This post was going to be about Spotcap but my inner editor (thanks Owen Thomas) was telling me that I was missing the story.

The real story is that Rocket Internet is a European Fintech Unicorn. That is a big deal because Unicorns are rare, Fintech Unicorns are rarer and European Fintech Unicorns are even rarer. Rocket is publicly listed in Germany at over $5 billion in market cap. So:

• Unicorn – tick
• European – tick
• Fintech – ok, Rocket Internet is more finance than tech, but they are increasingly investing in Fintech (as this article in German describes) and a new approach to the old game of VC is certainly innovative

Despite ticking these boxes, this narrative around Rocket Internet is all too common:

“they are just copy cats, using the outdated concept arbitrage play”

“this is classic late stage bubble stuff, they will fail when the market turns”.

Is that just sour grapes from less successful investors? That is part of the story, but it is also that there is an “innovation fetish” that often misses the true story of innovation. The occasional truly innovative startup backed by courageous far-sighted investors is like tales of the perfect lives of celebrities – mostly fiction. Investing in startups is a business where you aim to find a repeatable formula and avoid risk. A few really great investors have the skill to spot breakthrough innovation and the courage to back it when it looks totally ridiculous. That is very rare – maybe 10 VC firms do that on any consistent basis. The more common formula is one of the following:

• Concept arbitrage. If it works in America, we make it work in another country and get bought by the American innovator. More on this model later, as that is what the standard narrative says that Rocket does and I think they have evolved.

• A&R talent spotter with clapometer. The A&R (Artists & Repertory) talent spotter was employed by Record Labels to find the next hot band. Very occasionally, a great A&R guy spots an unknown artist based simply on watching/listening to the artist perform. More often they simply listened/watched the audience – if the kids loved it, they signed the band. They just recorded the volume of claps. Watching traffic/usage metrics of a digital startup is the modern equivalent. Maybe there is innovation or maybe it is the equivalent of click-bait or junk food that is driving the metrics, with no lasting value.

• Hot market with brand name entrepreneur. This is a sure-fire way to raise a ton of money and very often a great way to lose it. Innovation is not on the agenda.

• The X of Y niche play. This is where the startup positions as the Uber of ??? or the AirBnB of ??? This is a pretty simple ploy for raising money; naive investors see the hot name and “get it”. At best these are small scale niche plays and certainly don’t class as innovation.

It is accepted wisdom that concept arbitrage is dead because it is now so easy to go global with a digital product. This is wrong because the new growth markets (BRIC etc) are not simple clones of America. The culture and style of business is different. A simple Big Mac style standardization play does not work so well.

This is even more true in Fintech where regulation on a national level creates additional barriers to entry.

Rocket Internet startups are renowned for their excellence in execution. That is a repeatable model. Rocket Internet also goes into markets that a more cursory analysis writes off. For example, SpotCap is based in Spain. The usual narrative on Spain is “Southern Eurozone basket case”. Those who look below the surface see an economy coming out of a deep recession and positioned to leverage Spanish-speaking markets in North and South America.

The accepted wisdom is that you cannot globalize the VC business. The model assumes a few partners around the table on a Monday partners meeting and less than a tank of gas away from the entrepreneurs. Rocket Internet is proving that is possible to globalize the VC business. That is innovation in my book.

The fact that Rocket Internet is public is a big deal. This enables people to invest in startups with diversification. After all, the public markets were the original crowd-funding platform.

I don’t see a story in Spotcap. Maybe in a few years time, there will be a story about excellent execution driving growth in global markets that others ignore. If so, the real story maybe Rocket Internet with a new model for globalizing the VC business and a new model for raising money.