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Deliveroo in talks about fundraising as Uber lies in wait

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Deliveroo, the food delivery start-up, is in talks ‎to raise hundreds of millions of pounds from investors in a deal that could set a valuation floor for a formal takeover bid from rival technology firm Uber.

Sky News has learnt that Deliveroo, one of the best-known participants in the UK’s gig economy, is in the preliminary stages of discussions with prospective and current shareholders about a new funding round.

Sources said this weekend that the fundraising was being pitched at a valuation of between $3bn (£2.3bn) and $4bn (£3.1bn), with the British start-up likely to seek between $350m (£273m) and $500m (£390m) of new capital.

The talks could last for several months, and insiders suggested that there was no urgency about raising the money, with Deliveroo sitting on a cash pile of hundreds of millions of dollars.

However, Deliveroo’s board, led by founder and chief executive Will Shu, are said to be keen to crystallise a valuation well in excess of the just over $2bn at which it closed its most recent fundraising a year ago.

Reports in September said that Uber, which owns the competing Uber Eats restaurant delivery service, was in early-stage negotiations about a takeover of Deliveroo valuing it at about $2bn.

People close to Deliveroo have since suggested that there are no active talks taking place between the two companies but that they anticipate renewed interest from Uber in due course.

Deliveroo
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Reports previously said Uber had been in negotiations about a takeover of Deliveroo

Other big players in the sector include Just Eat, the FTSE-100 company.

Deliveroo, which handles takeaway orders for restaurant chains such as Byron, Pizza Express, Rossopomodoro and Wagamama, uses about 15,000 delivery riders in the UK.

Although the private fundraising market for start-ups has shown little sign of slowing down, bankers argue that loss-making start-ups like Deliveroo need to maintain substantial financial firepower.

One person close to Mr Shu said the latest fundraising would ‎create a “valuation floor” in the event of takeover approaches from Uber or another party.

An initial public offering is also not out of the question, although it is unlikely to take place in the next year.

Deliveroo more than doubled its revenues in 2017 but also saw losses before tax widen to nearly £185m.

Such losses are not unusual among technology start-ups, which invest heavily to gain scale rapidly during their early years.

Last year’s fundraising saw major institutional investors Fidelity and T Rowe Price agree to invest in the UK technology company.

At the time, sources close to Deliveroo said it was keen to secure backing from mutual funds which had experience of investing in fast-growth tech companies, then helping them to go public.

Its other shareholders include Bridgepoint, the UK private equity firm, and General Catalyst Partners.

Deliveroo has continued to faced controversy over its treatment of the riders who work for it, and did little to dissipate that criticism in May when it excluded its army of contractors from a £10m award of stock options to permanent employees.

Last year, it bowed to pressure by overhauling the “supplier agreement” it uses to set out the terms on which thousands of couriers are employed.

Its revised employment document included the explicit clarification that couriers can work for other companies at the same time as they undertake work for Deliveroo – a key change that MPs had urged in a critical report on the so-called “gig economy”.

Like companies such as Uber and Hermes, the parcel delivery firm, Deliveroo has found itself in the crosshairs of critics who argue that they are riding roughshod over their workforces by refusing to treat them as employees.

Earlier this month, the Independent Workers Union of Great Britain brought a judicial review to the High Court alleging that Deliveroo riders’ human rights were being breached because they were being denied the right to collective bargaining.

A Deliveroo spokesman declined to comment on its funding talks this weekend.

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