betashop

Dec 15

Behind the Scenes: How Fab Raised $40 million with a lot of data and not much pain

Let’s face it, fundraising can be a real pain in the ass for the entrepreneur.

It takes up a ton of time that can be otherwise spent managing the business.

Sure, it’s a necessary evil, but it’s also typically a big distraction.

It’s also a lot like dating. You have to go on a lot of first dates before you can move on the to the second, third, fourth, and then hopefully marriage. The worst thing you can do is slut around. It wastes a ton of time, can damage your reputation, and doesn’t get you far.

When we decided to raise a large round of financing for Fab in October, my biggest concern was that it would divert our management team’s time and attention away from running the business at a critical time, as we were simultaneously scrambling to prepare for our first holiday season at Fab. Yet, our numbers were really good, the business was accelerating exponentially, and the investment climate was strong for businesses with traction like ours. I also feared that Europe could collapse at any moment, so while we didn’t exactly need funding in 2011, waiting to 2012 scared me. So, we decided to wade in. 

As our “one thing” at Fab.com is design, I put a lot of thought and consideration into how we might design our fundraising process differently from the norm, so as to optimize around time spent fundraising vs. running the business, and to quickly hone in on who we wanted to marry.

The typical VC dog and pony show goes like this:

1. VC’s approach company or Company approaches VC’s. Often this starts with an associate at the VC firm pinging the entrepreneur. That’s their job, to build deal pipeline, evaluate companies, and then hopefully engage a partner when they find something interesting.
2. VC’s ask company to send over a deck by email.
3. VC’s invite company to pitch at the VC’s offices.
4. Company presents the deck on the company: vision, market, strategy, progress to-date, plan. It’s mostly high level stuff at first.
5. VC’s ask questions.
6. Company responds.
7. VC considers next steps.
8. If no, company never hears from VC again.
9. If yes, interest, company is asked to come visit again and educate more partners.
10. If yes, interest, company is asked to provide a data dump of financials, models, projections, etc.  An analyst or associate at the VC firm digs in to study the models, poke holes, challenge.
11. If yes, interest, company is asked to spend many more hours discussing models, providing further analysis.
12. If yes, interest, company meets with the entire partnership.
13. Final Yes / No decision.

Now, imagine doing that same process simultaneously with 3 firms for 6 firms or 10 even. The whole process can take A LOT of time and brainpower that otherwise could be spent running the business. The worst part of it is going on a lot of first dates, and then second dates, before really diving into the details that really make up the business.

Having gone through this process a few times in my career as a “serial entrepreneur,” one thing I’ve always been amazed by is that the VC’s typically don’t dig into the hard core numbers behind the business until near the end of the process. It’s mostly a lot of team + vision to start, numbers to follow. That makes sense from the standpoint of it takes a great team and a great vision to build a great business, but the numbers also need to add up. 

Here’s what we did differently with Fab’s recent round.

From August through September I received more than a dozen inbound requests from VC’s to meet to get to know me and Fab.  I politely put each of them off with the same message: “Thanks so much for your interest. Sorry, but we’re really heads-down right now running the business. Will circle back to you when we’re ready to have a serious chat about fundraising in the near future.”  (Note to entrepreneurs:  NEVER meet with VC’s unless you are 100% ready to fundraise. They may say they just want to get to know you but they are always evaluating every interaction with you. If you’re not ready, it will show. And it’s a waste of your valuable time to talk to potential investors when you’re not serious about raising.)

In October we decided to get serious about raising our round.

I set out a plan to try to design our fundraising process such that it would:

1. Take up as little of my time as possible.
2. Take up almost no time from my management team. I needed them focused on getting people the best design objects in time for the holidays.
3. Quickly accelerate the process by focusing more on finding the right team to marry vs. going on a lot of dates. I defined a “good marriage” as a firm that really understood and appreciated our business, and who met the 3 criteria below.

We put together a forecast for how much capital we would require. At our current run-rate, it’s no doubt that we’ll hit $100M in revenue fairly soon. The challenge was to model out how much additional investment we’d require to quadruple that in the next few years.  (Note to entrepreneurs: You need to really know your customer acquisition metrics and customer lifetime value equations in order to create a viable model. So much of your model will depend on how much you have to spend to acquire members and then the percentage of them that buy from you over time. You need to be deep in the details on cohort analysis and payback periods for all investments you plan to make).

