Why Rocket Internet has come down to earth | Hacker News Reader

Why Rocket Internet has come down to earth

economist.com

114 pointsedward88 comments

I moved to Berlin for a while in 2014, and so I ended up interviewing at a couple Rocket Internet companies.

I'm by no means an expert in any of this but the impression I took away was that while they did some really impressive things, all their companies had a fatal flaw.

The impressive things were:

- They had a common tech stack that while no means elegant was at least effective at getting to decent scale quickly

- They clearly had marketing and growth talent to also scale up businesses quickly

- They had expertise in specific geographies that are often difficult like South America, Europe, and China (these are difficult at least from the perspective of an American :) )

But the fatal flaw all their companies have, by design, is that they are really good at cloning a product and not good at actually creating one. Every company was clearly designed to be acquired before that problem became insurmountable.

If the acquisition didn't happen, turning a several hundred person organization into one good at figuring out what changes to make to a product to make it successful is...messy.

I worked at Foodpanda, which was one of the Rocket Internet flagship companies for a time. Foodpanda was a mess, and the people from Rocket Internet were saying it was 10x better than Rocket Internet. Which I can believe since Foodpanda outsourced work to Rocket Internet because Rocket Internet said so. They literally assigned me to make sure they didn't screw the project up, they wouldn't take any feedback really. I ended up not caring about the project because it wasn't actually within my offical responsibilites. At the end of the project I was included in the email threads between the two CTOs where the Foodpanda CTO repeatedly pointed out that they were warned about all the shortcoming in the project way before the end and that they needed fixed. Rocket Internet responded saying that was a lot of work and they would need developer resources from Foodpanda. Me and one of the guys I worked with at Foodpanda decided a way to tell if a developer was worthwhile in Berlin was how long they stayed at rocket. Majority in Berlin would have worked for them at some point, so working there wasn't a sign they were bad. But if they stayed there for more than a year, that was.

From my experience Foodpanda's biggest problem was tech. They literally had hundreds of servers be knocked off line because one redis server with session data went down. This was considered acceptable within the company. There was a culture of failure. And the business side had these issues too. There was a write up in an Indian newspaper where they basically got tore to shreads for all their failures publically. Turned out half of the company didn't realise how bad things were.

Foodpanda was Rocket's attempt at buying up competitors and dominating India. They literally bought everyone and still lost the war to dominate food ordering in India.

First of all I'll admit I was trying to err on the side of generosity when describing Rocket. Maybe that's a mistake.

They definitely seemed to have a culture of well...internal chaos. But that jives with their "copy fast" mentality. It's worked at least a couple times, right?

> It's worked at least a couple times, right?

Yea, HelloFresh seems to be doing well and Zalando dominates in fashion. There are probably a few others doing well too.

Delivery Hero too, they just entered the DAX

I am not too sure about them. They sold the German companies and pulled Foodora out of a few countries.

Look at their global results, Europe is largely irrelevant compared to APAC and MENA. Germany exit was loss of prestige losing home market but also not a major loss of revenue compared to gains elsewhere in the world.

Globally, it's mostly Foodpanda that was doing soo poorly they had to be sold to Delivery Hero, no?

All Rocket ventures were designed to be sold. Most of them did poorly. There is a cost/benefit ratio at which it doesn't make sense to dump money on the business, but the business itself still has value, so selling is a good strategy to cut your losses and/or make some profit.

I think you missed the fact that Foodpanda and Delivery Hero were both Rocket companies. It was that Foodpanda was doing soo poorly they gave it to Delivery Hero which was for Europe. Overall, Delivery Hero/Foodpanda are pulling out of markets repeatedly. And not small markets either.

Also, Foodpanda's plan when I was there was IPO.

DeliveryHero isn't a Rocket company. They invested heavily in it at some point in time - and they seem to still hold a position in the company, but DeliveryHero started outside of Rocket. Foodpanda was always pretty much a "rocket venture".

When rocket invests heavily, it becomes a rocket venture. That's how VC pretty much works.

Zalando were publicly hung out to dry by Rocket Internet as they were sure they would fail. After the turn around they are now the poster company of Rocket Internet despite Rocket having done nothing to help them.

Zalando seems really nice. I have no connections at all, but they really won me as a loyal customer because I really prefer the experience over all alternatives (especially including Amazon and local stores for everything except really pricy clothing).

