MTN's Big Bet Sheds Light on Rocket Internet in Iran
This week, TechCrunch reported that Tehran-based ride-sharing app Snapp raised EUR €20 million in its Series A round, with MTN, the South Africa-based telecoms group, the sole investor. Snapp CEO Shahram Shahkar told TechCrunch that the company “plan[s] to invest in [its] current operations, expand to other cities, introduce different services such as premium vehicles and offer new features.”
Snapp is an incredibly exciting company, offering a robust mobility solution for its customers in Tehran. It has achieved real scale in a short period of time. However, the capital raised by Snapp dwarfed Uber’s Series A, completed in February 2011 for USD $11 million. Even in the age of inflated valuations, and with the clear potential of the Iranian market, this would be a staggering funding round for a tech ecosystem still in its nascent stages.
The following day, TechRasa, an online publication covering Iran’s start-up scene clarified the investment. The EUR €20 million round was not just for Snapp, but for Iran Internet Group, the parent company of Snapp as well as start-ups like Bamilo (online shopping) and ZoodFood (food delivery). This clarification explained the size of the funding round, which would empower growth at a handful of firms. However, later on the same day, Bloomberg echoed TechCrunch's initial claim reporting that the funding round was exclusively for Snapp. The magnitude of the capital raised is just one of a series of unusual details reported about this investment by various outlets.
According to records on Crunchbase, MTN has never before been the sole participant in an early stage tech investment, and has only participated in two other investments to date. One of these investments was the establishment of Africa Internet Group (AIG, now known as Jumia Group) alongside Rocket and Goldman Sachs, which coincided with the creation of Middle East Internet Group (MEIG), a 50/50 joint-venture between MTN and Rocket. These two holding groups were established to incubate and grow digital businesses across Africa and the Middle East, using Rocket’s famous “start-up factory” approach. Importantly, MTN treats the holding groups as the same line item in its financial reports along with Iran Internet Group.
Given the pattern, the fact that MTN is reportedly the sole investor in IIG latest round is surprising. Is MTN really bullish on IIG and ready to go it alone? Why didn’t Rocket itself commit capital alongside MTN as it has in other markets? The answers are hard to determine with certainty, and Iran Internet Group did not respond to Bourse & Bazaar’s request for comment. But the potential synergies between MTN and Rocket in Iran offer some clues.
MTN’s key commercial challenge in Iran is the repatriation of capital. The company continued operating in Iran during the tightening of sanctions, racking up fees, which it then struggled to pay back from its local joint venture, MTN Irancell to MTN Group in South Africa. In April 2015, Reuters reported that MTN executives believed that the easing of Iran sanctions would enable the company to repatriate USD $1 billion from Iran. MTN stock rose 2.3% the day that the JCPOA agreement was announced. However, despite the lifting of international sanctions following Implementation Day, MTN, like many other companies in Iran, has continued to struggle to return its fees. MTN’s 2016 interim financial report states “MTN continues to work towards remitting some of its cash amounting to approximately R15.4 billion from MTN Irancell, although this a complex process.” Commenting on the interim report to Bloomberg, outgoing CFO Brett Goschen stated that the firm “hopes to start moving the funds out of Iran during the first half of 2017."
Rocket Internet has the converse problem. The company's ambitions in the Iranian market have become part of the country’s start-up lore. Stories abound of suitcases of cash brought into Iran in order to establish a beachhead in what is becoming the Middle East’s most exciting tech market. Rumors aside, Rocket and its founder Oliver Samwer have taken an arms-length approach to the market. The Iran Internet Group website makes no mention of Rocket, only listing MTN as a “supporter.” The TechCrunch piece did originally publicize that MTN's "has a partnership with the German-based Rocket Internet in Iran." The reference was removed from the article several hours later. TechRasa, meanwhile, took a more cautious line, noting that “there is no proof or disproof of Rocket Internet’s presence in Iran.” Although Bloomberg echoed the key detail of the initial TechCrunch report—that the funding round was exclusively for Snapp—it reported that Rocket "isn't involved in MTN's investments in Iran."
Realistically, IIG exists as a kind of sister company to AIG and MEIG, entities with which it shares many key features, and in which Rocket clearly does publicize its participation and partnership with MTN. A WHOIS database lookup reveals that the websites for Snapp, MEIG, and even Rocket's main corporate website are all connected to Cloudflare name servers. Interestingly, the IIG records reveal that the site administrator has used a privacy protection service to ensure the true site owner is not discoverable. However, Eyad Alkassar, co-founder of MEIG, is listed as the admin contact for snapp.ir. Kate Cully, the Group Finance Director at Rocket-run MEIG, is listed as the contact for the auxiliary domains zoodood.ir, snapp.taxi, snapp.live, eskano.com, and even iraninternetgroup.com.
As a publicly traded company, Rocket would face huge regulatory hurdles in openly committing its investor capital in Iran. Many of its shareholders would have compliance and reputation concerns regarding investing in the country. Moreover, even if Rocket had the approval of shareholders to invest capital in Iran, banking challenges would have made it exceedingly difficult to mobilize the funds. This was particularly true when Rocket was first establishing Iran Internet Group prior to the lifting of international sanctions (in accordance with exemptions for technology businesses).
The most immediate synergy offered by the MTN/Rocket relationship in Iran therefore hinges on access to capital. Surely, MTN has a strong interest in promoting growth in the digital economy in the markets in which it operates. It has backed that interest with significant capital in Africa and the Middle East. Furthermore, investors such as Oliver Samwer would probably openly commit capital in Iran, if they could. It is equally probable, however, that MTN’s role as the sole backer of the IIG round acts as a screen within the accounting of AIG or MEIG and that Samwer is swapping equity for MTN’s outlay in Iran. This way, MTN can repatriate capital stuck in Iran through clever accounting, and Samwer can assure the growth of Iran Internet Group without diluting Rocket.
Some simple financial reporting would make such speculation unnecessary, but a lack of transparency has been a common complaint about Rocket across all of its business dealings. The company's "opaque financial reporting" was outlined in an extensive profile of the company’s recent troubles in Bloomberg Businessweek. Though IIG's role in spurring the start-up ecosystem in Iran is laudable, the last thing Iran needs is more willful opacity in business practice. The risk for Snapp and the other IIG start-ups will come down the line. A war chest of EUR €20 million will go a long way to turning organic momentum into a protected position as market leader. In subsequent funding rounds, however, bringing in new investors will require an explanation about the Series A and the precedent (and valuation) it set. Uber’s Series B, where it raised USD $37 million, took place in December 2011, just ten months after the Series A round. If Snapp and IIG follow a similar trajectory, Rocket and MTN have relatively little time to become more transparent about their ambitions in the Iranian market.
Photo Credit: Rocket Internet