One-time Internet darling Fab.com sells for $15 million
March 3, 2015 09:23 AM
(Bloomberg Business)—Fab.com, only recently the darling of the New York tech scene, has a new owner, ending a calamitous saga marked by repeated rounds of layoffs and internal discord at the online retailer.
PCH International, which helps entrepreneurs turn ideas into brands and makes a variety of consumer tech products for major companies like Apple, announced on Tuesday that it’s acquiring the remnants of Fab.com, No. 183 in the Internet Retailer 2014 Top 500 Guide. Fab runs a website that sells uniquely designed home goods, furniture, and fashion accessories, such as $60 neon wrap bracelets and $330 dodo bird rocking chairs. It will continue to focus on design.
Both the Irish company and Fab co-founder Jason Goldberg declined to disclose the purchase price; news media reports in recent months have cited terms of $15 million in cash and stock.
Goldberg, who won investors with his bold ideas and audacious proclamations that Fab would become as influential as Amazon, No.1 in the Top 500 Guide, will no longer be involved in Fab. He said the money from the sale would go into Hem, his spinoff website that sells custom-designed furniture.
PCH Chief Executive Officer Liam Casey said in an interview on Monday he is excited about acquiring an e-commerce site, known for its sharp design sense that provides startups with a direct way to sell to consumers.
“It was valued about a year ago at about a billion dollars, and when I look at the business all they’ve done since then is improve it,” Casey said of Fab, adding that PCH wouldn't have made a move just to score a bargain. “It has to be a good fit for our business. It has to be an opportunity to do something amazing."
Fab launched in June 2011 after Goldberg's earlier plan for the company, a gay social network called Fabulis.com, failed. In two years it reached a $1 billion valuation with 650 employees around the world, selling quirky items such as luxury cardboard lion heads and necklaces with curse words on them. Goldberg became a leading name in New York tech, the venture capitalist's favorite example of an entrepreneur who determined his first idea wasn't working, changed things up, and found success.
Investors swarmed. Goldberg's ideas and charisma helped the e-commerce site raise at least $325 million in venture capital, from such firms as Andreessen Horowitz and China's Tencent Holdings, fueling expansion in Europe and plans to tackle Asia. (Bloomberg LP, parent of Bloomberg Business, is an investor in Andreessen Horowitz.) But he was making promises he couldn't keep.
By the time it was a $1 billion company, Fab was already missing its own revenue projections. When it was a flash sale site, offering discounts to consumers who acted on deadline, Fab had trouble delivering goods to people on time. When it shifted to an inventory-based model, the company was forced to spend on goods it thought consumers would buy and warehouses to store them in and had trouble with merchandising. With a site based on fun designer items, it was difficult to predict demand for items such as $349 Andy Warhol Brillo box sculptures. Goldberg spent millions on marketing the site.
The same year that Goldberg started at the top of his game, he ended with hundreds of layoffs and several executive departures, including that of co-founder Bradford Shellhammer. The business model's failure spurred more moves to "pivot" the company, with experiments such as custom-designed housewares, all of it a suck on the remaining venture capital.
Former employees described a workplace where goals were constantly shifting and where criticizing management could result in being fired or pushed out. Goldberg required employees to "be Fab" at all times, a demand that could mean acting or dressing in ways that reflected the eclectic brand, while meeting the unrealistic revenue projections he had promised investors. The co-founders spent money to match their expectations for the company, with trendy offices in New York and Berlin.
“It is impossible to grow a company as fast as we’ve grown Fab without having mistakes along the way,” Goldberg said at the time. “Hopefully we’re able to adjust and make changes effectively. We aim to be a learning organization.”
With the purchase by PCH, Fab’s 35 remaining employees, including general manager Renee Wong, will stay on board and remain based in New York. Casey first met with Fab a year ago, when Wong attended one of PCH’s demo days in San Francisco.
“We were really impressed with the team that’s been there, especially the work they’ve done in the last number of months,” he said. PCH plans to hire more staff in merchandising and marketing. None of PCH’s products will be sold on Fab.com for now, though Casey said he isn't ruling that out.
Fab's sale is a cautionary tale for Silicon Valley, where over 50 companies are valued at more than $1 billion. This year, Uber Inc. raised money at a $40 billion valuation, while Snapchat is valued at $19 billion and Pinterest at $11 billion, people familiar with the matter have said. Gilt Groupe, another New York-based e-commerce startup, was last valued at $1 billion in 2011. It is aiming for an IPO this year, people familiar with the plans said in February. Gilt still uses the flash sales model that Goldberg abandoned.
For Goldberg and his investors, the adventure continues. Hem.com, which was once part of Fab, is now a separate company that's "well-financed and on solid ground,'' Goldberg said. It's unclear how well funded Hem is—Re/code reports that "tens of millions" of Fab investor dollars are still available to Goldberg—but it's evident that by allocating money from the Fab sale to Hem, Goldberg isn't accepting defeat.
“We are following a specific plan to create a valuable company that exceeds our customers' expectations and that our employees and shareholders will all be tremendously proud of for the long term," he said. "These are still early days."