More importantly though, I am really impressed and surprised by some of the research coming out of Zalando. Flair[1] has some great ideas (especially at the time of release, when there weren't pretrained huggingface models for everything to build upon) and a really well-written paper. Colleagues also have had a good experience using the software and achieved very results with adapted NED tasks.

[1] https://research.zalando.com/welcome/mission/research-projec...

> They literally had hundreds of servers Woow. I remember when you could write the number of servers for India with few binary digits :)

I was familiarized with Foodpanda in the early days, and their first months with dev in Berlin. I was also quite familiarized with Rocket (worked there for a while on their core platforms - both ecommerce and marketplace), and while my opinion about their design (on ecommerce) is far from good,their code and procedures were at a level of maturity far more advanced than Foodpanda.

That is not necessarily a bad thing, in startups of this kind you need to be able to refocus priorities and quickly test new markets. With this comes pressure to implement changes and twisting the product to fit a different goal thought on the initial design. In the end, you usually work a PoC as a product for some years until you have a complete grasp of where your business fits. Some challenges may look unexpected (such as the street naming and numbering somewhere in South America, maybe Colombia?), some challenges can be a bit more predictable (such as an appropriate redis configuration), but these growth pains are expected. One way I've seen working quite well to avoid that feeling of "drifting around" product teams have during this trial periods is to have clear, in-person communication from the top down, and include the product teams in the refocus process, so everyone is on the same page, and the business can decide also based on other factors such as cost of implementation and time to market. And I've seen this on a Rocket venture :)

Out of interest, what was their tech stack based on?

I worked there for a while. They used PHP and had a sort of framework called Alice and Bob which I think was built in Symphony.

It was designed specifically to allow quickly rolling out to many different countries each having possibly different business logic.

Bob & Alice is ZF1

The only time I would advise people to deal with rocket internet is if they're a developer who is just moving to Berlin. Lots of fun to be had, everyone else has just moved so there are tons of people who hangout. After a while get to know the city and find a different company to work for.

Rocket Internet is known for doing pretty much what the quote in the article has "What they're doing is totally legal and totally immoral." How they operate is rather well known.

As a nontechnical person who moved to Berlin and whose first job was at Rocket, I echo this even for non-technical people. Stuff was a mess, turnover was absurd (I lasted about 8 months), but you have a great little network from Rocket people who leave and go to other companies in the city

Out of curiosity are you still in Berlin? What happens when a company like Rocket hires you and you leave? Do you need to have something lined up immediately for visa reason or is there a grace period where you have a bit of time to find something new?

If you're not a EU citizen, you have 3 months after losing your job to find another visa sponsor, if I'm not mistaken.

No longer in Berlin, I ended up moving to Estonia to work for their government and then just bounced around Eastern Europe until Covid happened. If your work was sponsoring your visa you have to leave after a set amount of time unless you get another one (assuming non EU citizen). That said, if you're an engineer or have access to capital it's not that tough to get a visa somewhere in Europe. I'm personally considering doing the Dutch American Friendship Treaty path once Covid is over but haven't decided yet.

Ah, DAFT. The glorious deal where US citizens can work and live in the NL and the Dutch can.. welcome you to NL.

What a scheme! Unfortunately, if that deal was being negotiated today I doubt the US would have the weight to get such a one-sided transaction done.

Why is that unfortunate? What would the US have to lose allowing (mostly) highly educated Dutch people into the US?

I meant more that the loss of US power is unfortunate (and was being a little glib, obviously upsides and downsides to the US not being the only superpower anymore) - I would love if more Dutch came to the US, maybe SF would finally get some bike lanes

I'm not Dutch nor familiar with the DAFT[1] scheme but from the wording I sense there is a hilarious insider story buried here somewhere?

[1] what a name

Bad for the individual but probably good for the country? They get US developers and don't lose their Dutch employees to higher paid SV jobs.

Brain drain in tech is a big issue in Europe due to salaries paid in SV, not everything bad for the individual is actually a bad deal for the country.

Brain drain is really not an issue at all in Western Europe. Sure, some people move to SV, but the majority likes sane working hours, streets without poo, and schools without metal detectors at the entrance.

Anecdotally, the amount of European programmers I know that moved to the US slightly exceeds the amount of American programmers that moved to Europe. I strongly doubt a different visa system would impact that significantly.

I don't see any brain drain from Belgium to US actually.

Everyone knows US pays more, but you are left in the dirt when something goes wrong.

People stay mostly here since there is work enough, friend & fault is here, travel between countries is easy, pay isn't bad and you get a decent healthcare.

