, one of the worst London debuts on record. Meanwhile major institutional investors have refused to take part in the IPO over governance issues and legal problems surrounding Deliveroo’s gig economy working conditions. Taking a deep-dive into the IPO prospectus, it is clear that there were many red flags that would have turned investors off. Remains loss-making during Covid delivery boom Deliveroo is active across 12 markets in Europe, the Middle East and Asia-Pacific, where it holds a large market share or is the market leader. While it has posted large increases in gross transaction value of at least 50 per cent over the last two years, it has also remained loss-making. Substantially so, with sales of £1.2 billion in 2020 accompanied by pre-tax losses of £221.1 million. Deliveroo’s lack of profitability in 2020 is quite striking as this was the year that food deliveries surged because of the pandemic. Of course, any fast-growing tech company worth its salt will come up with its own measure of profitability – one that ignores a whole host of costs related to the investment that is taking place in the business. But even Deliveroo’s ‘adjusted EBITDA’ figure remained in the red during 2020. Legality of business model One of the issues that has driven up costs for Deliveroo are the legal issues that it is facing in a number of markets. These have to do with the working conditions of the delivery drivers, particularly whether Deliveroo is allowed to treat them as gig economy workers. In Italy, for instance, the government has concluded that Deliveroo should have treated riders on a quasi-employee basis, paying them minimum wage and providing benefits such as paid sick leave and holidays. As a result, Deliveroo has been told to back pay these entitlements over the last five years, although it is still contesting this ruling. Unfortunately for Deliveroo, Italy isn’t the only market where it has such legal problems. It is facing similar challenges in the UK, France, Spain, the Netherlands and Australia. Deliveroo claims to operate at a gross profit margin of over 12 per cent in several of its mature cities, but those margins would be greatly diminished if it would need to employ drivers rather than rely on gig economy workers. It is clear that this presents huge uncertainty for investors.  Controlling interest of founder Will Shu Another issue that has set alarm bells ringing for major investment groups in the UK has been the share structure. Founder Will Shu – a former JP Morgan banker who founded Deliveroo because he was fed up with the poor food delivery options in London – retains significant control of the business. Despite only owning 6.3 per cent of the company post-listing, Shu hold 57.5 per cent of Deliveroo’s voting rights through his class B shares. This will allow him to effectively set his own course without taking into account the wishes of other shareholders. While such a share structure is common for tech businesses in the US – Mark Zuckerberg has similar voting rights at Facebook – it is clear that British fund managers have been less than enthusiastic about this structure. Major growth opportunities That said, if the uncertainty surrounding Deliveroo’s business model is resolved, there is no denying that there are huge growth opportunities for the business. The company is trying to gain market share among the 21 weekly food occasions that consumers have – breakfast, lunch and dinner. Less than one of those 21 transactions takes place online at the moment, so Deliveroo has only been scratching the surface so far. Another interesting growth area has been partnerships with food retailers. Many grocers have launched online delivery services, but these mainly cater to the pre-planned weekly shopping mission. Deliveries of top-up groceries within 30 minutes is still an underserved area that Deliveroo is looking to exploit. The potential of this diversification was underlined last week when Deliveroo signed a deal with Carrefour to deliver on-demand groceries to shoppers in France within 30 minutes. Deliveroo had previously already launched a home delivery service with Carrefour in Spain, Italy and Belgium. Deliveroo estimates that 50 per cent of consumer grocery shopping missions are not served by the traditional online grocery model and that the shift towards online convenience shopping is only getting started. There will be much to play for over the coming years and it is certainly too early to write off the prospects of Deliveroo.