The purchase of online fashion retailer Jabong by India’s biggest e-commerce firm Flipkart, announced last week may have caught your attention given the deal involves two of the country’s best known brands in the sector. However, the more interesting story here is not about Flipkart or Jabong but the lesser known Rocket Internet. For the uninitiated, Rocket Internet is a German incubator firm that supports start-ups and helps them scale up.
It came to the Indian market with ambitious plans and picked up a slew of start-ups which at the time seemed to be smart picks. These included Jabong, FabFurnish and FoodPanda. Each one is a household name -- so, the Germans obviously got something right. But off late, all three have been in troubled waters. FoodPanda has had management issues and allegations of financial irregularities of the sort that is rare among start-ups. FabFurnish has to struggled stay to afloat even as rivals PepperFry and Urbanladder have secured additional funding.
In April, FabFurnish was sold to the Future Group, which has its own furniture brand Hometown, for a pittance. And now, Jabong, which was supposed to be Rocket’s show-stopper, its crown jewel, has also been given away – in a fire sale. less than a year ago, Jabong’s asking price was $1.2 billion; Now, Flipkart, which had earlier acquired Myntra, the other big fashion retailer in the e-commerce space, is buying Jabong at a valuation of just $70 million. Where does this leave Rocket InternetIJ The incubator has no big names in its kitty anymore, apart from FoodPanda. Its smaller players include Printvenue and CupoNation, and neither is doing well.
The question then is why did the German firm which has an otherwise enviable record across the world fail in IndiaIJ The answer lies in what is now disparagingly known as its copycat model. Rocket didn’t care to finetune its strategy in keeping with local factors and also did not raise entrepreneurs. It hired managers, gave them hefty salaries and then expected them to work like start-up founders. This is why even its success stories like Jabong have been plagued by the corporate governance issues. Does this mean that the incubator model is not for IndiaIJ Not exactly, as the success of BigBasket, incubated by the Indian firm Growth Story, indicates.