Before engaging any firms, I then developed a strategy with our board members to identify the 5-8 firms we thought best fit our criteria.  In our case, we were looking for a unique blend of:  

1. Venture Growth Capital.  We needed an investor partner who could write a big check on their own (e.g. $25 - 30M), while still understanding that our business is relatively early stage as we had just launched 6 months prior.
   
   
2. Recently Active in Hot Companies. I really wanted a partner who had a recent track record picking winners. The consumer Internet moves so quickly. I wanted to work with a firm — and particularly a partner at a firm — who was at the forefront of recent trends, not playing catchup.
   
   
3. Got E-Commerce Scaling. We’re a rapidly growing e-commerce company. We needed a partner who understood our business dynamics and could help us scale it up. 

We narrowed our list down to about 7 firms.

When we decided in October that we would be raising a large round for Fab.com, one of the things I was most concerned about was spending too much time raising money vs. preparing Fab for the holiday season. The last thing I wanted to be doing going into our first Fab holiday - nor could afford doing without detrimentally impacting our business - was to spend the majority of my time in VC meetings and preparing for VC meetings. 

So, we designed a different approach to engaging the VC’s.

The big thing we did differently was to send each of the potential investors a login to our RJ Metrics Dashboard before we agreed to meet with them. We requested that each potential investor login and review our RJ data and decide for themselves if they wanted to learn more about Fab.  

For those of you not familiar with RJ Metrics, you need to be.  Basically, RJ Metrics is the best business intelligence dashboard for startups on the market.  If I were a VC, I would demand that every startup send me their RJ login before meeting with them.

RJ Metrics works as follows. You spend a couple of hours connecting your production database to RJ Metrics and then it spits out the most amazing graphs and charts on all facets of your business. It updates every couple of hours based on your actual production data. As a dashboard it’s fantastic, but the real power of RJ is in its cohort analysis — RJ enables you to effectively monitor each cohort of users by join date and then then evaluate their revenue contribution, payback periods, engagement levels, and lifetime value. 

From a fundraising standpoint, providing access to the RJ data basically said to the VC’s, “here we are, here’s the data, we’ve got nothing to hide, take a look and decide for yourself if you want to pursue investing in Fab.”  Effectively, we turned the pitching on its head.  Since the RJ data updates several times per day directly from our database, it was many times more powerful than providing powerpoints and excel spreadsheets. This was the real stuff, auto-updating!  And, since RJ enables all the data to be downloaded into excel, the analysts at the VC firms were able to do all of their own analysis on the front end of the investment process.

This enabled the VC firms to get themselves educated on our progress

And, it then teed up a series of well-educated discussions with the VC’s around the next level of data analysis, e.g. trends amongst cohorts, time to 1st purchase, and repeat purchase rates.

And, it made the vision stuff less of a ppt deck, and more of an expression of what we’re all about:

As you see, the slides became more launching points for discussions, than the meat itself — because we had already served up the entree for the them to digest up front.

In the end, we had many firms that wanted to invest in Fab. The process worked well for us because we were able to pick the partner we wanted to work with to scale our business while not allowing the process itself to disrupt our operations and eat away at our ability to continue executing. And, we cultivated educated VC’s who really understood the fundamentals of our business. Remember those 13 typical steps in the VC process from above? We managed to shrink them down to about 4.

Not every entrepreneur is as comfortable as I am with putting all the data out there. To be honest, I wasn’t this comfortable sharing the data either my first few times raising money.  Having gone through it a few times now though, my philosophy on this today is simple:

The data is the data is the data. If you can’t measure it, it never happened. Any investor worth their salt needs to understand your data before they invest, or you don’t want their money anyway. So, put it all out there. If the data is good, it’ll speak for itself, and then you need to tell the story of how it gets even better. If the data isn’t good, well, then you need to tell a story of how you are going to turn it around. Either way, the data is the data is the data.

