Was the Deliveroo IPO really a flop?

It is dubbed as one of the worst European IPO tech in history.

It does not indeed look good because high expectations were met by a public market pricing them at almost 30% off from the initial ask ($6bn market cap at Friday close) and $1bn less than the pre-IPO $7bn valuation in February.

Money was lost and the market consensus is that the whole IPO process was badly timed and mis-priced.

Which is not false. However.

Make no mistake, what we see now is not a true reflection of the company’s fundamentals (which is a PR-fed media refrain). It’s rather a simple result of a manly dispute involving money and egos that took place when negotiations were held during the listing process.

That fight still did not get a resolution.

On one side, we have the people with market power, aka the buy side on the public markets, which btw don’t have to explain not buying a particular stock - they need justifying the buying. As long as their portfolios make money they owe no justifications for their no-trades to their shareholders or anybody else.

On the other, we have a few investors which didn’t make as much money as they expected at the liquidity event. The largest ones are Amazon (which doesn’t really matter in this), 3 American hedge funds (T Rowe Price, Fidelity and Greenoaks) and 3 VC funds (Index Ventures, DST Global and General Catalyst).

And in between - Will Shu, the founder, who apparently caused all this since he wanted some involvement in the matter.

Why did he do that? Likely because he is an entrepreneur first and not an investor first. He trusts the fundamentals of his company and he probably didn’t want to play some old dudes’ games, who have been making and breaking the local stock exchange since, umm, the period before internet was invented?

One other detail: Will Shu is American not Brit. So he, by default, doesn't belong to the cool London boys club either. Which is an old known issue in the City.

And this equation brings us to the main problem, which is structural.

The truth is, later stage investment, pre-IPO, is still very much underdeveloped in Europe.

There is a missing link from series B or C, let’s say, to IPO, that you can easily see in the US market, for example - namely round series D, E or F which mainly involve pension funds and other large asset managers, which also have vested interests in the public markets dealers.

Their later stage involvement is a de-risking process, a validation that a company will smoothly sail towards an IPO, with no surprises, where everybody will make money and be happy.

Should they have existed in Deliveroo’s cap table, it is likely that we wouldn’t have had a CEO situation and unhappy people doing bad things to each other.

That is why I think this whole situation is an indicative image of an old European financial market doing business in the 21st century - sure, it is evolving, but it takes time until dinosaurs are replaced by the new blood.

As for Deliveroo - apart from a group of investors losing money (some amateurs included), the company is fine.

The fundamentals didn’t change over night because of unhappy traders sentiments. Yes, there may be concerns, there always are - they’re called risks and addressing them is part of the journey.

Deliveroo still raised some $2.1bn from the IPO, so they have the financial resources to execute, giving it firepower to take on rivals such as Uber and Just Eat Takeaway.com.

The opportunity in front of them is still sizeable, part of it validated by a bunch of early stage investors, and it is still up to them to grow revenue, become profitable and pay dividends, the only fundamental that makes shareholders happy and can fix the traders concerns.

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