News: @Fab Closes $150M in initial Series D Financing from Tencent, Atomico, Andreessen Horowitz, ITOCHU Technology Ventures, and Existing Investors.
THE BIG NEWS.
Just a few days after our 2nd birthday, we’re thrilled to announce that Fab has closed $150 million in new funding in the first tranche of our Series D round of financing. This $150 million is the first part of a larger Series D round that we expect will be completed over the next few months. Fab has now raised more than $310 million since our inception. This new round of financing helps us execute on our long-term vision of being the world’s design store.
Even though we are still in the midst of finalizing additional participants in our Series D round, we wanted to go ahead and make public this first $150 million closing now because we are excited to announce that Tencent has become one of the strategic investors in Fab. Tencent will also appoint a director to our Board.
Tencent is one of the world’s largest providers of comprehensive Internet services with 825 million QQ instant messaging MAU and 194 million Weixin and WeChat combined MAU (MAU represents the monthly active user accounts as of the end of the first quarter in 2013). Tencent is the third largest Internet company in the world, with a market capitalization of $73 billion (as of 11 June 2013).
[Here are some third-party charts on Tencent’s WeChat growth.]
Fab is excited to work with Tencent to bring Fab to millions more people around the world. We specifically sought out a strategic partner like Tencent because we are intent on bringing Fab to many new markets. We believe that design is a universal language and we are confident that we can bring Fab’s unique products to millions and millions of people worldwide.
Fab also welcomes another new strategic investor, ITOCHU Technology Ventures. Fab’s existing investors, Atomico, Andreessen Horowitz, Menlo Ventures, RTP Ventures, Pinnacle Ventures, Lars Hinrichs, and Docomo Capital also participated in this latest round of financing.
THE BIG FAB IDEA: EMOTIONAL COMMERCE.
Fab is already well on our way to being the world’s greatest design store.
But Fab’s long term ambition is to be the worldwide leader in Emotional Commerce.
There are currently only four e-commerce companies in the world that are valued at more than $10 billion: Amazon, Alibaba, eBay, and Rakuten. We believe that Fab has a legitimate chance to be the fifth by leading in Emotional Commerce.
Differing from the “commodity commerce” players, Fab is the pioneer in Emotional Commerce, helping people discover and buy the meaningful stuff in their lives, like the chairs they sit on, the table they dine at, the plates they eat from, the glasses they drink out of, the pen they write with, the notepad they write in, the art on their walls, the bracelet on their arm – the emotional products in their lives. That’s Fab.
I want to be really clear on this as I’m sure there are skeptics who will ask and wonder why Fab needs so much money. Fab is focused on the long term. We are focused on creating “Wow!” shopping experiences that will result in customers making 20+ purchases from Fab within a couple of years. We are focused on being the global brand that represents emotional commerce for decades to come. Fab is not about a single transaction. Fab is about creating Wow! experiences in everything we do, from the unique merchandise we offer, to the user experience on our website and mobile apps, to fast delivery and a delightful out-of-box experience, to the follow-on customer service. We truly believe that it takes investing in Wow! in order to build the next $10B+ E-commerce company, and that’s what we’re doing.
[BTW: to put all this in perspective, Amazon has raised a total of $5.3B in equity and debt since 1997. Building a large e-commerce business is capital intensive, but there are several winner-take-all opportunities and Fab hopes to capitalize on at least one of those in the global market for emotional products.]
We have a very simple yet powerful 4 point formula at Fab:
- The world’s most exciting merchandise – featuring more and more products that are 100% exclusive to Fab.
- The world’s most engaging experience – from our website and apps to our delivery and service.
- Efficient retailing – we’re building a real business here with solid improvements in margins. Yes, we grew sales by more than 500% in 2012 and we’ll grow by around 100% in 2013, but it’s not just about the top-line — we’re now achieving 43% gross margins, up from 29% in 2011, and we’re rapidly reducing our fulfillment costs through technology and automation. Not a lot of companies can attest to the type of revenue growth + margin growth we’ve seen at Fab.
- Truly global. We want to be the brand that represents emotional commerce, on a global scale.
