Morning Report: Unpacking The $385M Deliveroo Round

Morning Report: Deliveroo, a British food delivery service, has raised $385 million new dollars paired with a valuation over $2 billion. Let’s try to understand it.

Crunchbase News has spent considerable time looking at the on-demand economy. We’ve taken looks at companies that pick your stuff up, companies that drop your stuff off, and everything in between.

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Our love of the topic made the news that Deliveroo has raised an enormous new stack of money all the more interesting. Why Deliveroo, why this much, and why now? Let’s see if we can quickly find some answers.

Finances

The Guardian has done an admirable job keeping tabs on the Deliveroo saga. In its piece today detailing the new funding information, there was a quip that caught our eye:

The new investment has also been unveiled just days after it emerged that the Deliveroo founder, Will Shu, handed himself a 22.5% pay rise last year.

Well then! That looked juicy enough. Following The Guardian’s reporting backward in time, we came across the following set of numbers:

Deliveroo’s revenues soared sevenfold to £128.6m in the year to 31 December 2016 as it expanded operations in the UK and overseas to 25,000 restaurants in more than 140 cities and 12 countries. But pre-tax losses climbed to £129m from £30.13m a year before. Deliveroo’s UK business alone made a loss of just over £46m.

Deliveroo’s cash resources stood at nearly £180m at the end of last year after the company raised £209m in new funding from the issue of shares.

This helps us answer our questions, mostly. First, why Deliveroo? Because the firm is growing at a tremendous pace—an intoxicating metric for private investors. Seven-fold revenue expansion is Snap-style growth, a company that proved catnip for huge swaths of the venture class.

Why did Deliveroo raise so much in the round? Assuming the firm adds on new markets, as expected, short-term losses may accelerate. To fund its current operating deficit, and even grow it, demands huge sums of fresh capital. Perhaps $385 million, give or take. The company also likely needed the funds. Having £180 million in cash nearly three quarters ago when your annual pace of loss was £129 million implies that a capital event would be welcome.

You don’t want to run too close to metal when you are growing at such unprofitable levels.

Finally, let’s not forget that Deliveroo can raise such a large sum. The firm joins a pantheon of firms taking on large checks while the private market is hot and the public market is overinflated.

In short: losses are still in vogue, provided that they are stapled to rapid growth. On a post-tax basis, Deliveroo lost more than 100 percent of its revenue, working off of our prior quote’s results. But when you stack that next to 700 percent revenue growth, Deliveroo passes the Rule of 40 just fine.

From The Crunchbase Daily: 

SAP buys Gigya for reported $350M

• SAP announced that it is acquiring Gigya, a provider of customer identify management software, in a deal reportedly valued around $350 million. Silicon Valley-based Gigya previously raised just over $100 million in venture funding.

Deliveroo raises $385M

• Restaurant food delivery startup Deliveroo, has raised $385 million in a new funding round at reported valuation of over $2 billion. The London-based company plans to use the money to add service areas, increase staff, and expand restaurant partnerships.

US VCs up Canada investment

• American venture capitalists are heading north. U.S. venture capitalists poured 150 percent more venture capital dollars into Canadian companies in 2016 compared to four years ago, according to a Crunchbase News analysis. Industry insiders point to pro-entrepreneur policies, recent startup successes, and a favorable exchange rate as key factors behind the rise.
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Illustration: Li-Anne Dias