Namshi raises $13m, its third round in 8 months. Is it burning cash or stockpiling?
Namshi, the Dubai-based fashion retail company launched by
Germany’s Rocket Internet, has announced another $13 million in
investment from U.S. private equity firm Summit Partners.
The funding will be used to “upgrade operations in the Gulf and
manage our own warehousing,” says co-founder Hosam
Arab. Essentially, the Zappos clone will be moving out of
Aramex's facilities, stocking in a new warehouse outside of Dubai’s
Free Zone. “Yes, we’ll be paying taxes, but our rationale is that
we want to better serve our customers,” says Arab.
After launching its own Last Mile Delivery in the UAE, and now
handling its own warehousing, Namshi now hopes to gain a
competitive edge by offering Same and Next Day delivery; thus far
in the UAE, only electronics stores like JadoPado guarantee 24 hour
turnaround.
The company is also reducing return rates (which can reach up to
25% in Saudi Arabia) by offering customers the option of returning
items on the spot if they aren’t satisfied. That won’t set them
apart, however; it’s a trick they might have learned from flash
sales site MarkaVIP, which starting
offering the same service in September.
What the company won’t be spending more on is marketing, says
Arab. Its plans to
warehouse in Saudi are also on hold.
But new warehousing in Dubai alone doesn’t cost $13 million; the
question remains as to whether is Namshi is burning cash quickly
enough to have evaporated its
previous investment of $20 million in 8 months, or whether
Rocket is simply pouring cash into its e-commerce properties to
suit the terms of its
overarching multi-million dollar deal with Summit Partners.
This round of investment comes only four months after Summit
Partners’ previous investment in Namshi in January (which
TechCrunch pegs at a miniscule $1 million), after PPR’s
December
injection of $13 million into Bigfoot I, the Rocket holding
company that controls Namshi, and the
$20 million that J.P. Morgan and Blakeney Management invested
last September; that’s $34 million in investment to date (plus
perks from PPR) since the company’s launch in late 2011.
In contrast, flash sales site MarkaVIP has taken on about
$18 million in investment since its launch in 2010, while Souq,
which launched in 2005, secured
funding from Nasper’s valued at $40 million last
October.
Summit Partners has also showered $26
million on Jumia,
the Amazon clone that operates in Nigeria, Morocco, and Egypt, in
March, and similar amounts in Latin America’s Linio
and Southeast Asia’s
Lazada, investments all potentially tied to its
new $520
million credit fund for fast-growing middle-market
companies.
Perhaps Summit is hoping that this round can take these
cash-intensive businesses to profitability, but it won't be a
cakewalk in this difficult early market, where Rocket has already
closed Mizado (abruptly enough that frustrated employees
emailed Wamda about the difficulties they faced losing their jobs
while still operating under a tourist visa).
Rumors at the time cited overspending on expensive hires, but the
decision may have been a result of Rocket’s strategic refocusing on
Africa.
Arab doesn’t see Namshi facing anything similar, nor does he see
similar frustrations facing his team; although his co-founders
Muhammed Mekki and Louis Lebbos left this winter to co-found
education portal Astrolabs, “we're all very happy with where this
has gone,” he says. New co-founders Faraz Khalid and Hisham Zarka,
who comes directly from Rocket’s Middle East office, form a “strong
team at the helm.”
When it comes to the notorious slave-driver ethics of the Samwer
brother, Rocket's co-founders, “our employees are very shielded
from Rocket pressures,” he says. “Those pressures are something
that we deal with as founders of the business, and over the past
few months, we've felt very little of that.”
Maybe Namshi has escaped Samwer wrath because it's prudently toning down marketing and keeping some of the spoon-fed cash for a rainy day. Or maybe it’s burning through cash like kindling and Rocket will source new deals when these run out. How long will this round last?