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Deliveroo offers a slice of the action

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A friend has received an email from Deliveroo. It’s a bit different to the usual offers of free pudding on Valentine’s Day, the PR stunts around Bake Off, the Mother’s Day credits or suggestions that we all learn to love Wagamama’s hirata buns.

His message tells him “Deliveroo is considering becoming a publicly listed company” and expects “to make up to £50m of shares available to our customers”.

He can click on a special link that takes him through to a firm called Primary Bid and he will find himself on a priority list for an allocation of the food delivery firm’s shares.

I’m a little cross I haven’t had one of these emails — my family are enthusiastic Deliveroo users and I like being on VIP lists (any kind will do). But I am also a little thrilled. One of the maddening things about the recent boom in both IPOs and secondary offerings in the UK over the past year has been the way that ordinary investors have been excluded.

You weren’t allowed to participate in the recent listings of Moonpig or Dr Martens for example. And that is not a new thing: in the three years to October 2020, say the chief executives of the UK’s biggest retail investment platforms (who have written to the City minister to complain), ordinary investors were excluded from more than 90 per cent of new listings.

This seems a shame, to say nothing of a tad unfair. Research from Interactive Investor suggests the average share price of a new entrant to the Aim market since the end of 2018 popped 12 per cent by the end of the first day of trading. It would be nice if we were all offered a piece of that success.

Deliveroo’s offer to retail investors is far from perfect. Fifty million pounds is small beer in the context of the £1bn the firm hopes to raise in the IPO — and even if you are on the special list you can only apply for a maximum of £1,000 worth.

There’s also good reason to be wary of buying any at all. January saw the best month for IPOs on record globally. I’m pleased about that (more listed companies is a good thing). But you can also have too much of a good thing: floods of listings tend to come towards the end of bull markets, when punters are a little too free with their cash and investment banks are a little too keen to flog them stuff they might not so easily get away with offering in more testing times.

Deliveroo operates in a fickle, very competitive market — jammed full of alternative and just as easy-to-find food methods as the one it offers. I cook. I use Uber Eats and Just Eat. I occasionally walk to an actual restaurant and collect supper. And I have some residual hope — which I try to suppress on the basis that regular disappointment is not good for one’s health — that I will soon sit down in a place of my choosing away from my own home to eat. Maybe even inside.

We also have no firm idea how the company will be priced. Its owners and bankers will definitely be hoping that the market will be prepared to value it as a tech business rather than a delivery outfit.

That makes some sense. It doesn’t employ the 100,000 riders it works with. It doesn’t own any restaurants or bikes — just the technology platform that puts them together and an awful lot of customer data.

The latter is clearly valuable stuff. But it would still be nice to see a few more companies come to market with more than data woo woo to offer. Profits, even. Deliveroo made an operating profit in some months of last year, but nonetheless reported an overall loss in 2020 — a year in which we were all mostly locked in our houses ordering food online. 

That was also before Uber this week agreed to implement a key Supreme Court ruling and treat its drivers more like employees — almost certainly driving up labour costs in the gig economy.

Finally, new investors might be a bit nervous of Deliveroo’s planned dual class share structure. There will be A shares and B shares. Each B share will come with 20 votes. Each A share will come with one vote. Deliveroo founder Will Shu will get the B shares. You will get the A shares. Obviously. I don’t much mind this — the Bs turn into As after a few years anyway, but you might.

Whether you end up buying or not (I will be nicking my friend’s link to sign up on the basis that I spent £100 on Deliveroo-facilitated pizza last week so am surely eligible), the key point is that this is going to be one of the biggest IPOs in the UK for a long time. And you have been given the option.

Shareholder democracy has been in retreat for years. That matters — the more we are all invested in companies we understand and are rooting for, the better capitalism should work. Well-known brands letting us into their IPOs is a good step forward. The next one is something I reckon Deliveroo could also help with. For shareholder capitalism to work, we need to be properly engaged with the companies we own.

That means voting — something most of us can’t be bothered to do because of the admin and so simply don’t do. Now we hold most of our shares on platforms it isn’t that straightforward.

Perks might help. In the past, listed companies offered shareholders fun stuff — discounts, vouchers, the odd free gift — just for holding shares. Some still do. Deliveroo could do the same but go one further: encouraging shareholder democracy by offering perks for participation. 

How about a doughnut voucher for every 100 shares voted perhaps? That should be enough to get shareholders who use platforms to start demanding that they figure out a simple route to them getting full shareholder rights. What’s in it for Deliveroo? No immediate threat to the founder’s plans (remember the B shares). But over the longer term, the company gets a group of investors genuinely interested in their business and perhaps having the “emotional connection” to their brand that the IPO blurb says they want. Plus even more free PR than the £50m offer is already getting them. 

You might say Krispy Kreme kickbacks aren’t the right way to deepen shareholder democracy. I’d say it doesn’t matter how we do it. Incentives work. Send the doughnuts.

