Megan Dickey/Business Insider
There are a lot of people who are skeptical about Fab and how much money the two-year-old e-commerce company has raised.
It has currently raised $310 million and it is raising another $100 million more as part of its Series D round of financing. If you compare it the other big e-commerce companies with tangible products and marketplaces, it will have raised:
- $189 more than Gilt Groupe
- $271 more than Zulily
- $297 more than One Kings Lane
- $308 more than Snapdeal
- $318 more than Etsy
- $319 more than Quirky
- $361 more than Nasty Gal
Naturally, people are skeptical. Leaders in the e-commerce space say Fab's unit economics aren't great.* Unit economics are a company's costs and revenue on a per unit basis. They also say Fab loses an amazing amount of money. Fab raised $105 million in July 2012 and if it's raising another $150-250 now, you can assume a good portion of that money has been spent.
Fab is spending some of the money on building in-house products to make its business vertically integrated. It's also improving logistics (it wants to ship everything in 24 hours, and it used to take Fab 16 days from purchase to delivery).
But the ultimate goal is to become the world's fifth $10 billion e-commerce company, alongside Amazon, Alibaba, eBay and Rakuten.
So what does Jason Goldberg, CEO of Fab, have to say to critics?
That his company has work to do, and he knows it isn't successful yet.
"Look, those are fair questions,” Goldberg said in response to AllThingsD's questions about thin margins and raising too much money. “I don’t consider us a success yet. We know we have a lot of work to do. But we believe in our strategy and believe it’s going to take a good amount of investment to continue to build a ‘wow’ experience and build a great new e-commerce brand.”
As for the excessive amount of money he's raised, Goldberg justifies it by saying e-commerce companies worth more than $5 billion need to raise that much. Especially if they're expanding internationally. Goldberg expects Fab to be profitable in the US and Europe by 2014 or 2015.
Last year, Fab generated $150 million. It currently has 14 million users and expects to generate $250 million this year.
UPDATE: We've just spoken with Goldberg about the fundraise. While Goldberg wouldn't comment on his company's burn rate or how much of the last funding round is still in the bank, he says Fab's unit economics are excellent. Goldberg cites gross margins of 43% whereas Amazon's are in the single digits. He also says Fab's contribution margins, or the amount left over after all costs of sending products to consumers, are 20%.
In addition, Goldberg further explained the decision to raise so much money. He says 40% of Fab's sales are outside the United States, so his company's strategy – to become a global brand before others can copy Fab abroad – is different than a Gilt or Zulily.
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