Clipperton finance Sectorial Newsletter: e-commerce

Clipperton Finance – Sectorial Newsletter n°1: e-commerce1

It will not come as a surprise to anyone interested in new ventures: e-commerce is a hot sector. Clipperton Finance has provided transaction services to European High Tech and Media companies since its inception in 2003, and over the past 18 months we have observed a wave of investor interest in European e-commerce players that shows little sign of abating.

A number of fundamental trends explain this interest:— An established segment growing at around 10% per year, e-commerce is supported by macro-trends such as increased broadband penetration and consumer “online education” and willingness to buy online;— A fundamental understanding of required core competencies and growth and profit drivers needed to construct strong businesses have been attained;— Proven value realization through liquidity events, including IPOs (e.g. Yoox) and M&A (e.g. Zappos, net-a-porter, and, more recently, PriceMinister) is occurring;— A continuous flow of innovative business models and practices (from touchless e-commerce to mass customization to retargeting) is powering individual company growth;

— Potential up-coming leaders of pure e-commerce are emerging in segments where online penetration has been historically low, for example automotive.

Many European e-commerce businesses have been successful at building national leaders. However, these European companies, which have captured strong market positions at a national level, are facing a new major challenge: will they be able to lead the dance at the regional level and build the scale required to achieve venture-level returns for investors?

We believe that the sector offers ongoing opportunities for investors who can identify the exceptional management teams that are able to create value through innovative business practices and flawless execution, especially at an international level.

The purpose of this paper is to briefly focus on the trends that make this market so attractive, to understand the remaining challenges, and to evaluate future developments. This paper concentrates on the market for physical goods, excluding sub-segments such as travel, event ticketing and digital media – adjacent markets with similar value drivers but distinct characteristics.

1. european e-commerce : a very attractive market 1.1 An establised channel with ongoing, above-market growthOnline sales of physical goods in Western Europe are forecast to continue to grow at 11% per year to 2013, albeit with significant variation at the national (see section 2) and vertical levels. For instance, while automotive is expected to outpace market growth, spend on traditional media (CDs, DVDs etc.) will held back by the increase in ‘all you can eat’ subscription based models and electronic delivery.

Clipperton FinanceSectorial Newsletter n° 1: e-commerce


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Western Europe Online Sales 2005-2013

Value in the e-commerce ecosystem

This buoyant environment has a strong impact on activity in the value chain that supports the e-tailers themselves, which encompasses areas such as self-service storefronts, customer acquisition, recommendation engines, and customer engagement. These sub-sectors benefit both from the overall growth of e-commerce consumer spend and from the need of e-tailers to innovate – trying to stay ahead of their competitors in environments where most of the time the “winner-takes-all”.

Online Sales €bn

Despite an overall decrease in consumer spending during the recent recession, both pure e-tailers, and the B2B players that support them, have been able to deliver significantly above market growth. This has made the sector very attractive to venture investors.Underlying improvements in broadband access and payments infrastructure have increased consumer acceptance across the continent, accelerated substitution of the high street, and opened new verticals to online competition. Furthermore, improved user experience and customer service coupled with innovative business models such as buyers’ clubs, ‘mass customization’ and ‘touchless’ retail (see section 3) have enabled pure-play e-tailers to offer an increasingly differentiated proposition, which traditional ‘bricks and mortar’ players cannot match.

1.2. Encouraging signs in the exit environment validate the e-commerce equity storyRecent developments point to a healthy exit environment via both IPO and M&A transactions. Yoox had a successful IPO in 2009 and several others are in the pipeline including British online grocer Ocado and (potentially) e-tailer The Hut, all despite the IPO market continuing to be largely shut. At the same time, Amazon acquired Zappos, Richemont acquired Net-a-Porter and, most recently, Japanese e-commerce group Rakuten acquired PriceMinister for €200m.Successful international expansion is critical across the European venture/growth space and nowhere is this more true than for e-tailers. The Zappos and Yoox deals (priced at 1.4x trailing revenue) demonstrate that returns in e-tailing are driven by scale and market leadership rather than by multiple expansion – exit proceeds are likely to be broadly proportional to top line growth. Although bought with a strategic premium, Net-a-Porter remains in the same range (2.9x last revenue, probably around 2+x trailing revenue). Investors must therefore back business models and management teams that have the ability to successfully enter multiple countries across the continent and beyond.

