Rocket Internet: The human wave

When Adrian Li joined Rocket Internet in 2012, he had already seen his share of struggles. As a founder of Chinese language instruction company Idapted, he had experienced first-hand the problems that an entrepreneur faces when getting a start-up off the ground, and it made him wonder about the abilities of the employees there. Was this the next generation of entrepreneurial talent in Southeast Asia, or were they just corporate foot soldiers?

"It's like a boot camp in some ways for entrepreneurs coming in to get a sense of what it takes to build an internet start-up," says Li. "But in the end, anyone who's at Rocket Internet is really just an employee of the company. They're not ultimately responsible, A to Z, for the building of that company and they don't have the equity necessary to drive that type of ownership either."

Li, who after leaving Rocket in 2013 went on to co-found Indonesian restaurant discovery app Qraved, now works as a managing partner at Jakarta-based early stage VC firm Convergence Ventures. He credits his experience at Rocket with illustrating the value of efficiency and execution, but cautions that in many ways the model is an example of how not to develop a start-up.

This perspective is far from unique, but neither is Li's belief that Rocket has been an overall positive influence on the start-up ecosystem in Southeast Asia. Many industry players feel that former employees of the company represent a wealth of hiring opportunities for the region's maturing entrepreneurial ecosystem. Those who recognize the type of training Rocket provides will be best positioned to take advantage of those opportunities.

Though Rocket has operated in Southeast Asia for less than half a decade, it has already made a significant mark on the region's internet scene. It is generally credited with accelerating the awareness of e-commerce through the creation of companies such as fashion platform Zalora and online retailer Lazada, both of which were founded in Singapore and now operate in five countries in the region (Zalora is also present in Hong Kong and Taiwan).

Other ventures include online food delivery platform Foodpanda, which is headquartered in Germany but has acquired many local start-ups, and price comparison platform PricePanda. Office supplies retailer OfficeFab and furniture marketplace Home24, both part of Rocket's global operations, were once active in several countries but have since left the region.

Capital plus discipline

A number of factors are cited to explain the growth of Rocket's companies. One of the most obvious is the capital that the parent company and outside investors pour into Rocket's start-ups, both for building technological infrastructure and for marketing to encourage consumers to buy online. Lazada, for instance, has raised more than $730 million since its founding in 2011, while Zalora has raised nearly $250 million, according to AVCJ Research.

The aim of this investment, in the eyes of many, is to buy Rocket companies a dominant place in the market before anyone else has a chance to enter. In some cases it does appear to pay off - Lazada posted EUR248 million ($273 million) in revenue for the year ended December 2015, up from EUR139 million the year before, while Global Fashion Group, of which Zalora is a part, was up from EUR627 million to EUR930 million - but this constant capital burn is viewed by many as a weakness.

Another factor, less visible than capital investment but considered just as important, is the discipline that is embedded in the corporate culture. Veterans of Rocket and its portfolio companies mention the emphasis on clearly defined targets for each employee and constant performance monitoring.

"There is real discipline around numbers. Rocket is one of the most performance-driven places I have ever worked, which is what has helped it expand so fast in every market," says Qiuyun Song, former country head for Zalora in Hong Kong in 2012-2013 and now head of corporate finance at taxi-booking app Grab. "In those days nobody gave Rocket a run for their money, because there were no other large, well-funded internet companies in the region."

Rocket's tough environment has played a major role in the dissemination of its talent throughout the region. Alumni describe a highly data-driven internal environment that is exclusively focused on metrics, with constant and rigorous evaluation by management. Rocket and its portfolio companies hire constantly - its headcount in the Asia-Pacific region grew from 9,300 to 13,800 in 2015 - but staffers rarely stay for more than a year; one former employee recalls explaining to a skeptical hiring manager that "eight months at Rocket is like an eternity anywhere else."

The business model of the company also plays a part in driving down retention: rather than encouraging creativity and innovation, employees are expected to hew closely to the procedures they are assigned by headquarters. Their efforts, in turn, usually result in the creation of businesses that are derided as copycats of successful companies in more developed markets; for instance, Lazada and Zalora are often compared to Amazon and Zappos. Employees with ambition often feel frustrated by what they see as a highly limited corporate vision.

A number of these former employees have gone on to work at other regional internet players. In their recollection, despite the stress of Rocket's internal environment, the company has been a much-needed catalyst for the creation of Southeast Asia's e-commerce ecosystem, which had previously suffered from a lack of entrepreneurial and risk-taking spirit.

"A lot of people who came in had an appetite for risk that was unfortunately rare in Southeast Asia, where failure is taboo," says Howard Soh, a former CEO of Rocket in Malaysia who is now the associate director of corporate development and strategy at Singapore-based mobile internet and gaming platform Garena. "Those who stayed longer displayed a lot of grit."

Though bonds between former Rocket employees are not particularly strong, due to the high turnover and the limited time that most staffers spend there, they do believe the experience gives them certain shared qualities. Chief among these is an ability to work well under time constraints and with intense pressure from management. The longer the time spent at the company, the stronger these qualities are.

"When you meet another former Rocket employee who stayed more than three months, you know they are performance-focused and can execute and deliver results," says Grab's Song. "Because of my experience at Rocket, I grew comfortable with chaotic start-up environments where things could always be better, and there are always many problems to solve. Now, when I see problems at Grab, I'm able to lead my team away from frustration or fear - because I understand it is temporary and I can just focus on solving the problem."

