I am delighted that Advent Ventures has announced the FarFetch investment. As many of my venture capital colleagues know, this is a model that I am very excited about and having brought it to Advent some 6 months ago and worked with Jose what feels like everyday since, I am very sorry to not be around for the next 3 years.
Many entrepreneurs and management teams ask us for our rationale for investing in one company over another.
So why FarFetch?
1) The entrepreneur makes it happen
As always, "most" of an investment decision is based on the entrepreneur and Jose Neves is both impressive and uniquely qualified to run farfetch. Jose, an entrepreneur all his life, has built a software business, a fashion label, a retailer and now an online marketplace. In addition, VCs always look for evidence of execution and I see very few online retailers who have driven revenues so high in such a short space of time and from a standing start.
2) This ecommerce model works
As I have written before, I am particularly enthused by ecommerce models with low cost of customer acquisition and low working capital This is exactly why I sponsored the FarFetch deal at Advent:
i) FarFetch proposition is a no-brainer for retailers. It is providing a mechanism for off-line retailers to simply get customers they would never normally get: There are plenty of people in Brazil who’d love to buy from Tessabit, but they rarely get to Milan. In this way the model is reminiscent of Foodzie and Etsy.
ii) The Farfetch proposition also works for customers. One place to buy a broad range of SKUs, from high end to edgy, constantly updating.
If you believe that range is an important factor in driving repeat visits (and therefore LTV) then farfetch is already half-way there. And if the other axis is new product frequency then you're not in a bad place with fashion.
This is why the marketplace model is one of the most sought after in all of online retail. Why hold inventory if you don't need to?
If you are a marketplace, the challenge is, of course, constructing the brand: you want return / repeat traffic rather than having to pay for a new customer acquisition each time. Of course this is no walk in the park:
- ebay (despite it's ads) find it hard to escape the notion of an online boot /garage sale.
- Etsy struggle to push beyond quirky home made goods. Hell, even Amazon are struggling today when my basket contains 3 skus and I get 3 packages from different carriers with very different customer service.
In spite of all this, I'd rather be at this part of the chain than at the pure affiliate level or at the retailer level. I'm confident they don't need it, but I am wishing Jose and Advent the best of luck over the next few years.
