It's being called the worst IPO in London's history.

Shares in the food delivery app Deliveroo closed 26% down on the day of its public listings debut, wiping £2 billion (US$2.75 billion) from its £7.6 billion ($10.5 billion) opening market capitalization.

Much of the blame was being laid at the feet of a disastrous roadshow, where its Goldman Sachs and JP Morgan advisors refused to name the three "anchor investors" who were based outside the UK.

British fund managers also were spooked by a dual-class share structure which gave its CEO Will Shu outsized voting rights 20 times those of other investors.

But the structure also meant Deliveroo didn't debut into the FTSE 100 index, meaning passive tracker funds buying shares in the index would pass over Deliveroo.

Figure 1: Floppy pizza: Deliveroo's IPO failed to take off.
(Source: Thomas de LUZE on Unsplash)

Meanwhile, a series of large institutional investors including L&G, M&G and Aviva all declined to support the share float in a rarely public series of disavowals.

At least three hedge funds, spurred by this knowledge, therefore decided to very actively short the stock on the morning.

The stench of desperation appeared when Deliveroo then began courting its customers to invest in the IPO.

Disappointing delivery

Amazingly, perhaps, given the coronavirus pandemic, Deliveroo lost £224 million ($308.5 million) last year as the food delivery market grew more competitive as the likes of Uber and Just Eat got in on the act.

Things had not been going well when, at 390p a share, or £7.6 billion ($10.5 billion) altogether, Deliveroo's advisors already priced the float at the very bottom end of its indicated IPO range.

Under London listing rules, they would have had to pull the IPO if they'd gone any lower.

"A 30% cut is also what Deliveroo charges many restaurant owners, so I guess they now know how it feels," quipped the Guardian's Jim Waterson on Twitter.

Other Twitter users shared pictures of disappointing pizza deliveries, with comments like "Deliveroo's stock market debut in full."

A badly burned Deliveroo

Just earlier this month, the UK's Chancellor, Rishi Sunak, had hailed Deliveroo as "a true British tech success story."

But now, Deliveroo's IPO flop raises questions over London's future as a tech market.

One of the UK's fastest growing tech companies, used-car purchase and delivery portal Cazoo, has instead decided to list in New York under a Special Purpose Acquisition Vehicle.

As Brexit begins to bite, London's public markets face sharp growing competition from exchanges like Amsterdam's.

Amsterdam has already displaced London as Europe's top share trading hub, overtaking it when the UK's transition period for leaving the EU came to an end.

Concerns about the gig economy's exploitative nature also loomed large as the IPO dot drew near.

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Manchester United soccer player and anti-poverty campaigner Marcus Rashford announced he would hold talks with the company after a news investigation found on thousands of shifts riders earned on average less than the minimum wage.

The UK's Supreme Court ruled against Uber last month, saying its 60,000 UK drivers were employees all along, entitled to breaks, holidays and the minimum wage.

Though that particular judgment only applied to Uber, it raises expectations of a broader crackdown on low-cost gig economy practices that treat workers as self-employed.

Your worst IPO in London history is here

Deliveroo is "not a tech company, it's a bloke on a bicycle bringing you food. That this can even be up for discussion makes me feel like I'm taking crazy pills," said one tech trader on Twitter. Riders' working conditions, and the lack of power the two-tier share structure gave investors – not usually considered an oppressed group – figured big in fund managers' comments on the IPO.

Deliveroo's already thin margins would struggle to climb if it had to offer more traditional benefits like pension contributions, and it has yet to turn a profit.

It's a problem its rivals share, too. Uber Eats is now merely losing less than it formerly did. Just Eat, which once was actually profitable, saw its losses before tax jump 67% in 2020.

Peer-to-peer lender Funding Circle's lackluster IPO in 2018 spelt disaster for fintech listing ambitions. And on its day of listing, it merely finished flat.

Just how long the Deliveroo indigestion lingers remains to be seen.

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— Padraig Belton, contributing editor, special to Light Reading