - Bring Joy - [Joys of Compounding, EP.21]Ravi Gupta had been chief financial officer of Instacart for about a month when he had to present financial results he had barely touched. He had arrived on September 28, and in early November he was presenting the September numbers. His first instinct, as he later admitted, was to say he had only been there for two days.
Gupta, who had left the investing firm KKR to join the grocery delivery startup, had walked into a crisis. Almost 10 years ago, Instacart was burning $12 million a month and losing $16 in gross margin on every order. It could keep operating for less than a year on the money it had left, while the losses were getting worse each month. The unit economics, the basic math of whether each sale makes money, were totally backward.
That is when Mike Moritz, the Sequoia Capital investor who sat on Instacart's board, did him his first favor. Moritz told him this was not normal for Silicon Valley and would not be fixed by another round of funding. It would end in bankruptcy if they did not fix it. Gupta now repeats the lesson to others in Gupta's words, "Don't be mad at me, be mad at reality," meaning be mad at the standard you agreed to meet.
Moritz followed the warning with a demand. He told Gupta they would meet every week, what Gupta came to call Wednesdays with Moritz. Gupta protested that he could not produce something worthy of a board discussion every week. Moritz said he just wanted to talk about what was going on.
That willingness to spend time is what Gupta remembers most. Moritz was a knight and a multibillionaire with many other demands, and a failure at Instacart would have mattered far more to Gupta than to him. Yet he showed up weekly to go through what was happening and what they were doing. When the team started to beat the standard he had set, his praise carried weight because he had been so tough.
Months later, Gupta was sitting at his desk watching an old interview from February 2016 in which Sam Altman, then running the startup program Y Combinator, asked Moritz what kept him going. Moritz cited the team at Instacart. The turnaround had begun in terrifying meetings in November 2015, and Gupta said he teared up when he heard it.
Questions people ask
What does it mean that the unit economics were backward?
Unit economics means whether a company makes money on each individual sale, after counting the direct costs of that sale. For Instacart, losing $16 in gross margin per order meant every additional delivery made the losses larger, not smaller. Fixing it usually requires raising prices or fees, cutting the cost to fulfill, or both.
Who is Mike Moritz?
Moritz is a Welsh-born billionaire investor and former journalist who became one of Sequoia Capital's most successful partners. He led early investments in companies including Google, Yahoo, PayPal, and Airbnb, and served on Instacart's board during its early years. He was knighted in the United Kingdom for services to the economy.
Did Instacart survive?
Instacart, now called Maplebear Inc., survived the cash crunch, grew into the largest grocery delivery service in the United States, and went public on Nasdaq in September 2023. It expanded beyond delivery into advertising and software for grocers, which helped improve profit per order. Fidji Simo, a former Facebook executive, later became its chief executive.