Rocket Internet’s IPO: the financial VS the entrepreneurial approach
You’ve certainly heard of the Rocket Internet IPO coming on October 2nd. The IPO is perceived by some as controversial as their Founders and their model.
Rocket Internet’s valuation in question
Their financial documentation was recently released: you can read very interesting numbers here and the complete documentation there. It shows that they have huge multiples, that is to say the ratio between the value of their current stake and the fund they provide. For instance, Zalora’s multiple amounts to 60 — Rocket issued €2.6M for a stake weighted LPV of €131M.
These figures are very impressive, although they should be put into perspective: they are calculated based on the companies in their portfolio, which means figures all depend on the way the portfolio’s companies are valued.
A company can be valued in two ways
- the value of the last financing round or exit — when the supply meets the demand
- by a combination of indicators reflecting the current value generated and the expected gains.
Valuations based on market values often times are the most accurate provided that the investors act independently and faithfully.
Calculated valuations depends on current revenue — that can be artificially boosted by aggressive marketing expenses or a pricing strategy that is a bit too aggressive, for instance — and expected revenues which depend on the health of the company.
Most of companies built by Rocket Internet are run by Rocket people — who cost a lot of money to companies in their portfolio. A company is “healthy” when it has its own company culture and employees who are faithful to it.
The entrepreneur’s view of Rocket Internet’s model
I’m no financial analyst and will leave the experts decide whether Rocket’s valuation is accurate. What’s interesting for me is the entrepreneurial side: what Rocket’s IPO proves it is possible to build a new model of entrepreneurship and to value it.
The valuation of Rocket Internet is calculated by the sum of the participation that they have in each of their companies multiplied by a ratio that translates their capacity in building successful companies. According to me, it’s the proper way one should value us at eFounders. We are running on the same model, the Startup Studio model, even though we have a very different approach: we act as a true 3rd co-founder.
INNOVATION AND ADDED VALUE
We are building unique ideas only and focus on market innovation, whereas Rocket Internet breeds copycats, that is to say they are cloning successful and proven business model. They create value by innovating in other steps of the value chain (logistics, etc.)
TARGETED MARKET
Rocket Internet focuses on e-commerce businesses and are targeting consumers, a business characterized by low margins, high entry barriers, and capital intensity. We focus on software and are targeting B2B “Fortune 5 millions” (businesses imply high margins and high stability).
CAP TABLE
Rocket companies’ founders own a very small portion of the capital, whereas founders of eFounders’ companies own 50% of the shares.
CULTURE AND INDEPENDENCE
Our companies are independent companies, with their own culture and ultimately their own team. They become financially and operationally independent 18–24 months after incorporation. Rocket companies are very capital-dependent and since they are run by Rocket managers, very dependent to the Rocket Startup Studio.
Rocket Internet is very good at what is does. I won’t judge if the valuation for the IPO is right but they definitely created something really extraordinary. We are doing something similar with a much more entrepreneurial approach and we really hope to be as successful as they are. It is just the beginning. Let’s stay in touch.
