Rocket Internet Shifts its Investment Strategy
Rocket Internet, a Berlin-based company that was once known for investing in the hottest start-ups on the continent, has shifted its strategy in recent years. The company has morphed into a more diverse investment firm that manages various types of capital, from debt to public stocks. This new approach has potentially made the company more profitable. Rocket Internet’s finances and operations were analyzed based on company records and several sources close to the company. The detailed report shows that Rocket has moved away from incubating fast-growing internet startups and has instead invested in a diverse set of venture capital funds, debt financing, public technology companies, and stocks.
Rocket Internet Started as a Tech Incubator
Rocket Internet was founded about 16 years ago by Oliver Samwer together with his two brothers Alexander and Marc. The company became highly controversial for its practice of taking successful business models from Silicon Valley and then launching them in markets outside the United States. Rocket Internet delivered the highest returns in the European technology sector, backed by a deluge of fast-growing internet start-ups. But after six years as a public company, its stock price halved, causing it to face stiff opposition from investors. Consequently, it is planning to delist this year. The process has been controversial; the firm had to offer to buy shares below their trading price, and activist investor Elliott Management built up a blocking stake. Ultimately, Rocket succeeded, but it had to pay nearly double the initial offer and included a special deal for Elliott.
The Company’s New Investment Strategy
Rocket’s best-known unit is Global Founders Capital, which is the team of venture capital investors. Its two €1 billion funds were backed by early bets on companies such as the $12 billion remote-employment firm Deel and the $8.5 billion human resources start-up Personio. However, a less critical arm of its investment strategy is Global Growth Capital, launched in 2016 to provide debt financing; it became a vital profit generator from its two funds of €200m and €300m each, according to people familiar with the matter. The division has been involved in significant business deals such as lending more than £100 million to financial technology firms Revolut and SumUp.
Rocket has also amassed a sizeable portfolio of public stocks; it had about €673 million of public shares in 2021. The company’s primary equity holdings were a €326 million stake in Amazon and a €107 million stake in Alibaba.
Rocket Internet Shifts from Tech Startups to a more Diverse Investment Firm
Rocket Internet has grown wary of a prolonged recession, according to those familiar with its thinking. Consequently, after borrowing heavily and aggressively deploying venture capital during the pandemic’s tech boom, the company has largely abandoned new deals for start-ups. In 2020, Rocket launched Flash Ventures, which was a start-up fund that ultimately invested around €30 million. The fund grew to approximately 40 people spread across the world, from Australia to Latin America, who have together made dozens of investments. However, the entire Flash Ventures team was dissolved three years later, and they stopped making further investments despite closing some promising deals.
Rocket has cut staff in the past years due to the pandemic; it employed about 130 people at its units as of early 2022, which was reduced to 75 employees by November 2022. Today, only a couple of dozen employees manage its various investment functions. Rocket has also faced other challenges like significant turnover among its top team, with the exit of investors such as Soheil Mirpour, Johann Nordhus Westarp, and Hugues de Braucourt, which was a major blow to the start-up founders who had close ties to them.
Oliver Samwer’s Personal Changes
Those close to Oliver Samwer, one of the company’s co-founders, said Rocket’s pivot has come along with personal changes, even as he keeps a tight lid on the business. He just turned 50 and has a lot of money. He wants to spend time with his family, ski in Alaska and kite surf.
Conclusion
Rocket Internet, once known for incubating fast-growing internet start-ups, has shifted its strategy to a more diverse investment firm. The company now invests in venture capital funds, debt financing, public technology companies, and stocks. This revised approach has potentially made Rocket Internet more profitable. After six years as a public company, dragging its stock price down, Rocket is planning to delist this year.
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Oliver Samwer, a leading European tech investor, once told entrepreneurs to adopt “blitzkrieg” tactics to quickly capture market share: “I’m the most aggressive internet guy on the planet,” he wrote in an email. to colleagues more than a decade ago. “I will die to win and I expect the same from you!”
His Berlin-based company Rocket Internet continued to back groups like meal kit maker HelloFresh and online retailer Zalando which later held initial public offerings at multibillion-dollar valuations.
In recent years, however, Samwer’s firm has quietly left its roots as an early investor in the hottest start-ups on the continent. Instead, Rocket has morphed into something more diverse but, potentially, more profitable: a complex investment firm that manages various types of capital, from debt to public stocks.
This account of Rocket Internet’s finances and operations is based on company records, several people with knowledge of the company, and other investors and executives. Together, they provide a detailed look at the company since it began a delisting process from the Frankfurt stock markets three years ago with a market capitalization of around 2.5 billion euros.
Rocket management did not respond to requests for comment.
In one deal, it provided more than £100m in debt financing to financial technology firm Revolut in 2019, according to documents and people familiar with the deal. Rocket has also built significant stakes in public technology companies such as Amazon and Alibaba.