Platform

> Storefronts> Payments incl. Mobile

Merchandising

> Touchless> Mass Customisation> Long tail

Marketing> CPA/CPL-Affiliates> Recommendations > Retargeting> Multi-channel

Post-sale

> Shipping and delivery> Feedback> Customer Service

→ → →

0

10

20

30

40

50

60

70

80

90

100

2005 2006 2007 2008 2009 2010 2011 2012 2013

Media

Household

12%

05-09CAGR

09-13

Automotive

Apparel

Electronics

Total

24%

19%

24%

21%

7%

21% 10%

12%

9%

11%

11%


Furthermore, establishing a market-leading position across Europe is a key priority in order to attract acquisition interest from US buyers, who are naturally less confident in expanding across Europe’s diverse markets and will pay a premium to acquire a business with pan-European critical mass. We are seeing the start of a consolidation phase in some segments of the market where competition is currently fragmented along national lines (e.g. Brands4Friends’ deal with SecretSales in the buyers’ club category) as a response to these exit dynamics.The good news is that many e-commerce models can be highly capital efficient – particularly those that can optimize customer acquisition costs, have high customer lifetime value, and have limited stock requirements. With just-in-time ordering and aggressive cash-flow management, such e-tailers can minimize the amount of capital they consume for expansion, thereby minimizing dilution for management and early investors. Some of the most interesting e-commerce opportunities for investors have been largely bootstrapped, achieving significant scale before taking on institutional capital.

1.3. Ecommerce has become a refuge for investors in difficult timesFollowing the short-term fall-out of the financial crisis in mid-2008, there has been a significant increase in investment activity in the European e-commerce space.

European e-Tailers Transaction Volume and Value Q4 2005 – Q1 2010 (TTM*)

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3

3,5

4

4,5

5

5,5

6

6,5

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2005 2006 2007 2008 2009 2010

0

5

10

15

20

25

30

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9

2005 2006 2007 2008 2009 2010

Disclosed Deal Value (€ millions) Number of Transactions

*TTM: Trailing Twelve Months rolling average

Zappos Key Facts ! Founded 1999! 1,300 employees at acquisition! Estimated Net Revenue: $660m for 12 months through June 2009 (resp. $635m in 2008)! Estimated EBITDA: $45 million (2008: $40m)! Raised $62.8 million in 6 rounds from Millennium Technology Ventures, Venture Frogs, LLC, Draper Richards, L.P., and Sequoia Capital (ca. 10% capital, 5.2x return on its $48m commitment)

! Acquired by Amazon for $930 million (22 July 2009): • 1.4x trailing revenue • 20.7x trailing EBITDA! Paid $890.1 million in stock (10 million shares of Amazon common stock at $89.01) + $40 million in cash and Amazon restricted stock.

Yoox key facts ! Founded 2000! 320 employees as of 31 March 2010! 2009 Revenue: €132 million, 47 % growth

! 2009 EBITDA: €12.65 million, 105 % growth! Raised €15.5 million in 3 rounds from Benchmark/Balderton, 360 Capital Partners and Kiwi, who jointly owned around 75% of the firm at the time of IPO

! IPO of €104.6 million with first day of trading on 03 Dec 2009. 24,330,703 shares (50.1 % of capital) sold for €4.30 per share, giving the company a €208.8 million valuation. Shares presently trade at €5.50! 1.5x revenue, 22.3x EBITDA as of 12/31/2009

In the immediate aftermath of the financial crisis, investor risk aversion increased dramatically, leading to a significant overall drop in investment volumes (particularly at the early stage). In such a situation, it is not surprising to see investors return to the basics – as previously observed, e-commerce is now an established distribution channel with proven business practices, and a tangible revenue-generating business from day one.


2. distinct national environments in western europecomplicate foreign expansion

As we have seen with the first encouraging exits, the newly VC-backed companies, often founded when only active in their native country, will strongly benefit from international expansion at the European level. Management teams building a business in Europe thus require one particular skill-set beyond that of their US counterparts: the understanding of, and ability to, adapt to the diverse markets of the continent.

E-commerce is already a huge market and it is growing fast. Nevertheless, there are key differences in size, penetration, and growth across national lines.

Ecommerce penetration in major European countries

Of the big three European markets (UK, France and Germany), the UK is the most developed in terms of overall market size and share of total retail value. This presents a double-edged sword to new entrants. As the largest and most advanced market in Europe, a strong UK presence will be highly valued on exit. On the other hand, relative market maturity and the success of high street brands in capturing e-commerce market share means that it is likely to deliver the lowest overall growth for pure-play e-tailers... with the highest acquisition costs! Furthermore, the UK market presents particular challenges in terms of currency fluctuations against the Euro and has distinct supply chain characteristics compared to the continent.

Although currently the smallest of the three, the French market appears to be the most attractive in terms of sales growth and relatively low market penetration. France has a historically successful mail-order industry, so consumers are used to distance purchasing. The high projected growth of this market is partly a function of consumers switching from catalogue-based mail order to e-commerce. France is the home of some of the top apparel e-tailers in Europe – Vente Privee is the undisputed king of the buying club category while strong players such as Spartoo* (footwear) are emerging as potential European leaders.