Some additional background on Emotional Commerce:
The first wave of e-commerce — which was dominated by Amazon — was all about bringing commodity products online. We call that wave: Commodity Commerce. The fundamental principles of Commodity Commerce are selection, price and speed: the biggest product catalogue, at the best prices, delivered as quickly as possible. It’s Walmart online. It’s Target online. It’s Best Buy online. It’s your drugstore online. It’s the Amazonification of commodity retail. It’s convenience shopping for the products people already know they need. And it is perfect for when consumers already know what they are looking for and what matters most is price and convenience. Examples: books, music, electronics, shoes (your size doesn’t change), underwear (ideally your size doesn’t change very often), dry goods, tools and hardware, toys, and office supplies.
Amazon has successfully executed a winner-take-all strategy in Commodity Commerce by investing heavily in the supply chain of massive selection. That’s the same play that Alibaba has run in China, and Rakuten has run in Japan.
The second wave of e-commerce — which is a battle between Apple, Amazon, Netflix, Google, and others — is the digitization of media: Digital Commerce. Books. Music. Movies. TV. Video.
The third wave of e-commerce is all about bringing emotional purchases online. Non-commodity products represent more thoughtful purchase decisions. That’s exactly what we do at Fab. That’s Emotional Commerce. Emotional commerce involves categories like furniture, home accessories, home textiles, fashion, art, and jewelry. These are categories where people care about having something special in their lives.
We believe that the following principles will carry the day in Emotional Commerce:
- Exciting Merchandise. Winning in Emotional Commerce starts with great products. Stuff that people get excited about. Stuff that’s unique. Stuff that’s fresh. Stuff that can’t be found elsewhere. Emotional Commerce is all about creating Wow!
- Amazing Shopping Experiences. Commodity Commerce is about getting in and out as quickly as possible. One-click shopping. Emotional Commerce is all about getting lost in the moment. Emotional Commerce is all about taking the best offline shopping experiences — of being lured in by storefronts, of browsing through assortments and colors; it is the joy of the hunt and finding something fabulous, - having fun while shopping — and making that entire experience even more amazing online. It’s about discovery via social and mobile and new formats for web and tablets and smartphones. It’s about making online shopping not just convenient but downright fun. It’s called “retail therapy” for a reason. Shopping must be joyful in order to capture emotional purchases.
- Brand Building. Winning in Emotional Commerce requires developing aspirational yet accessible online brands. It’s about ecommerce with personality. That’s why Fab has a unique and consistent point of view. We’re modern. We’re colorful. We’re urban-inspired. And, we’re a bit quirky, and we’re proud of that.
Here’s why this brand building matters. 50% of Fab’s sales are in home categories. Furniture. Lighting. Textiles. When people buy home products online, they want to know that there’s a solid and respected brand behind it — and they also want to be inspired by that brand. People get excited by and want to be associated with brands that are sharp, modern, colorful, edgy, and aspirational. (See: Apple, Target, Kate Spade). Brands will have to take care to have a consistent point of view and to honor and nurture the trust relationship between them and their customers. Brands will also need to have patience and staying power.
For example, customers likely won’t buy big ticket items such as furniture during their first purchase with us. But, if we treat them well and wow them at every turn, we can walk them down a path towards turning to us in trust when they are ready to make a furniture purchase online. At Fab we find that furniture transactions happen most often after a customer’s fifth or sixth purchase. Nurturing the Fab brand is vital to our being there when the customer is ready. Today, 5% of Fab’s customers have made a furniture purchase from us. That’s both big and the start of things to come. We know that building the Fab brand is key to enabling more and more people to trust and desire to buy furniture from Fab. That’s why one of the things we’re focused on is acquiring lifetime customers; customers that will go on to make 20+ purchases from Fab.
That’s the sort of emotional bond we strive to build with our customers, such that they rely on us for their lifestyle purchase decisions.
IT’S ALL ABOUT CREATING WOW!
To sum up this whole emotional commerce thing, the way we see it, Fab is in the business of creating Wow!
If we create Wow! every day for our customers, then we will create lots of value over time for our design partners, our employees, and our shareholders.
At our all-company meetings and in investor discussions, I’m now famous (or infamous?) for repeating the same line over and over again: “I don’t give a shit if we sell $200M this year or $300M this year, what I care about is that we wow our customers everyday and build a brand for the decades. If we do that, we’ll create an amazing business that people love, and in doing so we’ll make plenty of money over time. Wow first, money second.”
2 YEARS INTO CREATING WOW!
- In our first two years, nearly 14 million people have registered with Fab.
- Our customers have purchased nearly 6 million products from Fab. In the last year we’ve sold 1 product every 5 seconds!
