Oliver Samwer

Trying to Relaunch the Rocket

Oliver Samwer, chief executive officer of Rocket Internet SE, looks on during the company's annual general meeting in Berlin, Germany, on Tuesday, June 23, 2015. Once termed "poor but sexy" for its lack of industry but vibrant nightlife, Berlin is growing quicker than most other German states thanks to an expanding digital industry, a sector where jobs have increased 43 percent in the city since 2008. Photographer: Krisztian Bocsi/Bloomberg *** Local Caption *** Oliver Samwer
The only way is up.
  • Why it matters

    Why it matters

    It’s an open question whether any of Rocket Internet’s hundreds of investments in online startups will ever turn into profitable ventures.

  • Facts

    Facts

    • Rocket Internet is an incubator of online startups and is best known for helping to grow German online fashion retailer Zalando.
    • Once a European tech-sector darling, Rocket Internet has struggled since its 2014 IPO raised €1.4 billion.
    • The firm has faced plummeting share prices, departures by top-level managers and a shakeup on its supervisory board.
  • Audio

    Audio

  • Pdf

Rocket Internet’s Oliver Samwer is not exactly known for his overwhelming media presence. He gave Handelsblatt a rare interview just before the company floated in 2014, but since then, he has avoided being grilled by journalists, preferring instead to air his views from the safety of a podium at various conferences and presentations.

But the company has struggled since its high profile public listing, and Mr. Samwer has decided he needs to explain himself, not least to investors who have just ploughed another large chunk of money into his business.

The Samwer brothers Alexander, born in 1975, Oliver, born in 1973, and Marc, born in 1970, are considered to be Germany’s most successful – and somewhat controversial – Internet founders. The most active of the trio is Oliver, Rocket Internet’s chief executive.

The Berlin based startup incubator floated on the stock market at the close of 2014. The brothers jointly became billionaires following the public listing. Recently, Oliver Samwer has been forced to digest some bad news. The company’s share price has been faltering, the initial public offering of its online grocery service, Hello Fresh, was postponed and an alternative is not in sight. Moreover, a number of long-time employees have left the company, and the chairman of the supervisory board has also left. Mr. Samwer sat down with Handelsblatt to explain what exactly is going on.

Handelsblatt: Mr. Samwer, you recently said there could never be an Elon Musk in Europe because nobody here would be willing to stick many billions of dollars into the dreams of one individual. Is the state of the risk culture here really that bad?

Oliver Samwer: I said there could be an Elon Musk in Europe, but he wouldn’t be able to find any financing. That’s probably so, because there is a certain aversion to risk that only a few in Germany overcome. When Musk started Tesla, his electric cars really weren’t much more than a dream. Nevertheless, unbelievably many investors followed him. There should be more of this willingness to take risks in Germany.

So far, his investors are only watching how Mr. Musk spends their money.

But in America they think differently. Even when Musk announces something extraordinary – like a train tunnel from LA to San Francisco – a lot still follow him. And even if we in Europe and also in Germany really do now have a couple of big venture capitalists, the situation is still not comparable to the culture in the U.S.

You are now starting a new fund with, initially, $420 million. Why exactly, since you most certainly have enough money through Rocket Internet’s IPO?

It is true that we still have some €1.7 billion ($1.86 billion) in cash on hand, but the fund can operate entirely differently.

How?

When we start new companies, historically we have always brought co-investors on board for individual projects, but did it in very time-consuming, individual rounds of funding. Then again, there were insurance companies, pension funds or other large investors who wanted to systematically invest in us. Our fund is starting off as the largest Internet fund in all of Europe. That puts us playing up there in the top league. And soon it will be half a billion dollars strong and that is also only to the advantage of our Rocket Internet shareholders.

“At the moment, the Internet isn’t particularly very popular with certain types of investors. But the analysts who really focus on us are aware of the opportunities our daily work presents.”

Oliver Samwer, Founder, Rocket Internet

Please be more specific.

The fund is more flexible and can invest more quickly. Rocket, itself, is participating in the fund with a total of 28 percent of the joint investment. In addition, Rocket receives 20 to 25 percent of the profit-sharing. So our investors also benefit from the future profit-sharing. And the fund also has a long-term investment horizon of about 10 years, so it thinks in the long-term and is completely independent from the performance of Rocket stocks.

Is the Rocket Internet Capital Partners Fund also supposed to prove that there are still enough investors who trust you?

Many of them are professional asset managers from Europe and the U.S. Over 90 percent of the investors are institutions. That is a great proof of confidence – in Rocket, our business model, our investments, and in our management team.

If you had to give Rocket Internet’s performance a grade, what would it be right now?

I would give the company itself a good grade. It’s no different today than it was a year ago. Naturally, our share price at the moment could be better.

That’s putting it mildly. The stock market prices continues to reach new record lows . . .

… and also shows somewhat the absurdity of the markets.

Your price has been cut by half since the start.

Others have also suffered under the difficult market conditions in recent weeks. In the short time I have been with Rocket as a listed company, I have experienced all the highs and lows. Fifty percent up and 50 percent down. Rocket Internet certainly isn’t a different company than a few weeks ago, but all the same, it’s worth quite a few percent less. Now we couldn’t have made that many mistakes.

What’s the cause?

Not our long-term investors, who continue to remain loyal to us. I think that the general market environment is particularly very cautious about Internet companies, and at the moment that is having an effect on almost all companies in the sector.