In Germany, the home of Aldi, Lidl and Saturn where ‘Geiz ist Geil’, consumers are generally observed to be highly cost conscious. However, German companies have taken the lead in mass-customization plays where pricing tends to be relatively premium. Leipzig based Spreadshirt is the European leader in apparel, and there are several promising players in emerging categories such as Fabidoo (3D printing) and Chocri (food). A particular feature of the German e-commerce market is the relatively low use of credit/debit cards online. This has led to the emergence of several leading alternative payment platforms including T-Pay and Paysafecard. Just as France, Germany has a long history of catalogue retail – unlike France, however, German consumers are observed to have a much higher propensity to return goods, which has a material impact on the performance of e-tailers in the country.

55%

50% NetherlandsGermany

Sweden

UK

France

SpainItaly

Buble area:€1bn

Rest of W Europe

45%

40%

35%

30%6%

% increase in online sales value CAGR 2009-2012

Penetration: Online shoppers as a % of all adluts 2009

8% 10% 12% 14% 16% 18% Sour

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Bubble area corresponds to 2009 online sales in € billions

Penetration: Online shoppers as a % of all adluts 2009


Sectors such as apparel are less conducive to e-commerce and have taken longer to develop (in the above figure, the countries with higher e-commerce penetration overall have a higher proportion of apparel spend). Consumers obviously like to see the look, feel and fit of goods before buying. After the first attempts during the early 2000s (without broadband, no satisfying customer experience, remember boo.com), a significant trend to buy highly discounted items through buyers’ clubs started in 2004/2005. Once reassured, consumers started to switch to in-season sites. Likewise, the automotive sector tends to see adoption rates increase behind the overall curve as cars are a ‘big ticket’ item and spare parts are items where trust and services are fundamental. As consumer acceptance of e-commerce develops overall, such ‘late developing’ sectors are starting to achieve mainstream adoption and create opportunities for companies and investors – we identify a few interesting players in the automotive and apparel sectors in section 3.4.

UK

6

Total %

8

9

13

29

9%

12%

14%

20%

45%

20,0 19,5 11,0 15,530%% 30% 17% 23%

Germany France Other W Europe

Media

Household

Automotive

Apparel

Electronics

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Of the other European countries, Spain is noteworthy as it is expected to grow at 25% this year (from €1.7bn total in 2009) and has low penetration (only 17% of adults shop online). As a result, it is likely to offer ongoing growth opportunities despite the country’s particular vulnerability to the sovereign debt crisis and subsequent fiscal tightening. The Scandinavian economies on the other hand are small and have high penetration, so they offer relatively limited overall market growth perspectives.

E-commerce adoption rates vary widely across both country and sector. In the early years of e-commerce, the physical media segment (books, CDs, DVDs) was the first one to break out and achieve mainstream acceptance. Such goods lend themselves well to online purchasing – small, low ticket price, a consistent quality, and little need to be seen/touched before purchase. Over time, however, media spend has transitioned to non-physical goods (iTunes, OD2) and advertising/subscription models (Spotify, Netflix), which are not covered in this report.

Another ‘early-adopter’ category is electronics (computing, consumer electronics and appliances), where price sensitive and technology savvy consumers take advantage of e-tailers who can undercut the high street. We can clearly see that territories with lower e-commerce penetration overall (see bubble chart above) have higher shares of their spending in electronics, reflecting the higher proportion of early-adopter consumers.

2009 Online Sales by Category and Country (€ billions)


The touchless model can also be applied to the ‘microenterprise’ crafts market (Etsy in the US and Notonthehighstreet in the UK) and to enable furniture to be purchased direct from the factory (e.g. MyFab from France – currently expanding to the US following €5m investment from BV Capital in 2009).The Hut (UK) deploys this model in reverse by offering a whitelabel storefront for music, video and related categories, allowing other retail brands to extend their offering and earn incremental margin. The Hut strips out its consumer acquisition costs and is able to build scale quickly, working towards an IPO with recent backing from Balderton.

3.2. Mass CustomizationAnother key trend that is enabled by modern JIT production and online transactions is ‘Mass Customization’. Here, single unit production runs mean that the consumer can design, customize, or even build their product from scratch.

Mainstream producers are increasingly applying the mass customization concept as a differentiator by offering online design tools with a wide range of options – recent examples include the Citroen DS3 and NikeID.

Business description: Founded in 1999, Euroffice is a British company that helps small businesses lower their supply purchasing costs by aggregating similar orders and leveraging the resulting economies of scale. Now stocking over 27,000 items, the company prides itself on the breadth of its choice of products. To help customers navigate through this massive catalog,

Euroffice has developed a unique automated product recommendation system that helps users find products based on their past purchase history. This system also allows the company to accurately segment its customers, offering the right marketing incentive to the right person at the right time. The founder, George Karibian, continues to lead the company.

