Why Amazon-backed food delivery app Deliveroo flopped in its market debut
Deliveroo shares plunged around 30% shortly after the London Stock Exchange opened Wednesday.
The food delivery app — founded and led by American entrepreneur and former Morgan Stanley analyst Will Shu — has become one of the best-known start-ups in the U.K.
But Deliveroo has been plagued by worries over the risks to its business model if regulators crack down on the gig economy
A distributor of Deliveroo is seen riding his bike with a package with food on a street on July 31, 2019 in Madrid, Spain.
Jesús Hellín | Europa Press | Getty Images
LONDON — When Deliveroo chose London for its hotly anticipated IPO, the food delivery company was hailed as a “true British tech success story” by U.K. Finance Minister Rishi Sunak.
But the Amazon-backed company failed to deliver on its first day of trading Wednesday. Shares plunged sharply as markets opened, with investors questioning Deliveroo’s ability to generate profits and an eye-popping £7.6 billion ($10.5 billion) valuation.
“That path to profitability is what is potentially under threat if we see increased regulation around workers’ rights,” Hargreaves Lansdown equity analyst Sophie Lund-Yates told CNBC’s “Street Signs Europe.”
“I think that is the biggest reason we have seen so much anxiety injected into the trading this morning.”
The food delivery app — founded and led by American entrepreneur and former Morgan Stanley analyst Will Shu — has become one of the best-known start-ups in the U.K. It employs over 2,000 people across 12 markets and uses a network of over 100,000 riders to deliver food from 115,000 restaurants and grocers. By market value, its IPO is London’s biggest since Glencore went public nearly a decade ago.
But the stock got a frosty reception from investors. Deliveroo has been plagued by worries over the risks to its business model if regulators crack down on the gig economy. Earlier this month, Uber reclassified all 70,000 of its U.K. drivers as workers entitled to a minimum wage and other benefits, after the country’s Supreme Court ruled that a group of the app’s drivers should be treated as workers.
Deliveroo issued its shares at just £3.90, right at the bottom of its initial range. However, shortly after trading started on the London Stock Exchange, the share price fell 30% to around £2.73 and questions are now being asked about how much further it can fall. Theoretically, Deliveroo can cancel the IPO until April 7 as it has opted for a “conditional offer.”
VIDEO 03:26 Workers’ rights threaten Deliveroo profitability, says analyst
By comparison, U.S. rival DoorDash saw its shares surge more than 85% on the opening day of trading in December, giving it a market cap of over $60 billion at the time. Closer to home, Deliveroo faces fierce competition from the likes of Uber and Just Eat Takeaway. That rivalry has added to concerns about the ability of Deliveroo to grow its margins and eventually become profitable.
The Deliveroo listing was led by investment banks JPMorgan and Goldman Sachs, with Bank of America Merrill Lynch, Citi, Jefferies and Numis also part of the syndicate. The stock was overallocated but that didn’t stop it tanking as it floated, leaving some early investors frustrated with how the investment banks priced the company’s shares.
Three hedge funds bet against Deliveroo’s stock Wednesday with short positions, according to two people familiar with the matter who preferred to remain anonymous as the details haven’t been made public. Short selling is a strategy in which an investor sells borrowed shares and buys them back in future at a lower price, the aim being to pocket the difference if the stock price declines.
‘Flopperoo’
Several top institutional funds have shunned Deliveroo’s IPO, citing regulatory risks around its business model and governance. Deliveroo decided to opt for a dual-class share structure, meaning that its founder would have greater voting rights than other investors.
While London is pushing for this type of structure to be permitted on the premium segment of its stock exchange — which makes firms eligible for inclusion in benchmark indexes like the FTSE 100 — top investment firms have complained that this may risk watering down investor protections.
“Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face,” said Russ Mould, investment director at AJ Bell. “It had better get used to the nickname ‘Flopperoo.’”
“The narrative took a turn for the worst when multiple fund managers came out and said they wouldn’t back the business due to concerns about working practices,” Mould added. “This is likely to have spooked a lot of people who applied for shares in the IPO offer, meaning they are racing to dump them.”
