Rocket Internet is a Germany-based internet incubator that aims to identify successful early-stage start-ups, found a new venture with a similar business model and value proposition in untapped international markets, scale it up quickly and effectively and ultimately exit it. Since its launch in 2007, Rocket Internet has incubated 59 start-ups and created leading industry players such as Zalando, a European Zappos-inspired fashion eTailer, with a current market capitalization or around EUR 8b. In 2014, Rocket Internet went public on the Frankfurt Stock Exchange and has currently a market capitalization of around EUR 5b and more than 30k employees throughout its portfolio companies.
Key to Rocket Internet’s success is its ability to create and scale ventures quickly, effectively and efficiently in markets where incumbents have no expertise or access. At its heart, Rocket Internet is a venture-building platform, which facilitates the launch and growth of its portfolio companies through the provision of pre-developed and standardized assets and capabilities that enable and accelerate the venture founding process:
- People and expertise: From the incubation phase towards support of late-stage companies, recruiting talented, entrepreneurial and ambitious talent is a key driver of Rocket Internet’s performance. Throughout the last years the company has become an attractive exit destination for consultants and investment bankers as well as functional experts in areas such as online marketing, technology and operations. In order to compete for top employees, Rocket Internet created a human resource strategy in which high potentials can quickly join senior management teams and potentially even co-found their own venture within the company’s umbrella. Internally, the group is structured by competence centers, which provide best practices and expertise to new ventures and thus facilitate an accelerated launch and foster capital efficiency. Furthermore, the firm maintains regional hubs in key markets such as South East Asia from where local expansion is managed with a combination of talent with local backgrounds and business model expertise.
- Technology platforms: Across its main business areas eCommerce, Marketplaces and FinTech, Rocket Internet possesses proprietary technology platforms and partnerships, which can be quickly utilized to establish new ventures. For instance, Rocket Internet maintains framework agreements with the CRM player Salesforce, payment provider Adyen, eCommerce shop system developer Magento and many others. Instead of having to spend time and resources to design and build technology solutions from scratch, new start-ups can rely on existing expertise, relationships and technological assets. On an operational level, the incubator maintains large IT service centers across Europe, Asia and South America and uses those IT development teams to start an online business even before a management team is hired. Since time is a critical dimension when capturing the potential of a new market, Rocket Internet’s technological abilities and platforms are important to successfully execute its business model.
- Business infrastructure: Rocket Internet provides new ventures with access to shared resources in areas such as HR, legal, finance, marketing as well as with additional valuable resources, such as for instance, shared office spaces. This structure reduce the initial burn rate and allows founder’s to remain focused on key business tasks instead of having to deal with administrative topics.
- Access to capital: Right after the creation of a new venture, Rocket Internet provides seed financing from internal resources and in later rounds supports external fundraising efforts with access to established investor relationships and financing expertise. Superior fundraising capabilities are critical for start-ups to quickly scale and then remain well capitalized throughout their international rollout phase. In addition to the operational implications, Rocket Internet is able to ensure that its dilution is minimized throughout subsequent financing founds and hence the value of a future exit maximized. The firm’s high involvement in every financing decision is another strong example of how its operating model creates a sustainable competitive advantage in such that new entrants are unable to compete with Rocket Internet’s well-capitalized start-ups and thus fail to build a brand and acquire customers quickly enough.
In conclusion, Rocket Internet’s excellence across HR, technology, infrastructure and financing creates an effective platform to successfully launch new ventures and consequentially leads to the successful implementation of its business model of building, growing and selling leading Internet companies.