Delivering the goods or a bad taste in the mouth?

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All the ingredients came together here to deliver a really tasty story:

You’ve got a rare listing of a tech “darling” in London, in a climate where the UK government is desperate to “reawaken” London’s capital markets in a post-Brexit world and in a time of US-based SPACs stalking many private UK firms.

Add to that – an investment world being reshaped by investors paying real attention to all the mess and externalities created by the companies they own, meaning asset managers need to be seen to be evaluating social risks more carefully than ever and a gig economy firm with big question marks over the pay and conditions that riders experience (1 in 3 reportdely earning less than minimum wage). Finally, you’ve got all the governance concerns of a dual-listing structure, beloved of tech founders who retain a tonne of control (investors, not so much). This means that Deliveroo remains ineligible for inclusion in FTSE-indices tracked by billions of pounds of investor money, despite its size.

I push back on the idea that the recent Deliveroo IPO was a “disaster” though, as is being portrayed in much of the media. The banks have wrongly conditioned us to think that a big first day pop is the definition of a good IPO when in reality it shouldn’t be viewed like that. A first day pop simply indicates that the founders/venture capitalists left “money on the table” that was pocketed by that lucky clique of investment bank clients that were allowed to buy stock at the IPO (I’m not expecting anyone to cry those people a river btw, but it’s still a sign of a broken system). Venture Capitalists like Bill Gurley have long railed against the failures of the IPO system.

Ultimately Deliveroo listed at the same valuation as Sainsbury’s … in a market where the heat has really gone out of a lot of global tech stocks (with Peloton, Zoom and Tesla all 25-30% off their highs, and even Amazon and Apple around 15% off last year’s highs), and a context where there were a number of really legitimate challenges to their business (let’s not kid ourselves, this ain’t the next Amazon) . A business that is yet to get close to making a profit and came close to collapse a year ago. Sounds pretty decent to me

I guess it’s human nature to be dismayed at listing a £5-6bn business when your bankers said it was at least a £7bn biz but it’s all in the framing isn’t it? If you use as broken a system as an IPO to set your reference point, don’t be surprised to end up miles away.

Oliver Shah’s recent piece in the Sunday Times exposed the clique of political and PR spin-gurus surrounding the Deliveroo float, which lays bare the reality that it’s an exercise in bluster, spin and narrative more than it is about real price discovery (don’t blame Deliveroo for that though – blame the banks). That’s why SPACs deserve to be taken seriously.

Deliveroo’s market valuation – at just a touch under 10x its revenues (of c£700m) compares pretty reasonably with where Doordash – its most obvious competitor is valued in the US, suggesting the London market does support tech companies just as well as the US market.

So look I know we all love a binary narrative but I wouldn’t see this as either victory or defeat for Deliveroo, the London Market or ESG-conscious investors. Quite apart from it being far too early to tell, see it as a reasonable markets-driven compromise on a number of thorny issues. With perhaps a good few lessons for the future.

As a final thought – one more angle on this is the fascinating gamification built into Deliveroo (covered in this excellent Economist podcast). Riders interviewed talk about feeling like they are playing Pokemon – cycling around earning gold coins and power-ups, and getting addicted to doing more and more deliveries. I’ll leave that there without comment!

For further listening on IPOs and their alternatives listen to the excellent Masters in Business podcast conversation with Bill Gurley and Barry Ritholtz.


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