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Internet darling Fab.com’s tumultuous ride ends after PCH acquires it

Fab.com

New York-based design focused e-commerce company Fab.com has been acquired by custom manufacturing solutions provider for startups PCH International for an undisclosed amount of cash and equity. A Re/code report pegs the deal value to be around $15 million – $7 million in cash and about $8 million in stock.

As part of the deal, the 35 remaining Fab employees are expected to continue with the company. Fab co-founder and former CEO Jason Goldberg has stepped down from his position, and will no longer be involved with the business. Current general manager Renee Wong is expected to run day-to-day operations.

For PCH the acquisition is an attempt to enhance their distribution channels for designers and startups that work with them and are part of its accelerator programme. While Goldberg will be investing his share in his new venture, the custom designed online furniture store Hem.

 

The Rise

Founded in June 2011 by Goldberg and Bradford Shellhammer, Fab.com was an Internet darling. It had been valued at $1 billion during a fund raising round in June 2013. Investors were also in love with Fab.com. The company had raised over $300 million, including $8 million in July 2011, $40 million in December 2011, $105 million in July 2012, $15 million in November 2012 and $150 million in June 2013.

The digital arm of the Times of India group Times Internet had also invested a 7-figure amount in Fab.com, in December 2012. In fact, Goldberg had mentioned at the time that Fab.com would be working with Times Internet to explore and execute on its India market strategy in the coming years, and that he had been working with Times Internet CEO Satyan Gajwani for several months.

The Fall

However, a month after the $1 billion valuation the company eliminated 100 jobs at its Berlin office and three months later it cut a further 101 jobs, mostly at Fab.com’s New York office. In May last year, the company laid off another 80-90 employees, bringing the total number of full-time employees to 200 from 700 at its peak, which now seems to be down to 35 – mirroring Fab.com’s fall from the perch. Co-founder Shellhammer left in November 2013, along with several key executives.

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Business model failure was the primary reason for the rise and fall of this Internet sensation. Initially, Fab.com operated as a flash sales platform and customers had to make purchases within a deadline to avail the discounts being offered. However, the company had trouble in delivering the products in time, which led to Fab.com changing to an inventory-based model. The investments on stock, warehousing and merchandising that the new model demanded didn’t make sense for Fab.com for long. It sells quirky home goods, furniture and fashion accessories, and it was almost impossible to predict the level of demand for any particular product at a given time.

Lessons

Billion dollar valuations, round after round of fund raising and charismatic founders don’t (necessarily) make for successful companies. Focusing on developing a stable and scalable business model is perhaps most crucial. Myspace also had a similar experience: it had been acquired by News Corp for $580 million in 2005 and was finally sold for $35 million in 2011 to Specific Media and Justin Timberlake.

Image Credit: PCH

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