- The best way to participate in the gains of the hottest startups is via purchasing the listed shares of their most significant investors.
- The number of unicorns is growing, not only in the US, but especially Chinese and Indian startups beyond a $1bn. valuation are becoming much more common than 10 years ago.
- Rocket Internet in Germany will gain further significance as the firm has the largest incubating system across the world aiming at Europe, South-East Asia, Latin America and Africa.
The startup world is booming and everyday there are major news about takeovers and IPOs. As a small investor it can be challenging to purchase a share in startups since they are not public yet and venture capital funds lock capital for a long time and require a minimum investment.
The Yahoo and Alibaba example
Not too long ago Yahoo (NASDAQ:YHOO ), was one of the few early investors in Alibaba (NYSE:BABA ). The Chinese e-commerce giant attracted not only Yahoo as an early investor, but also Softbank (OTCPK:SFTBY ), the Japanese internet conglomerate. According to Bloomberg the current share of Yahoo in Alibaba is worth roughly $40bn. There are thoughts of selling off 15% of its shares and is currently looking for a tax optimization strategy in order to avoid paying high taxes in the US on its capital gains from Alibaba's sell off.
Softbank, SFTBY, has a even larger share in Alibaba. Probably the ideal Alibaba play was Softbank before the e-commerce giant's IPO.
Alibaba as the long play for many of the worlds hottest startups
Nowadays Alibaba Group, BABA, has turned to a large investor in startups across the globe.
Recently the Chinese e-commerce giant, BABA, bought a $200mn. share in Snapchat, currently the hottest messaging startup in the world. Up to now it is still not clear how exactly Alibaba and Snapchat are going to work together, but from my point of view this investment was more strategic. Since Jack Ma traveled to the US in order to "conquer" the American e-commerce market, there may be a few options. Also, please recall that Alibaba, BABA, recently bought a $250mn. share in Uber's main competitor called Lyft. Not to forget Alibaba's recent purchase of a share in China's main Uber competitor, Didi Dache-Kuaidi Dache. The taxi hailing and Uber-esque app claims to have a 78% market share in China. Although there are some legal issues with a number of local governments, my view on Didi Dache-Kuaidi Dache is bullish. In the end there might be more a little bit more regulation for those services but they will grow and expand their userbase.
For the e-commerce giant that is not so much money when you consider its annual revenues of roughly $11bn. In my opinion, Alibaba is not only going to grow massively within its key business, which is e-commerce, but also its startup investments will contribute to a higher valuation and greater revenues and some point of time in the near future. Moreover Alibaba recently posted very positive results and revenues are expected to reach $15bn. in 2016. Furthermore, there are major investments in Fanatics and Meituan, both fast spreading startups with a current multibillion dollar valuation.
Tencent; the internet company from Shenzhen, China
Let's not forget that the Tencent (OTCPK:TCEHY ), share has skyrocketed in the past years. One of the main beneficiaries is Naspers (OTCPK:NPSNY ), who at some point owned nearly 35% of Tencent. Naspers is a South-African based internet and media conglomerate. It already invested in the 90s in startups like Tencent, OLX from Brazil, Mail.ru (OTC:MLRUY ), in Russia and Flipkart in India. Naspers shares rose dramatically too and the firm became the most valuable company in terms of market cap across the whole African continent.
Tencent operates so many internet services, reaching from WeChat to TenPay, Tencent Weibo and further more. As Alibaba, BABA, Tencent invested as well in Snapchat, Didi Dache-Kuaidi
Dache and also Dianping, the Chinese version of Yelp (NYSE:YELP ), and Groupon (NASDAQ:GRPN ). The Chinese internet conglomerate even has a strategic partnership with Activision, the game developer famous for "Call of Duty" and "World of Warcraft". Tencent, TCEHY, focuses on the gaming industry as well. Revenues of Tencent are expected to increase even further in the next few years. I am sure that there is a tremendous upside potential.
Naspers - the South African giant
Naspers, NPSNY, is a South Africa based internet conglomerate. It purchased a 46% stake in Tencent, TCEHY, numerous years ago, now it still owns about 35% of Tencent. As mentioned before Naspers invested in numerous firms in Latin America with a special focus on the Brazilian market. It purchased a share in OLX, a widespread classifieds website. It also owns Media24 and Abril, powerful media companies in Brazil. One major stake might be currently less interesting among all other Naspers investment. The Russian internet giant, Mail.ru Group, MLRUY, is partially owned by Naspers (29% stake). Now, Mail.ru has invested in a range of firms such as Facebook (NASDAQ:FB ), Twitter (NYSE:TWTR ), Xiaomi, Groupon (GRPN ), Zalando (OTC:ZLDSF ), Flipkart and Didi Dache-Kuaidi Dache. And then there is a separate 17% stake that Naspers owns in Flipkart, which is trying to become the Amazon (NASDAQ:AMZN ) of India.
There is a significant upside potential in this share as well. According to JP Morgan the profits will increase up to 54% annually until 2018.
Rocket Internet - a unique startup factory from Berlin, Germany
Rocket Internet (Pending:ROKT ) or (OTC:RCKZF ) is a Germany based startup factory currently owning and operating more than 100 startups. Some of the include famous ones like Zalando, ZLDSF, and Delivery Hero which is also aiming for an IPO in the near future. Either Rocket Internet started those companies itself or made a very early investment. E-commerce is probably the most typical field the company is active in. Also, you can see that the group tries to keep its hands off from the US and Chinese markets, it rather focuses on Europe, Middle East, South-East Asia, Latin America and Africa. What is probably the most impressing is that the firm is run by three brothers who are extremely passionate about what they are doing. They proved many times that they can start companies and sell them to larger competitors. Although the firm is currently loss making I would still consider it as a buy because most of the startups that they own take time to develop. Be aware that the mainland European venture capital sector cannot be seen as active as the one in the US or China. Big changes are however happening and money is poured into startups, at least in Germany that is the clearest case. It can clearly be seen that Germany takes a leading role in Europe regarding startups. In terms of venture capital it still lags behind the UK, but due to its size it will overtake the UK soon. Berlin and Munich are the main hubs for startups followed by Hamburg and other cities in the Cologne area.
I am personally bullish about most of the Rocket Internet startups, they know how to market a product and their firms almost never lack funding. Expansion is done at a fast pace with qualified people in charge for key positions. Therefore I think Rocket Internet is a clear buy.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More. ) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.