Rocket Internet: Attack of the online clones

The German-based start-up factory has churned out more than 100 businesses in recent years. And now it’s looking to replicate its success here

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The German start-up factory Rocket Internet has Britain in its sights.

After listing on the Frankfurt Stock Exchange in October, at a value of €6.5bn, Rocket Internet is doubling down on its mission of creating new internet companies, particularly here in the UK.

“We already have two new businesses in the pipeline for 2015 and the aspiration is to launch five or six next year,” says Rocket’s UK managing director, Ian Marsh. “We’ve got to the point now where we can launch a company in 60 days.”

Rocket, with headquarters  in Berlin, brings a factory assembly line approach to starting internet businesses, spotting ideas that are working and replicating them in other countries. “We’re constantly scanning for good ideas, especially in the US,” says Mr Marsh. “You get a lot of good ideas in the US that don’t get brought to Europe. A classic one is online fashion.”

In 2008, Rocket created Zalando, a rival to Asos that has become Europe’s biggest online fashion retailer. The company was valued at €5.3bn when it floated in Frankfurt in October.

Rocket’s well-honed method for creating a company goes like this: get together a team, incorporate a new company and then hand them cash, typically in the millions, to turn ideas into reality. Along the way it provides office space, guidance and boring, but essential, things such as back office support.

Rocket has launched seven businesses in the UK since opening an office in London three years ago, although as yet none have broken into the mainstream.

Three of Rocket’s UK businesses started up in just the last year – a lunchtime hot meal delivery service Eat First, on-demand laundry business ZipJet and on-demand storage business SpaceWays. Mr Marsh says Rocket is keen to treat the UK as its Petri dish for ideas  in Europe.

“If you look at consumer appetite, the size of the market, the speed of adoption and the wealth of both talent and investment – the UK is critical. If something works here then it makes sense to export it at least across Europe and potentially further afield thereafter.” From just two people in 2012, Rocket now employs 150 staff in the UK and is moving to an office on Oxford Street in the new year. All of Rocket’s businesses bar one operate out of its offices. “There are two key benefits,” explains Mr Marsh. “One is shared services. The second thing is sharing learning.”

Despite the international outlook and German parent company, Mr Marsh says the UK start-ups will all pay tax here, although he points out: “Obviously these companies are losing a lot of money so they won’t be paying tax for a while.”

Rocket Internet is the brainchild of the Samwer brothers – Marc, Oliver and Alexander – a trio of square-jawed German entrepreneurs who made their money selling businesses to eBay and Groupon. In 2007, they decided to professionalise their model of copying successful businesses in new markets by establishing Rocket Internet. The company has since churned out more than 100 businesses across the world and attracted investment from the likes of JPMorgan, Warner Music owner Len Blavatnik and even Tesco.

“Rocket is basically saying you can make companies a lot more efficiently if you have certain systems and processes in place – it’s a bit German,” says Mr Marsh. “It contrasts quite a lot with the romantic story of, ‘I came up with an idea, I sat in my garage, I persuaded all my family to put money in and then I finally cracked it’. That’s very impressive and noble, but the internet is a young industry and it’s perhaps been the age of the glorious amateur. There’s an increasing professionalisation of it.”

This professionalisation is reflected in Rocket’s hiring practices. Mr Marsh says they typically recruit people from “professional backgrounds – blue-chip companies, banks or consultancies” to run their Rocket businesses.

Mr Marsh himself came from a corporate background. He working at private equity group Bain Capital and consultant McKinsey before being tapped to run Rocket start-up Payleven, a clone of US company Square which provides portable card  readers.

“A lot of running a company in the tech space is old company – logistics, customer care, etc,” he says. “The fact your customer is only interacting with the business through an app is just one thing.”

Mr Marsh insists that the “founders” Rocket hires are more than just glorified office managers. “Yes, you have got help, you have got some money, you’ve got a concept. But it’s  the founders that really flesh it out.”

Critics charge that Rocket is simply a “clone factory”, that churns out businesses built to be sold to competitors. Mr Marsh insists this is not the case, pointing out that, post-IPO, Rocket is responsible  to shareholders who favour long term.

Mr Marsh also rejects the “clone factory” label, saying: “It’s not copying, it’s adapting for a local market and changing it. There’s a lot of innovation that goes on within our companies in terms of changing and adapting something. People often think of innovation in terms of concepts – there’s a lot in processes. How do you get delivering nationwide rather than just locally? How do you deliver  10 items instead of just one?”

Mr Marsh adds that for investors, opting for a proven business model is less risky. “We probably close about one in 10 of our companies, which is the opposite of traditional venture capital.” With full pockets and lofty ambitions, 2015 looks like the year Rocket could take off in the UK.