In a press telephone conference Tuesday, Delivery Hero’s CEO, Niklas Östberg, shared that money earned from the startup’s initial public offering (IPO) would be used to pay off debts and tidy up their balance sheet.
The food delivery startup plans to use roughly €310 million ($346 million) to repay credit and outstanding loans. This includes paying off debts to Rocket Internet, one of the startup’s biggest investors, which currently owns 35 per cent of the company.
As of a few days ago, Delivery Hero had an account credit of more than €75 million.
In an announcement on Monday, Delivery Hero announced plans of offering shares on the Frankfurt Stock Exchange at the end of June and collecting between €450 million and close to €1 billion.
If the company only pulls in €450 million, there won’t be much capital left over for the company itself. For example, Delivery Hero needs to pay at least €48 million to founders of several startups they have acquired.
The remaining capital, Östberg explained, would be used to continue growing organically, but he did not rule out the possibility of inorganic growth, i.e. more acquisitions.
Up until now investors have shared “overwhelmingly” positive feedback, Östberg said. Investors often impressed by the “European growth story” and the technology built by the startup.
Technologically speaking the startup faces several big challenges: Delivery Hero has grown internationally and expanded into different markets primarily through acquisitions. With each business running across different platforms, each platform needs its own product team. This gets expensive fast.
Growth through costly marketing
A large market, which has an estimated global growth potential of €72 billion, is incredibly attractive to investors, Östberg says. “They like that we are a global leader. We have the most orders and most restaurants,” he continued. The Berlin-based startup is leading in 35 of 40 markets.
But in order to reach this goal, Delivery Hero invested more than €250 million in marketing last year, and found themselves in the red: The startup had a loss of almost €200 million in 2016 and a turnover of €300 million.
Sales improved in the first quarter of 2017 but Delivery Hero still reported a loss of €50.8 million (64.8 million in Q1 2016) and continued to drastically increase their budget for marketing.
The business model’s charm and the incentive for investors means that the company can be vey profitable once it reaches a particular size, Östberg said. However, the CEO did not say how big the company will need to be and when they will reach that point.
This does not seem to dampen investors’ spirits: Near the end of the press phone call Christoph Stanger, a Goldman Sachs Banker, who will participate in the IPO, announced that the books are already full. “The company wants the best book building possible and to hand pick the investors.”
This text originally appeared on Gründerszene.