Tech investors have recently engaged in a series of exits from some companies they own stakes in and this isn’t just affecting the ‘exited’ companies but also, startups that benefit from their investments – especially African startups. A recent surge in Rocket Internet shares on news of listing two of its start-ups has forced the firm’s major investor, Kinnevik to exit Rocket Internet.
Kinnevik is a Swedish venture capital firm that has acquired a lot of auto companies, as well as mobile telephone and satellite television companies, having large shareholdings in many of such companies. It was only between 2005 and 2010 that Kinnevik laid its investments in a number of internet businesses, particularly in e-commerce companies.
The year 2010 was the turning point for the tech investor where it had its major investments in Rocket Internet alongside other companies like Zalando, Avito and Global Fashion Group, among others.
Founded in 1936, Kinnevik’s primary investments are focused on technology-based companies and has shares in about 30 companies in more than 80 countries among which are African tech startups. The company quickly grew through its aggressive strategy acquisition of companies though with a few exits and buying shares in other major Swedish companies.
Kinnevik in 2016 stepped off the board of Rocket Internet following concerns of conflict of interest between the two companies.
Rocket Internet is a German internet company focused on building online startups having shareholdings in various models of internet retail businesses (sort of an incubator for startups). It provides office space to new companies as well as providing IT support, marketing services and access to investors like Kinnevik (its biggest investor so far until the clash set them apart).
The high-point of Kinnevik backing out from Rocket Internet was on June 8, 2017 when the company announced it will be selling off 6.6% of its stakes (approximately €217 million of its existing shares in Rocket Internet) capitalizing on a recent rally in the stock fueled by plans to list two of the latter’s start-ups.The company had earlier sold the first half of its 13.2% stake, bringing the total value at the time of exit at about €412 million.
This announcement signals the termination of a relationship which the two companies have shared over the past years after the two tech investors clashed over companies they both own shares in. Kinnevik had earlier in February sold half of its shareholdings in Rocket Internet, a move that caused Rocket’s stock value to fall dramatically in the Frankfurt Stock Exchange market.
What’s in for African Startups?
The resultant effect all trickles down to the African startup ecosystem where both companies are among the biggest investors in African tech startups. This means a lot to the tech investment sector both in Europe and Africa. At first sight, Rocket Internet may have lost one of its most valuable investors for some of its biggest tech startups like Linio, Global Fashion Group and Home24.
From a warrior’s viewpoint, the two companies seem to have declared themselves at war in competition; with Rocket Internet becoming more like Kinnevik as Rocket has shifted its focus from launching its own businesses to investing in startups – a situation Kinnevik considers as encroaching on its territory.
African startups like Konga (Nigerian e-commerce site and online shopping mall) and Jumia (Africa’s marketplace for products and services) may be in big trouble as a result of this break-away. Jumia’s main investor happens to be Rocket Internet which owns just about 20% of shares in the company; a company competing head-on with Konga where Kinnevik holds about 44% of stakes which is equally backed by the South African conglomerate, Naspers.
These African tech startups could lose their investors in the long-run and could only need a fresh funding from other investors. Unless Kinnevik buys off Naspers’ stakes in Konga or at least, buy a substantial amount of its shares so as to assume full control over the company.
Alternatively, both Naspers and Kinnevik could sell off their stakes to Rocket Internet; which happens to be a far less possible scenario. According to economic analysts, Naspers seems to have initiated an exit in the last nine months which is possible that they may be willing to give up their stakes in Konga and launch a new exit.
Similarly, Kinnevik’s exit in Rocket Internet could have signaled update in its investment portfolio; exiting old companies in a bid to move forward. If this be the case, it is likely that the company could agree to an exit from Konga.
Though such a brake-off from Rocket Internet has been considered by some to be the start of a conflict between the two companies, it appears to be the best decision considering that they have literally become competitors living in one house. However, the two companies still remain co-investors in Global Fashion Group.
African startups on a slight distance may not suffer much from this break-up considering that Kinnevik has narrowed its e-commerce base in Africa from two to just one company. It could more likely invest more in Konga now, although the company in March undervalued its investments in most of its e-commerce outfits, Konga inclusive.
However, according to a Q1 2017 report, Kinnevik seems to be shifting its focus to media and digital healthcare companies. So my guess is, if African startups might begin drifting from their e-commerce orientations towards the new trend (media and healthcare), Kinnevik may be coerced into investing in such startups.