Monday 3 May 2021 11:00 am

After Deliveroo's car crash IPO, London needs a rebrand to fend off Europe's financial centres

Peter Jeffery is a corporate partner at law firm Moore Barlow.

Much like the carefully manufactured picture of a restaurant-quality dish displayed on the takeaway firm’s app, Deliveroo’s IPO promised so much, yet when it arrived, was a cold, undercooked imitation of the rich banquet investors had been promised.

After a difficult period, one of London’s most high-profile IPOs in years turning into a car crash was the last thing The City needed. Post-Brexit, London is in the midst of a branding battle with Europe’s other financial centres and can ill afford flops that call into question its position as the continent’s capital for tech flotations. 

Amid renewed strikes from its riders, and a share price wallowing at well below the initial valuation, the takeaway delivery firm is a case study for how not do an IPO. But herein lies the one positive we can draw from the Deliveroo debacle – there are lessons we can learn from it and use to restore The City to its financial pedestal. 

Investor concerns over the business model, pervasive workers’ rights issues and the level of control founder Will Shu holds over the company seemed to be major red flags to traders and not recognising this early could largely be why the initial valuation of the company was so catastrophically wrong.

This should serve as a warning for the UK’s next generation of tech unicorns. It highlights that in a market of ultra-high valuations, investors need so much more than the growth potential from new entrants. Ethics, governance and sustainability are just as important factors in generating faith confidence and surely set outstanding candidates out from the rest of the pack. 

In this regard, Deliveroo surely failed on the majority of counts – an all-out war with its own riders, a seemingly autocratic management style, alongside an as yet unclarified route to delivering real profit even in an environment of lockdown high demand, meant the firm was nowhere near the watertight business model needed to withstand the rightly intense scrutiny levied at new IPOs.

London’s soon-to-be-public companies need to think about leadership structures and how employees are represented if they are to instil the necessary confidence in the market. This might mean exploring more democratic company structures such as employee ownership, or developing share schemes that break up power, create buy-in and attract the right people who have the expertise to take the business to that next level.

A case in point is Bytes Technology Group, which floated on the LSE in December 2020. Pricing opened at 270p per share, then rose to 330p within hours, giving the business a market cap of around £780million on day one.

While not an earth-shattering new entry to the market in terms of overall value, the steady and reliable growth in share price the firm achieved and continues to achieve, and the tactics used by the company to demonstrate reliability to the market, can serve as a blueprint for others.

One of the issues with Deliveroo were fears there was a cult of personality around Will Shu, who hel outsized voting rights along with the chief executive. Bytes, on the other hand, adopted more traditional democratic decision-making within the business before going public. 

London, The City, and its flagship tech sector are at a crucial point. Breaking ties with Europe means it must stand on its own merit as a financial hub, and the experience of the pandemic has created a more tech-enabled world. This creates opportunity, but also danger – and the capital needs a strong roster of well-managed tech IPOs to demonstrate its global significance.

Deliveroo was the antithesis, but served to highlight how sustainable, responsible management and leadership structures are just as important as growth potential when it comes to successful flotation.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.