There’s no two ways about it. The flotation of Deliveroo on the London Stock Exchange was an unmitigated disaster. Will Shu may wish to blame market volatility for the 30% slump on the first morning of trading, but the truth is there were myriad factors that came together in an unholy alliance to derail what should have been a landmark moment in the entrepreneur’s life.
First off was the initial valuation of as much as £8.8bn at the top end of the range – a plainly ridiculous figure. Don’t forget that this was a loss-making business that as recently as January had raised $180m in the latest in a series of private fund raisings that valued the food delivery business at just $7bn. I say “just”, but that’s still a lot of mullah!
Having had a lukewarm response to the £8.8bn suggestion, the range was narrowed to between £7.6bn and £7.85bn, although that was still not low enough and eventually it was priced at a rock-bottom £7.6bn. But was it rock bottom? Apparently, analysts at Numis, one of the bookrunners on the float, had a target range of £5.5bn to £7.5bn, below the stated IPO range, ahead of the first day of trading.
Other issues to cloud the City’s view of Deliveroo included the self-employed status of its riders (at a time when several legal cases across Europe are being brought against so-called gig economy businesses); the dual share structure; question marks over whether it is a tech stock (and therefore eligible for a go-go tech rating) or a food business; and concerns over its business model and whether it can ever become profitable.
The company also made the unforgivable error of upsetting its two most valuable assets: its loyal customers and its best-performing riders. It managed to upset its customers by enabling them to buy shares in the company in a retail offer, which, because of the way these things work, meant those customers had to sit on their hands for a week watching the shares sink, unable to sell their shares during conditional trading.
As for the riders, Deliveroo’s famed technology seems to have developed a bit of glitch when it tried to distribute a £16m “thank you” bonus, paying some of the riders double the amount they should have got. To stop the inflated amounts from being transferred from the riders’ app accounts, the company simply stopped any and all payments to riders, even normal payments for deliveries rather than bonuses. Unfortunate, to say the least.
There was one other thing that backfired somewhat: Deliveroo’s PR strategy. I felt like I was being PR’d to within inches of my life. Take the build-up to the IPO. Instead of there being just one “intention to float” announcement, there were at least three launches, all undoubtedly designed to keep the PR ball rolling throughout the weeks building up to the start of trading.
After one of those launches, I was offered a one-on-one phone chat with the great man himself. Except that what was badged as a chat turned into a monologue by Shu on the ins and outs of what a great company it was. I think I did manage a couple of quick questions at the end, but I’m blowed if I can remember what I asked.
I fared a little better in a phone interview in the aftermath of the disastrous IPO when Deliveroo issued a quarterly trading update. Strong though the order numbers were, I and a colleague who was on the call with me were keen to widen the discussion to get some colour on how Shu felt about the disastrous float. Was he angry or emotional or simply disappointed about how it turned out? Had he tackled his army of well-paid advisers on how they’d managed to cock things up so badly? Did he himself accept that he’d got it hopelessly wrong?
Judging by the appearance of many of the same quotes he gave The Times in other media outlets, I’d guess Shu must have been up half the night before with his PR advisers, learning his lines off by heart and making sure he stuck to the script. Here is a selection of my favourite quotes and the questions that I asked. You’ll have seen many of them in other newspapers.
Why did the shares tank? “At the end of the day we are where we are. I’ve got a lot of work in front of me to build the business and also to prove ourselves to the market. Today is day one of doing that.”
How did you get it so wrong? “I can only focus on what I can control. The short-term fluctuations of a share price are not something I can control. What I can control is whether I can guide the company to the right vision – creating the definitive online food company – and can I help deliver quarterly results that are fantastic?”
Were you let down by your advisers? “No! But I don’t want to get bogged down in hindsight or finger pointing. We will prove people wrong over time – that’s what it’s all about.”
Are you going to change your employment model or are you wedded to it? “I think the riders absolutely love the model for its flexibility. I’m wedded to the model the riders want; I’m not religious about a particular model. The self-employed model is the only way to give riders complete flexibility. I want riders to have the flexibility they have now but also have benefits that are congruent with a flexible model.”
So there you have it: the business gospel according to Will Shu.
Dominic Walsh: Deliveroo’s unforgiveable errors
There’s no two ways about it. The flotation of Deliveroo on the London Stock Exchange was an unmitigated disaster. Will Shu may wish to blame market volatility for the 30% slump on the first morning of trading, but the truth is there were myriad factors that came together in an unholy alliance to derail what should have been a landmark moment in the entrepreneur’s life. First off was the initial valuation of as much as £8.8bn at the top end of the range – a plainly ridiculous figure.