Deliveroo tried to persuade its customers in the U.K. to buy £50 million worth of shares in the IPO via its app. These retail investors — who were able to spend £250 to £1,000 on shares — are locked in until April 7, meaning they can’t sell their shares until restrictions lift.
“RIP my investment,” wrote amateur investor and primatologist Sam Elliot on Twitter after seeing Deliveroo’s share price collapse.
“Thankfully I did the minimum investment of £250 as I knew it was a risky investment,” he told CNBC.
VIDEO 09:24 Dark kitchens: Where does your food delivery really come from?
Fred Destin, a venture capital investor who backed Deliveroo in its early days, is optimistic the company will rebound. “Deliveroo might be facing some headwinds but I’m very bullish on the long term opportunity,” he told CNBC. “I think the market will over time recognize that it is a resilient and defensible business.”
Manish Madhvani, co-founder and managing partner at tech investment firm GP Bullhound, said the initial figures are a “bit of a setback” for London, which was “gaining momentum as a listings destination.”
However, he said it’s important to note that the company is still highly valued. “There may have been a mistake on the pricing given the market conditions, but we shouldn’t forget how truly pioneering the Deliveroo model is, rather than getting bogged down in the headlines,” he said.
Growth to value
Another big concern for investors is the sustainability of high-growth companies like Deliveroo as countries around the world seek to reopen their economies. The rollout of coronavirus vaccines has put pressure on U.S. tech stocks trading at significantly high multiples to revenue, such as Zoom, Netflix and Amazon.
Such companies benefited during the pandemic due to lockdown restrictions that resulted in people spending much more of their time at home. Zoom, Netflix and Amazon are still up roughly 107%, 38% and 56% in the last 12 months, respectively.
“From a more cynical point of view, conditions are about as good as they will ever be when everyone is literally locked in their house,” Hargreaves’ Lund-Yates told CNBC, adding the company is “really banking on” stay-at-home trends continuing long after the pandemic.
PUBLISHED WED, MAR 31 2021
Deliveroo shares plunged around 30% shortly after the London Stock Exchange opened Wednesday.
The food delivery app — founded and led by American entrepreneur and former Morgan Stanley analyst Will Shu — has become one of the best-known start-ups in the U.K.
But Deliveroo has been plagued by worries over the risks to its business model if regulators crack down on the gig economy
A distributor of Deliveroo is seen riding his bike with a package with food on a street on July 31, 2019 in Madrid, Spain.
Jesús Hellín | Europa Press | Getty Images
LONDON — When Deliveroo chose London for its hotly anticipated IPO, the food delivery company was hailed as a “true British tech success story” by U.K. Finance Minister Rishi Sunak.
But the Amazon-backed company failed to deliver on its first day of trading Wednesday. Shares plunged sharply as markets opened, with investors questioning Deliveroo’s ability to generate profits and an eye-popping £7.6 billion ($10.5 billion) valuation.
“That path to profitability is what is potentially under threat if we see increased regulation around workers’ rights,” Hargreaves Lansdown equity analyst Sophie Lund-Yates told CNBC’s “Street Signs Europe.”
“I think that is the biggest reason we have seen so much anxiety injected into the trading this morning.”
The food delivery app — founded and led by American entrepreneur and former Morgan Stanley analyst Will Shu — has become one of the best-known start-ups in the U.K. It employs over 2,000 people across 12 markets and uses a network of over 100,000 riders to deliver food from 115,000 restaurants and grocers. By market value, its IPO is London’s biggest since Glencore went public nearly a decade ago.
But the stock got a frosty reception from investors. Deliveroo has been plagued by worries over the risks to its business model if regulators crack down on the gig economy. Earlier this month, Uber reclassified all 70,000 of its U.K. drivers as workers entitled to a minimum wage and other benefits, after the country’s Supreme Court ruled that a group of the app’s drivers should be treated as workers.
