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Tracing Rocket Internet’s exits in India

26 December, 2017

The two-year-long efforts of Rocket Internet, the German venture capital firm-cum-startup incubator, to sell off Foodpanda India came to fruition last week. Cab aggregator Ola, freshly funded and hungry for quick expansion, bought out the food delivery platform in exchange for a fraction of its shares. The rise in Ola’s valuation after the latest funding round and the desperation of Foodpanda’s new parent, Delivery Hero, to sell its Indian unit may have sweetened the deal for the homegrown cab hailing firm.

With Ola’s acquisition of Foodpanda India, Rocket Internet has exited nearly all of its portfolio firms in the country. These firms lost their early mover advantage due to a spate of incidents, including alleged irregularities and top management exits, which eventually led to their distress sale.

The VC firm’s remaining Indian ventures include customised printing services Printvenue and deals and discounts portal CupoNation. It had sold online furniture store FabFurnish.com to Kishore Biyani-led Future Group in April 2016.

Rocket Internet did not respond to queries from VCCircle regarding its India plans.

The sale of Foodpanda India, which was put on the block for two years, is reminiscent of the sale of Jabong in mid-2016. Jabong, once a leading online fashion brand, which had bargained for $1.2 billion from Amazon, was sold to Flipkart-owned Myntra for $70 million in July 2016.

Allegations of irregularities regarding the involvement of Jabong’s operating founder in e-commerce logistic firm GoJavas, top management exodus, and Rocket Internet’s loss of confidence in its Indian business led to the decline of Jabong.

In July 2016, Praveen Sinha, the co-founder and former managing director of the fashion e-tailer, had initiated legal action against an anonymous Twitter account, which had alleged that Rocket Internet was pursuing a case against Sinha for siphoning off more than Rs 100 crore from the company. The development took place after a media report found that Rocket Internet conducted a forensic audit of financial fraud at Jabong that denied the investor-accelerator its stake in GoJavas.

Foodpanda India came under similar scrutiny in September 2016 after a media report found irregularities in the firm’s operations. Allegations of fraud and the exit of its then managing director, Rohit Chadda, put Rocket Internet in a spot. The German VC firm had appointed Saurabh Kochhar, co-founder of another incubatee firm Printvenue, as the new CEO of Foodpanda India in late 2015 to steady the ship while looking for a buyer.

A year down the line, Rocket Internet underwent a major organisational rejig at the global level. As a result, Foodpanda became part of its investee company Delivery Hero. Rocket Internet’s stake in Delivery Hero moved up to around 37%. Though Foodpanda got acquired by a new entity, the intent to sell off the Indian unit still remained. While the company focused heavily on branding and improved its financials, it simultaneously continued its sale talks.

In the meantime, Rocket Internet considerably trimmed its holding in Delivery Hero by selling half of its 26% stake to South African media firm Naspers.

Rocket Internet operates on a formula wherein it copies business models that have been successful in developed countries like the US in emerging markets like India, and it also appoints its own executives to run these businesses.

According to investors and former executives at Rocket-backed firms that VCCircle spoke to last year, what caused the German company to falter in India was its inability to consider the local scenario while running the businesses, lack of effective oversight, and will to stay in the game. Besides, the firm also hired founders with little emotional connect to the businesses they led.

A senior global Rocket executive too admitted that the VC firm may have made certain miscalculations “in putting trust in everyone” while doing business in India.

“It is very important to be close to the market. Sometimes, you have this approach basically to put a lot of trust in everyone that this will work out and just let them go. It is something we like but it is not really working everywhere,” Hanno Stegmann, CEO, Asia Rocket Internet had said at an event in Bangalore last year.

Rocket’s decision to sell its ventures at a far lower price than the valuations they once commanded after some major internal crises also reflects its lack of will to stay put in the highly competitive Indian market that demands huge capital and dedicated focus.

At the time it sold Jabong to Myntra, Rocket Internet’s Global Fashion Group, of which the fashion e-tailer was a subsidiary, said that the Indian market was extremely competitive and unprofitable.

Will Rocket Internet return to India?

The answer is yes and no.

“India is a tricky market and also a competitive market. Competition has always been increasing dramatically in India and perhaps faster than you would have thought in the beginning,” Stegmann had said in 2016.

“But it doesn’t mean we are not looking at India at all. It is such a big market. As soon as we find the right interesting business concept, the right team, we will continue to launch something in India,” he added.

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Tracing Rocket Internet’s exits in India

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