- 50% of Fab’s sales are of home products.
- 10% of Fab’s sales are art.
- 10% of Fab’s sales are jewelry.
- 20% of Fab’s sales are fashion and fashion accessories.
- The typical Fab customer is 25 to 40 years old. 60% female. College educated.
- 35% of Fab’s sales are on mobile. Fab’s members carry the world’s design store around in their hands. Fab’s mobile purchasers also order more, more often, and at higher basket sizes. Fab is leading the mobile shopping revolution.
- We’ve worked with more than 15,000 designers, empowering a global design ecosystem and enabling them to scale up their businesses. Their success is our success and we’re committed to being the best partner to designers, period. Our business model is all about shining a spotlight on designers and then helping them scale up their business alongside ours.
- We’re well on our way to more than doubling our sales in 2013 over 2012, (which was 5 times more than 2011).
- Fab now sells products in 27 countries and 40% of our sales today occur outside the U.S.
- 75% of Fab’s orders ship within 24 hours of being placed.
- We pride ourselves on delivering the world’s best customer service. Our Fab “Crackerjacks” (our support team) are renowned for the fastest, friendliest, and most helpful support in the industry, bar none. See for yourself by searching for @fab and @fabcrackerjacks on Twitter.
And, we’re just getting started.
WHAT’S FAB GOING TO DO WITH ALL THS MONEY?
Again, it all goes back to creating Wow!
At the beginning of 2012 it took an excruciatingly long 16 days - on average - from time of purchase to our shipping a product. Today, 75 percent of Fab’s orders ship within 24 hours of purchase. This massive change happened by investing in technology and supply chain and logistics, and by taking inventory and stocking it in our own Fab-operated warehouses. We’ll be investing in additional enhancements to our supply chain, logistics, customer service, technology, and merchandising. In 2013 we’ll open up our own new Fab-operated warehouse in The Netherlands to serve our 3.5 million European customers. In 2014 we’ll open up our 2nd Fab-operated warehouse in the U.S., in the Las Vegas area to help us better serve the west coast.
Another big area of investment we’re making is in developing products that are 100% exclusive to Fab. We’re working closely with our 15,000+ design partners to collaborate on designs that have never been sold before. Instead of hiring hundreds of in-house designers, we’re empowering an ecosystem of thousands of makers – shining a spotlight on their products and then helping scale up their businesses. Our message to designers is simple: Designers design; Fab will help you manufacture, distribute, and grow. We’re also investing in our own line of user-designed custom furniture, Fab Designed By You, which enables anyone to easily design their own tables, shelves, benches, and more.
We’re also investing more in mobile and social. As noted, today 35% of Fab’s sales are via mobile apps and we see highest conversion rates, satisfaction rates, and lifetime value amongst our mobile members. We’ll be unveiling several new innovations there in the coming months, so keep an eye out.
And, finally, we’re investing in our international growth. Fab is democratizing design with no borders. Everyone everywhere benefits from great design. We want Fab to truly be a global brand. In the coming months we’ll be working on rolling out Fab to even more countries. Our aim to enable people all over the world to bring a little Fab into their life, and in doing so to spread great design to people all over the earth like never before.
RAISING MONEY IS A RESPONSIBILITY, NOT A SUCCESS.
There are some who will call us a success because of this fundraise.
They’ll say we’re worth billions.
And, of course, there are some who will call it a bubble.
We know that the truth is that raising money is not success. Raising money is a responsibility that opens up new opportunities. We take our responsibility at Fab very seriously. We are setting out to build the best designed website and apps, selling the best designed merchandise, with the best designed logistics, customer support, and supply-chain, and backed by the world’s best team of employees, designers and investors. We’re just fortunate to have this amazing opportunity. It’s humbling. It’s inspiring. It’s emotional. Thank you everyone for believing in us. We want to extend a special thank you to our design partners – all 15,000+ of you – for working with us. Our success is your success. We are committed to building this together.
We promise to keep learning, listening, and trying our best to make Fab worthy of the investments in our vision and future that we have been so fortunate to receive.
Oh, and it only gets harder, not easier. Anyone who thinks Fab is taking a victory lap has it all wrong. The pressure is greater than ever for us to succeed. And that’s a good thing. At Fab, one of our core values is that we celebrate our challenges. Bring it on.
Smile, you’re designed to.
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