Some people work in the US for a couple of years, but all the ones I know come back ( outside IT I have seen some friends going to the US)

>"hat said, if you're an engineer or have access to capital it's not that tough to get a visa somewhere in Europe. I'm personally considering doing the Dutch American Friendship Treaty path once Covid is over but haven't decided yet."

Which other ones besides DAFT are you referring to? I think all of them that I have read about(Portugal, Malta, Cyprus) require hundreds of thousand of Euros no?

I think there are quite a few startup and freelancer visas that aren't all that hard to get access to. I guess I also should have specified how much capital, but I was thinking sub 100k euro. For instance there's the new Estonian digital nomad visa if you make 3k and change and work for a foreign (non Estonian) entity, Germany has their freelance visa that didn't seem all that hard to acquire from the folks I met who had it while I was in Berlin. Below is an article I found after a few minutes of Googling that outlines a few worldwide.

https://startupswb.com/startup-visa-heres-15-countries-that-...

Interesting, thanks for the link. I've been curious about the Estonian one. I'd be interested in hearing how that has worked out for people.

Of course - any specific q's on the Estonian one? It's run by a bunch of former colleagues and I was around for a bit of the early planning/discussion. Happy to share what I can

I can confirm that the German freelance visa is really easy to get. I documented the process here: https://allaboutberlin.com/guides/how-to-get-a-german-freela...

> No longer in Berlin, I ended up moving to Estonia

I've been in Berlin for a number of years and have always liked the idea of Estonia, how did you go about finding a job working for the government? is speaking English OK?

Technically yes, but in practice, you can obtain a Jobseeker visa[1], which will give you an additional six months to search for a job. This can be applied for inside of Germany at the city government offices.

[1] https://www.make-it-in-germany.com/en/visa/kinds-of-visa/job...

Generally yes, there was strong demand for software engineers in Berlin pre-covid. It's still there albeit weaker, so you might not find something you want immediately. As for the visa, there's generally a 3 - 6 month grace period to find a new job that's granted by the immigration office before you lose your status.

That's a very investor-friendly title. Effectively, they are taking the company private again using a legal method where investors lose the difference in stock value. It's not nice, but also not illegal. And these people were never known for their friendliness, so no investor should be surprised that they're taking the unfriendly route now.

"where investors lose the difference in stock value"

According to the article, the investors have the right but NOT the obligation to sell their shares at the tender price. They might trust the company's governance less after de-listing, but it doesn't appear they're being forced to sell.

What are the implications of owning shares in a company that is no longer publicly traded?

Apologies if this is discussed in the article, it's partially behind a paywall.

Maybe dividends?

Just because something is private does not mean it cannot be owned, in whole or in part.

Ok, but what are the implications of that? If I own 0.001% of a private company—having decided to opt out during this process—am I at the mercy of that company in the future to determine how much they're willing to buy me out for?

How hard would it be to locate another 3rd party to buy my share? There's no longer an exchange to trade it on, and there might be all sorts of additional rules about how and who I can sell to.

Those are the questions each investor is asking themselves, and I assume that even with the large discount they're being offered, it's probably the better choice unless you hold a significant minority stake.

I’m pretty sure you can’t do much with those if you are not a major shareholder or you gather under a third company that acts on behalf of you and your (enough) peers

The majority shareholder can also invest in the company and dilute your shares if you don't match the investment.

Depends on agreements. Sometimes other owners can veto sale of private shares. But you can sue them to force a sale on reasonable terms to the existing owners in that case. Whether that is worth the hassle for a fraction of a percentage is unlikely.

> partially behind a paywall.

if you search for the title from the desktop version of Google it's possible to read the cached version

Or just stop allowing JavaScript.

You’ll have no control, will probably find it difficult to sell your shares at any price, and while you’re entitled to any dividends, the controlling entities (Sam wer brothers) can take cash out in different ways and never declare a dividend.

The same as with any other (private) company. You have to deal with the majority shareholders and the board/management.

It's not like you have any more control if the company happens to be public anyway.

Also, big companies, private or not, in most countries have to retain an accounting auditor.

Also, if you are a member of the company (as in you have equity) the management has a fiduciary duty toward you. (yes, yes, sure, in practice that means very little, they can siphon off the money in many creative ways), but usually people who are already minority owners have some trust in the majority owners.

In some jurisdictions there are rules about what kind of mechanisms are available for the minority shareholders, and usually the get a board seat, and so they can kind of try to audit the majority.

