“This is very new,” said Peter Kimpel, CFO of Rocket Internet in Berlin. “I don’t think there’s anybody out there who has raised a fund in a public equity context. We believe it’s a win-win-win situation for everybody: the fund investors, Rocket shareholders, everybody round the table. It’s a highly positive event for Rocket.”
The German internet platform company’s shares rose 2% on Tuesday after the news was announced, to €18.72.
The fund, in which Rocket itself has invested $50m, is like a private equity fund that will only invest in Rocket’s portfolio companies, and which is managed by a separate arm of the company, Rocket Internet Capital Partners Lux Sàrl.
The main purpose for Rocket is to replace the external equity fundraisings that it conducts regularly for its portfolio companies, often for small tickets, with a more efficient system, where the permanent capital is committed once, up front. This will give the portfolio companies easier access to capital.
Another benefit for Rocket is that, although it is not charging a management fee on the fund, it will earn 25% carried interest. This is only if returns beat an 8% hurdle, but once that hurdle is beaten, all the return is subject to the carried interest.
This makes the fund more advantageous for Rocket and its shareholders than its usual third party fundraisings, where all the upside earned by the incoming capital goes to the external investors.
Asked why investors should come into this fund, rather than simply buying Rocket Internet’s shares, Kimpel said: “There are fund investors, pension funds, insurance companies, which have specific pockets that invest in long term capital, and don’t look at publicly traded companies. This gives them access to internet investments.” Kimpel added that this meant the deal was not cannibalising demand for Rocket stock.
He denied that Rocket was using this mechanism rather than a public equity raising because its share price had underperformed in the past year. He said Rocket had promised shareholders at its capital markets day in September that it would not raise further dilutive capital for another three years.
The share price has fallen by two thirds since it peaked at €56.60 in November 2014, a month after its IPO at €37. In July 2015, Rocket raised €550m with a controversial CB issue with an initial strike price of €47.54, led by JP Morgan.
The new fund can invest in Rocket portfolio companies at any stage of development, and in new investments for Rocket. The money must be invested in three years, with two one-year extension options, and the fund is expected to have a lifetime of nine to 11 years.
Kimpel said there had been more demand than $420m and that "this is just the first close". Rocket's statement announcing the fund said "further significant commitments are expected in the near term". It added that investors included pension funds, asset managers, funds of funds, insurance companies and foundations as well as high net worth individuals.
Investors will have limited ability to take money out, as in other private equity funds. Over time, the fund will aim to make exits from its investments and return money to investors.
Kimpel said Rocket might raise further, similar funds in future, but these would be separate.