Who really wins if Rocket goes public?

When rumors pinged around about the possibility that German web conglomerate Rocket Internet could be going public earlier this month, it generated a brief storm online. No surprise: Rocket’s founders, the three Samwer brothers, have a special way of dividing opinion.
Their approach to internet startups — taking an idea that’s already been proven somewhere else (usually the US) and building out a copycat focused on Europe or emerging markets — either tends to draw admiration or disgust.
The swell of reactions to the rumor died down pretty quickly, but the background chatter is still there. And what I realized that when I looked back over people’s thoughts, that I hadn’t seen a clear-eyed overview of what it would actually mean if Rocket — or some of its properties at least — did hit the stock market.
That’s partly because everyone who comments on the Samwers comes from one of the two camps. Either they are emotionally invested in the idea of the brothers as tough operators who turn a profit (Venture Village quoted local investors happy about the possible influx of money). Or they have disdain for the kind of success the Samwers represent deep in their bones (Sarah Lacey, who has been a vocal critic of the Samwer brothers and their methods, said that “real entrepreneurs will never respect the Samwer Brothers”).
But if the question is “what would Rocket going public really mean”, in the end, neither position really does the question justice. So here’s a list of pros and cons I drew up.

It’s an exit, and any exit is good

The world is pretty economically distressed right now, and even inside the technology bubble — which took a while to feel the pain — things are tough. That makes any public offering a good thing, because it helps the effort to rebuild. And it wouldn’t just be hot air, either: Rocket has some powerful brands in its portfolio. Fashion retailer Zalando, which started off as a copy of Zappos (s AMZN), is growing fast with strong revenues north of $600 million.
Brandenburg gate

It’s good news for Berlin, and for Europe

Berlin’s reputation as a home for interesting internet companies has been building over the last few years, and this move would certainly draw even more attention to it. More broadly, Europe could do with a win too. These have been bleak years for the continent, where most people still talk about Skype (s MSFT) — first sold eight years ago — as one of the big successes. Of course, this kind of backslapping doesn’t come without drawbacks — success will inevitably draw more hangers-on, more poseurs, more wannabes, of which Berlin already has many. But it’s a welcome fillip for those who are still at the coalface, and could bring them more attention and assistance.

It shows the global market matters

All of the biggest internet companies are American — Google (s GOOG), Amazon, Facebook (s FB) — and many of them are preoccupied with their home market, particularly if there’s an e-commerce or physical element to what they do. That’s understandable, but it does leave other markets waiting. Square’s a great example: it plans a global rollout soon, but the market wanted more, and so a wealth of copycats and rivals has built up. Underpinning Rocket’s success with an IPO could help reiterate the idea that you should think global.

It’s a paean to execution

You probably know the truism that floats around in the tech industry: ideas are ten a penny; execution is what matters. In fact, most people who say it don’t actually believe it, prizing the beauty of “innovation” just as highly. But strip all the blabbering away, and you can’t find a better example of execution than Rocket, where a ruthless dedication to success and speed is ingrained into each team.

It’s a big test for the Samwers

The Samwers haven’t really been this route before. Whether it’s the entirety of Rocket that goes public, or just one or two brands within it, this is unchartered territory for the trio. By and large they like to stick with what they know: take an idea, build, raise money, profit, start again. Going to the public markets with your business is a tough road that brings a lot of new challenges — and even when you look strong, you may struggle. We’ve already seen consumer internet IPOs struggle: Facebook (s FB) stock is down 22 percent from its IPO.
Two other things to think about. First, remember that most of the financials behind Rocket’s businesses are obscured: we don’t know how well they’d stack up if opened up to shareholder scrutiny (although they’re pretty brutal with underperforming properties). Second, what evidence we have from the Samwers’ involvement in public companies is not great so far: Marc Samwer took over the international business at Groupon (s GRPN) after it bought their clone, Citydeal, but left last spring amid turmoil at the company.

Most of the money won’t come back

Unlike startups which are built from scratch by their founders, who then often put money back into their local ecosystems as angels, the vast majority of the equity in Rocket companies is owned by the Samwers and their investors. The people who run Rocket startups are more like employees than founders, and as a result they won’t leave with as much cash as they would have done otherwise. It will also be interesting to see whether Rocket goes to New York or stays in Europe: some big Russian tech companies have chosen to IPO in London, but it seems likely that Rocket would pick the Nasdaq. That means it’s the American investment market that gets the deal.
Woman holding wad of European euro money cash notesAnd let’s remember, the investors who fuel Rocket’s empire aren’t likely to push all their profit back into the ecosystem either. Leonard Blavatnik of Access Industries has backed a few big companies — such as Deezer, the Spotify competitor — but has a very diverse portfolio, including oil companies, media businesses and chemicals. Swedish bank Kinnevik, meanwhile, seems to mainly get involved in funding Russian and German copycats.
There are some investors who are spreading the love: German media investment firm Holtzbrinck and Nordic venture business Sunstone are recent Samwer backers, for example. But it seems unlikely that either the biggest investors or the Samwer brothers themselves, who prefer to crush their rivals rather than buy them, will push too much of their cash back into.

It will encourage copycatting

Whatever you think about copycats, the fact is that there are smart, value-generating ways to build on the ideas of others — and then there are cheap, pointless imitations. Sometimes the Samwers achieve the former: when they bring, they deliver something that people want. What the Samwers’ critics misunderstand is that they are providing a service to people who do not have access to the original, often when the “parent” company shows no intention of expanding. It’s not as if large American internet companies have a divine right to the custom of the rest of the world, whenever they feel like it.
You could argue that they have single-handedly dragged Germany’s internet market out of the late 1990s by being aggressive and lifting ideas from elsewhere.
bamarangBut sometimes they try to win with code lifted from rival sites who are already moving into the markets that Rocket is trying to brute force its way into (see Bamarang, its rip of Fab). They have also encouraged less capable entrepreneurs and investors to believe the copycat model is a way to surefire success. Just witness the clone wars springing up in difficult, exciting new markets like Russia or Turkey or Brazil or South East Asia. A Rocket IPO could give birth to a generation of poor imitations of American products that don’t understand where their value really lies.