Ownership : PrivateFunding : Net Partners (Diana Saraceni) - £2m, May 2001Key Management / Founders : George Karibian (Founder and CEO)Headquarters : London, UKActive in : UKEcommerce segment : Office suppliesWebsite : www.euroffice.co.uk

3. what will the next e-tailers look like?This section identifies some significant innovations that can lead to interesting business opportunities for e-tailers and investors – touchless e-commerce, mass-customization, mobile commerce and payments. We also identify a number of other pure e-tailers that have built substantial businesses and offer ongoing growth potential.

3.1. Touchless e-commerceA key advantage of the online retail channel is the ability to offer products that are not held in stock – shipping directly from manufacturer to consumer on a ‘just in time’ (‘JIT’) basis. This allows an e-tailer to aggregate products from multiple suppliers, thereby increasing product range and depth without assuming stock overhead/risk. Businesses whose models exhibit this characteristic are broadly categorized as ‘touchless e-commerce’.

‘Pure’ touchless players are effectively platform plays – they offer a storefront, payment infrastructure, customer acquisition, and a trusted brand to the third party who provides product and fulfillment. eBay and Amazon are the undisputed kings of accessing the ‘long tail’ of vendors using the touchless e-commerce model. They both have “marketplace” offerings designed to allow third party vendors to sell new goods via their respective platforms.

Like Amazon, other players often pursue touchless retail via a hybrid model. Traditional retailers such as Tesco use the touchless model to offer a vast range of non-core products with its Tesco Direct brand. Euroffice has built a market leading position in the UK by stocking its core lines and using a touchless model to increase its product range and depth.


The segments immediately adjacent to print were the first to break out in the US with firms such as Shutterfly, Cafe Press and Zazzle proving the model together with the European-founded but now truly global Vistaprint. In Europe, Spreadshirt concentrates on the apparel market tapping into consumers, ‘shop partners’, and corporate demand. UK based Moo is taking on the US with its tiny and versatile photo cards. Photobox (currently run by the ex-Kelkoo team) is a close analogue to Shutterfly and has achieved notable scale.

Categories where customization is common in the off-line world are natural targets for the next wave of online players: StyleShake (UK) and TailorStore (Sweden) take apparel mass-customization to the next level by offering bespoke tailored clothing, while Glassesdirect (UK) is disrupting the multi-billion pound UK market for prescription glasses. It is unclear if these categories can become mass-market online propositions either from the point of view of consumer acceptance (the measurements and design process are relatively complex) or financially (since complex measurements leads to errors, which lead to returns that cannot be re-sold).

High ticket-value items such as jewelry lend themselves well to customization – Adamence in France sells gems and jewelry, just as its role model BlueNile does in the US, while Swiss-based 121Time sells customized watches. Nevertheless, purchasers are likely to value the ‘touch-and-feel’ aspect of the buying process and this will slow adoption.

Food is another category that lends itself to customization and naturally recurring sales. For instance, Graze (UK) sells natural snack boxes that are selected and packed individually. In Germany, MyMuesli and Chocri do the same for breakfast cereal and chocolate respectively.

3D printing technology has revolutionized the industrial prototyping process and is now being applied to consumer goods. Fabidoo (Germany) offers small gift figurines created using a simplified design process. Shapeways (Netherlands) offers more flexibility – allowing consumers to design objects from scratch using their own 3D-modeling tools (such as Blender and Sketchup) and resell them in Spreadshirt/Threadless like-stores.

Business description Founded by then graduate student Lukasz Gadowski in Leipzig in 2002, Spreadshirt has grown into an international player providing an innovative

C2C approach with customized apparel designed by fashion designers of the Spreadshirt community. Spreadshirt competes

directly in the US with analogues Café Press and Zazzle. Accel helped lay the foundation for growth (bringing on current CEO Jana Eggers to professionalize the organization) and Kennet joined in 2009 in a growth round focused on international sales and marketing.

Ownership : PrivateFunding : Accel (Harry Nelis), € undisclosed, July 2006 + follow

on Kennet (Max Bleyleben), €10m, February 2009Key Management / Founders : Jana Eggers (CEO), Lukasz Gadowski (Founder), Mattias SpiessHeadquarters : Leipzig, GermanyActive in : Europe (13 Countries, USA, CanadaEcommerce segment : Mass Customization, ApparelWebsite: www.spreadshirt.com

Business description Created in 2003 and launched in its current incarnation in 2007, Tailorstore has the modest aim to “dress the world in customized clothing”. The company sells bespoke tailored shirts, polo shirts and accessories online, with the customer supplying the measurements. The company is headquartered

in Helsingborg, Sweden with manufacturing carried out in Sri Lanka for its combination of low cost and high skills base. The company had a profit of $370k on turnover of $4m for year ending June 2009.

Ownership: PrivateFunding: No VC funding to date.

Key Management/Founders: Jan Höjman (Owner and Managing Director)Headquarters: Helsingborg, SwedenActive in: WorldwideEcommerce segment: Mass Customization, ApparelWebsite: www.tailorstore.com


3.3. Mobile commerce and paymentsGlobally, Asia leads in acceptance of direct mobile commerce and the US is ahead of the curve, however it is likely to be some time before the direct mobile commerce experience for most product categories is good enough for mainstream acceptance in Europe.

