Short sellers, an unfortunate roadshow and terrible timing were all blamed as Deliveroo lost more than a quarter of its value on its first day of trading, becoming in the words of one of its bankers: "the worst IPO in London's history".
Shares in the food delivery app closed on Wednesday at 287p, 26 per cent down, wiping almost £2 billion ($3.9b) from its opening £7.6b market capitalisation, despite frantic efforts by its lead bankers Goldman Sachs and JPMorgan to shore up the stock.
The dramatic failure of London's biggest tech IPO is likely to damp hopes of the British government to attract other high-growth companies to list in the UK, ahead of growing competition from exchanges such as Amsterdam.
"I really hope that this doesn't shut down the IPO market" in London, said one person close to the listing, pointing to the long hangover from Funding Circle's dismal debut in 2018. "It's a big risk."
Several of Deliveroo's advisers, bankers and investors were quick to blame short sellers for the opening plunge. "At least three hedge funds have very actively gone short this morning, enabled by banks outside of the syndicate [of the IPO]," said one person directly working on the deal. "The opening move was very sharp."
But others in the market raised questions about the company's roadshow and said Deliveroo had priced its offering badly, especially after encountering a rebellion from several large British fund managers against its dual-class share structure.
Deliveroo's advisers, who collected £49 million in fees from the company and several million more from Deliveroo's selling shareholders, unnerved some buyers by refusing to identify the three "anchor investors" who they said were supporting the IPO.
These anchors were said to be based outside the UK, with one of them already a shareholder in Deliveroo through private investment ahead of the IPO, according to a person familiar with the situation.
"We were told throughout that the institutional book was four or five times covered but the maths of that seem doubtful now," said another person close to the process.
The roadshow ran into further trouble over the dual-class shares that gave Will Shu, chief executive, outsized voting rights, but which meant Deliveroo would not debut into the FTSE 100 index, depriving it of investment from passive tracker funds, and which triggered outrage from a several large British fund managers.
"A lot of this could have been avoided if Will hadn't insisted on a dual-class share structure," said one tech investor. "That was driving a lot of the pushback in London."
Meanwhile, the market's appetite for racy tech stocks waned dramatically after the company launched its IPO, as bond yields rose and investors began to rotate out of the sector. Share prices for Deliveroo's peers DoorDash and Delivery Hero have both weakened over the past month.
Deliveroo's record of heavy losses, even as growth was turbocharged during the pandemic, and uncertainty about whether online food delivery will continue to thrive after lockdowns are lifted, was enough to put off some investors. Others were concerned about the rising cost of regulation on the gig economy.
But London listing rules meant that, even as bankers steered the price to the bottom of the target range earlier this week, they were unable to go any lower than the final 390p per share level without pulling the IPO altogether.
That was not an option for Deliveroo, which lost £224m last year in a highly competitive market and warned regulators a year ago that it had come close to bankruptcy. Despite the first-day drop, Deliveroo raised £1.5b from the IPO for the company and its investors, giving it firepower to take on rivals such as Uber and Just Eat Takeaway.com.
Finally, the timing of the IPO was also blamed by James Bevan, chief investment officer at CCLA, an investment manager for religious and charitable organisations, who pointed to the low volumes of trading and noted that fund managers tend to shy away from taking new positions ahead of the end of a quarter.
"Very few people are exhibiting any appetite to buy the shares," he said, noting that only 50m of shares have traded so far.
Bevan added that very few institutional investors who had not already taken a position in Deliveroo would want to buy a potentially volatile stock on the final day of March, because they have to produce quarterly reports on performance.
"At the end of quarter there is a lack of enthusiasm by institutional investors to take positions," he said. "Institutions are typically unwilling to take new positions knowing that it could be a downdraft."
Whatever the reason for Wednesday's performance, and how Deliveroo trades over the longer term, several tech investors privately expressed frustration.
They accused fund managers of posturing over ethical issues such as worker treatment in order to attack the UK government's plans to ease more dual-class listings. They suggested more UK entrepreneurs would be likely to follow the example of Cazoo, one of London's fastest-growing internet companies, which this week agreed a deal to go public in New York via a special purpose acquisition company.
Rishi Sunak, the UK chancellor, who is keen to lure more tech companies to London and who hailed Deliveroo as a "true British success story" was forced to deny that he was embarrassed by the stock's performance.
"Gosh, no . . . share prices go up, share prices go down," he told ITV, pointing to the eventual success of Facebook, which also had a rocky start to life as a public company in 2012.
Optimists also pointed to Ocado, another food delivery company that had a turbulent start to its IPO in 2010. Subsequently, its share price has increased more than tenfold.
"Founders shouldn't be deterred from listing their businesses in London," said Mark Tluszcz, chief executive at tech investor Mangrove Capital Partners. "Deliveroo is just an overpriced company."
- Additional reporting by Siddharth Venkataramakrishnan, Daniel Thomas and Katie Martin.
Written by: Tim Bradshaw and Attracta Mooney
© Financial Times