Meanwhile, in the past two years, Rocket has cut staff at its venture funds, shut down one of its investment units, abandoned plans to create a new seed fund, and exhorted some fledgling tech companies it has invested in. to adopt more prudent spending plans.
These moves, according to people close to Samwer, reflect a dramatic shift in response to a tech downturn that has hammered the valuation of startups around the world.
Florian Heinemann, founder of Project A ventures and former Rocket Internet executive, praised Rocket for its bevy of shrewd investments and seeding the next generation of European tech founders and venture capitalists. But he added that while Samwer’s company was once considered “huge,” it “has definitely lost relevance in recent years.”
A private transformation
Rocket was founded about 16 years ago by Samwer together with his two brothers Alexander and Marc. The company has drawn attention — and fierce criticism — for its practice of taking successful business models from Silicon Valley and then launching them in markets outside the United States.
After its stock price halved during six years as a public company, the firm is planning to delist in 2020. The take-private process has been controversial, after Rocket offered to buy shares below the their trading price and activist investor Elliott Management has built up a blocking stake. Ultimately, Rocket succeeded, but had to pay nearly double his initial offer and included a special deal for Elliott.
“The reputation has been completely shattered,” says a Berlin-based technology executive of the delisting process. “They have performed very badly on the capital market.”
In its latest annual filing for 2021, Rocket Internet revealed that it has gone from a loss to generate annual net income of €134m, with a portfolio of around €2.1bn in business investments. In total, it listed 4.4 billion euros of assets.
Meanwhile, Samwer has further consolidated control by buying his brother Alexander out of the business, according to people familiar with the matter. With that scrutiny, he pushed Rocket to strategize away from what made his name of him, incubating fast-growing Internet start-ups.
Rocket’s best-known unit is Global Founders Capital, the team of venture capital investors. Its two €1 billion funds were backed by early bets on companies such as the $12 billion remote-employment firm Deel and the $8.5 billion human resources start-up Personio.
A less important arm, however, is Global Growth Capital, launched in 2016 to provide debt financing. It has been a key profit generator from its two funds of €200m and €300m each, according to people familiar with the matter. The unit has made big business such as lending more than £100 million each to financial technology firms Revolut and SumUp. It has generated a gross domestic rate of return in low teens, People said.
Rocket has also amassed a sizeable portfolio of public stocks. It had about €673 million of public shares in 2021. According to the most recent publicly available accounts, the company’s largest equity holdings were a €326 million stake in Amazon and a €107 million stake in Alibaba.
He doesn’t dare to venture
Meanwhile, it appears to have largely abandoned new deals for start-ups.
In 2020, Rocket launched Flash Ventures, a start-up fund that ultimately invested around €30 million. It has grown to around 40 people spread across the world, from Australia to Latin America, who have together made dozens of investments. Flash’s strategy was to take roughly a 30% stake in companies in their early stages of development, including investing in e-commerce firm Razor Group, which was last valued at more than $1 billion.
Three years later, the entire Flash Ventures team was dissolved and stopped making further investments despite closing some promising deals, according to people familiar with its operations.
This is a reversal from Rocket’s move to rapidly borrow and aggressively deploy venture capital during the pandemic’s tech boom. Since then, Samwer has grown wary of a prolonged recession, according to those familiar with his thinking. He has urged portfolio companies to hold years of cash buffers, far more than the two-year consensus among other VCs.
“Oli’s thinking is related to the market. . . if he’s in a bad mood and the market goes really low, he forgets all the values that he preached before,” said a person who knows the company.
As a result of the pandemic, Rocket has cut staff, according to people familiar with the matter. They said it employed about 130 people in its units as of early 2022. This was reduced to 75 employees by November 2022. Today, just a couple dozen employees manage its various investment functions.
The company also faced other challenges. In late 2021, Global Founders Capital attempted to raise a similarly sized third fund for €1bn, only to back off due to a lack of interest, according to people familiar with the move.
And the decision to launch a special-purpose acquisition company — a blank-check vehicle to merge with another company — ended without a deal earlier this year.
There has also been significant turnover among Rocket’s top team, with the exit of investors such as Soheil Mirpour, Johann Nordhus Westarp and Hugues de Braucourt, a major blow to the start-up founders who had close ties with them. Mirpour and de Braucourt did not respond to a request for comment while Westarp declined to comment.
Those close to Samwer said Rocket’s pivot has come along with personal changes, even as he keeps a tight lid on the business.
“He just turned 50. He has a lot of money,” said a former executive. “He wants to spend time with his family, ski in Alaska and kite surf.”
https://www.ft.com/content/8107971f-ec15-4a32-9fbe-4bc118d928ad
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