Fab – FORE!

Marc and Ben founded Andreessen Horowitz with some very explicit beliefs.  We would invest in Information Technology companies, and not in things medical, green or clean.  We would have a preference for companies with deep technical roots and innovations.  We would have one office, in Silicon Valley, and would not seek to invest in companies being incubated in places like China or India where we lacked expertise.  We would be stage-agnostic, seeking to invest in the best companies regardless of what round they were seeking.  And we would have a preference, all else equal, for companies being built in Silicon Valley.

The Silicon Valley focus is due to a couple of factors.  First, we are all believers in the power of the Silicon Valley ecosystem to incubate and grow new technology companies.  Just this week, the New York Times referred to it as “the world’s epicenter of innovation”.  We know of few places in the world that sport Silicon Valley’s combination of financial capital, intellectual capital, entrepreneurial and engineering talent and experience, and support infrastructure.  Many of the Internet’s most highly valued companies are from the Valley—Google, eBay, Yahoo, LinkedIn, Facebook and Zynga.  And the second factor is that local companies best leverage our most precious asset as investors, which is time.

Indeed, the majority of our investments have been based in Silicon Valley.  There have been exceptions—we are or have been involved in a handful of non-Valley companies such as Skype (Luxembourg), foursquare (New York) and Groupon (Chicago)—but the majority of our investments are in the Valley and all four of my Andreessen Horowitz investments (LikeALittle, Airbnb, Lookout and Pinterest) are within a 45-minute drive of each other.

With this as background, I’ve been encountering an unexpected finding as I’ve been looking at potential e-commerce investments in the U.S. (and note that I’m considering “marketplace” businesses like eBay and Airbnb as separate from e-commerce).  It strikes me that the majority of innovative new e-commerce businesses are being started outside of Silicon Valley.  There are some innovative local ones like One Kings Lane, Tiny Prints and Plum District, but the list outside of the Valley dwarfs the local list: Groupon and Trunk Club are in Chicago, ShoeDazzle and HauteLook in L.A., LivingSocial in Washington D.C., zulily in Seattle, J. Hilburn in Dallas and Hayneedle in Omaha.  And the epicenter for e-commerce innovation right now has to be New York City with companies like Birchbox, Bonobos, Diapers.com (in nearby New Jersey), Gilt Groupe, H.BLOOM, ideeli, Lot18, OpenSky, Rent the Runway and Warby Parker.  Just five months on the job and I’m already on a first-name basis with United Airlines and Virgin America crews on the SFO-JFK route.

What has driven this blizzard in e-commerce innovation in the Big Apple?  I must admit I’m not sure.  It could be because much of the nation’s fashion business is centered there, or because of Manhattan’s world-class retail infrastructure.  But it’s extremely impressive.

Given this preamble, it’s probably not a big surprise that we’re investing in an e-commerce company in New York and that company is Fab.com, a site that features daily design inspirations and sales at up to 70% off retail.  The Fab.com site was launched in June of this year and has taken off like a rocket.

We were attracted to Fab for a number of reasons:

1. The team is great.  The founder and CEO of Fab is Jason Goldberg, a talented serial entrepreneur who also founded socialmedian and Jobster.  His co-founder is Bradford Shellhammer, a fantastic merchant with a fabulous eye for design.  Their engineering function is led by Nishith and Deepa Shah, both talented technologists.

2. Their execution has been extremely impressive.  They’ve nailed the product: both the website itself and the merchandise assortment.  The site and mobile apps are beautiful and very easy to use, and Bradford’s merchandise team constantly finds beautiful, inspiring goods to offer to consumers, typically at attractive values.  They’ve leveraged social extremely effectively, sourcing over half of their users, and they leverage data as effectively as any company I’ve ever worked with—startup or not.

3. They are playing in a big market.  The umbrella of “design” allows them to offer merchandise across a wide variety of categories (such as home products, jewelry, artwork, apparel, workplace items, toys and outdoor products) and price points.  The Fab merchants scour the world to source product from a long tail of great designers who often struggle to gain national distribution, and designers love that Fab.com sales are profitable for them.

4. Their early traction is simply phenomenal.  Jason is extremely transparent with Fab.com’s business metrics and recently revealed that the company is averaging $200,000 in sales a day.  Not bad for a company that made their first sale in June.

5. They have a very big vision for where they want to take the business.

I’ve rapidly become a big Fab.com consumer, as the UPS man and my spouse can attest.  It’s as close to addicting as anything I’ve ever experienced in e-commerce.

Fab.com is an example of a new wave of highly innovative e-commerce companies; indeed, I believe there has been more e-commerce innovation in the past few years than at any time since the beginning of the Internet, and at Andreessen Horowitz, we need to update our assumption of Valley centricity, at least when it comes to e-commerce.  Fab.com joins my partner John O’Farrell’s investment in L.A.-based ShoeDazzle as examples in our portfolio of this trend.

Jason signs off on much of his correspondence with the phrase “smile, you’re designed to”.  We’re smiling from ear-to-ear at the prospect of partnering with Jason, Bradford and the Fab team to build a big, important e-commerce company.

 

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