Entrepreneurial weakness?

However, these positive impressions are not shared by all. Several investors said that despite the clear ability shown by some former Rocket employees, they remain skeptical about the company's value as a training ground.
One of the biggest issues identified by industry professionals is the lack of an entrepreneurial spirit at Rocket portfolio companies. Although the head of one of these businesses might be called a "founder" or "CEO," in reality these are usually simply titles; the manager is just an employee, with no ownership stake in the company, given a plan to execute on someone else's terms.

In addition, since Rocket companies are backed from the beginning by large amounts of outside capital, their employees often never learn to operate under the capital and logistics constraints typically faced by most start-ups.

"My hypothesis early on would have been that these would make great entrepreneurs because they have cut their teeth on high-scale growth companies, says Vinnie Lauria, founding partner at Golden Gate Ventures. "What we didn't expect was that they don't know how to build something with zero capital behind them. The Rocket Internet machine depends on having a platform of capital for advertising, hiring engineers, sales, and marketing."

This is not to say that employees learn nothing from working at Rocket; the company is seen as a good source of middle managers or lower-level engineering talent, particularly in markets where veterans of more established internet giants such as Facebook and Google are hard to come by.

Rocket's focus on execution gives employees a solid background with the tools of operating an internet platform. However, even in this regard, industry players caution that employees are not trusted to solve hard problems on their own and have limited experience coming up with independent solutions that are not handed down from headquarters. The emphasis on speed of execution also leads to quality issues, with employees taking shortcuts rather than taking the time to understand the problem.

"A lot of people go through Rocket, and instead of gaining the right knowledge they build their knowledge through a bunch of hacks, because of the very short deadline and targets they need to achieve," says Mario Suntanu, a partner at Jakarta-based Sinar Mas Digital Ventures who previously served as vice president for Indonesia at both Lazada and Zalora. "It's kind of like a make-do attitude, as opposed to a best practice attitude."

Despite these doubts, there are success stories among the entrepreneurs who have emerged from Rocket. In 2014, Nova Founders Capital, an early-stage investment firm set up by two former global managing directors at Rocket and the firm's ex-Asia Pacific marketing head, seeded financial comparison site CompareAsiaGroup. They teamed up with Gerald Eder, who previously helped build Lazada and Zalora, and the company went on to raise a $40 million round led by Goldman Sachs last year.

Meanwhile, Indonesian health information portal Alodokter was founded by Nathaniel Faibis, who served as regional head of user experience and production at the launch of Lazada in 2012. Alodokter is in the Golden Gate portfolio alongside Singapore-based Hipvan, an online furniture store set up by another team of former Rocket employees.

Golden Gate's Lauria points to both companies as examples of how founders with a truly entrepreneurial mindset can learn the right lessons from the Rocket environment and apply them in their own ventures. However, he cautions that these represent the exception rather than the norm.

For founders coming out of Rocket or its portfolio companies, VCs say they must demonstrate an ability to operate without supervision, take responsibility for their own companies, and come up with innovative solutions when their backs are against the wall. Simply executing according to a model is not enough; indeed, some investors say that the longer a founder has spent at Rocket, the less likely they are to invest, because someone with a real entrepreneurial drive should have left earlier.

Convergence's Li echoes this sentiment, saying that his experience at Rocket taught him how important it is for founders to have a stake in their companies. Seeing the weaknesses of Rocket's heavy emphasis on execution shaped the philosophy of his own firm.

"Our firm is very founder-focused, because regardless of the execution, when we invest in early-stage internet, it's very much about the entrepreneur and the founder whom we're backing," says Li. "Unless that person really has significant and strong ownership both financially and emotionally in their own company, then it's unlikely that we would go and back them as well."

Lasting impact

Despite the shortcomings of the Rocket model, industry participants are optimistic about its legacy in the region. Though the company itself is facing setbacks - Zalora saw its valuation cut this year by Rocket and AB Kinnevik, and Lazada was reportedly nearing bankruptcy before China's Alibaba Group paid $1 billion for a majority stake in April - awareness of the opportunities available in e-commerce is much greater now than it was when Rocket started, and many local start-ups have arisen to challenge its portfolio companies.

In addition to inspiring local entrepreneurs, Rocket's other major contribution has been to train large numbers of talented individuals within Southeast Asia who otherwise might have left the region or gone to work in traditional industries. That means a large pool of talent is now available for truly local and independent start-ups to draw on.

Stefan Jung, a managing partner at Venturra Capital who served as founder and managing director of Rocket's Southeast Asia operations from 2011-2014, believes that while the company has a competitive advantage now, mostly thanks to its store of capital, that edge is almost certain to diminish as local entrepreneurs catch up in the funding race and as the people that it trained spread out to the rest of the market. Those who were with Rocket at the beginning will likely be the most valuable resources for the next generation of start-ups to pursue.

"What made Rocket special in the beginning was that they had much more capital than anyone else, which obviously was a huge benefit. But the other thing is that we were able to build up expertise very fast in markets where there were no existing activities yet," says Jung. "That first generation of people that joined Rocket certainly were in a position to be the first wave of the whole start-up ecosystem."

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• Topics
• Southeast Asia
• Technology
• People
• Venture
• Performance
• Singapore
• Rocket Internet
• Golden Gate Ventures
• Venturra Partners