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Sunday, July 12, 2015

Analysis on Luxola Deal

This is a nice deal all round. For investors, management and hopefully for sephora over time. I first met Alexis at Blk 71 at a closed door event for a European politician. Not enough time to know her well but it was a positive one. Very no nonsense and strong lady. At that time luxola probably just raised the 2+m gree round and so it was all very much early days business wise.

Fast forward 2 ish years and she has sold her business to sephora. Though Acra has neither reflected the transfer of shares or any new invested capital, perhaps that will come in time.. No reason to doubt her, so I am sure all forthcoming. Though I would urge readers to not count our chickens until they are hatched. For me, that means no press releases until shares transfered and money in the bank.

 Summary of key points.

1) luxola started in 2011 by Alexis who is American and another cofounder Todd. Idea is to do niche ecommerce in women's cosmetics and skincare. Learned from another ecommerce investment that nicheing is the way to higher gross margins which is super important for Ecommerce firms. General sites live wth 5-15% gross profit margins of General Merchandise Value (GMV). Niche sites should be higher. Also, GMV x gross margins gives us in a sense ,the real revenue of the startup. And you need that real revenue run rate to hit 50/60k a month to raise series A. So if your gross margin is 10%, you need at least 500k sales per mth. If a niche site with 40% gross, then you just need 150k ish GMV.

2) Luxola in year end 31st March 2014 did 2.654m sgd with 2.253m cogs. That means gross margin is 17.8%. That is actually rather low for a niche site. Could be because have not scaled up yet so no bulk discount on purchases and other economies of scale. Anyway I am sure most of that revenue is in 1q2014 which explains confidence by transcosmo, Priolo, global brain and others to invest the series B round of 10-12m usd.

3) before that luxola also had gree investing 2.456m sgd in April 2013 and wavemaker investing 600k usd or so in 2011/12. These 2 funds are good winners esp the latter.

4) sephora probably sees the team and audience as something they want in asean. I am not a cosmetic or fmcg expert. So will leave it as that. Perhaps someone else can fill in who knows more. Ecommerce multiples are now 3-4 times GMV. Used to be 2 to 2.5 just 1 year ago. But I guess niche maybe worth a bit more. Let's use 3 GMV and assume from 2.6m to 15m in GMV which is pretty fast for 2 years work. That means sale price is 45m sgd + 7.5m remainder cash or about 52.5m total sale price which is pretty close to what press seems to say. That's about sgd 10.8 per share.

5) so who gets what? And is it a good deal?

a) Alexis and Todd are main founders owning about 550k shares and 230k or about 6m sgd and 2.5m for 4-5 years work. Kudos to them! It also appears that Company gave up 3m worth of options to staff including Todd.  This is very generous and seems to have come from Alexis shares.

b) wavemaker is a big winner. They paid about 1.66 per share. Make about 6 times their money in 3/4 years! So 600k usd to 3.6m usd or so. And if this was an nrf deal, even better irr!

c) gree also win. About 4 times their 2.45m investment in 2 years!

d) the latest round Priolo guys not so good. About 18% gain since they paid usd 7 per share. But they do have liquidity pref.

Note : the pref shares esp from various  round have 6-8% liquidity preference. So probably ordinary guys like mgmt and wavemaker get a bit less than what I counted. Also the sale price of 52.5m is guesstimate. It could he 40m or 65m.

One thing that strikes me writing as a Singaporean is that there is minimal Singaporean shareholders in this deal. While having luxola based here does create jobs , build talent pool and help our buzz, it is a bit like viki. Minimal capital gain benefit to any sporean vc or mgmt. This is not a bad thing by itself so long as we also have deals like zopim, Streetsine, JobsCentral (all majority sporean owners) at the same time.

The other thing is that if indeed Alexis was the one who gave 300k shares to staff as option pool, she is a very generous lady! She has also been paying herself and Todd together about 105k in fy2014. That is a very fair salary for even 1 pax who owns 10-15% of company. Wrote on this before.

Last of all, I find the multiple of 3 on gmv quite high. Just 2-3 years ago it was 1-2 times. And I actually think it should stabilize at 1-2 times max depending on gross margins and ultimately profits. But that is just conservative me. Those of you running ecommerce firms should make hay while the sun shines!

As usual best effort based on Acra reports. Take what I write with pinch of salt and feel free to comment. I do this to help promote transparency and help share on how I think about deals. So if you find it helpful, please share your knowledge openly too and give a helping hand to fellow entrepreneurs.

4 comments:

  1. Great work. Truly speaking I never seen a blog like that. Absolutely superb work. Good luck. Thanks for such an informative post.
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  2. Hi thanks for the insightful sharing. Wondering, how do you get their revenue numbers and their salaries? Thanks!

    ReplyDelete
    Replies
    1. Thanks for kind comments. Almost all of my private company analysis information is via online acra reports filed with authorities. So audited accounts hence accurate but usually 1+ year old min. Listed company is from exchange filed reports.

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