And in the end they can still sue, or threaten to sue, or whatever. That usually doesn't help with the valuation, and since the majority has more to lose, they can usually work out some minimally satisfactory deal between themselves.

Aaaaand if not, we can finally get the popcorn, because then usually it gets dirty and juicy.

Practically speaking the biggest difference is that it is a lot harder to sell the shares to someone else.

Yes, indeed, the whole point of being listed is that there's always liquidity (at least a market maker) and so a price signal. And in theory you can set your own risk limits. (Of course if trading is halted for the stock because a sudden drop/jump, that's a different story.)

However, investing is always a story about managing risks (so expectations). Public or private, even if it's itself an investment company, it's still just one very fragile basket. And usually there's always someone who has so different risk/expectation profile that they'll take the other end of the transaction. Anyone holding "ETR RKET" has some strange/complex ideas.

Someone should confirm, but 'de listing' is not technically the same thing as 'going private'.

'Not on the exchange' means you don't have to follow exchange rules, but if you meet certain criteria, you're still a 'public company' and therefore subject to the same public disclosure filings etc..

Usually that has something to do with the number of shareholders, in which case, if many do actually 'hold out' it may still be de-facto a public company.

Another way of saying: 'you can't just go private because you have 50%'.

But it's also Germany/Lux/EU so it's different 'over there'.

> And these people were never known for their friendliness

They were the founders of Jamba, a notorious company specialized in selling ringtone subscriptions for 3 to 5 Euro per month (called "Jamba Sparabo"). This may have well been the most hated company in Germany in the early 2000s.

They were hated everywhere, In Italy the damn frog ringtone became associated with shitty annoying people

It was this one, right?

https://youtu.be/l_bTTUihfx0

> Rather than using external capital to buy investors out at a premium, the usual way to take a firm private, Mr Samwer has used company cash to buy back €223m ($260m) of its own shares. This pushed his clan’s stake to over 50%. He plans to use another €1bn of Rocket’s cash to buy out minority shareholders at €18.57 a share, the volume-weighted average price in the past six months but down from the ipo price of €42.50.

> Investors are under no obligation to sell their shares, of course. But those who stay put will have little power to affect the course of the firm now that the Samwer brothers control the board with their majority stake. Rocket has stated it will be “better positioned” for long-term development if not listed on a stock exchange.

It seems like the main tipping point is one group (the Sameer "clan") getting into a control position. Presumably enough other investors agreed to the earlier buybacks that allowed that to happen.

It's not specified in the article but Rocket Internet is no longer a startup incubator, it's a venture capital firm. They don't have any technical team to use for bootstrapping startups, so they just invest in them. Everybody in the technical department was let go at the end of July.

Much of the money of rocket internet is coming from other sectors these days. A major sector here is real estate, where they founders have created a massive network of companies / holdings.

I still don't quite understand how they could be that "successful". But maybe its just a reflection of society...

One of my friends worked directly under one of the brothers. He had to double any of his objectives: his revenue goals, his hiring goals, his layoff goals. Whatever it was, he had to double it. It was to the point of absurdity. He would be berated for any missed goal.

Samwer brothers never cared for innovation. They picked whatever worked in the US and made a copy. They could either sell to the the US market leader, as they did with their first company when they sold to eBay, or IPO. All that mattered was to grab the market and get investors to value on the growth.

And to be first, they hired new grads or junior McKinseys they could impress with high pay while giving monkey equity, while pressuring at will.

Innovation doesn't matter. Making money matters. Innovation is a means to an end, not the end itself. If you can shortcut it, it's irrelevant.

> And to be first, they hired new grads or junior McKinseys they could impress with high pay while giving monkey equity, while pressuring at will.

You say that as if it was a bad thing.

This is part of a discussion I had with a Rocket Internet C-whatever a looooong long time ago for a "Head of SEO" role for one of their upcoming projects[1]:

RI: "... and you get a 500k per month budget for SEO. It will the the number one acquisition channel."

Me: "Cool, how man developers will be in my team."

RI: "... that will not be part of SEO."

Me: "Ok, how man Dev resources will I have access to in a sprint?"

RI: "Developers are part of Product and IT."

Me: "Whats the process to get dev resources?"

RI: "You will be Head of SEO."

Me: "....... So i will get 500k per month, but no dev resources."

RI: "The SEO budget is 500k."

SEO just does not work this way. Maybe they changed at one point, but looking at the huge blocks of shitty "SEO" text on the bottom of the pages of a lot of their web-properties I have my doubts.