Merryn Somerset Webb is editor-in-chief of MoneyWeek. Views are personal. merryn@ft.com. Twitter: @MerrynSW





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IPOs / FFOs

Oatly’s US IPO prospectus highlights risks to its Chinese backer

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Oatly, the Blackstone-backed vegan milk company which on Monday filed to float on Nasdaq, said it would consider adding a listing in Hong Kong within the next two years, citing its relationship with a Chinese state-owned conglomerate.

China Resources owns more than 60 per cent of the Swedish group through a joint venture with the Belgian family investment group Verlinvest and has helped the company to dramatically expand its presence in China in recent years.

In a prospectus for its Nasdaq share offering, Oatly said it could seek a second listing in Hong Kong if its status as a US public company had a “material adverse effect” on its leading shareholders.

Explaining why it had agreed the provision, Oatly cited the possibility that the US government could make it hard for the group to share information with a state-owned company and might prevent China Resources from placing its representatives on the Oatly board, or even force it to divest.

The company also said it could pursue a Hong Kong listing if it generated more than 25 per cent of its revenue from sales in the Asia-Pacific region for two consecutive fiscal quarters.

The prospectus detailed how Oatly has been able to rapidly expand its presence outside Europe, with Asia and the Americas contributing a combined $150m, or 36 per cent of total revenues, last year compared to $50m, or 24 per cent, in 2019.

Oatly’s products are now sold at more than 9,500 shops in China, three years after launching in the country. In the US, Oatly products can be found at 7,500 retailers and in more than 10,000 coffee shops.

The relationship with China Resources attracted controversy when the group invested in Oatly with Verlinvest in 2016, prompting Swedish media to highlight China’s environmental and human rights record.

“It’s difficult to have a large float without Chinese investors being involved these days,” said one small Oatly shareholder from a venture capital firm.

Malmo-based Oatly has grown on the back of the popularity of plant-based milk alternatives across the globe and is pushing for a $10bn valuation from the Nasdaq float, according to people familiar with its plans.

An investment round last year led by Blackstone valued the oat milk maker at $2bn. Oatly’s other investors include television host Oprah Winfrey and rapper Jay-Z’s Roc Nation.

The prospectus confirmed earlier revenue estimates of more than $400m in 2020 — $421m to be precise, up from $204m in 2019 — though losses widened from $35.6m to $60.4m.

International expansion has focused on the specialty coffee market, with its “barista” milk which froths like cow’s milk. Oatly has also expanded into making and selling plant-based ice cream and yoghurt, although its oat milk made up 90 per cent of revenue last year.

The company said it was planning to raise $100m in its initial public offering, a place holder number that is likely to change. Morgan Stanley, JPMorgan and Credit Suisse are leading the offering.



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Grab co-founder set to dramatically increase voting rights with Nasdaq listing

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Malaysian internet entrepreneur Anthony Tan is set to dramatically increase his control over his company Grab when the south-east Asian tech group joins Nasdaq later this year.

In a move that would be the envy of his Silicon Valley peers, the Grab chief executive and co-founder will have 60.4 per cent of the voting power in the company while owning a stake of just 2.2 per cent.

This is a feat comparable to that of Facebook’s Mark Zuckerberg and unprecedented for a deal involving a special purpose acquisition company.

The holdings were contained in papers filed last week after the Singapore-based company unveiled a record deal to combine with a New York-listed Spac launched by Altimeter, a Silicon Valley group, valuing the business at almost $40bn.

The filing also revealed that the company, whose superapp offers everything from ride-hailing to deliveries and financial services, has reported potential violations of anti-corruption laws to the US Department of Justice.

Proponents say Tan needs the control to make quick and difficult decisions in navigating Grab’s eight markets. The deal is a crucial test of international investor appetite for a tech company with operations sprawled across the vastly diverse and emerging region of south-east Asia.

Bar chart of % of voting power showing  Anthony Tan will have majority voting control at Grab

But his grip on the SoftBank-backed company’s direction marks the first time a Spac deal has entrenched a founder’s voting rights to this degree, say experts.

Such an overriding majority voting right for a chief executive is “unprecedented” for a company seeking a Spac route, said Robson Lee, a partner at law firm Gibson Dunn. “While it is not unusual for high tech companies seeking a listing to entrench management shares with additional voting rights, a 60 per cent absolute majority will be the first in the market,” Lee said.

Others put it more bluntly.

“By bypassing a traditional IPO, Grab has attracted less scrutiny over Anthony’s control,” said one investment banker with direct knowledge of the deal.

While common in the tech space, such arrangements are not always popular, as evidenced by the backlash against Adam Neumann, WeWork’s messianic co-founder, and shareholder protests faced by Zuckerberg, who holds about 60 per cent of the voting power at Facebook.

Details of Tan’s control did not surprise Grab’s rival, Indonesia-based super app Gojek. Merger talks between the two companies were abandoned late last year before Grab began considering a Spac merger, and people close to the talks said Tan had demanded control indefinitely as a “CEO for life”. Grab has denied the reports.

One long-term Grab investor said that Tan, who comes from one of Malaysia’s wealthiest families, “needs a high level of power” to negotiate a seat at the table at the region’s messily interlinked world of family-run conglomerates, politics and regulation.

