Instacart will this week begin marketing an initial public offering that is expected to value the online grocery delivery company at as little as a quarter of the $39bn price tag it enjoyed two years ago, in a litmus test for new tech listings.

The San Francisco-based ecommerce company is being watched closely by other private tech groups and their investors who believe it could trigger a wave of IPOs at far lower equity valuations than those paid by venture capitalists in an industry-wide boom during the coronavirus pandemic.

The Instacart offering, which will begin its investor roadshow this week, is one of the first tests of investor sentiment for venture-backed tech start-ups on public markets in about two years. It comes as a window for IPOs has been opened by British chip designer Arm, which will list this week at an expected valuation of up to $52bn, making it the largest listing of the year.

“A strong reception for Arm is a necessary but not a sufficient condition for VC-backed companies to come to market,” said Eric Liaw, a general partner at venture firm IVP.

Many VCs see Instacart as a better barometer of Wall Street’s appetite for tech listings than Arm, which is a mature and profitable business that is being brought back to the public markets by a single owner, Japanese conglomerate SoftBank.

“[Instacart] would be a good indicator of what public-market investors are looking for,” said Kyle Stanford, lead analyst at private market data company PitchBook. “If it does poorly, it will shut the door for VC-backed companies. If it does well, a couple more might file.”

Three people with knowledge of the Instacart IPO said early discussions ahead of the marketing roadshow had put its value within a wide range of $8bn-$14bn, reflecting uncertainty about public valuations amid a dearth of new listings. One person said less than 10 per cent of Instacart shares would be offered. Instacart declined to comment.

An IPO in that price range would be bruising for venture firms that bought $265mn worth of shares in the company based on a $39bn valuation in 2021.

Instacart and its brokers are expected to issue a range for the shares to prospective investors on Monday. Shares are expected to begin trading the following week.

The group, led by former Facebook executive Fidji Simo, slashed its valuation to $12bn as part of an internal accounting exercise earlier this year. That would have prompted some venture investors to write down some of the value of their holdings. However, those investors will be forced to recognise any losses on their investments in Instacart when the company goes public.

Sequoia Capital and Khosla Ventures, two of Silicon Valley’s top venture firms, have participated in the bulk of Instacart’s funding rounds since its first significant one in 2013 and still stand to gain from the IPO despite the drop in valuation.

More funds invested in later years as the company’s valuation grew. D1 Capital started investing in 2018, for example, while mutual funds like Fidelity and T Rowe Price first came in in 2020, according to data from PitchBook. More than a dozen smaller funds invested for the first time at Instacart’s peak valuation in 2021, according to PitchBook. Instacart has raised more than $2.7bn from investors in total.

Sequoia owns about 15 per cent of Instacart, or 51mn shares, putting it among the start-up’s largest venture backers, according to a person familiar with the matter. The firm has invested about $300mn in Instacart across its funding rounds, including in 2021, the person said. If Instacart listed at a $10bn valuation, Sequoia’s existing stake would be worth about $1.5bn. Sequoia declined to comment.

In an unconventional move, Sequoia and a number of Instacart’s other private backers will buy more shares at the IPO. That group, which also includes Norges Bank, TCV, Valiant Capital and D1 Capital, will purchase about $400mn of Instacart stock as cornerstone investors, according to company filings.

VCs typically cash out early investments when their portfolio companies list. The move suggests optimism that Instacart can rally on the public markets.

One person close to the Instacart IPO said the drastic cut in its valuation since 2021 was despite the group this year reporting its first profits. Earnings improved from a net loss of $74mn in the first half of 2022 to net income of $242mn in the first half of this year, according to recent filings.

Late-stage tech start-ups hoping to list while reporting a loss were likely to face even tougher IPO valuations, the person said.

“Instacart has characteristics that became hated in the last two years: grocery, delivery, logistics or operations — all these companies used to be darlings and became very shunned,” said the head of a large sovereign wealth fund that has invested in many late-stage tech start-ups in the US. “It is the first of those companies out of the gate. It will be very important.”

Instacart is one of a crop of start-ups that burnt through venture capital pursuing rapid growth in boom years running up to the end of 2021, gaining multibillion-dollar valuations on the way.

Since then, start-ups have been forced to drastically cut costs, lower growth trajectories and stomach far lower valuations as a result of an economic downturn that has battered public tech stocks and caused wells of venture capital to dry up. Last week, it emerged that Getir, a Turkey-based grocery delivery start-up, was cutting its valuation from $11.8bn early last year to $2.5bn as it raises $500mn in new capital.

In this tougher environment, many start-ups have resisted raising fresh equity in order to avoid an associated valuation cut. If Instacart can successfully list at a lower valuation than its peak private mark, it will set an important precedent for other IPO candidates.

Instacart and $9.5bn marketing automation company Klaviyo, which filed for an IPO last month, are the first of those private tech companies to test the public appetite.

A handful of other companies including software company Databricks and identity verification start-up Socure are among the start-ups that could list after a successful Instacart IPO, according to investors in those companies. 

Instacart’s IPO bankers, led by Goldman Sachs and JPMorgan, will begin marketing the company to investors this week. The company plans to list on Nasdaq under the ticker symbol CART.