By Abhinav Ramnarayan and Paul Sandle

LONDON (Reuters) – When food delivery firm Deliveroo joins the London stock market on Wednesday, it will be Britain’s biggest listing in a decade, even though some of the country’s leading investors – worth over $1 trillion between them – will be conspicuous by their absence.

British finance minister Rishi Sunak has hailed the company’s decision to go public in London as a “true British tech success story,” and said he hopes it will set the stage for more listings by fast-growing technology companies.

But strong demand for the IPO – it was fully subscribed within hours of the order book being opened – has been overshadowed by complaints over its share structure, questions about potential legal problems for its gig-economy business model and the threat of strike action from some of its workers.

Heavyweight investors Aberdeen Standard Life, Aviva, Legal & General Investment Management and M&G are sitting this one out, citing concerns about gig-economy working conditions and the outsized voting rights that will be handed to founder Will Shu.

Some of them also question whether the loss-making business can ever justify its valuation.

Having initially looked for up to 8.8 billion pounds ($12.1 billion), the British tech firm on Monday went with a narrower price range, indicating a maximum valuation of up to 7.85 billion pounds.

One question is whether the Amazon-backed company will face the kind of clampdown experienced by Uber over the employment status of its staff.

“Deliveroo’s narrow profit margins could be at risk if it is required to change its rider benefits to catch up with peers, in an industry that is already facing severe competitive pressure between the large tech platforms,” Andrew Millington, head of UK equities at Aberdeen Standard Investments, said.

PANDEMIC SURGE

Deliveroo has seen demand soar during the pandemic as restaurants were closed for several months of the last year.

Its self-employed riders, distinctive in their cyan and white uniforms, have often outnumbered other traffic in cities during lockdown.

One rider Reuters spoke to – Krzysztof – said he had few complaints about his treatment, although he wished he could get an electric bike. He said he earns 300-350 pounds a week delivering food to families in Walthamstow in east London.

“I was working in a construction site nearby but I lost my job after COVID-19 and I found this quite easy to switch to,” he said, preferring not to give his surname.

Many riders, including Krzysztof, don’t work every day. Deliveroo riders are classed as self-employed contractors and earn a fee for every job. Employees, by contrast, are entitled to the minimum wage, sick pay and holiday pay.

London’s High Court said last month that a group of Uber drivers were workers and thus entitled to the minimum wage in a ruling that could have ramifications across the gig economy.

Deliveroo says its riders are self-employed because this gives them the freedom to choose when and where to work.

“We are confident in our business model, which has been upheld by UK courts three times, including the High Court twice,” it said.

It dismissed criticism over conditions.

“We communicate with thousands of riders every week and satisfaction is currently at an all time high,” it said in a statement.

‘DARK KITCHENS’

Some critics questioned whether Deliveroo can maintain its growth when restaurants reopen and younger consumers no longer have to eat at home.

But Tim Vasilakis, founder of Greek street food vendor The Athenian in Shoreditch, east London, said customers’ habits had changed for good.

“It is a valid business model and I think it’s proven itself now,” he said. “I think the pandemic just accelerated something that was already happening.”

Three years ago he agreed an exclusive deal with Deliveroo, resulting in lower commission and the chance to use the company’s “dark kitchens”, where food is prepared by chefs in delivery-only facilities.

The Athenian set up its first dark kitchen in Battersea, London, just before the pandemic hit. Sales were comparable to some of the group’s eight bricks-and-mortar restaurants, he said.

Deliveroo, which is battling competitors, such as Uber Eats, Just Eat and Takeaway.com, lost 226.4 million pounds in 2020 despite the pandemic boost.

But investors in tech companies are used to losses. Many remember that Facebook and Amazon were loss-making for many years before profits shot up.

In a low rate environment, they are particularly tolerant.

“We’ve been in an environment where growth has been scarce, lacklustre and investors have been happy to pay up for growth wherever they can find it,” Duncan Lamont, head of research and analytics at Schroders, said.

“So long as investors are happy to finance those losses, companies like Deliveroo can continue to go down that route of losing money to gain scale to become profitable in the long run.”

The broader question of how British fund managers view weaker corporate governance and the possible advent of more expensive regulation on the gig economy, however, will determine London’s success in becoming a hub for tech companies.

(Reporting by Abhinav Ramnarayan and Paul Sandle; editing by Barbara Lewis)