One key aspect of mobile payment systems is the relatively high charges that are imposed by mobile operators. This market feature has arguably held back adoption for lower margin physical goods. On the other hand, the relatively low charges in the UK (through the Payforit joint venture between the mobile networks) do not seem to have increased adoption significantly beyond that of the rest of Europe.

Indicative Operator Fees as % of Transaction Value (Bango Payment Network)

The bulk of commerce conducted over mobile is therefore for non-physical goods – in particular ringtones and games. M-ticketing adoption (Digitick*, Mobiqa, etc.) is increasing rapidly and it is logical to assume that an increase in transactions conducted entirely over mobile will follow. In terms of physical goods (the focus of this report), the Japanese experience suggests that apparel and physical media (40% and 33% penetration respectively, according to Infinita) work well over mobile, but it is not clear which, if any, categories will break out in the near future.

At the present, we therefore view mobile as a complementary device for multi-channel physical goods retailers. The mobile phone’s presence in the consumer’s pocket, together with technology such as QA codes (3G Vision, Quickmark), allows forward looking retailers to bridge the gap between the physical and online worlds. This opens interesting applications for promotion and vouchers, price comparison, rich product information and feedback. The segment recently saw further interest when eBay acquired RedLaser – a leading developer of premium barcode reading software for mobile phones – and immediately re-released the RedLaser applications for free.

Establishing convenient payment systems is critical to kick-starting the mobile commerce channel. This has led to particular interest in mobile payment assets from investors. European examples include Zong (Switzerland, funded by Advent, Matrix and Newbury – spun out of Echovox), Mi-pay (UK, Octopus) and Bango (UK, AIM listed billing system aggregator with good traction in the US).

Business description: Founded in the UK in 2007 and launched at the start of 2009, Graze is revolutionizing snacks and lunches by delivering a personalized box of mixed, healthy, and nutritionally balanced snacks via regular first class post. While it is yet to diversify outside of its home market, the young company, led by Graham Bosher, was already shipping over 80,000 of its boxes daily in its sixth month of operations

in June 2009 and will shortly launch a corporate scheme. The concept has proved to be remarkably recession resistant and its high retention rates are leading to high recurring revenue. The company’s board is chaired by William Reeve, co-founder of LOVEFILM – a company with a similar financial profile. Mr Reeve brings to Graze his experience of LOVEFILM’s capital efficient scaling phase.

Ownership: PrivateFunding: DFJ Esprit (William Reeve) and Octopus (Alliott Cole) – A-round, £2 million in February 2009, joining seed investors Arts Alliance Advisors and The Accelerator Group (Robin Klein)Key Management / Founders: Graham Bosher (Founder & CEO)Headquarters: London, UKActive in: UKEcommerce segment: Food delivery

10%

8%

20%

41%

40%

43%

Paypal

Credit/Debit Cards

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3.4. ‘Early mainstream’ segmentsOverall, mainstream consumers in Western Europe are accepting e-commerce into their daily lives and will increasingly consider making online purchases for items that are less naturally suited to the online channel. Some categories were traditionally tough for pure-play e-tailers, but as market acceptance and best-practice spread, early players have an opportunity to become international leaders. As noted in section 2, the automotive and apparel segments currently appear attractive in the relatively well-developed Western European markets.

Automotive New- and used-car retailers Aramis* (France) and Autoquake (UK) are expanding rapidly and have recently attracted significant VC funding. Aramis* initially focused on new cars but now has a used-cars offering, leveraging pan-European sourcing to compete on price. Such retailers can present their stock to consumers regardless of their location, offer a greater choice than traditional local ‘mono-brand’ dealerships, and have a limited number of physical showrooms to allow customers to ‘touch and feel’ before purchase. Autoquake focuses on used cars sourced from corporate fleets and leasing companies, claiming to undercut traditional competitors by 10%. Cars undergo extensive checks and have high quality photographs to highlight ‘wear and tear’ and minimise return rates. Aramis* raised an undisclosed first institutional round from Serena Capital and 360 Capital Partners to continue its growth.

Online tire retailers such as Blackcircles (UK) and PopGom (FR) aim to disrupt a huge segment of the automotive sector, following the success of Germany’s Xetra listed Delticom (€311m turnover in 2009 and present in 35 countries). Both firms seek to beat traditional retailers such as ATS and Kwikfit on price (through aggressive sourcing and lean cost base) and service levels (with a network of independent local garages that fit the tires). Blackcircles has recently launched a car-servicing offering, effectively transforming itself into a lead generation play for independent garages.