Deliveroo issued its shares at just £3.90, right at the bottom of its initial range. However, shortly after trading started on the London Stock Exchange, the share price fell 30% to around £2.73 and questions are now being asked about how much further it can fall. Theoretically, Deliveroo can cancel the IPO until April 7 as it has opted for a “conditional offer.”
VIDEO 03:26 Workers’ rights threaten Deliveroo profitability, says analyst
By comparison, U.S. rival DoorDash saw its shares surge more than 85% on the opening day of trading in December, giving it a market cap of over $60 billion at the time. Closer to home, Deliveroo faces fierce competition from the likes of Uber and Just Eat Takeaway. That rivalry has added to concerns about the ability of Deliveroo to grow its margins and eventually become profitable.
The Deliveroo listing was led by investment banks JPMorgan and Goldman Sachs, with Bank of America Merrill Lynch, Citi, Jefferies and Numis also part of the syndicate. The stock was overallocated but that didn’t stop it tanking as it floated, leaving some early investors frustrated with how the investment banks priced the company’s shares.
Three hedge funds bet against Deliveroo’s stock Wednesday with short positions, according to two people familiar with the matter who preferred to remain anonymous as the details haven’t been made public. Short selling is a strategy in which an investor sells borrowed shares and buys them back in future at a lower price, the aim being to pocket the difference if the stock price declines.
‘Flopperoo’
Several top institutional funds have shunned Deliveroo’s IPO, citing regulatory risks around its business model and governance. Deliveroo decided to opt for a dual-class share structure, meaning that its founder would have greater voting rights than other investors.
While London is pushing for this type of structure to be permitted on the premium segment of its stock exchange — which makes firms eligible for inclusion in benchmark indexes like the FTSE 100 — top investment firms have complained that this may risk watering down investor protections.
“Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face,” said Russ Mould, investment director at AJ Bell. “It had better get used to the nickname ‘Flopperoo.’”
“The narrative took a turn for the worst when multiple fund managers came out and said they wouldn’t back the business due to concerns about working practices,” Mould added. “This is likely to have spooked a lot of people who applied for shares in the IPO offer, meaning they are racing to dump them.”
Deliveroo tried to persuade its customers in the U.K. to buy £50 million worth of shares in the IPO via its app. These retail investors — who were able to spend £250 to £1,000 on shares — are locked in until April 7, meaning they can’t sell their shares until restrictions lift.
“RIP my investment,” wrote amateur investor and primatologist Sam Elliot on Twitter after seeing Deliveroo’s share price collapse.
“Thankfully I did the minimum investment of £250 as I knew it was a risky investment,” he told CNBC.
VIDEO 09:24 Dark kitchens: Where does your food delivery really come from?
Fred Destin, a venture capital investor who backed Deliveroo in its early days, is optimistic the company will rebound. “Deliveroo might be facing some headwinds but I’m very bullish on the long term opportunity,” he told CNBC. “I think the market will over time recognize that it is a resilient and defensible business.”
Manish Madhvani, co-founder and managing partner at tech investment firm GP Bullhound, said the initial figures are a “bit of a setback” for London, which was “gaining momentum as a listings destination.”
However, he said it’s important to note that the company is still highly valued. “There may have been a mistake on the pricing given the market conditions, but we shouldn’t forget how truly pioneering the Deliveroo model is, rather than getting bogged down in the headlines,” he said.
Growth to value
Another big concern for investors is the sustainability of high-growth companies like Deliveroo as countries around the world seek to reopen their economies. The rollout of coronavirus vaccines has put pressure on U.S. tech stocks trading at significantly high multiples to revenue, such as Zoom, Netflix and Amazon.
Such companies benefited during the pandemic due to lockdown restrictions that resulted in people spending much more of their time at home. Zoom, Netflix and Amazon are still up roughly 107%, 38% and 56% in the last 12 months, respectively.
“From a more cynical point of view, conditions are about as good as they will ever be when everyone is literally locked in their house,” Hargreaves’ Lund-Yates told CNBC, adding the company is “really banking on” stay-at-home trends continuing long after the pandemic.
