Russian startup snags $130 million in investment

Russia’s leading online fashion site, Lamoda, announced a $130 million investment infusion, the biggest deal in the history of Russian online retailers.

Len Blavatnik, a Ukrainian-born American businessman, together with Summit Partners and Tegelmann Group, footed the bill in the latest cash-for-equity deal in a Russian startup.

Lamoda has hailed the deal as “the largest investment ever made in Russian e-commerce”, and the company shows no sign of slowing down.

“Lamoda is a dynamic e-commerce company with high potential and an experienced management team,” Blavatnik said in a statement.

The capital injection comes on the heels of another $100 million received in March 2013 by Lamoda’s sister site in Southeast Asia, Zalora, also funded in part by Summit Partners, as well as Tengelmann Group.

In a comment that ruffled a few shareholder feathers in 2011, Lamoda owner Oliver Samwer announced his company needed a more aggressive strategy, and called for a ‘blitzkrieg’, in his words.

The ‘blitzkrieg’ has arrived in Moscow. Lamoda made its Russian ambition a reality in 2011 and has since become Russia’s, and Europe’s, largest fashion site, serving over 61 million clients. The site catalog has over 1 million items, ranging from sporty Nike gear to Lacoste accessories.

The site logs, on average, 20 million visits per month on its two cites. The second site operates in Kazakhstan.

Having the largest amount of internet users in Europe and a 60 plus billion euro fashion market, entering the Russia was ideal for Lamoda.

“The supply of great value for money fashion brand, especially in regions, is often very limited – this is what we are solving with fast delivery and the best product selection in the market,” Lamoda’s Head of Public Relations said in a note to RT.

While the company wouldn’t directly address its estimated value or plans for an IPO, it is very confident its ‘blitzkrieg’ will continue, especially in Russia.

“I believe we will see an internet penetration of over 75% in 2020 – but what is even more important is that e-commerce is really seeing its tipping point right now. The option to pay risk-free through cash on delivery and greatly improved shopping experiences drive more and more shoppers to buy online. We will continue to see this trend, given the lack of local supply in the regions relative to the strong consumer demand. In the long-run we expect to see a higher e-commerce share of the fashion market in Russia than in western markets,” PR commented.

Lamoda was established in 2011 under the German startup incubator Rocket Internet, and has made a name for itself in startups with a very simple business model: copy and paste. Take what works one place and transplant it into another market

Lamoda has revolutionized the emerging market business with this simple, yet seemingly impervious model. 

Next stop, Ukraine?

Niels Tonsen, co-founder and CEO of Lamoda told TechCrunch he will use the funding to continue the company’s expansion model in the emerging CIS block, citing Ukraine as an example.

Blavatnik, an Odessa native, emigrated to the United States in 1978, and is the founder and chairman of Access industries, which Warner Music, the third largest record label, is under. As of March 2013 Forbes estimates Blavatnik’s fortune to be $16 billion.

With increased internet-access and a booming demand from a growing middle class, Russia and its neighboring countries startups are piquing the interest of several international investors.

Both eBay and Amazon have recently increased their profile in Russia, and in March, South African retailer Naspers bought into Lamoda rival Avito by merging their classified businesses and $50 million in cash.

In March South African retailer Naspers bought a stake in Russian internet rival Avito with an agreed merger of their local classified businesses and $50 million in cash.

In 2011, Ozon, Russsia’s Amazon platform, picked up $100 million in 2011 from various investors.

Tonsen said the company will not chase after new acquisitions, and that it prefers to stand by its startup model and build from the ground up.

“We have a private label, and we will continue to push into that part,” Tonsen said.

Lamoda Express

Lamoda runs its own logistics operation arm to deliver their products, free of charge.

Tonsen said that having its own courier network is costly, but is the most effective approach in Russia.

“If you are able to offer next-day delivery and a high service level, you really see that those clients give us high scores in customer satisfaction and they come back much more often than they would if we deliver through the Russian post office,” Tonsen told TechCrunch.

The Russian Post Offices is notorious for tardy deliveries, lost packages, and a convoluted infrastructure.

“Things are going well on delivery platform and in our warehouse, so now is the right time to continue building the service,” he said. Return rates were around 40 percent.

Lamoda plans to use some of the new investment money to purchase “technologies that will help Lamoda offer better visualizations for internet shoppers to pick fits and looks they’re more likely to keep than return.”

Lamoda operates out of a big warehouse just south of Moscow along the river in a large, open air office with no cubicles, a very typical startup atmosphere with cool perks like free breakfast for all 1200 employees.

Other co-founders are Dominik Picker-Huchzermeyer, Burkhard Binder, and Florian Jansen, all of German descent.