ApparelSpurred by the phenomenal growth of Vente Privee, buyers’ clubs (including BuyVIP, Privalia, Koodos and Brands4Friends) have seen a wave of investor interest and have performed strongly. Most recently, France based Showroomprive.com, number two in the European market, received a staggering €37m from Accel Partners to boost its already impressive growth (€75m revenue in 2009, €140m forecasted for 2010). As previously noted, we saw the first moves towards consolidating this relatively fragmented market when Brands4Friends acquired a stake in SecretSales.

Although the apparel sector in the UK is mostly dominated by high street players, e-tailer ASOS (‘As Seen On Screen’) is notable in terms of size and growth – turning over £96.5m in the 6 months to 30 Sep 2009, 25% of which was international sales. Unusually, the business listed on the London small-cap market AIM relatively early in its lifecycle and has grown as a public company. ASOS copies the Arcadia Group’s (Topshop etc.) business model – own-label goods bringing catwalk styles to the consumer – using the Internet to get to the market faster than its offline competitors.

Business description: Since launching in 2001, Aramis Auto has been France’s premier internet-enabled car distributor. Aramis’ founders, Guillaume Paoli and Nicolas Chartier set out to disrupt the archaic ‘monobrand’ dealership industry and offer their clients maximum savings and choice. A low-overhead business model, combined with a pure-online marketing play, pan-European

sourcing, ‘flash sales’, inventory consistency, and national distribution centers, allow the company to offer high service levels at market leading prices. In 2009, Aramis sold 10,000 cars and achieved gross revenues of €120m.

Ownership: PrivateFunding: Serena Capital (Marc Fournier) and 360 Capital

Partners (Emanuele Levi) – undisclosed joint financing round in September 2009Key Management/Founders: Nicolas Chartier and Guillaume Paoli (co-founders)Headquarters: Gentilly, FranceActive in: FranceEcommerce segment: AutomobileWebsite: www.aramisauto.comDisclosure: Aramis is a Clipperton Client


French competitor Monshowroom*, on the other hand, is a ‘one stop shop’ for mid-high end branded goods – accessible to its target 16-44 year old female consumer base but not widely available on the high street.

Net-a-Porter.com has proved that premium designer apparel can be sold to ‘high net worth’ consumers online. Richemont acquired a majority stake of the company in June 2010 (having acquired a minority stake earlier in the year), valuing it at £350m – a remarkable 2.9x last year revenues of £120m, presumably reflecting the relatively high margins on premium goods and potential synergies arising from acquiring a leading online distribution channel. Astley Clarke (UK, TAG and Index) targets similar consumers with a premium jewelry offering – the company reported a like-for-like sales increase of 63% in January 2010.

The success of Zappos (see section 1.2) in the US has attracted interest in the European footwear market. Spartoo* is the strongest player in the market with local language presence in four major European countries and a €12m B-round in January 2010. Cloggs.co.uk is a notable bootstrapped UK based competitor. Amazon is seeking to replicate Zappos’ success in Europe by launching Javari in the UK with pan-European ambitions.

Another interesting segment is the upcoming Children and Baby wear. Players such as ASOS and Monshowroom* have launched a dedicated offer, and pure players, such as bibaloo are also popping up on the market. We believe that baby gear will be the next big thing in the industry, with players such as Oclio (which received a significant €4m funding from Crédit Agricole Private Equity (CAPE)) and Bambino World.

Business description: MonShowroom was created in 2006 by Severine Gregoire and Chloe Ramade. The site targets young women aged 16-44, and is a one-stop shop for fashionable but affordable clothing brands, which previously were often only available in boutiques and small chains. The company has adopted several of the retailing trends identified in this newsletter: basket building is encouraged throughout the site, a referral program and social media

integration is in place to encourage ‘viral’ customer acquisition, and a fully transactional iPhone ‘wardrobe builder’ app was launched in November 2009. This cutting edge approach has been paying off – the company expects to achieve sales of €10m in 2010, up from just €2m in 2008.

Ownership: PrivateFunding: Alven Capital (Nicolas Célier) and Crédit Agricole Private Equity (Michel de Lempdes) –

Joint financing round of €4.3m in February 2009Key Management/Founders: Severine Gregoire (co-founder), Chloe Ramade (co-founder)Headquarters: Carnoux-en-Provence, FranceActive in: France, UK, WorldwideEcommerce segment: Apparel retail, FashionWebsite: www.monshowroom.comDisclosure: MonShowroom is a Clipperton Client

Business description: Spartoo is all about shoes, shoes, shoes and is in pole-position to replicate the success of Zappos in Europe. Conceived at a New Year’s Eve party and founded in France in 2006, Spartoo now sells over 7,000 models of shoes from over 150 brands to customers in four key European markets. With the help of its latest €12m financing round, the company is growing rapidly – doubling its sales between 2008

and 2009 to €30m, and looking to replicate its dominance in France in new European markets.

