Rocket Internet’s workforce down by 50% – what does that mean?

This is not the first time we wrote about Rocket Internet’s fading star. In fact, it recently (although not openly admitting) closed many of its ventures in Southeast Asia. It has got our attention that the number of Rocket Internet employees globally have been dwindling significantly in the past 2 years. Apparently, the internet giant based out of Berlin have not been seeing much success in its investees (bearing in mind that employees of smaller ventures in Rocket typically put Rocket Internet as their employer for better personal branding).

It doesn’t take a wizard to make a wild guess why Rocket Internet’s model as an incubator (some say clone factory) is rapidly failing, especially in emerging markets. This obviously has nothing to do with Alibaba or Tencent (we meant it as a joke of course!). In any case, speculations aside, Rocket has been around of a long time – and they are known to be effective cost managers, doing what is needed to preserve their investments.

Investors do not want to compete with the big boys

It was definitely way easier to raise money when you were a big fish in the market (circa 2010-2016) until Alibaba’s entry. Besides Lazada, Rocket successfully raised a lot of money for other companies under its Southeast Asian portfolio which include: Zalora, Foodpanda, Easy Taxi, and many more.

The likes of Alibaba and Tencent entering a certain business vertical immediately make it unattractive to be invested in – due to the sheer firepower these big boys possess. This is especially true for pioneer business verticals, where there are no mature players yet. As we highlighted in our article before, most of the time the big boys don’t need to play nice.
For any investor this is usually not good news; especially if their investee is just starting out in the market. The best thing that could happen in such scenario is to prematurely sell the startup before it reaches optimal price valuation – assuming the big boys have any interest.

Who will play in this playground next?

The survival of any startup depends on how well it manages daily cash burn. After all, the exit plan for any startup is by mostly getting acquired, or by raising more capital. Either way, it’s the race against time.
Of course, if you are already making huge amounts of money, funding these cash burns aren’t a problem. In recent years, increasing number of companies (mature tech companies and traditional corporations alike) are starting to set aside funds to purchase or invest in startups. While it is a gamble to invest into startups, these corporations’ real intent are basically to sell a good image to their investors.

Suffice to say, they can afford to absorb the short term losses these startups incur, or by accessing the capital markets (these companies are very often public listed).

Silver lining

Momentum Works contends that the gold rush age is officially over when it comes to cloning startups and flipping it over for a quick profit.
This is not only limited to Southeast Asia, but growth markets where Rocket have predominantly targeted. One after another, the ecosystem will become more mature, with more serious capital (that is also significant in size and patient) joining the fray.
Even with the big boys in town, more opportunities are being created upstream, downstream and in sectors previously untouched due to a lack of capital and infrastructure.
There are two very positive legacies Rocket Internet have left in these markets:

1. They educated the market about tech. Think about the sellers back in 2012 when Lazada first came in – now they are all online, thanks to relentless effort of Rocket. Newcomers are able to ride this wave much more quickly, as the whole sectors mature.
2. The amazing talent pool that Rocket Internet has trained up. They are scattered now across different parts of the ecosystem and will definitely continue to play pivotal roles in the region’s tech development.

The implications are far beyond the marketplaces that Rocket Internet has been strong in. The stage has been set.