Even financial big players like Blackrock and Fidelity have drastically written off their shares in startup investments recently.

At the moment, the Internet isn’t particularly very popular with certain types of investors. But the analysts who really focus on us are aware of the opportunities our daily work presents.

Rocket lives from giving assembly-line birth to Internet companies – for example, online furniture dealers like Westwing or food for cooking delivery services like Hello Fresh. Suddenly last fall it was all over with the high-flying plans for the latter one – one day before the stock exchange prospectus was published. Why?

Far bigger, more traditional companies also have had to cancel their planed IPOs time and again on short notice because of circumstances. The ship is in the harbor, set to sail, but there is no wind for the sails, then there is no sense in leaving the harbor. The markets in the fall were simply not attractive.

It is said your Swedish major shareholder, Cristina Stenbeck, was the one to pull the plug.

That’s a load of nonsense. Naturally, we discuss things with our investors and members of the supervisory board. Naturally, there are differences of opinion over details on occasion – like in every other joint-stock company. But the decision to postpone the IPO was jointly sustained by all on the Hello Fresh supervisory board.

At any rate, Rocket is one of the biggest loss-makers in the portfolio of the Swedish investment firm Kinnevik. How do you want to turn that around?

Kinnevik once paid €100 million for its share in Rocket. The participation in Zalando alone earned the Swedes many times that. I have sitting at home a silver rocket Cristina gave me half a year ago. She certainly would hardly have done that if Rocket represented such a disaster to her. But it’s also clear we both naturally wish that the stock price would once again reflect the true value of Rocket Internet.

 

Rocket Internet-01

 

Why did Kinnevik’s CEO Lorenzo Grabau give up the chairmanship of Rocket’s supervisory board if there was no trouble behind the scenes?

Even before going public, everyone was agreed that it is better to have a chairman in the medium-term who isn’t tied with his company to Rocket shares. This decision was made long before the discussion about Hello Fresh – in September 2015. Naturally, continuity in the supervisory board is important in the starting stage of a company like Rocket Internet. But we have now also grown out of this stage.

A weaning process?

On the contrary, it’s more like growing closer. Today our discussions are more on an equal footing and we now see ourselves as equal sparing partners. And everybody involved thinks that’s good. Cristina, Lorenzo, and I – that’s a team that has absolute confidence in each other.

You have promised to go public with other companies in the next year or so. Which are the most promising candidates?

First of all, I’m holding to that statement. But give us time. We won’t name any potential candidates publicly.

Home 24, Delivery Hero, Hello Fresh, Westwing – so far nothing has caught fire. Your 13 “proven winners” are still in the red. For how much longer?

At least three will be profitable by the end of 2017. As we said at the time we went public, companies in e-commerce need about six to nine years, online marketplaces five to seven, and companies in the financial sector six to eight years until they are in the black. 2016 will be a good year for us, 2017 a very good one, 2018 an outstanding one. We’re not going to let them drive us crazy even if some media have accused us of pretty much everything you can imagine in the recent past. We believe in the course we’re taking and will continue with it.

To be €770 million in the red in the first three quarters was really quite something, wasn’t it?

Our showcase companies reached the peak of their losses in 2015. Rocket Internet will drastically reduce in total the absolute and relative losses of its proven winners this year like we announced in September at Capital Markets Day.

Growth in totally real terms also doesn’t seem to be working out all over. Foodpanda recently had to let go 300 of its employees. Is that all normal?

Like many other Internet companies, Foodpanda was forced to grow very quickly. It’s always first a matter of dominance in a market segment. Sometimes a volume of staff is built up that then must be adjusted – for example, you have to part with call center personnel when the level of automation increases. It may be painful but it is also a normal process – besides, we always try to find a place for workers in other companies in the Rocket family. There are around 30,000 employees today in all the companies originating from the Rocket universe – and I’m leaving out Zalando for now. This year thousands will also be added.

On the other hand, the hemorrhaging of management at Rocket Internet is conspicuous: head of human resources Vera Termühlen is already gone; Franziska Leonhardt, head of the legal department, has also left; as has your communications chief, Andreas Winiarski; as well the deputy financial officer, Uwe Gleitz. Chief Technical Officer Martin Biermann has also said goodbye.

I don’t want to comment on the individual cases since each personnel issue is different. By the way, not all of those that left were all that significant a manager for the operating business that it made a difference. None of the core team has left our company, as is sometimes now being claimed. When someone leaves the management of a company that doesn’t mean that BMW will sell one car less, and that’s how it is with Rocket as well. We haven’t lost a single employee of our core team but instead are constantly hiring very good young people worldwide.

Management is also a question of psychology. When it’s a matter of Rocket Internet and you, one always hears there’s a lack of confidence. Have you made mistakes?

I certainly make three mistakes every day, but I’m also right five times. There may be days when it adds up to a minus. But that has to do with the nature of an entrepreneur. If we don’t take a risk as entrepreneurs, we can’t be successful in business. We have to constantly make decisions. The issuing of convertible bonds in 2015, for example, was probably a mistake. But even that decision might possibly be judged completely differently in one, two years. We are very confident about the future of our company. Our new fund is an important milestone for it.

 

Thomas Tuma is a deputy editor in chief at Handelsblatt. To contact the author: tuma@handelsblatt.com

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