Death By Overfunding: Fab.com

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Photo Credit: charlene mcbride/Flickr.com

At the height of the popularity of flash sales sites, Fab.com was one of the hottest startups. Investors poured $336 million into it and its valuation skyrocketed to $1 billion. But in the end, it was acquired by PCH International for an estimated $15 million-$50 million.

Fab.com’s Journey

Manhattan-based Fab.com was founded in 2010 by entrepreneur Jason Goldberg who had earlier founded Jobster, chief designer Bradford Shellhammer, Deepa Shah, and Nishith Shah. The site was initially launched as Fabulis, a social networking site for gay men. But in June 2011, the company transformed itself into a flash-sales site for everyday design products. Two months later, it raised $8 million in a Series A round led by Menlo Ventures.

By December 2011, it had 1 million members. It was considered to be growing faster than even Facebook, Twitter, and Groupon and with this milestone, Fab.com managed to raise further funding of $40 million in a Series B round led by Andreessen Horowitz.

A majority of its daily traffic was attracted by its shopping pages integrated with social networking sites such as Facebook and Twitter. Its members could see what their friends liked or bought, and could buy the same products directly through Fab.com.

On its first anniversary in July 2012, Fab.com raised $105 million at a valuation of $600 million in a Series C round led by Atomico. To build traffic to the site, Fab.com discontinued the need for users to sign up. With this, its number of visitors including members surpassed 10 million and it was selling more than four products per minute. It was reportedly on track to earn more than $100 million in revenues in 2012.

In the year 2012 alone, it made six acquisitions including Casacanda for $11 million in stock. In December 2012, Fab.com announced that it would move out of flash sales towards full-priced e-commerce to sell Jewelry and Personal Accessories.

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More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology.

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