One final note. I’m just thrilled that we’re working with Jeff Jordan and the team from Andreessen Horowitz.  Jeff and his partners — more than any other firm we talked to — really jumped right into the data, digested it, analyzed it, and then quickly focused on how they could work with us to realize our big vision.  In the end, we didn’t focus on valuation much at all, rather we picked the firm we really wanted to get married to and work with to grow our business.  Jeff and team met our criteria and then some.

I hope this was helpful.

p.s. I’m such a big fan of this RJ Metrics stuff that I recently asked them to let me invest in them. More on that later.

Dec 13

[video]

Hire Smarter, Fab’s CMO Search

One of our mantras here at Fab.com is “Hire Smarter.” This stems from the early days of the company when Bradford and I did pretty much everything ourselves and we laid out a mission to hire people who are better at what they do than the two of us ever could be.

I’m now ready to make a really big “hire smarter” move as we search for Fab.com’s Chief Marketing Officer [CMO].

This one’s a tough one because I’ve basically been the CMO from day 1, and now I’m looking to bring on someone smarter and better than me at marketing. And, not to sound to smug about it, but with 1.3 million members added in 6 months, the numbers say I’m fairly good at it. Now, I need someone better.

Reporting directly to the CEO, the Chief Marketing Officer will be the key member of our executive team responsible all facets of Marketing, but particularly customer acquisition, customer retention, and developing the Fab brand into a global powerhouse synonymous with design. We’re looking for a scientist, not a thinker. The ideal candidate is one of the absolute best customer acquisition marketers in the world. She or he should have a broad-based tactical marketing experience and is passionate, creative, and an excellent communicator, a collaborator and a natural leader who is highly driven to achieve excellence.

To-date, I have directly driven the company’s marketing strategy and execution, leading to more than 1.3M new members in the past 180 days, at record low CPA rates. We’re looking for someone who can take over this vital function from our myself and deliver even better results. The perfect candidate will be someone I’m eager to learn from and partner with.

Are you this person? Contact me at jason at fab dot com.

Dec 10

“You can’t force it. It has to be authentic.” — betashop. From my talk at hackfwd Berlin 12-9-11.

“If your product doesn’t get traction in a year, kill it. You can’t iterate your way to a business model.” — betashop. From my talk at hackfwd in Berlin 12-9-11

Dec 08

wow. thanks. smile. Fab Raises $40M.

Dec 02

10 Ways Fab Is Building A Different Type of Company

In the same vein as Apple’s mantra of “THINK DIFFERENT,” here’s just some of what we do differently at Fab.com:

1. We believe that we’re building something much more culturally important than a store. Sure, our store is cool, but we aspire to develop deep emotional relationships with our customers. We want people to LOVE Fab and to think of Fab as the most creative and innovative force in design. That’s a big vision. We’re just in the early days of building towards it.
   
   
2. We believe that great design is everywhere, at every price point. We’re just as comfortable selling $1 items as $5000 items. And, we put them both on the site, right next to each other, and treat them both equally as special. Design isn’t just about precious objects, rather it’s about making great objects approachable and affordable for everyone.
   
   
3. Our team’s mission is to put stuff on our site that makes people smile.  We’re quite serious about this. We believe that if we love it, our members will too, and sales will happen over time.
   
   
4. We build all of our own technology.
   
   
5. We are constantly pushing the envelope at the intersection of social + commerce + content. What you see from us today is just the start. We will be the industry’s leading innovator in merging social, commerce, and content to the benefit of consumers and suppliers/designers.
   
   
6. Our team members interview candidates for function, then Bradford and I interview for whether we want this person to join our family.
   
   
7. We challenge others to recruit away our team members. That challenges us to build the best, most rewarding, work environment in the world.
   
   
8. We call our customer service reps Crackerjacks.  
   
   
   [ˈkrækəˌdʒæk] Informal
   
   

   adj

   excellent

   n

   a person or thing of exceptional quality or ability

   [changed from crack (first-class) + jack¹ (man)]
   
   They are on the front lines, helping make our customers smile. 
   
   
9. We’re transparent. We love sharing data and stories about our company’s development. We believe that the more others know about us, the better they will understand what we’re up to.
   
   
10. Despite our rapid growth, we spend most of our time internally celebrating our challenges. We focus more on why we suck than on why we’re doing well. We really do believe that what challenges us makes us stronger.

