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Rocket Internet: The Start-up Factory
EXCERPTS
ROCKET INTERNET: THE START-UP FACTORY
Rocket Internet was setup in 2007 in Berlin, Germany, and had had 6 key stakeholders (Refer Exhibit V), the major holder being the Samwer family. The strategy was clear and simple; invest in internet companies that adapt proven technology and business models from mature markets to new and fast growing markets. Oliver believed that rapid scalability could be achieved in the internet business especially in e-commerce consumer-oriented platforms. Rocket invested in 5 categories of startups – food and groceries, fashion, general merchandise, home and living, and travel. There were only two decision parameters to decide on a business idea – a well-established prototype (a leading tech company with internet as its platform) and a geography where the prototype lacked a presence. Once the idea was decided on, the next task was pure execution and capital infusion to give a boost to the start-up to ensure it outgrew the competition. To lead such start-ups, Oliver recruited overachievers with a consulting or investment banking background. The candidates were usually in their mid- to late 20s and were first taken to Berlin where Oliver would give them hands-on training on managing and scaling a start-up... |
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ROCKET’S CONTROL
Oliver controlled Rocket’s portfolio companies with an iron hand. In a leaked email, Oliver said, “Sign … with your blood” to adopt “blitzkrieg” tactics. The letter ended with: “I am the most aggressive guy on internet on the planet. I will die to win and I expect the same from you!” Oliver was accessible 24 x 7 and held weekly meetings on the phone with CEOs across the globe. Each member of the start-up leadership was given a KPI (Key Performance Indicator) to hit. If the numbers were not reached, Oliver gave the members a verbal bashing. Underperformers had to leave Rocket at immediate notice; there were instances where there would be a churn in the whole top management within months...
ROCKET’S RESOURCES
Globally, Rocket had around 36,000 employees in 2016. The core infrastructure of Rocket Internet was based on four pillars: Functional Expertise, Regional Expertise, Strategic Partnerships, and Entrepreneurs...
ROCKET’S ADVANTAGE
Oliver believed the collective strength of the brothers was “execution” and the Rocket platform offered start-ups four key benefits, all centered on risk-mitigation. ..
ROCKET’S SUCCESS
Rocket was very successful during its early years and much of its growth was concentrated in Europe. By 2015, 1 out of 4 Unicorns in Europe was a Rocket company...
CRITICISM
Rocket’s exponential growth drew criticism about its business model which was described as a mere copycat by tech entrepreneurs. “It’s telling young entrepreneurs that the ideal way to make money is by copying something that works in the US, then selling it back to the original...
ROCKET’S CHALLENGES
In 2016, growth for Rocket had been full of challenges, especially in the emerging markets. Analysts opined that emerging markets lacked the infrastructure required for rapid scaling. Low credit card penetration and lack of proper logistics support and the talent to carry out operations were some of the problems ailing e-commerce in emerging markets...
INVESTOR’S REACTION
Analysts believed that Rocket Internet was more suited for private equity investors with more of a risk appetite than small investors who had no clue about the ground situation of most of its start-ups...
ROCKET’S ACTION
In May 2016, Rocket, however, reported narrowing down of losses (improved EBIDTA margin) of its select key companies. Rocket said since the companies had reached a certain scale, it had to focus on operational excellence to reduce expenditure...
WHAT NEXT?
Rocket’s sudden cost reduction approach had its downside...
EXHIBITS
Exhibit I: Rockets Portfolio Status (as of September 22nd 2016) in € Billion
Exhibit II: Rockets Leading Companies, Presence and their Business Models
Exhibit II (A): Revenue Growth % and EBIDTA Margin % for 2014
Exhibit II (B): Revenue Growth % and EBIDTA Margin % for 2015
Exhibit III: Revenue of Rocket along with Leading Portfolio Companies
Exhibit IV: Rocket's Historical Stock Price since IPO in EUR
Exhibit V: Rocket Shareholding after IPO
Exhibit VI: Rocket’s Standardized Framework to Launch a Start-up