“Is the current valuation justified?” she added. “It is sadly a case of wait and see there. It’s a big question.”
Deliveroo's share price tumble dents CEO Will Shu's fortune by $144 million during opening hours of trading
Kate Duffy
His stake was worth $618 million at the opening share price, but fell as investors shunned the IPO.
Shu is also thought to have sold shares worth around $36 million when the firm listed.
Deliveroo CEO Will Shu is a wealthy man after the food delivery firm he cofounded floated on the London Stock Exchange on Wednesday.
Shu, the largest individual shareholder at Deliveroo, is thought to have sold around 6.7 million shares when the market opened, at the opening price of £3.90 ($5.35), making $36 million from that transaction.
The value of his remaining 6.3% stake is not currently as high as anticipated, after shares in the firm tumbled as much as 30% on its debut.
At the time of writing, the drop has seen Shu's stake in the firm plummet to a value of $474 million in the opening hours of trading, down $144 million from $618 million at open.
The company's listing price range for the IPO was between 390 pence ($5.35) and 460 pence ($6.33). At the higher end of the range, Shu's stake would have been worth as much as $729 million.
Shu's stake will fluctuate throughout the day and its value could end up being higher or lower by market close.
Read more: Here's the 5 things investors need to know ahead of the Deliveroo IPO
Deliveroo's IPO gave it an opening valuation of about $10.5 billion but it shed more than $2.7 billion in market value in its first hours as a public firm under the ticker "ROO."
The company, founded in 2013 by Shu and his friend Greg Orlowski, has faced criticism from large investors and activists in the run-up to its IPO over its business model.
Deliveroo's app allows consumers to order grocery and food on demand, and the firm relies on a network of gig-economy riders to ferry the goods out.
At least six investment firms, including Aviva Investors, Rathbones, Legal & General, and Standard Life Aberdeen, announced they wouldn't invest in Deliveroo. Some cited both its lack of full-year profitability, and the threat posed to future profitability by its ongoing reliance on gig-economy riders.
"Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face," said AJ Bell investment director Russ Mould on Wednesday. "It had better get used to the nickname 'Flopperoo'."
Kate Duffy
Will Shu, Deliveroo CEO and cofounder, inaugurates its first Deliveroo kitchen site in France, called Deliveroo Editions on July 3, 2018 in Saint-Ouen, France. Aurelien Morissard/IP3/Getty Images
Deliveroo CEO Will Shu saw the value of his stake in the firm fall to $474 million on its stock market debut.
Deliveroo CEO Will Shu saw the value of his stake in the firm fall to $474 million on its stock market debut.
His stake was worth $618 million at the opening share price, but fell as investors shunned the IPO.
Shu is also thought to have sold shares worth around $36 million when the firm listed.
Deliveroo CEO Will Shu is a wealthy man after the food delivery firm he cofounded floated on the London Stock Exchange on Wednesday.
Shu, the largest individual shareholder at Deliveroo, is thought to have sold around 6.7 million shares when the market opened, at the opening price of £3.90 ($5.35), making $36 million from that transaction.
The value of his remaining 6.3% stake is not currently as high as anticipated, after shares in the firm tumbled as much as 30% on its debut.
At the time of writing, the drop has seen Shu's stake in the firm plummet to a value of $474 million in the opening hours of trading, down $144 million from $618 million at open.
The company's listing price range for the IPO was between 390 pence ($5.35) and 460 pence ($6.33). At the higher end of the range, Shu's stake would have been worth as much as $729 million.
Shu's stake will fluctuate throughout the day and its value could end up being higher or lower by market close.
Read more: Here's the 5 things investors need to know ahead of the Deliveroo IPO
Deliveroo's IPO gave it an opening valuation of about $10.5 billion but it shed more than $2.7 billion in market value in its first hours as a public firm under the ticker "ROO."
The company, founded in 2013 by Shu and his friend Greg Orlowski, has faced criticism from large investors and activists in the run-up to its IPO over its business model.