Smile, you’re designed to.

p.s. We’re hiring.

Dec 01

“In a world that’s been Grouponed to death, did anyone really need another daily-deals site? Apparently, yes. … thanks to exquisite curation and a core philosophy, “Everyone, everywhere can benefit from good design” - that makes hearing from Fab every day a pleasure.” — Advertising Age - Fab Wins 2011 Best Daily Deals Website Award.

“You can’t control your luck, but the harder you work, the luckier you get.” — Mike Bloomberg

Nov 29

Data: Social & Mobile Rule Fab’s Black Friday - Cyber Monday. Facebook #1.

Here’s some more awesome data from Fab.com’s Black Friday - Cyber Monday.

Of the more than $1.1 million in sales during the period, more than 50% was from people who joined via social sources.  

Facebook is far and away our biggest source; more than 25% of the sales/revenue we generated during the period was from people who originally joined Fab via Facebook. Without a doubt, Facebook is far and away our most important source for both new members and for ongoing engagement of our members.

People who joined from member-to-friends email invites and twitter shares combined to account for another 25% of sales. 

Meanwhile, it was certainly a blowout mobile holiday for Fab.com, as more than 20% of sales came via our iPhone, iPad, and Android apps. 

Fab’s Black Friday - Cyber Monday

Here’s some more insight into what Black Friday - Cyber Monday meant for Fab.com.

• Fab.com did more than $1.1 million in sales over the 4 day period.
  
  
• Our users placed more than 18,000 orders.
  
  
• Nearly half of all orders were from first-time Fab purchasers.
  
  
• 20% of sales was from users of our mobile apps, with iPhone purchases accounting for about 12%, iPad 6%, and Android the remainder.
  
  
• About 20% of all of our users are now using our mobile apps.

We are so thankful and humbled by the tremendous interest in Fab’s products, just 5 months after we first opened our doors.

Thank you everyone who is choosing to make this year a Fab design holiday.  We’re doing our best to deliver products that make you and your loved ones smile.

Smile, you’re designed to.

Nov 28

“There are always shiny things. A company shouldn’t get addicted to being shiny, because shiny doesn’t last. You really want something that’s much deeper-keeled. You want your customers to value your service.” — Jeff Bezos

Fab.com’s Black Friday

Whomever said that Black Friday is an offline retail holiday, not an online shopping holiday, surely hasn’t spent much time on Fab.com.

Fab.com’s Black Friday:

• Our single largest sales day in our 5 month history - by far.
• More than 5 orders per minute.
• 3000 first time purchasers.
• 5000 repeat purchasers.

We’ll update tomorrow with more data on our Cyber Monday today and the overall holiday weekend.

Smile, you’re designed to.

Nov 22

The Fab.com Holiday Guarantee

Since opening our doors just 5 months ago, we’ve already processed nearly 250,000 orders.

Now, just in time for the holidays, we’re ready to take it up a notch.

Introducing the Fab.com Holiday Guarantee.

We want your holiday to be absolutely Fab! To that end we are guaranteeing delivery of a number of items

Each item that is eligible for the Fab Guarantee is clearly identified on our website with a red gift icon.  You can easily browse all such items here.

Here’s what the Fab Guarantee means:

We will do everything in our power to ensure that any Fab Guarantee product is delivered to the address you provide at checkout no later than 12/22.

In the unfortunate case that we are unable to live up to the Fab Guarantee, we will provide you the option by 12/21 of:

A. Overnighting a replacement or substitute product, if possible or

B. Refunding the entire amount of your order, plus an additional $25 in Fab.com credit.

If you have any questions or concerns about the Fab.com Holiday Guarantee, please email us at support@fab.com or call us at (877) 463 4322.

Here’s to a happy Fab holiday,

The Fab.com Team

It’s Already Looking Like a Mobile Holiday

Just 5 weeks since launching our Fab mobile apps on iPhone, iPad, and Android, we already have some pretty astonishing numbers to announce.

• More than 10% of our >1 million users are already using Fab’s mobile apps on a regular basis.
  
  
• Purchases from our mobile apps already account for more than 15% of all sales during the past 5 weeks.
  
  
• Mobile already accounts for more than 20% of sales from our holiday shop.