Rocket Internet admits trusting everyone in India was a mistake

20 Oct, 2016

Rocket Internet, the German internet venture builder, may have made certain miscalculations "in putting trust in everyone" while doing business in India, said a senior global executive while speaking at a startup event in Bangalore on Thursday.

Rocket Internet – which operates on a venture builder model where in it hires key executives as co-founders to replicate a successful business model elsewhere – has been struggling in India as it sold off its fashion portal Jabong in a distress deal three months ago and has reportedly put its troubled food-ordering startup Foodpanda on the block.

"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," said Hanno Stegmann, CEO Asia, Rocket Internet while referring to the firm's learning from the Indian market.

He was speaking at Startup EU-India Summit.

Stegmann's remarks assume significance as Rocket Internet companies Foodpanda and Jabong have faced allegations of questionable financial deals that led to the decline of these consumer internet firms which were once the leaders in their respective segments.

Foodpanda grew fast, acquired smaller companies and became one of the early internet successes as it spent aggressively on marketing and customer acquisitions. Then, allegations surfaced of fake orders to bump up transaction figures and questionable financial deals with vendors that were suspected to be owned by a Foodpanda co-founder himself.

Subsequently, the company was hit by resignations of a co-founder (Rohit Chadda) and many others in the senior management. Its valuation slumped, it laid off employees amid talk of a shutdown, and the owners are now reportedly struggling to sell the company.

Jabong had an early mover advantage in the online apparel market. With many global brands on its platform, it became hugely popular among Internet-savvy youth. It expanded quickly and offered massive discounts to lure customers.

But its losses mounted, competition intensified and its founding team quit. Also, allegations surfaced about a co-founder's role in a fraud involving Gojavas, an e-commerce delivery company incubated within Jabong. Ultimately, Jabong was sold to Flipkart's Myntra for a paltry $70 million, a fraction of the $1-1.2 billion it was seeking less than two years ago.

"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," observed Stegmann.

However, he has insisted that Rocket Internet is not turning away from India. "But it doesn't mean at all 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 said.

"We need to look at all situations venture by venture. Sometimes you are successful sometimes you are not successful. Sometimes it is not a question of success rather it is a question of where would you allocate more capital," Stegmann said.

"India will always be an important market for us. Next time when we do the next thing we would know what we should do differently," he added.