A short while ago, I broke the news that Rocket is preparing to go public. I received the information from credible sources that are close to the company. The news is not surprising, but it holds dramatic implications for the international startup scene. Here is my initial analysis of the impact this event will have on the tech world:
- Likelihood of long-term success dramatically increased. Rocket is building an empire of emerging market Amazon and Zappos clones. These companies absolutely devour money as they ramp up to reach that coveted $1B USD revenue threshold. If you’re ever read “Delivering Happiness” – the book about the Zappos story – you’ll know what I’m talking about. I believe that this capital raise consolidates Rocket’s position as a global internet behemoth and dramatically increases the likelihood that they will be a major player on the international startup / eCommerce scene for a long time to come. In short, if the raise happens, they will be relatively comfortably positioned to endure the brutal multi-year period of negative cash flows that their portfolio companies must go through before reaching maturity.
- A pause in the proliferation of new Rocket clones. Not sure about this, but a close friend suggested that this news may herald the beginning of a consolidation phase for Rocket. Over the past year, they’ve been launching clones across the globe in a frenzy of copycat activity. But with this raise, Rocket may decide to hold off on the formation of new ventures and instead decide to focus on nurturing existing firms until they become self-sustaining. As I mentioned above, achieving this is a very expensive proposition. Hence the capital raise.
- Competitors have serious reason to worry. I’ve alluded to this in a previous post. Rocket Internet is an execution machine, and they take no prisoners. Firms going head-to-head with Rocket in the hopes of dominating big emerging market verticals will have a rough road ahead. Thankfully, most eCommerce markets are not truly “winner-takes-all”, so more than one player can operate profitably. But this will definitely make life more difficult for those competing with Rocket clones.
- Those who haven’t bought into the Rocket model will be forced to take a serious look at it. It’s an ugly model that attracts significant criticism, and the long-term fate of Rocket – even if the raise happens – will remain the subject of debate. But if this event occurs, lots of people will take a closer look at this business model. Because it appears to be making lots of people lots of money. At least on paper.
- Big Payday for the Samwers and their investors. Following up on my prior point, these guys have already done quite well financially, particularly in the wake of the acquisition of Citydeal by Groupon. But this capital raise will significantly increase the paper wealth of the Samwers and the investors who put money into the Rocket Internet holding company.
- Validation. I can literally visualize the smile on Oli’s face if this deal goes through. He doesn’t seem to care too much about all the negative press he and his company get. But I’m also sure he doesn’t appreciate the individuals who consider him nothing but an imitator, a hack. This capital raise will put an imprimatur of validity / credibility on Rocket Internet, and give serious pause to those who would love to see him fail. He’s already a very credible force to be reckoned with, especially in the wake of all the capital JP Morgan has put into portfolio companies, but this very well may be the nail in the coffin for Rocket haters. Schadenfreude will have to be put on hold.
That’s it for now. If you think I’ve missed something in the post above, please do let me know by commenting. I will follow-up with more information on this event as it becomes available to me. Check back soon, and have a great weekend!