Deliveroo's app allows consumers to order grocery and food on demand, and the firm relies on a network of gig-economy riders to ferry the goods out.
At least six investment firms, including Aviva Investors, Rathbones, Legal & General, and Standard Life Aberdeen, announced they wouldn't invest in Deliveroo. Some cited both its lack of full-year profitability, and the threat posed to future profitability by its ongoing reliance on gig-economy riders.
"Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face," said AJ Bell investment director Russ Mould on Wednesday. "It had better get used to the nickname 'Flopperoo'."
Deliveroo IPO flop deals blow to London's tech ambitions
Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
Wed, March 31, 2021
Watch: Amazon backed Deliveroo slumps in trading debut
When food delivery startup Deliveroo announced plans to list on the London Stock Exchange at the start of the month, UK chancellor Rishi Suank personally lauded the move.
Sunak hailed the company as a "true British tech success story" and said Deliveroo would be the first of many major tech companies to chose London.
"We are looking at reforms to encourage even more high growth, dynamic businesses to list in the UK," the chancellor said. "So it's fantastic that Deliveroo has taken this decision to list on the London Stock Exchange."
Deliveroo was meant to be the flag bearer for a new wave of tech companies coming to London thanks to stock market reforms announced in this year's budget.
Now those ambitions are in doubt after Deliveroo's disastrous IPO. Shares sunk 30% in the minutes after trading began on the company's first day of dealing on Wednesday. The slump was the worst opening day performance of a major listing in years.
"On one side, you say it’s a bit of a disaster since any tech company now would think: no way London isn’t the place – the big funds are not on my side and the regulations are still not that good," said Neil Wilson, senior market analyst at Markets.com. "On the other, it could really reinforce the need for change or the City would miss out on much more."
The question many bankers and tech executives will be asking themselves is: were Deliveroo's problems a one-off or is London still less tech-friendly than New York?
READ MORE: Deliveroo shares plunge on London stock market debut
"This certainly isn’t the London PR opportunity the government would have been hoping for," said Sophie Lund-Yates, a senior equity analyst at stockbroker Hargreaves Lansdown.
Deliveroo's problems were apparent from the start. Shortly after the IPO was announced several of the City of London's biggest institutional investors — including Aviva (AV.L), Aberdeen Standard Life (SLA.L) and L&G (LGEN.L) — all lined up to publicly say they would not take part in the float.
Investors were concerned about Deliveroo's treatment of delivery drivers, its persistent losses, a chunky valuation, and the IPO's structure, which gave founder William Shu continued control of the company even after listing.
UK's chancellor of the exchequer, BILLIONAIRE Rishi Sunak. Photo: PA
"Share structure has clearly been a big issue for UK investors," said Freddy Colquhoun, investment director at JM Finn, a money manager that invests over £9bn ($12bn) of client funds.
"I think there was an assumption that what works in the US would work in the UK too and investors would be accepting of the out-sized voting influence of Shu. This, coupled with concerns over regulatory pressures coming [and] the timing of the IPO just as we unlock restrictions, meant that a toppy valuation for a loss making business was not flavour of the day."
Like many others institutions, JM Finn avoided Deliveroo's listing.
Bankers cut the proposed value of the business by £1bn ahead of the float but the price cut wasn't enough to address more fundamental concerns.
A Deliveroo rider cycles through central London.
·Senior City Correspondent, Yahoo Finance UK
Wed, March 31, 2021
Watch: Amazon backed Deliveroo slumps in trading debut
When food delivery startup Deliveroo announced plans to list on the London Stock Exchange at the start of the month, UK chancellor Rishi Suank personally lauded the move.
Sunak hailed the company as a "true British tech success story" and said Deliveroo would be the first of many major tech companies to chose London.
"We are looking at reforms to encourage even more high growth, dynamic businesses to list in the UK," the chancellor said. "So it's fantastic that Deliveroo has taken this decision to list on the London Stock Exchange."
