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Latest fundraising values Deliveroo at more than $7bn

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Deliveroo’s valuation shot up to more than $7bn in a new fundraising, in a sign confidence is growing among the food delivery app’s investors ahead of its long-awaited stock market debut.

The new private financing for one of London’s most prominent internet groups is the latest illustration of the frenzied investor appetite for high-growth companies, even as some analysts warn that tech valuations are becoming overstretched.

It suggests that Deliveroo’s backers believe its valuation can exceed $7bn in an initial public offering, which the company has for the first time publicly confirmed is in the works, after a blockbuster listing from US-based delivery app DoorDash last month.

Deliveroo said early on Sunday that it had raised $180m in new funding from existing investors, led by Durable Capital Partners and Fidelity Management, valuing the eight-year-old company at more than $7bn, without including the new funds raised. That is almost double its 2019 price tag, reported to be between $3-$4bn, when Deliveroo raised $575m from investors including Amazon.

Amazon’s funding did not close until August last year after an investigation by the UK’s competition regulator. Deliveroo was forced to take out a short-term £198m loan in 2019, when losses grew by a third to £317.7m.

Since then, pandemic lockdowns have supercharged the online food delivery business, more than doubling Deliveroo’s revenues in the UK and Ireland and pushing it into operating profitability during the second and third quarters of last year.

Will Shu, Deliveroo’s co-founder and chief executive, said the funding would “help us continue to innovate” in areas such as grocery delivery and its Editions network of “ghost kitchens”, which allow restaurants to expand delivery coverage without providing in-house dining. “We are really pleased our shareholders see the opportunity and growth potential ahead of us,” Mr Shu said.

Durable Capital, based in the affluent Maryland town of Chevy Chase, is also an investor in DoorDash and Affirm, two of the hottest tech IPOs of recent weeks, according to PitchBook, which tracks private investment.

“I have been impressed with the [Deliveroo] team’s ability to spot opportunities, innovate and adapt to changes in the market,” said Henry Ellenbogen, managing partner and chief investment officer at Durable Capital. “The online food delivery market is nascent and underpenetrated. We believe Deliveroo has the potential to become a much bigger company over time.”

Deliveroo has not yet indicated whether its listing, which could come as soon as April, will take place in London or New York, amid concerns that Brexit has dented London’s IPO appeal.

Last month, DoorDash saw its share price almost double on its first day of trading in New York. While DoorDash’s valuation rose above $60bn last week, its shares have been volatile, falling by almost 10 per cent on Friday without any obvious catalyst.

The difficulty in pricing new tech listings has caused some companies, including Roblox, to reconsider their IPO plans. However, European internet groups including Auto1, InPost and Moonpig have all indicated their intention to float in recent weeks.

Deliveroo’s new fundraising comes as it faces renewed competition in its London backyard from Just Eat Takeaway.com, Europe’s largest online food delivery group. Jitse Groen, chief executive of the food delivery group, said last week he would “make life very, very, very complicated for the competitors” in London by undercutting them on delivery prices and investing heavily in a new courier network.



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IPOs / FFOs

Deliveroo: taste test

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Much depends for the London-based company on whether enthusiasm for home deliveries formed during the pandemic wanes



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Instacart valued at $39bn in funding round ahead of IPO

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Grocery delivery app Instacart has raised $265m from its existing investors, doubling the company’s valuation following the pandemic boom in demand.

Instacart, the US market leader in the grocery app sector, said the round valued the company at $39bn, up from $17.8bn at the time of its previous fundraise, which closed in November last year.

The company said it intended to use the money to increase its corporate headcount by about 50 per cent this year, a hiring spree that would be spread across the business.

The cash injection comes as the company lays the groundwork for a long-anticipated initial public offering. In January, it announced it had hired Goldman Sachs banker Nick Giovanni as its new chief financial officer. Giovanni had previously been involved in IPOs from Airbnb and Twitter.

“This past year ushered in a new normal, changing the way people shop for groceries and goods,” Giovanni said in a statement announcing the latest round.

“While grocery is the world’s largest retail category, with annual spend of $1.3tn in North America alone, it’s still in the early stages of its digital transformation.”

The company declined to comment on its timetable for going public.

Last week, Instacart added its first independent board members — Facebook executive Fidji Simo, and Barry McCarthy, a former finance chief of streaming platforms Spotify and Netflix.

Notably, McCarthy was the architect of Spotify’s 2018 direct listing, a process by which a company goes public without creating any new shares.

Over the past year, Instacart has been a key beneficiary of lockdown conditions, with many physical retailers restricting walk-in access to stores.