Ownership: PrivateFunding: €16.8m raised in two rounds – Highland Capital Partners (Fergal Mullen) and EndeavourVision (Bernard Vogel) leading the €12m B-round of January 2010 and joining CM-CIC (Stéphane Pesqué) and A Plus Finance (Jean-Michel Pimont)

Key Management / Founders: Boris Saragaglia (co-founder and CEO), Paul Lorne (co-founder and VP Customer Service), Jeremie Touchard (co-founder and VP Web Marketing)Headquarters: Echirolles, FranceActive in: France, Italy, Germany, Spain, UKEcommerce segment: ShoesWebsite: www.spartoo.comDisclosure: Spartoo is a Clipperton Client


4. strong activity generates b2b opportunitiesacross the entire value chain

We have highlighted three innovations in the e-commerce space around which high quality European early stage and growth companies are creating value. The e-commerce ecosystem is broad and extends to B2B players who provide the technology and platforms to power some of the innovations deployed by online and offline retailers in their quest for competitive advantage. America’s large unified market is a natural advantage for B2B platform plays and successful European companies with global ambitions frequently flip their headquarters (Criteo, Zendesk, VirtuOz) to Silicon Valley in response.

4.1. Customer dialogue

Effective use of technology can help retailers create a two way dialogue with their customers and provide a feedback loop to improve service and minimize churn. This is particularly important for products with a high customer lifetime value – such as mobile phone subscriptions, or repeat custom – such as supermarkets. Fizzback’s platform collects ‘point of experience’ feedback and analyses its ‘sentiment’. This prioritizes feedback, allows for immediate response, and gives real time, granular metrics to identify both localized and systematic problems.

Business description: Criteo was founded in Paris in 2005 with the vision of creating better, more-relevant, and more engaging banner advertisements. It launched commercially in 2008, shortly after raising a B round with Index. As the clear leader in European ad retargeting, one of the hottest segments in online advertising, the company relocated its headquarters to Silicon Valley in late 2009, subsequently raising a round with Bessemer to replicate its success in the US and beyond. Criteo serves dynamic, personalized

banner advertisements based on products that browsers have previously viewed. This helps to bring dropped customers back to the advertiser’s site, thereby offering dramatically increased conversion rates. Criteo optimizes its financial performance through arbitrage – purchasing ad-inventory at rock-bottom CPM rates and re-selling it at CPC rates comparable to paid search. The company serves over 4 billion banners each month for over 400 top-tier e-tail partners.Ownership: Private

Funding: AGF PE (Benoist Grossmann), ELAIA Partners (Marie Ekeland) - €3m, April 2006 + follow on Index Ventures (Dom Vidal) - €7m, January 2008Bessemer Ventures (Byron Deeter) - $7m, May 2010Key Management/Founders: Jean-Baptiste Rudelle (CEO & Co-Founder), Romain Niccoli (CTO & Co-Founder), Headquarters: Palo Alto, CaliforniaActive in: WorldwideEcommerce segment: Advertising/RetargetingWebsite: www.criteo.com

Business description: Fizzback helps companies to listen and respond to their customers’ comments in real time. Using a SaaS delivery model, Fizzback captures consumer feedback from multiple channels (e.g. SMS, phone, and email) and at the point of experience. Incoming feedback is analyzed for sentiment using a proprietary AI engine and presented via a web-based dashboard.

Operators can then drill down into the data to analyze customer experience KPIs at (for example) the individual store level, responding to negative feedback on a real time basis to improve customer retention. The product was launched in 2007 and raised a £1.6m B round in October 2009 to support a push into the US and continental Europe.

Ownership: PrivateFunding: The Accelerator Group (Robin Klein) – undisclosed

Angel roundAdvent Venture Partners (Mike Chalfen) and Nauta Capital (Jordi Viñas) – Joint financing round of £1.6m, October 2009Key Management / Founders: Rob Keve (CEO), Jonathan McKay (Chairman)Headquarters: London, UKActive in: UK, Anglophone countriesEcommerce segment: Customer feedbackWebsite: www.fizzback.com


Founded in Denmark and now relocated to the US, Zendesk develops a SaaS helpdesk system that is more vertical in nature but still directly applicable to retailers. The product is sufficiently powerful to be used by large retailers such as John Lewis, while the subscription model puts the power of an enterprise grade customer service system within reach of far smaller e-tail businesses. VirtuOz (France founded, HQ flipped to San Fransisco) and Qgo (Netherlands) also serve the helpdesk market using natural language processing to enable customer self-service.

4.2. Product recommendation, aggregation and basket building

Some touchless e-tailers are, in effect, much closer to B2B affiliate portals than they are to real retailers – they aggregate products from a large range of retailers, use a recommendation engine to offer an enhanced browsing experience and drive purchases, and charge retailers on a CPA basis. In the US, this market is relatively mature and entering a consolidation phase. Stylefeeder, which uses past behavior to predict user’s style preferences, and was purchased by Time Inc in January 2010 for an amount “well the eight figures” after having only raised $3.5 million. In the same space, ThisNext, which emphasizes social features to connect people with similar tastes, acquired close competitor Stylehive in November 2009.

