The worst IPO in history - Bad timing, bad ESG, or just a bad idea?

Ted Franks

Pengana Capital Group

Deliveroo has been dubbed London’s ‘worst IPO in history’ after its shares fell 26% in the first day of trading, which was the last day in March. Some say it was just bad timing as investors don’t like stocks that IPO at the end of the quarter. Others point to the fact that Deliveroo was operating with some seriously problematic labour practices: Deliveroo’s ‘gig economy’ drivers and cyclists in its largest market, the UK, reportedly make less than minimum wage and in some cases as little as £2/hour. Both of these factors likely contributed to the troubled IPO. I think there is something else, far more basic, going on here though – I think Deliveroo just isn’t a very exciting idea.

People love tech stocks because they’re disruptive. Through their proprietary algorithms and Silicon Valley mindset they actively change the way we live in and interact with, the world. How disruptive is Deliveroo, really? I’m fairly sure we’ve been ordering takeout from our sofas for decades. OK, so now the menus are all kept in one place and we can order from a screen rather than picking up the phone and talking to someone. Is this really the level of disruption we’re looking for in a racy tech stock? If they had the first-mover advantage, and the scale, it might be more exciting, but Deliveroo is competing with Just-Eat, Grubhub, DoorDash, and Uber Eats, all of whom are generating the same if not more in sales. Add environmental, social, and governance (“ESG”) failures into the equation and it’s not hard to see why the IPO wasn’t met with more enthusiasm.

So what does real tech disruption in the food market look like? We think our holding, HelloFresh, is a prime example. Every week you select three to five meals from an app on your phone then HelloFresh portion out the ingredients, box it up, throw in some recipe cards, and pop it in the delivery van. Sure, you’re still ordering food from your phone to your front door, but this is a very different business proposition. For a start, HelloFresh customers enjoy fresh, home-cooked meals that have been developed by in-house chefs with convenience and nutritional balance in mind. That’s a genuinely new direction from the ever-more-unhealthy traditional takeaway market.

But the innovation is even more marked if you look into the story behind each fresh box. By getting users to order their meals in advance, HelloFresh is able to forecast what quantity of each ingredient they’ll need with a high level of accuracy, and get it delivered right when they need it. They source ingredients directly from the supplier, so food goes from farm to fork while only passing through a single fulfillment center, without food growing old on supermarket shelves or getting wasted at warehouses.

This all results in fresh, healthy meals delivered with up to 82% less food waste in their operations compared to traditional supermarkets. Then, because HelloFresh is calorie and portion controlling their meals, users are prevented from overbuying too – HelloFresh customers waste 21% less food at home than a supermarket-bought meal. HelloFresh isn’t just changing the way we eat by giving their customers easy and convenient access to fresh, balanced meals. They’re also disrupting the entire food supply chain, transforming the way we access fresh food in a way that has a huge impact on reducing food waste (which currently makes up 6% of global greenhouse gas emissions).

Like Deliveroo, HelloFresh faces fierce competition from the likes of Gousto, Blue Apron, Marley Spoon, and others; but unlike Deliveroo, HelloFresh is the largest global company in its space by a long way. This scale brings huge advantages – they can afford to offer a wider variety of recipes than competitors, they can gather more data on user habits to fine-tune their forecasts and value proposition, and their customer acquisition costs are lower just by virtue of having a huge brand.

This is genuinely fresh thinking about food, rather than just using technology to enable unhealthy habits. We know which one we would rather back.


Read more about Pengana’s WHEB Sustainable Impact Fund, or watch our most recent webinar on the charge of impact investing HERE


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Pengana Capital Limited (ABN 30 103 800 568, AFSL 226566) is the issuer of units in the Pengana WHEB Sustainable Impact Fund (ARSN 121 915 526). A product disclosure statement for this fund is available and can be obtained from our distribution team. A person should consider the product disclosure statement carefully and consult with their financial adviser before deciding whether to acquire, or to continue to hold, or making any other decision in respect of, the units in the Fund. This report was prepared by Pengana and does not contain any investment recommendation or investment advice. This report has been prepared without taking account of any person’s objectives, financial situation or needs. Therefore, before acting on any information contained within this report a person should consider the appropriateness of the information, having regard to their objectives, financial situation and needs. Neither Pengana nor its related entities, directors or officers guarantees the performance of, or the repayment of capital or income invested in, the Fund.

Ted Franks
Pengana WHEB Sustainable Impact Fund, Fund Manager
Pengana Capital Group

Ted is the Fund Manager for the Pengana WHEB Sustainable Impact Fund and helped to found WHEB Asset Management in 2009.

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