Since Rocket Internet has come to live in 2007, the model of a Company Builder or Startup Studio became increasingly popular – not only in Germany but also internationally, especially in the US. Often, these companies get formed by former entrepreneurs who invest their own money alongside with their investor’s. In a way very similar to many venture capital funds.
However, a Company Builder typically doesn’t invest in a startup team that pitches for funding, rather the startup ideas come from a structured internal approach, e.g. based on the Company Builder’s investment thesis or a screening process for promising business opportunities that can be replicated in other markets. The startup is then developed in a project setting – with a project manager (the “Entrepreneur-in-Residence”), staff, a timeline following the Company Builder’s proprietary process (in the example of Rocket Internet, it is a 100-day program), a budget, and pre-defined key performance indicators. These projects have a clear governance structure and multiple stop/go decision points. If the key hypotheses can’t be verified, the project can pivot quickly and resources can be reallocated at any time. In contrast to regular startup teams, Company Builders don’t work on one idea, they work on a portfolio of ideas and execute on what works best. They produce startups in a “serial production” working mode. The details of the respective operational model are the secret sauce of a Company Builder.
Nine years after the advent of Company Builders in Germany we were curious about how their business model is evolving. Rocket Internet, publicly listed since 2014, is dominating the public perception, of course. According to CB Insights’ unicorn list (an unicorn is a private company valued at USD 1 bn or above), there are four unicorns in Germany – two of which have been launched by Rocket Internet. But what about the other Company Builders in Germany?
We identify 13 independent Company Builders (excluding Rocket Internet) with 82 active startups in their portfolios, not counting failed or exited startups. 39% of all startups have e-commerce, marketplace or SaaS business models. 2014 was the most active year for Company Builders – 30% of their portfolio companies have been founded then. What is surprising: in the last two years the company building activity was dropping significantly. In 2015 and Q1-3 2016 only four Company Builders have been active at all.
Are Company Builders failing to deliver returns for their investors and hence, cannot raise more capital? The jury is probably still out. Just like in venture capital, where funds have mostly a 10-year lifetime and are most active investors in the first three to five years, Company Builders have similar lifecycle stages.
In the next years, we expect to see new Company Builders coming up in two forms. First, Strategic Company Builders (one example in our data set is FinLeap, a player purely focused on building FinTech companies): not only is it easier to raise money from strategic investors, they also can yield synergies in their operational model due to domain expertise and – when large enough – even create ecosystem synergies between their portfolio companies. Second, corporates (formerly “only” in a strategic investor role) evolve in their operational model on how to tackle innovations and form Captive Company Builders. There have been some failed attempts in the past, e.g. in Media: Holtzbrinck and ProSiebenSat.1. However, we believe it is a natural part of a corporate evolution into tech-driven business models and we see new examples across many industries already, e.g. Robert Bosch Start-up, Allianz X or Main Incubator (subsidiary of Commerzbank).