When food delivery firm Deliveroo joins the London stock market on Wednesday March 31, it will be Britain's biggest listing in a decade, even though some of the country's leading investors - worth over $1 trillion between them - will be conspicuous by their absence.
British finance minister Rishi Sunak has hailed the company's decision to go public in London as a "true British tech success story," and said that he hopes that it will set the stage for more listings by fast-growing technology companies.
But strong demand for the IPO - it was fully subscribed within hours of the order book being opened - has been overshadowed by complaints over its share structure, questions about potential legal problems for its gig-economy business model and the threat of strike action from some of its workers.
Heavyweight investors Aberdeen Standard Life, Aviva, Legal & General Investment Management and M&G are sitting this one out, citing concerns about gig-economy working conditions and the outsized voting rights that will be handed to founder Will Shu.
Some of them also question whether the loss-making business can ever justify its valuation.
Having initially looked for up to £8.8 billion, the British tech firm went with a narrower price range and said on Tuesday March 30 that it will price at the bottom of the new range, valuing the company at £7.6 billion.
"Given volatile global market conditions for IPOs, Deliveroo is choosing to price responsibly and at an entry point that maximises long-term value for our new institutional and retail investors," a spokesperson for Deliveroo said.
One question is whether the Amazon-backed company will face the kind of clampdown experienced by Uber over the employment status of its staff.
"Deliveroo's narrow profit margins could be at risk if it is required to change its rider benefits to catch up with peers, in an industry that is already facing severe competitive pressure between the large tech platforms," head of UK equities at Aberdeen Standard Investments Andrew Millington said.
Deliveroo has seen demand soar during the pandemic as restaurants were closed for several months of the last year.
Its self-employed riders, distinctive in their cyan and white uniforms, have often outnumbered other traffic in cities during lockdown.
One rider Reuters spoke to - Krzysztof - said that he has few complaints about his treatment, although he wishes that he could get an electric bike. He said that he earns £300-£350 a week delivering food to families in Walthamstow in east London.
"I was working in a construction site nearby but I lost my job after COVID-19 and I found this quite easy to switch to," he said, preferring not to give his surname.
Many riders, including Krzysztof, don't work every day. Deliveroo riders are classed as self-employed contractors and earn a fee for every job. Employees, by contrast, are entitled to the minimum wage, sick pay and holiday pay.
London's High Court said last month that a group of Uber drivers are workers and thus entitled to the minimum wage in a ruling that could have ramifications across the gig economy.
Deliveroo says that its riders are self-employed because this gives them the freedom to choose when and where to work.
"We are confident in our business model, which has been upheld by UK courts three times, including the High Court twice," it said.
It dismissed criticism over conditions.
"We communicate with thousands of riders every week and satisfaction is currently at an all time high," it said in a statement.
Some critics questioned whether Deliveroo can maintain its growth when restaurants reopen and younger consumers no longer have to eat at home.
But Tim Vasilakis, founder of Greek street food vendor The Athenian in Shoreditch, east London, said that customers' habits have changed for good.
"It is a valid business model and I think it's proven itself now," he said. "I think the pandemic just accelerated something that was already happening."
Three years ago, he agreed an exclusive deal with Deliveroo, resulting in lower commission and the chance to use the company's "dark kitchens", where food is prepared by chefs in delivery-only facilities.
The Athenian set up its first dark kitchen in Battersea, London, just before the pandemic hit. Sales were comparable to some of the group's eight bricks-and-mortar restaurants, he said.
Deliveroo, which is battling competitors such as Uber Eats, Just Eat Takeaway.com, lost £226.4 million in 2020 despite the pandemic boost.
But investors in tech companies are used to losses. Many remember that Facebook and Amazon were loss-making for many years before profits shot up.
In a low rate environment, they are particularly tolerant.
"We've been in an environment where growth has been scarce, lacklustre and investors have been happy to pay up for growth wherever they can find it," head of research and analytics at Schroders Duncan Lamont said. "So long as investors are happy to finance those losses, companies like Deliveroo can continue to go down that route of losing money to gain scale to become profitable in the long run."
Broader Question
The broader question of how British fund managers view weaker corporate governance and the possible advent of more expensive regulation on the gig economy, however, will determine London's success in becoming a hub for tech companies.
News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.