Deliveroo was meant to be the flag bearer for a new wave of tech companies coming to London thanks to stock market reforms announced in this year's budget.
Now those ambitions are in doubt after Deliveroo's disastrous IPO. Shares sunk 30% in the minutes after trading began on the company's first day of dealing on Wednesday. The slump was the worst opening day performance of a major listing in years.
"On one side, you say it’s a bit of a disaster since any tech company now would think: no way London isn’t the place – the big funds are not on my side and the regulations are still not that good," said Neil Wilson, senior market analyst at Markets.com. "On the other, it could really reinforce the need for change or the City would miss out on much more."
The question many bankers and tech executives will be asking themselves is: were Deliveroo's problems a one-off or is London still less tech-friendly than New York?
READ MORE: Deliveroo shares plunge on London stock market debut
"This certainly isn’t the London PR opportunity the government would have been hoping for," said Sophie Lund-Yates, a senior equity analyst at stockbroker Hargreaves Lansdown.
Deliveroo's problems were apparent from the start. Shortly after the IPO was announced several of the City of London's biggest institutional investors — including Aviva (AV.L), Aberdeen Standard Life (SLA.L) and L&G (LGEN.L) — all lined up to publicly say they would not take part in the float.
Investors were concerned about Deliveroo's treatment of delivery drivers, its persistent losses, a chunky valuation, and the IPO's structure, which gave founder William Shu continued control of the company even after listing.
UK's chancellor of the exchequer, BILLIONAIRE Rishi Sunak. Photo: PA
"Share structure has clearly been a big issue for UK investors," said Freddy Colquhoun, investment director at JM Finn, a money manager that invests over £9bn ($12bn) of client funds.
"I think there was an assumption that what works in the US would work in the UK too and investors would be accepting of the out-sized voting influence of Shu. This, coupled with concerns over regulatory pressures coming [and] the timing of the IPO just as we unlock restrictions, meant that a toppy valuation for a loss making business was not flavour of the day."
Like many others institutions, JM Finn avoided Deliveroo's listing.
Bankers cut the proposed value of the business by £1bn ahead of the float but the price cut wasn't enough to address more fundamental concerns.
A Deliveroo rider cycles through central London.
Photo: Daniel Leal-Olivas/AFP via Getty Images
READ MORE: Deliveroo IPO to list at bottom end of projected range
Deliveroo lets freelancers book jobs to deliver food on its platform and pays per order completed. The company disclosed in its prospectus that it was involved in labour disputes in the UK, France, Spain, the Netherlands, and Italy. Governments in Australia, the Netherlands, Spain, and Italy are investigating its working arrangements.
These disclosures made worrying reading given the rising focus on ESG in the City — environmental, social, and governance factors. Concerns about a potential rise in operating costs were also heightened by Deliveroo's persistent losses. The company has lost £785m over the last three years, although revenues have grown rapidly over the same period.
"I think the market is waking up to reality," said Bill Blain, a strategist at Shard Capital. "Firms in a low margin, highly competitive, no-barriers to entry sector are unlikely to succeed – whatever the technological advantage they claim."
Some of the issues Deliveroo faced — such as regulatory pressure and the nature of the food delivery market — are relatively unique. Others — such as a hefty valuation for a loss making company and a dual-class share structure — are far more universal to the tech industry. It raises questions about whether London's investment community is ready to accept high-growth tech businesses even if rules are relaxed.
“The initial figures for Deliveroo are a bit of a setback as London was gaining momentum as a listings destination," said Manish Madhvani, co-founder and managing partner at technology investment and advisory firm GP Bullhound.
"So much great work has gone into creating unicorns companies and global household tech names, which we then eventually lose to the US markets. That is a core problem that needs addressing."
A DoorDash food delivery person makes his way through
READ MORE: Deliveroo IPO to list at bottom end of projected range
Deliveroo lets freelancers book jobs to deliver food on its platform and pays per order completed. The company disclosed in its prospectus that it was involved in labour disputes in the UK, France, Spain, the Netherlands, and Italy. Governments in Australia, the Netherlands, Spain, and Italy are investigating its working arrangements.
