Online design retailer Fab.com has raised $150-million at a $1-billion valuation in new financing led by China Internet giant Tencent.
The valuation of the Series D financing was about $1-billion, according to a person familiar with the deal. Fab also plans to close additional financing in the round that will bring the round to a total of about $250-million, this source said.
New York City-based Fab has raised more than $310-million in total since it was founded about two years ago. Also joining as a new investor was Japan's Itochu. Also participating in the new round were existing investors Atomico, Andreessen Horowitz, Menlo Ventures, RTP Capital, Pinnacle Ventures, Lars Hinrichs, and Docomo Capital. Fab's last funding round a year ago valued the company at about $600-million.
Tencent will be taking a board seat and playing an active role in Fab's expansion into Asia. Fab currently sells in the U.S. and Europe but not in Asia. Fab expects to launch in China with Tencent's support. "It's a way to enter markets through strategic partners who can help mitigate risk and will increase the likelihood of success," says Fab CEO Jason Goldberg.
About 65 per cent of China's ecommerce market is between age 18 and 35 and a majority are female, which is right in Fab's target demographic, Goldberg says.
Launched about two years ago after switching from its first incarnation as a gay social network, Fab has rapidly grown as a place to find designed-focused quirky or unique products (see our profile here). Goldberg is aiming for Fab to be one of the top ecommerce companies in the world: Amazon, Alibaba, eBay and Rakuten. "That's what this round is about – making that happen," he says.
Fab wants to be one of those top ecommerce companies, but it's not trying to directly take on Amazon, Goldberg says. While Fab's sales are expected to grow 100 per cent this year after growing 500 per cent in 2012, Fab's gross margins have increased to 43 per cent from 29 per cent in 2011. Fab keeps margins high, unlike Amazon, by focusing on aspirational or emotional items and staying away from what Goldberg calls commodity ecommerce. Also, about 90 per cent of products on Fab are not available on other major websites. Fab has more unique items people are willing to pay for. "We're not trying to be the lowest price," he says.
Fab also has built out its warehouse and logistics to improve margins, Goldberg says. About 95 per cent of its items are shipped through Fab's warehouses. Fab can now ship an item less than two hours from when it is ordered on 75 per cent of items. Fab is opening its second U.S. warehouse in Las Vegas next year and another in the Netherlands in July.
In addition, Fab is creating its own products, or licensing from designers with Fab branding, which boost margins even more. On products it manufactures, Fab gets 65 per cent to 70 per cent margins. That's similar to what companies such as IKEA would get, Goldberg says. This year Fab expects 5 per cent of sales to be its own products, but it wants to get that number to 30 to 40 per cent by 2016.