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Rocket Internet admits trusting everyone in India was a mistake

Hanno Stegmann, CEO, Asia Rocket Internet

Hanno Stegmann, CEO, Asia Rocket Internet

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.


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sanjeev narula October 21, 2016 20:06

Most people give up when success is around the corner , the jabong parent company just got scared and they sold the company for peanuts . In business its ok to be knocked down at times but u should not get knocked off till u die .
Jabong was a wonderful business and it could have been a 2 bn dollar business in next 3 yrs easily but when fear and negativity prevails than some people take this action .
So what if some guys did not perforned and there was misappropriation of funds , these are just small obstacles and there should be no fear to surrender so fast . These things happen in most fast growing businesses and should be considered like cost of doing something really fast . But Jabong has created that brand equity and consumer connect and good times were about to start . All these are learnings in doing business in new countries .
So pls do not work like a pvt equity professional but work like a strong , never giving up attitude , positive entrepreneur .
Jabong is a great brand and there was nothing in india that could have stopped the growth of jabong .
In a nutshell jabong had one flat tire and the guys fm germany instead of mending the flat tire , blasted the other 3 tires .
Further in business when u start blaming the team than u loose the power to correct the business .
Im sure in years to come Jabong can easily become a 4 bn dollar business .

Sai October 23, 2016 6:06

Well that’s sad. Companies like Jabong and Foodpanda were an inspiration to new and upcoming entrepreneurs. Even after getting huge funding, if the founders themselves are cheating their partners and investors, then we should try to find the bigger gap in this whole model of VC backed startups. If salary is a pain point for the founders, then the investors must understand that point and try to keep them happy with a compensation at least until the company stands on its own, at the same time making sure that founders also realize the importance of generating income from the company is more significant than getting a regular salary from their own cash-pile.

Raza October 23, 2016 13:40

Meanwhile, in Pakistan, Foodpanda’s profits grow at 100% per year as well as Daraz (general merchandise) under Pakistani leadership of ethics.

Rahul October 23, 2016 16:36

This shows the company incompetency which was not able to evaluate the market and the company which they are investing in , blaming a set of people or a country is so easy to hide your mistakes