To accommodate the demand, Instacart’s gig workforce has swollen to more than 500,000 across the country. Over the course of 2020, the company said it added more than 200 retailers and 15,000 additional locations to its app.

However, the company faces growing competition from other delivery apps — such as Uber — and other online grocery offerings from retailers such as Walmart and Amazon.

And, as pandemic conditions subside, interest in online grocery shopping may tail off, suggested Neil Saunders, a GlobalData analyst. He also warned that Instacart is at risk of being forced out by grocery stores once they have their own ecommerce strategies more firmly in place.

“Paradoxically, the drive online has actually made retailers a lot more interested in investing in their own systems,” Saunders said. “If retailers decide to go it alone, it leaves Instacart out in the cold.”

The company said it would use the latest funding to increase its investment in its fledgling advertising business, as well as Instacart Enterprise, its “white label” service for companies that want to use Instacart’s logistics with their own branding.

The round was led by Andreessen Horowitz, Sequoia Capital, D1 Capital, Fidelity, and T Rowe Price.



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UK listing rules set for overhaul in dash to catch Spacs wave

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A Treasury-backed review of the City has called for an overhaul of company listing rules so London can better compete against rivals in New York and Europe and grab a share of the booming market for special purchase acquisition vehicles.

The review, to be published on Wednesday, also proposes allowing dual-class shares to give founders greater control of their businesses and attract a wave of tech companies to the London market.

The City’s attractiveness has stumbled in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. New York’s markets have been further swelled this year by a surge of so-called Spacs, which raise money from investors and list on a stock market, then look for an acquisition target to take public. Britain’s edge also has been eroded by a loss of trading businesses to European rivals since Brexit.

Rishi Sunak, chancellor, who commissioned the independent report, said the government was determined to enhance the UK’s reputation after leaving the EU, “making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike”.

The review, which was carried out by Lord Jonathan Hill, former EU financial services commissioner, has recommended a wide range of reforms to loosen rules that have tightly governed listings in the UK.

Lord Hill has recommended lowering the limit on the free float of shares in public hands to 15 per cent — meaning founders need to sell fewer shares to list — and wants to “empower retail investors” by helping them participate in capital raisings. 

He has also proposed a “complete rethink” of company prospectuses to cut regulation and encourage capital raising, and suggested rebranding the LSE’s standard listing segment to increase its appeal. The chancellor should also produce an annual “State of the City” report.

The government said it would examine the recommendations — many of which require consultations by the Financial Conduct Authority.

Lord Hill also recommended that the FCA be charged with maintaining the UK’s attractiveness as a place to do business as a regulatory objective. 

The FCA said it aimed to publish a consultation paper by the summer, with new rules expected by late 2021. 

Lord Hill said the proposals were designed to “encourage investment in UK businesses [and] support the development of innovative growth sectors such as tech and life sciences”.

He said the UK should use its post-Brexit ability to set its own rules “to move faster, more flexibly and in a more targeted way”, in particular for growth sectors such as fintech and green finance.

However, the recommendations will cause concern among some institutional investors which have argued that loosening rules around dual-class shares, for example, will risk lowering corporate governance standards. 

The review said London needed to maintain high standards of governance, with various ways recommended to mitigate risk. On dual shares, for example, it recommended safeguards such as a five-year limit.

Amid fears that the government could go too far with a drive for deregulation, Lord Hill said his proposals were “not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage . . . they are about closing a gap which has already opened up”.

Other recommendations include making it easier for companies to provide forward-looking guidance when raising capital by amending the liability regime, and improving the efficiency of the listing process. 

The inclusion of a recommendation to help Spacs list in London by no longer suspending shares after a target is picked will be welcomed by many investors.

However, the rapid growth of such vehicles loaded with billions of dollars in speculative cash has also raised concerns about a bubble forming in the market.

Lord Hill said there was a risk that the UK was losing out on “homegrown and strategically significant companies coming to market in London” from overseas Spacs.

The UK has lagged behind New York and Hong Kong in attracting the types of companies from sectors, such as technology and life sciences, that dominate modern economies and attract investors seeking growth stocks. 

London accounted for only 5 per cent of IPOs globally over the past five years, while the number of listed companies in the UK has fallen by about 40 per cent since 2008. The review also pointed out the most significant companies listed in London were either financial or representative of the “old economy” rather than the “companies of the future”. 

Lord Hill referred to the flow of post-Brexit business to Amsterdam to make the point that the UK faced “stiff competition as a financial centre not just from the US and Asia, but from elsewhere in Europe”.

The steps represent a win for the London Stock Exchange Group, whose chief executive David Schwimmer has called for a more competitive listing regime. He said it was possible to strike a balance between being competitive and maintaining high corporate governance standards.



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