Takeaway lessons: Deliveroo’s listing disappoints

Hey, Ryan Reynolds here wishing you a very happy half off holiday because right now Mint Mobile is offering you the gift of 50% off unlimited. To be clear, that's half the price, not half the service. Mint is still premium unlimited wireless for a great price. So that means a half day. Yeah, give it a try@mintmobile.com Switch upfront.

Payment of $45 for three month plan.

Equivalent to $15 per month required new customer offer for first three months only. Speed slow 135 gigabytes of network busy taxes and fees extra see mintmobile.com.

Hello and welcome to the Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. The ability to make it rain may seem like a sign of humanity's dominion over nature, and few countries use cloud seeding as much as China. But it's not only a distraction from better water management policies, it might not even work. And tweet in haste. Repent at leisure. The news is filled with stories of people's futures curtailed by their social media pasts. Our Language columnist looks at why. Tweets in particular are a dangerous record of what may seem like casual thoughts. But first, today, the food delivery startup Deliveroo made its public market debut in Britain. In its promotional material, the company emphasized they weren't just in it for that opening bell, but also the bike bells of satisfied riders and the doorbells of happy customers. But investors might be less pleased than they had hoped. The company had priced its shares at 3 pounds 90 pence, giving it a market value of about 7 and a half billion pounds, or $10.5 billion. That was at the bottom end of their hoped for range. And that share price slid even further in early trading today. The disappointing start raises questions not just about Deliveroo itself, but also about efforts to woo tech companies to list their shares in London rather than in New York.

For the City of London, the IPO is really the biggest and most anticipated listing since 2011. So a decade ago.

Tamsen Booth is the Economist's Technology and Business editor.

So it really has been inconvenient, to say the very least, that Delivery's journey to market has just become extraordinarily bumpy.

What do you mean by bumpy?

Starting early last week, some of the UK's biggest fund managers said publicly, and really with a giant megaphone, that they would not participate in the IPO started with Aviva, and they were then followed by Legal and General, M and G and Aberdeen Standard, other big institutions. The last to turn against the IPO was James Anderson, who's a star tech fund manager at Baillie Gifford, manages the UK's biggest investment trust. And that must have been particularly galling for Deliveroo because Anderson was an early backer of Amazon and Tesla.

Right. And we saw this morning that shares fell in the first few minutes of trading. I mean, what about the fundamentals? Has Deliveroo been doing?

Well, delivery's revenue has really soared as people ordered in last year. In 2019 they made 2.5 billion pounds of sales. That shot up to 4.1 billion last year, 2020, but it's still loss making. It lost 224 million pounds last year, even in a once in a lifetime moment for its business model. The well known thing about the food delivery business model is costs tend to go up in line with revenue. And in fact, last year you had a situation when Amazon wanted to take a big stake in Deliveroo. That triggered a competition investigation in the UK and Deliveroo actually ended up successfully using a quote unquote failing firm argument that it would have gone bust without Amazon's investment. That was when the pandemic was first hitting and Deliveroo hadn't seen how it was going to be able to take advantage. But it still didn't inspire a ton of confidence in the business model.

And is that business model the reason that some of these big fund managers have avoided the ipo?

Well, I think that probably is the true reason is that they just don't like the food delivery economic model very much. But on top of that, the funds really focused on the social bit, the S in so called ESG investing, environmental, social and governance concerns. And Deliveroo uses the gig economy model, whereas riders on bikes and mopeds aren't full employees, they're independent contractors. And that model is coming under a lot of public and also legal pressure. You may remember Jason, in February, Uber lost a long running battle with the UK Supreme Court. And now it's going to have to treat its drivers as workers, not independent contractors. And that could read across to Deliveroo. In its IPO documentation, Deliveroo mentioned that it does face legal inquiries in the uk, France, Spain, the Netherlands. So in plenty of its markets and overall, the fact that the city's institutions are taking a public stand on this social aspect is really notable. It's the first time that I know of prominent western fund managers avoiding a big IPO on those kind of grounds.

So that s from ESG on top of, as you say, a ropey business model.

Well, that's not even the end of the fund manager's complaints. So the City institution don't like Delivery's dual class share structure either. So Will Shue, the chief executive and co founder has got a special class of shares which gives him 20 votes per share to everyone else's one, and that lasts for three years. And dual class shares are very much appreciated by Silicon Valley founders because it allows them to direct their companies in the interest of the long term. Well, this is how they would put it in any case, aiming for high growth without being deviated by perhaps more short term profit margin concerns. At the moment, UK listing rules means that Deliveroo won't actually get into the premium segment of the stock market. But the powers that be have promised to loosen those rules. And that was actually a signal to Deliveroo that London would be a welcoming environment.

Okay, hold on. This special class structure, the one Silicon Valley likes because founders get more power in their shares than the regular investors do, why is it that Britain has said they're going to loosen rules around that?

