Two-year-old design website Fab is now worth more than $1 billion, thanks to an investment led in part by Chinese Internet giant Tencent

June 22, 2013 Leave a comment

June 19, 2013, 12:03 a.m. ET

New Funding Values Fab at Over $1 Billion

By SPENCER E. ANTE and PAUL MOZUR

JASON_GOLDBERG

China’s Tencent is one of Fab’s investors. Pictured, Fab CEO Jason Goldberg.

Two-year-old design website Fab is now worth more than $1 billion, thanks to an investment led in part by Chinese Internet conglomerate Tencent Holdings Ltd.0700.HK -0.33% China’s largest listed Internet company is contributing to a $150 million round of venture capital and will appoint a director to Fab’s board. The deal values the Manhattan-based company at about $1 billion, not including the new capital, a Fab spokeswoman said.With Fab, Tencent could be seeking insights that could help it build out its fledgling e-commerce operations in China and compete with industry leader Alibaba Group Holding Ltd. Fab could have a lot to say about how to build an audience quickly. By combining online technology with quirky merchandising, Fab has generated rapid growth, selling its 14 million registered members—up from more than five million last July—design-centric offerings of everything from furniture and jewelry to Andy Warhol art works.

The Tencent investment comes as Chinese companies, long focused on deals that give them access to energy and other resources, are increasingly showing interest in America’s technology industry. Tencent runs popular online-messaging services in China and has a history of putting money into U.S. companies that could give it a deeper understanding of new markets and technologies. It plowed at least $700 million into U.S. videogame companies over the past two years.

Tencent wouldn’t say how much money it put into Fab and wouldn’t comment on its foreign-investment strategy, but last year signaled its intention to get bigger in e-commerce by saying it would spend $1 billion in the sector.

Chinese companies invested a record $6.5 billion in U.S. companies and projects last year, up from just $2 billion in 2005, according to New York consulting company Rhodium Group.

Fab started as a gay social network but switched gears into e-commerce about two years ago. The company generated nearly $120 million in sales last year and is on track to pull in about $250 million in revenue this year, though it remains unprofitable.

Chief Executive Jason Goldberg said the $150 million in new funds will help the company build out its digital stores, develop a line of products that are exclusive to Fab and continue its overseas expansion. Mr. Goldberg said he anticipates raising another $50 million to $100 million from other strategic investors over the next few months.

Mr. Goldberg said the company will look for ways to partner with Tencent, and may eventually sell Fab merchandise on Tencent services.

China has the world’s largest number of Internet and smartphone users. At the end of March, Tencent said its messaging service WeChat had 194 million monthly active users, up 23% from the end of December. The company also has nearly 800 million users for its QQ instant-messaging service.

“For us to be able to leverage that is an enormous opportunity,” Mr. Goldberg said.

Fab now sells in the U.S. and more than 20 other countries, mostly in Europe. About 40% of its sales come from outside the U.S. The company is spending heavily on marketing to acquire new customers, as well as on overhead and infrastructure required to fulfill and ship orders, people familiar with the matter said. The company is expected to burn through more than $60 million this year as it expands, a person familiar with the matter said.

Tencent, which has a $70 billion market capitalization, paid $400 million in 2011 for Riot Games, in part to acquire the hugely popular League of Legends personal-computer game. In 2012, it spent $300 million for a 48% stake in U.S.-based Epic Games.

The new investment in Fab also includes existing investors Atomico, Andreessen Horowitz, Menlo Ventures, RTP Capital and Docomo Capital Inc. 9437.TO +2.11% A new investor, Japanese trading house Itochu Corp., 8001.TO +5.69% also joined the round.

The deal nearly doubled Fab’s valuation since it last raised money a year ago. Atomico, an international venture firm launched by Skype co-founder Niklas Zennström, led that round, valuing the company at $600 million.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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