Behind the downfall of one of Spain's most promising startups
The founders of eShop Ventures, once known as the Spanish Amazon, had the ingredients for success: good ideas, an adoring media and millions of euros in financing. Yet the e-commerce startup, which was named one of the “50 best digital ideas” by Spanish business daily Expansión at the end of 2015, filed for bankruptcy 16 months later.
Founded by Rafael Garrido and Alfonso Merry del Val in 2012, the eShop group of e-commerce brands had already shown signs of cracking under the weight of overtrading in 2015. Seven of its businesses suffered combined losses of over €8 million, but the company’s ambitious directors continued their buying spree for more online brands.
By March 2017, the cash had run out and eShop had to sell its two most successful platforms, Mimub and Mamuky, to the Catalan e-commerce group, Bilua. It was too little, too late and eShop went into voluntary bankruptcy in April 2017.
Coincidentally, both co-founders are also business advisers at venture capital firm Vitamina K, alongside Vodafone Spain’s Francisco Román, CityDeal co-founder Gonzalo Castellano and ING Direct’s Carina Szpilka Lázaro. The Madrid-based VC focuses on seed-, early- and growth-stage investments in Spain and the US. The CEO of eShop, Garrido, is also a co-founder and director of Vitamina K that was established in 2011, one year prior to the founding of eShop Ventures.
High acquisition costs
eShop clinched one of Spain’s biggest investment rounds in June 2014, a Series A funding worth €7.7 million. Prominent business angels and VCs backing the startup included Kibo Ventures, Bonsai Venture Capital, Atresmedia, Globomedia, Qualitas Equity Partners, Nature Capital, Onza Capital and Agora Inversiones.
Flushed with funds, the directors of eShop continued to shop for retail verticals in a bid to create an e-commerce giant of Amazon-styled brands targeted at diverse niche markets ranging from fashion apparel to fine wines and spirits.
In October 2014, the children's Boutique Secret of Bertelsmann was added. El Armario was acquired in January 2015, Nonabox in March 2015 and wine e-tailer Todovino in October 2015. Todovino was merged with eShop’s wine and gastronomy brand Expirit. ChicPlace was an ambitious purchase in 2016, listing over 35,000 products from 800 retailers across Southern Europe.
Hence the creation of a mix bag of mini-Amazons: Mamuky, Mimub, Molet, Matby, El Armario, Expirit, Todovino, Enolobox, Nonabox, Boutique Secret and ChicPlace. This was the biggest gamble for all stakeholders to pour so much capital into the eShop platform for the expansion of its brands across Europe.
eShop’s first brand platform Mimub was created in 2012. As sales rocketed from €300,000 that year to €4 million in 2013 and €12 million in 2014, eShop was able to secure the much-needed €7.7 million funding that hinged on a forecast breakeven sales of €25–€30 million for 2015. Operational costs were supposedly optimized through the integration of services like warehousing, finance, IT and marketing.
And so, it was a shock to the industry when losses ballooned to €8 million, mainly from El Armario and Todovino in 2015. Sales began to plummet when disgruntled customers started complaining on social media about non-deliveries and being ripped off. Suppliers soon stopped fulfilling customer orders due to unpaid bills. Serious cashflow problems resulted in early 2016 and a rescue operation was put in place.
Although the second planned fundraising round for €1.7 million did not materialize, the directors still went ahead with the purchase of ChicPlace for an undisclosed sum. Antai Venture Builder and co-founders of ChicPlace, Miguel Vicente and Gerard Olivé, came on board to help rescue eShop in May 2016.
High marketing and operational costs were incurred to grow the brands simultaneously in several different markets. Creditors were owed more than €2 million. According to financial data for 2015, assets of the eShop group amounted to over €31 million. The directors tried to restructure the group to bring in the much needed cash by selling the brand assets to avoid bankruptcy. In March 2017, Mimub and Mamuky were sold to Bilua.
The million-dollar question?
Retail analysts will have a heyday scrutinizing the accounts of eShop and its brand portfolio. Many will agree that the key to success in the fast-moving e-commerce world is high growth at high speed. But a fine balancing of rapid expansion and prudent financial management is needed to win the race to capture profitable market shares in highly competitive and price-sensitive retail sectors.
The co-founders and directors knew that capturing new customers at home and abroad can be expensive. They also knew that an e-commerce business can only be profitable if it has millions of buyers, or if it targets a lucrative niche with high margins.
But during the “fast and furious” growth since 2014, eShop’s directors lost control of business costs and brand management focus. Rapid growth at the expense of cashflow and operational efficiency is unsustainable in the long-term when investors do not get the returns they expect.
An investor in both Nonabox and eShop Ventures, the founding partner of Kibo Ventures Aquilino Peña said that the main cause of Nonabox’s failure was the adoption of an international expansion model that vacuumed up many resources.
Another Nonabox investor, Jose Cabiedes of Cabiedes & Partners, said that it was a clear case of premature scaling. Niche subscription-based models are complicated and the international expansion of a local business incurs high costs with very little economies of scale, he added.
Perhaps the rapid rise and fall of Nonabox and eShop is a timely reminder to all entrepreneurs and investors that the conventional principles of building sustainable brick-and-mortar businesses are just as vital in the tech world – cash is king.
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