Well, there's a massive effort on at the moment on the part of UK regulators and the government to try and woo more tech listings to London. In recent years, high growth tech startups have tended to think that American investors understand them a lot better. And so it's been US Markets that have mainly ridden the tech boom. But London's been making this big effort to woo tech startups. Now it looks like the City is kind of rebelling and they just really like the principle of one share, one vote.

So with all of this kerfuffle around the ipo, then where does that leave the company, do you think?

Well, the IPO was fully subscribed on the very first morning of Deliveroo's roadshow. And the firm has several big anchor investors to support it today and in the weeks ahead. But Deliveroo did end up pricing its shares at the lower end of its target range. And I think that once the dust has cleared after this week, you'll probably see more comment from the company and its backers. The fund managers who shunned it so publicly were kind of doing some grandstanding. Some of them, after all, do invest in Uber, which also employs the gig economy model. But it's going to be very interesting to see how Deliveroo does over the coming months, because you've got restaurants reopening. I don't know about you, Jason, but I think there's vast pent up demand, not for ordering in via delivery, but for crowded bars, really slow table service.

And noisy restaurant environments for my part, I can't wait. But what about the broader picture of tech stocks and Britain's trying to woo them more generally? And all of this going on with Deliveroo, what does it tell you about the market in Britain?

Now look, I think any high growth tech founder is probably going to look at what will shue. The Deliveroo co founder went through this week and last week is probably going to shudder a bit. And it's not a great advertisement at this point for London as a haven for tech stocks. But probably tech bosses also know that Deliveroo is a very particular kind of business inside the tech industry. People really raise their eyebrows at the food delivery model. Overall, I think it's a reminder that you just don't mess with UK and Scott's fund managers, frankly.

Thanks very much for joining us, Tamsen.

Thank you, Jason.

One part of what seems to have driven big investors away from the Deliveroo listing are concerns about working conditions. Yet many of the delivery writers are hooked, despite the hard work, the pay, the lack of benefits. This week, Money Talks, our sister show on business and finance, talks to riders about why they're hooked, in part because their employers have turned the grueling into a game.

You spend longer than intended, like, let's say if you have another job where you would maybe earn more money and you can distribute your time across it. And the other strange thing is that everybody is completely aware that it's too little money. So you still continue, even though you're thinking this is not enough, this is ridiculous.

Look for Money Talks wherever podcasts are broken down and sold off for parts. That's not the sound of a regular rocket. It's an attempt to make it rain using something called cloud seeding for parched areas. As much of China is, it's in theory a good way to top up paltry levels of rain and snow. But that theory is increasingly running into some hard facts. On the ground.

China is the keenest of around 50 countries that host some kind of cloud seeding activity, and it's been trying to bring down more rain since the 1950s.

Mark Johnson writes about China for the Economist.

Every year the government says this cloud seeding is a big success and announces that it's expanding its program. But in fact, there's not a lot of evidence that it does much to address the country's water shortages, or indeed does very much at all.

Well, let's take it a step back. First, how does cloud seeding work?

The basic idea is that by introducing some sort of grit into clouds, you can encourage More of the vapour that's stored in any given rain cloud to condense and to become heavy enough to fall as rain or snow. The agent commonly used is silver iodide, a chemical compound. And the best way to get it up into a cloud is to use planes. But it's probably, in fact, around the world more often done with small rockets with special shells that are fired from artillery, or indeed with burners that are based on the ground. And it's not always done for the purposes of bringing down more water in some places. The idea is that bursting a cloud prematurely can help to prevent hailstorms form later on, which can cause damage to crops and to other property.

And you say China is particularly enthusiastic about it?

Yes. China's been ramping up its activities for decades, so it spends about $200 million a year on cloud seeding. About 50,000 people are involved. And a lot of these cloud seeding jobs are in rural places where there isn't a lot of employment. And they often go to military veterans who can fire the artillery and who tend to think that the party owes them a job. Many of those people are part time and seasonal workers who are employ in really very tiny county level weather modification bureaus. The government says that these people operate across an area that amounts to about half of China's territory. They say they can increase the amount of water that comes out of your average rain cloud by about 15% when they seed it. State media says that all this brings down extra liquid that's equivalent to about 8% of the country's entire water demand.

And yet you mentioned there are some questions as to whether or how much it works.

Well, basically a lot of these numbers seem to have been plucked from thin air because weather systems are massive and super complicated. Rainmakers around the world have long struggled to prove that the things that they did brought down any more rain than would have fallen otherwise. A couple of years ago, a report from scientists affiliated with the World Meteorological Organization warned that many rainmaking operations are based on empty promises rather than sound science. In the last few years, there's been some fairly rigorous tests done in America, and these do suggest that cloud seeding can slightly increase the amount of snow that falls from very cold clouds that form on the slopes of mountains. And some of China's cloud seeding goes on in those kinds of places, but very much of it does not.

