Rebuttal: Why a Rocket IPO Would Indeed be a Big Deal

Yesterday, Sarah Lacy of Pando Daily responded to my post on Rocket Internet’s IPO preparations in a typically Silicon Valley-centric report which fails to grasp the international implications of a potential public offering by the Samwer brothers. While I respect her track record as an astute observer of tech trends, I fundamentally disagree with some of her assertions. In this post, I explain why.

(1)    Lacy says that the news of a potential Rocket IPO is not a big deal, that no one in the startup world will care. WRONG. The startup universe does not revolve entirely around Silicon Valley. Yes, Silicon Valley is far and away the most important and dynamic startub hub on the planet. It is without a doubt where the overwhelming majority of VC returns come from. But there are other fast-growing startup ecosystems all over the globe, full of intrepid entrepreneurs trying to build and scale new businesses in new markets. And there are lots of emerging market VCs who have put significant capital into ventures that may be threatened by an increasingly well-capitalized army of Rocket clones. I can assure you that for all of these individuals, a several hundred million dollar public offering by Rocket would be a very big deal. I won’t belabor the point here, as I’ve elaborated upon it in a prior post. But from my seat here in Sao Paulo – and from my recent conversations with emerging market entrepreneurs in markets such as Indonesia and Nigeria – this is undoubtedly big news. Ironically, I think Lacy knows as much herself, although she would be loath to admit it. Why else would she dignify my “effusive” reporting with a post of her own?

(2)    Lacy says Silicon Valley investors would never invest in those who steal “color palates, names, and code.” Really? Why is New Enterprise Associates an investor in Payleven, the Rocket-backed Square clone? Why is Summit Partners an investor in Lazada, Rocket’s Asian Amazon clone? Lacy’s assertion that Silicon Valley is too proud to put money into clones seems off base in light of the facts.

(3)    Lacy says that entrepreneurs in the Valley no longer pay much heed to the machinations of Rocket. I’m not so sure about that. If I were Stripe, for example, I would probably be paying attention to Rocket’s moves. As David Meyer of GigaOM points out, Stripe is available in the U.S. and Canada. Paymill, Rocket’s Stripe clone which launched a mere five months ago and just raised $13M from Holtzbrinck and Sunstone, is available across 34 countries in Europe and elsewhere. I find it hard to believe that a Rocket IPO – if it were to include Paymill – would not hold major repercussions for Stripe and its investors. Especially given Stripe’s intentions to expand internationally.

The Birchbox / Glossybox battle serves as another example of how US startups and their backers are almost certainly keeping a wary eye on Rocket. Glossybox is Rocket’s Birchbox clone. Despite being launched well after Birchbox, Glossybox is now live in 16 countries, versus Birchbox’s 4. In terms of capital raised, Glossybox recently announced 55M Euros in total funding, versus only $11.9M to date for Birchbox. I’m quite sure Katia Beauchamp (who I interviewed previously here) and her investors thus find Rocket Internet more than a little irritating. I’m not saying Glossybox will ultimately take home the grand prize – and moving more slowly on the international front is probably a deliberate strategic move for Birchbox – but I’m sure they would regard the news of a Rocket IPO as a material event as it pertains to their competitive landscape.

(4)    Lacy seems to imply that Rocket provides “angel money” to new ventures in emerging markets. This isn’t really accurate. Perhaps I’m being a bit nitpicky here, but I want to make sure everyone understands the reality of the situation. To be clear: Angel rounds are usually about $300,000 to $400,000 in size, and are funded by Angels. Rocket generally gives its startup “founders” $10M or more to launch a new entity, and the money doesn’t come from Angels, it comes from Rocket and Rocket’s investors. These are institutional entities, not angels.

Yes, as Lacy points out, there isn’t much mentorship or credibility attached to this capital. That’s because Rocket isn’t looking to nurture a relationship with a talented entrepreneur who came to them with a disruptive idea. A traditional entrepreneur dependent on VC capital to fuel growth would demand these things from investors. But Rocket doesn’t really work with individuals of this ilk. Rather, Rocket recruits bright but generally risk-averse former bankers and consultants and tells them to execute on a business model according a defined strategy that comes from Germany. They don’t need to offer mentorship or credibility to recruit these folks.

That’s all for now. Felt compelled to set the record straight. As I alwasy, I welcome your comments and feedback. Check back soon.


  1. Daniel Hatkoff

    Interesting stuff Tom. How the IPO prices should give some interesting market data. Any word on whether this would be largely a primary or secondary deal?

    Lacy’s take feels pretty startup idealist-y, that innovation trumps all. I love innovation, and do think passion for solving a problem is powerful, but robber baron strategies of economies of scale, using disproportionate capital to harm competition through pricing and marketing heft, etc have proven effective over the history of capitalism. Since much of the Rocket businesses are focused more on solving core problems in emerging markets, albeit without much product innovation, it’s an interesting evolution to see unfold that should have results worth watching. It doesn’t feel good, but it’s still interesting.

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