[1]the phone call was really stupid, as they did not even say what the project was about, because "stealth-mode" but yeah "big budget, join us, come to Munich" ...

And honestly I blame Rocket Internet on the shitty state of SEO in the german markets. They hire dozens of juniors to do fake work, like linkbuilding and writting stupid SEO text below the actual content and then use stupid SEO tools to create management p$rn good looking charts to justify the spendings.

These people leave rocket internet and go to other companies and spread the toxic fake work approach.

Rocket Internet has the amazing skill of buying healthy companies, assure founders they are not going to shut them down on third party interests and shutting them down on third party money settlement. They are plain old assholes.

How can talented people give their 110% every day to basically implement clones of successful US companies?

I was recently approached by a small VC that's hiring talent in France for a company with 2M€ in funding (pre-product). The premise was: no need to prove the business model, another company has proven it in the US and we're getting to market before they do in Europe. We're positive it's going to be a cash cow.

I thought execution beats idea? In which case, there's nothing wrong (morally or otherwise) with taking someone else's idea and executing on it.

https://archive.vn/TiNNC

You can copy business models but you can't copy trajectories. Their failure is not selling businesses fast enough. Perhaps they drank their own Koo-Aid and thought they could build an actual tech behemoth out of copying ideas but clearly all the things they copy have the same uncertainty that the original ideas they copy have.

Maybe they thought that they could pass that upper limit of uncertainty with capital and operational speed but that doesn't work for unproven ideas. It's not like a private equity buying a crackers company. Startups in general have very undefined horizons with no operational references or data to build on. How could something like FoodPanda be successful when all the other players in this space struggle and just a few are barely successful?

Interesting I had this discussion with one of my coachees lately. It is interesting how things are in the air and then people speak about it at the same time. Like water condensing at the dew point.

The stock is undervalued by 50% IMO. What the Samwers are doing is fleecing the public. I have sold my shares right after the announcement, not going to become a holdout. Surely it will take years until they will put a decent offer on the table for remaining shareholders.

If this is how they treat investors, how will they persuade investors to invest again? Stupid question?

By proving themselves profitable to investors.

Stock trading is considered risky. Professional investors might not be happy with this, but will not be overly exposed and will readily invest again if they think they can make a profit.

Not in this case I presume, unless German investors are that daft. They crashed from an IPO price of almost 40 to a 50+ price, but are currently trading at 18. Not to mention, this action seems like a betrayal of trust to any investor. Investors usually don't understand business models but I'm assuming a significant number do understand how to read into profitability data.

Are the institutional investors still around or have they cashed out?

Looks like it's 4.5% Samwer, 23.2% public, 27.2% institutions and 45.1% VC/PE, all of which is held by Global Founders Capital Management, which is the holding company for the Samwer clan.

Yeah... Some of those may not want to do it again. Others may find some way to prevent this behavior in the future.

Guess, in times of globalization "copying US companies" doesn't cut it anymore, hu?

Rocket Internet may be a dubious company.

But as a rule of thumb: A public listed VC does rarely well.

Since they can't build companies, what they should do is build clones to grab market share and sell them quickly to entities that actually do know how to scale.

Germany is actually quite different than everywhere else, but ultimately subject to the same trends.

So ... like 'German Ebay' - copy the other types of up-and-coming trends, and then sell them off to the actual global player.

That would actually make sense and be a value add: get the German market 'going' with 'something' and then let it scale with others who know how to do it. It's kind of a win-win-win.

But otherwise, it seems they're taking the very shortsighted view with everything without any material real product/customer/market authenticity ... meaning no long run way to make money.

Shame the economist steels freely available articles and puts them behind paywalls - here the free link from the original author

https://www.carihargaterupdate.com/business/why-rocket-inter...

Not a single legit innovative technology company coming from Germany, a country which literally brain drains post-Communist and Mediterranean part of the European Union. Wirecard, Rocket Internet. What a miserable failure and waste of human potential.

There are tons of innovative companies coming out of Germany. What you're saying is something like

"Not a single legit innovative technology company coming from Silicon Valley, a place which literally brain drains the world. Theranos, Zenefits. What a miserable failure and waste of human potential."

what a great response to a dumb statement

I'm neither German nor American. It's the brothers behind RE who bootstrap businesses to sell them to SV (lookup history of German eBay and Alando). I don't recall any SV startup aspiring to be acquired by German or generally any EU business.

I know plenty about their history. We’re discussing the German ecosystem here which is way way bigger than RI

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