But in any case, Chinese authorities are keen on using it and expanding its use.

It's worth noting that China's cloud seeding efforts do seem to be getting more sophisticated, so it's investing more in planes, it's setting up regional command centres to better coordinate the presently fairly haphazard work of all these tiny weather modification bureaus. And it talks at the moment fairly vaguely about ramping up cloud seeding on the Tibetan plateau, where you'll find the headwaters of China's big rivers, which is a place which would seem to have the kind of climate where you might, might in fact see some results based on what the science presently suggests. But all of this has costs that are not only financial. I mean, people sometimes get hurt.

How do you mean?

Well, in early March, for example, a cloud seeding plane crashed into a village, killing five people on board. And firing shells into the sky is also risky. I mean, these local cloud seeding bureaus often put out warnings to locals to look out for unexploded shells. These things have occasionally landed on people's.

Houses and those dangers might be for naught. I mean, we've spoken to you on the show before about the problems caused by China's water shortages. It isn't at all obvious that this is going to help.

Talking up cloud seeding distracts attention from proven better ways of addressing China's water shortages, which are a very serious problem. That includes doing a better job of conserving water and of preventing the pollution of rivers and lakes. The risk is that it gets a bit harder to persuade people to be careful with water if at the same time you're making very big promises about your ability to ring it from the skies.

Thanks very much for your time, Mark.

Thank you.

For Lives Lived. Increasingly online, it's become an article of faith. Don't put anything on social media that you wouldn't want a future employer to read. 27 year old Alexi McCammond recently learned that lesson the hard way. In early March, she was announced as the next editor in chief of Teen Vogue. But just two days later, she was called to task for offensive tweets about Asian people that she'd posted a decade ago. Although she had apologized for those comments in the past, the killing of six Asian women in Georgia on March 16 brought renewed focus on anti Asian sentiment. In the end, Ms. McCammond and Teen Vogue decided her appointment was no longer tenable.

Alexi McCammond isn't the first to lose out on a fancy and prestigious job for her past tweets.

Lane Greene writes Johnson, our column on language.

Quite recently, Neera Tanden was supposed to become Joe Biden's head of the Office of Management and Budget which is quite an important position in Washington where she deals with legislators on both sides of the aisle. But when she was a boss of a center left think tank, she had written tweets sort of jokily going after Republican senators. She called them things like the worst and a fraud. She called one of them voices, Voldemort. People keep getting caught up by these things. And I think it has to do with the kind of hybrid nature of Twitter and the language of Twitter.

What do you mean? How is it hybrid?

Well, in form, obviously the language of social media, at least of Twitter, is written. You see the words on a page, but in style, it's absolutely much more like speech than like writing. In fact, dialectologists even use Twitter to study language trends. They're looking for changes in these things like the grammar and vocabulary and pronunciation. And there's been good research, research showing that Twitter, though it is in writing, mimics exactly the changes that those people are looking for in speech. Crucial to this is that Twitter really rewards the same qualities that are prized in a good conversation partner. Someone who's spontaneous, shows a lot of personality and displays a lot of wit.

And is it that spontaneity then that gets people in trouble? That being a little too off the cuff?

Yes, I think it's precisely that people are trying to display things like personality and wit. But what you see a lot of on Twitter is this sort of negative versions of all those things you see recklessness and attention seeking and jokes that go wrong rather than hit their target postings may seem to go away. They sort of flow down this endless river. But of course, they live on indefinitely in Twitter's servers unless they're deleted. And if you're famous enough, people screen grab your tweets a lot of the times. And if you're making risky jokes, they're even more likely to do so. And so you may think that you've deleted a tweet, but the higher profile you have, the more likely it is that someone's got evidence of your. And so even deleting may not save you. And it may do the opposite. It may show that you knew you screwed up.

So in a way that the sort of social norms around Twitter hasn't caught up with the form itself.

That's right. If you think about it, Twitter just turned 15 years old on March 21st. And so this is really a blink of an eye in sort of social history. A lot of norms have developed, but habits of language are very ancient. Speech has been around for nobody knows how long, but anywhere between tens of thousands and hundreds of thousands of years. Writing has been around for millenn millennia, four or five millennia at least. And compared to that, the invention of this sort of speech writing hybrid that we see on social media is brand new and we haven't kind of figured out how we want to think about it.

So in the meantime, how do you see this playing out? Are we just going to see more and more famous and rising people upended by their tweets?

The most likely outcome seems to me kind of hybrid. People's taste for making risky jokes is not going to go away, but they will learn to keep those jokes offline. That will sort of split our personalities and keep stuff that could get you in trouble anywhere but the Internet. And that stuff will go back to conversation, which is where it all began in our social history.

Thanks very much for joining us, Lane. And be careful on Twitter, eh?

Thanks, Jason.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and you can subscribe to the economist@examiner.com intelligenceoffer the link is in the show notes. See you back here tomorrow.