“The issue is south-east Asia in itself is not a homogeneous market . . . It’s a collection of different markets with their own sets of regulatory considerations,” said Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore.

In its filing, Grab outlined several risks including an investigation it launched into potential violations of anti-corruption laws related to its operations in one country. The company reported the potential violations to the DoJ but declined to comment on them when contacted by the Financial Times.

The onus is on Grab and Tan to justify the dichotomy between ownership and voting shares and prove it is in the interest of the shareholders, said Nirgunan Tiruchelvam, head of consumer sector equity research at Tellimer Group.

“If he can argue that such a disproportionate share of voting would be beneficial to shareholders and add value for further direction of the company, then it’s possible shareholders would be comfortable with it.”

But even key shareholders have had their voting power diluted via the dual-class share structure — similar to Facebook. SoftBank, Grab’s biggest shareholder, has an 18.6 per cent stake that will translate to just 7.6 per cent voting power. Uber’s 14.3 per cent stake has a 5.8 per cent voting power and Didi Chuxing’s 7.5 per cent stake, just 3.1 per cent.

“For now we are just happy with the liquidity, but longer-term we want to see genuine progress towards profitability,” said one investor.

That is still years away. Grab has lost money every year since its inception in 2012 as it has grappled with other well-financed competitors. Accumulated losses hit $10bn at the end of 2020. Last year it reported a net loss of $2.7bn against net revenues of $1.6bn and it does not expect to break even until 2023.

Column chart of Net losses ($bn) showing Grab as a whole is still not profitable

On top of that, Grab has not said if it will appoint any independent board directors, nor does its filing say what checks and balances are placed on Tan. Information on succession or who inherits Tan’s stock has not been released.

“Further details will be in the F-4 registration statement that will be filed with the SEC [the US Securities and Exchange Commission], and to comply with this regulatory process, we will not be able to share more until the F-4 is finalised,” Grab said in a statement.

Jeffrey Seah, a partner at Singapore-based venture capital firm Quest Ventures, said: “While he has supervoting rights, he has kept his management team intact. That is a [type of] check and balance.”

But even the supervoting shares held by Grab’s co-founder Tan Hooi Ling and president Ming Maa will be beneficially owned by Tan under a deed that will be entered at the time of the merger.

So far, Grab’s big-name investors seem happy to back Tan. Funds investing in the deal include BlackRock, T Rowe Price, Fidelity, Janus Henderson, Abu Dhabi’s Mubadala, Singapore’s Temasek, Malaysian fund Permodalan Nasional Berhad as well as a number of wealthy Indonesian family offices.

The test will come when Grab joins the Nasdaq, said Loh. The deal has been approved by both Grab and Altimeter Growth boards, and it could close by July.

“The moment of truth will be when we discover the listing price and when it’s actually traded . . . If there are concerns, all investors will probably give it a discount,” he added.

mercedes.ruehl@ft.com and stefania.palma@ft.com



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VCs/start-ups: IPO mania raises funding and valuations

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Against the odds, 2020 was an extraordinarily good year for tech start-ups and venture capitalists. This year is going to be even better. 

A boom in initial public offerings has handed some of the biggest names in venture capital lucrative exits. Add in low interest rates, stock markets at record highs, optimism surrounding economic recovery and the rapid digital transformation of multiple sectors and money is flowing freely. The first quarter of 2021 set a new record for global venture funding, with $125bn raised around the world, according to data from Crunchbase. Early-stage funding rose by almost half compared with the previous quarter, to more than $35bn.

Doom-laden warnings of down rounds and a freeze on funding last year have been squashed. Sequoia Capital last spring told companies in its portfolio that private financings could soften “significantly”, calling coronavirus the black swan of 2020. Yet funding and listing postponements were shortlived. Even start-ups without sales, aka “pre-revenue” companies such as aerospace start-up Archer Aviation, are in demand thanks to the rise in special purpose acquisition companies (Spacs) searching for targets.

Charts showing deal value of first-quarater IPOs, including Spacs in the US; global venture capital early-stage investment; and top 10 private companies valued at more than $1bn

In the first quarter of 2021, 398 US companies joined markets via initial public offerings, up from just 37 last year. Three-quarters were Spacs. Even excluding the Spac frenzy, the first quarter eclipsed the past five years. This does not include direct listings of Roblox and Coinbase either.

Listing mania has allowed VC firms such as Sequoia and Andreessen Horowitz to cash out on long-term bets and gather more funding firepower. This has already had an impact on valuations. Last year, 121 companies joined the elite group of start-ups valued at $1bn or more, according to CB Insights data. In the first three months of 2021, 78 companies hit the same target. Around the world there are now more than 600 such unicorns, led by China’s ByteDance, which is backed by Sequoia Capital China, and payments processor Stripe, which counts Andreessen Horowitz as an investor.

More money chasing start-ups means higher valuations. The result is likely to be a greater concentration of private fundraising by the small group of VCs who are able to keep up.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up



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