These disclosures made worrying reading given the rising focus on ESG in the City — environmental, social, and governance factors. Concerns about a potential rise in operating costs were also heightened by Deliveroo's persistent losses. The company has lost £785m over the last three years, although revenues have grown rapidly over the same period.
"I think the market is waking up to reality," said Bill Blain, a strategist at Shard Capital. "Firms in a low margin, highly competitive, no-barriers to entry sector are unlikely to succeed – whatever the technological advantage they claim."
Some of the issues Deliveroo faced — such as regulatory pressure and the nature of the food delivery market — are relatively unique. Others — such as a hefty valuation for a loss making company and a dual-class share structure — are far more universal to the tech industry. It raises questions about whether London's investment community is ready to accept high-growth tech businesses even if rules are relaxed.
“The initial figures for Deliveroo are a bit of a setback as London was gaining momentum as a listings destination," said Manish Madhvani, co-founder and managing partner at technology investment and advisory firm GP Bullhound.
"So much great work has gone into creating unicorns companies and global household tech names, which we then eventually lose to the US markets. That is a core problem that needs addressing."
A DoorDash food delivery person makes his way through
slushy snow in Times Square in New York, US.
Photo: Anthony Behar/Sipa USA
Many people are struck by the comparison with DoorDash (DASH), a US food delivery app which saw its shares surge 86% in New York after its IPO. The company lost $667m (£485m) last year on revenues of $885m. Deliveroo lost £225bn last year on revenues of £1.2bn. DoorDash is currently valued at $41bn, while Deliveroo's first day slump puts it closer to £5.5bn.
"We need to change how we perceive loss-making businesses," said Madhvani. "If we don’t do that in the UK, we will keep losing valuable businesses to the US."
Still, most in the City of London don't believe Deliveroo's flop will permanently damage London's tech ambitions.
"A lot of the fundamental jitters in this case are more company, rather than country, specific," said Lund-Yates.
At least part of Deliveroo's poor IPO performance also came down to timing. Investors attention has been shifting away from tech businesses towards companies that will benefit when economies began to reopen. Several recent US tech floats have been forced to price at the lower end of expectations and seen shares fall below their opening day price.
"Deliveroo firmly falls into the pandemic winners category, but at a time when traders are looking for value recovery plays, this doesn’t look like the most attractive proposition," said Josh Mahoney, a senior market analyst at IG.
Blain said the UK government was "damn silly" to make Deliveroo a flagship deal but predicted British investors would welcome better tech businesses with open arms.
"It remains critical that top tech firms can and will list in London – and it will happen," he said.
Many people are struck by the comparison with DoorDash (DASH), a US food delivery app which saw its shares surge 86% in New York after its IPO. The company lost $667m (£485m) last year on revenues of $885m. Deliveroo lost £225bn last year on revenues of £1.2bn. DoorDash is currently valued at $41bn, while Deliveroo's first day slump puts it closer to £5.5bn.
"We need to change how we perceive loss-making businesses," said Madhvani. "If we don’t do that in the UK, we will keep losing valuable businesses to the US."
Still, most in the City of London don't believe Deliveroo's flop will permanently damage London's tech ambitions.
"A lot of the fundamental jitters in this case are more company, rather than country, specific," said Lund-Yates.
At least part of Deliveroo's poor IPO performance also came down to timing. Investors attention has been shifting away from tech businesses towards companies that will benefit when economies began to reopen. Several recent US tech floats have been forced to price at the lower end of expectations and seen shares fall below their opening day price.
"Deliveroo firmly falls into the pandemic winners category, but at a time when traders are looking for value recovery plays, this doesn’t look like the most attractive proposition," said Josh Mahoney, a senior market analyst at IG.
Blain said the UK government was "damn silly" to make Deliveroo a flagship deal but predicted British investors would welcome better tech businesses with open arms.
"It remains critical that top tech firms can and will list in London – and it will happen," he said.
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