City's hasty decision: Deliveroo's sale is a regrettable mistake, alerts ALEX BRUMMER
Rewritten Article:
The UK technology sector is grappling with a dismal survival record, and Deliveroo's sale to American rival DoorDash for a whopping £2.9 billion is the latest addition to the list.
Deliveroo, once a promising hope, now joins the long line of British tech firms that have failed to thrive. Arm Holdings, Worldpay, Aveva, and Darktrace are a few notable casualties.
Labour MP Rachel Reeves is pushing for change by requiring British pension funds to invest in the tech sector. However, her policy faces resistance from regulators, fund managers, and consumers alike. Forces advocating for free-market decisions may have a valid point; directing investment can often lead to unfavorable outcomes.
Deliveroo's initial public offering (IPO) stands as a textbook example of a disastrous offering. Founder Will Shu's over-ambitious valuation, combined with investment bankers Goldman Sachs and Bank of America's questionable approach, resulted in a humbling flop.
A company initially floated for £7.6 billion now seems destined for a fire sale at £2.9 billion.
U.S. Equity Culture: A Missing Piece
The lack of an equity culture in the UK is one of the significant reasons for the sector's challenges. Pension funds, forced into constant top-ups due to over-regulation, have retreated from equities, preferring the relative safety of bonds.
Private investment in shares is also insignificant. Evidence from a recent taxi ride in Washington D.C. supports this observation. My Ethiopian cab driver, upon hearing my British accent, questioned the wisdom of DoorDash's potential acquisition of Deliveroo.
In contrast, the U.S. has a deep-rooted equity culture that has propelled the country's tech sector to great heights. American entrepreneurs and investors often take risks that their UK counterparts shy away from.
The Only Hope? Amazon
As the largest shareholder in DoorDash, Amazon may not view the acquisition of Deliveroo too favorably. DoorDash's expansion into territories dominated by Amazon could potentially stir competition, offering a glimmer of hope for Deliveroo.
Nevertheless, the odds are stacked against Deliveroo. A successful turnaround seems unlikely but not entirely impossible.
Global Macroeconomic Factors at Play
The story of Deliveroo is just one instance of the myriad factors influencing the British tech sector. Global economic pressures, competitive landscape, policy and regulatory environment, founder experience, and sector-specific risks all contribute to the industry's struggles.
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- Investment Advice for Startups: Discover the Best DIY Investing Accounts
- The steepest challenge in the UK technology sector is the lack of an equity culture, as pension funds, due to over-regulation, are avoiding equities and preferring bonds.
- An American entrepreneur or investor might take risks that their UK counterparts shy away from, contributing to the U.S. tech sector's success.
- To change the situation, Labour MP Rachel Reeves is advocating for British pension funds to invest in the tech sector, but faces resistance from various parties.
- The sale of Deliveroo to DoorDash for £2.9 billion is a setback for the UK tech sector, as companies like Arm Holdings, Worldpay, Aveva, and Darktrace have already faced the same fate.
- In the wake of Deliveroo's disastrous initial public offering, some argue that directing investment can lead to unfavorable outcomes, shying away from policies like Reeves' proposal.
- As the largest shareholder in DoorDash, Amazon may hold the key to Deliveroo's future, as their expansion into territories dominated by Amazon could stir competition and provide a glimmer of hope for a successful turnaround.