In Europe, Mydeco provides the closest analogy and focuses on furniture, offering a ‘basket building’ tool in the shape of a 3D room designer. MixMatchMe is an earlier stage apparel basket-building platform that has developed an ‘outfit creator’. It sells both to retailers and direct to consumers with a multi-brand destination site similar to its US competitors. Avail Intelligence (Sweden) has a pure B2B model, providing an easily integrated behavioral marketing system that allows retailers to show their customers a dynamic home page with recommendations based on past behavior. This delivers conversion uplift of 5%-30%, charged on a performance basis.

Rapid geographical expansion will be crucial to build the scale necessary to compete with US counterparts. With VC backing and no direct US equivalents, MyDeco is about to launch its US operations. MixMatchMe’s apparel focus means that it faces a crowded market in the US – making it more likely to concentrate on controlled expansion across Europe once it proves itself in the UK. As a B2B play, Avail is working hard to build its presence in the US market and may be a good candidate for a HQ flip.

4.3. Marketing

The digital marketing and advertising segment innovates constantly and has generated significant VC returns over the last decade. Criteo, for example, is at the forefront of retargeting – a relatively new online marketing methodology where banner ads are dynamically generated and shown to consumers who have viewed particular goods at a retailer. By reminding a consumer of the items they have recently viewed, the system induces them to return to the product page and complete the purchase.

Business description: Founded in 2000, Avail Intelligence is a behavioral recommendation, personalization, and merchandising plug-in solution for automatically promoting the most relevant products to each visitor, thereby maximizing conversion rates and average order values. The result is an immediate and measurable improvement in conversion rates (by 10-20%) and in average order values (by 10-15%). Together, these

result in revenues-per-visitor that are higher by up to 30%. Since Scope invested in 2006, Avail has entered several new markets, further developed its business model, and launched new SaaS versions of its solutions. It now serves nearly 100 retailers in 25 countries and 18 languages.

Ownership: PrivateFunding: Scope (Andreas Ossmark, Daniel Hallberg) €3.5m, October 2006Key Management / Founders: Pontus Kristiansson (CEO), Stefan Jacobsson (Chairman of the Board)Headquarters: Malmo, SwedenActive in: Western Europe Countries, USAEcommerce segment: Behavioral MerchandizingWebsite: www.avail.net


The economic crisis has accelerated the shift of retailers’ online marketing spend towards CPA (cost per acquisition) – a model where retailers sacrifice some margin to shift risk onto the advertising network, thereby gaining a virtually risk free incremental margin. This development also appeals to consumer media publishers who regard e-commerce as a vital component of their slowly crystallizing new revenue model. Skimlinks (UK) is taking advantage of the trend towards CPA and disrupting the established affiliate marketing leaders with a platform that vastly simplifies placing affiliate links in editorial content and aggregates relationships from other networks.

The marketing segment also contains some sizeable service led businesses, including Bigmouthmedia, Latitude, and Steak. Fredhopper is a notable bootstrapped Dutch platform/services business that offers predictive targeting (similar to the product recommendation engines described above), onsite search and targeted advertising to e-tailers.

An interesting, if unexpected, development in the UK, is the transition of voucher codes sites (vouchercodes.co.uk, myvouchercodes.co.uk) from discussion-board style aggregators into an essential part of the marketing mix. Cash-back schemes (cashback.co.uk, Quidco) on the other hand, do not appear to have gained as much traction. Comparison shopping sites (Kelkoo, Reevoo) have added voucher code functionality in an effort to squeeze stand-alone vendors as opposed to consolidating to gain access to their high traffic destination pages.


disclaimerThis document has been produced by Clipperton Finance (“Clipperton”) and is communicated to you solely for your information and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments. This newsletter expresses only Clipperton’s views on the European high tech and media landscape and does not express in any case any judgment of the future trends on the capital market evolutions.

No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, the fairness, accuracy or completeness of the information contained herein and, accordingly, none of Clipperton’s officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document.

disclosureThe following companies mentioned in this report are, or have had a commercial relationship with Clipperton: Spartoo, Aramis, Monshowroom

clipperton finance Based in Paris and London, Clipperton Finance is a European corporate finance boutique dedicated to the High Tech and Media industries. Clipperton is focused on start-up and high-growth companies in the Internet, Software, Telecom, Components, CleanTech, MedTech and Media spaces, advising them in their financial transactions: fundraising/capital increases and Mergers & Acquisitions. Over the past years the company and its team have successfully structured numerous high level international transactions in the European High Tech sector.

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ContactsThomas Neveux, [email protected]

Stéphane Valorge, [email protected]

Mike Callow, Senior [email protected]

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