I was never a fan of Rocket Internet as an investment. In fact, I advised against buying the stock after its IPO in 2014. Now the company's journey as a publicly listed company is ending as CEO Oliver Samwer announced that he is taking Rocket Internet private.
"Rocket Internet, the German startup factory infamous for copying other companies, said Tuesday that it will delist its stock, citing current greater availability of private capital than when it went public in 2014"
For investors who purchased and held the shares the journey has been a very bumpy ride. Rocket’s market value has fallen from its high of 6.7 billion euros ($8 billion) on the day of its IPO on the Frankfurt Stock Exchange to just 2.6 billion euros and is now offering investors 18.57 euros ($22.23) for each of their shares. Its investment division, Global Founders Capital, and CEO Oliver Samwer, will retain their stakes of 45.11% and 4.53% respectively. It has also launched a separate buyback program to secure 8.84% of its shares from the stock market. Although the decision to delist makes sense, smaller shareholders will be burned, especially as Rocket is using its own cash for the buyback.
To be sure, some of Samwer's clone investments have been successful, even if they were not particularly original, including e-commerce firm Zalando, food delivery service Delivery Hero and meal-kit provider HelloFresh. But Rocket investors saw little benefit from these successes. Part of the problem is that Rocket would artificially inflate the value of its startup investments using a controversial metric - "last portfolio value" or LPV, which valued these startups based on their last financing round - and these valuations were manipulated since Samwer's Global Founders Capital or Rocket itself provided the investment round. Jeremy Kahn at Fortune explains how the LPV metric was highly misleading:
The difference between Rocket's valuations and more conventional ones became apparent when investors compared Rocket's books with those of Swedish investment firm Kinnevik, which was once a big shareholder in Rocket and had coinvested in many of its startups. Kinnevik used far more conservative metrics to value these young companies. Its figures and Rocket's were often miles apart. For instance, the Swedish firm valued Westwing, an e-commerce retailer, at $304 million in June 2016; at the time, Rocket said the company was worth $576 million. Rocket's valuation of Home24, another home decor merchant, was seven times what Kinnevik thought the company was worth.
While Rocket Internet's progress - or lack of progress - has been a big disappointment to Rocket shareholders, Oliver Samwer and his brothers have done quite well: According to Forbes, Samwer and his brothers and co-founders Alexander and Marc are worth at least $1.2 billion each.
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