Shoddy values drove Deliveroo’s historic flop

Mark My Words

It’s being described as ‘the worst IPO in London’s history’. What can we learn from Deliveroo’s historic flop? The public’s perception of their values played no small part in the poor performance.

Sure, the money-men are blaming various details about the IPO process.  Deliveroo’s advisers blamed short sellers for the plunge; others say Deliveroo priced its offering badly. 

I suspect something simpler. By the time trading started, no one was confident about Deliveroo’s guiding principles. Concerns about the gig economy have been mounting for months. Deliveroo’s treatment of its workers as ‘self-employed’ raised questions not just about their guiding principles but about the financial stability of companies with shoddy employment practices.

Investors are vetted more than ever today about the ethics of their portfolios. Aviva, who manage £365bn of assets, abstained from the IPO because Deliveroo’s riders did not get minimum wage, sick leave, or holiday pay.

When Aviva’s chief investment officer was asked why he was steering clear of the Deliveroo IPO, he said that investors are taking social responsibilities ‘a lot more seriously’. They were also turned off because of the potential risk of new regulation. If, like Uber, they have to reclassify their workers as employees, that means a big risk for investors.

No doubt because of this precedent, DoorDash and Delivery Hero have both lost value over the last month.

So, while various analysts try to go chasing what went wrong with the funding behind closed doors, I’m proposing a much simpler explanation: a company with questionable ethics is a bad investment. Would the inflated estimation—and subsequent flop—have been avoided if Deliveroo had reclassified its workers without regulatory prompting? Very likely. It goes to show that a service that everyone uses is not a surefire investment hit. Especially when everyone uses it ambivalently to start with.