April 14, 2011 6:02 pm

Russian online group secures $55m injection

A group of well-known European and US venture-capital funds has made a $55m investment in KupiVIP, a Russian online shopping club, in what they claim is the largest such transaction in the region’s e-commerce market.

KupiVIP, which was launched in October 2008 by Oskar Hartmann, now 28, to offer “flash sales” of heavily discounted high-street and luxury fashion and home goods, from brands such as Dolce & Gabbana. It also operates online retail sites on behalf of offline stores such as Tsum, a high-end retailer, and Quiksilver, a surfing brand.

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It now has more than 7m members of its shopping clubs, which operate in a similar way to Vente Privee, the European private sales site. BuyVIP, a similar service (and also the English translation of KupiVIP) was acquired by Amazon for an estimated $100m last year. Groupon, the US group buying site, recently began offering deals through Odnoklassniki, a Russian social network owned by Mail.ru.

New investors Balderton Capital, Bessemer Venture Partners and Russia Partners joined existing backers Accel Partners and Mangrove Capital Partners in the $55m investment, which is likely to value KupiVIP in the hundreds of millions of dollars in its third major round of funding.

“The Russian internet market is probably the most interesting in Europe,” said Dharmash Mistry, partner at Balderton. “In developing markets such as Russia, Turkey and Brazil people are making their first, early steps to transacting online so you need a good consumer proposition. Flash sales are a really interesting entry point – brands people know at 50 per cent discounts.”

He added that KupiVIP “to me looks like the Amazon-type winner in Russia”.

KupiVIP, which has run-rate annual revenues of around $100m and is cash flow breakeven, now employs 750 people and plans to use the funds build out capacity and into new products in what remains a fragmented and early-stage Russian internet market.

Although internet penetration is growing fast in Russia, it lacks the e-commerce infrastructure to which many western European and American internet shoppers have become accustomed.

KupiVIP had to create its own distribution infrastructure, including a delivery firm, call centre and fulfilment warehouse.

Mr Hartmann, a German-born entrepreneur who lives in Russia, said that making that investment in the middle of the global financial crisis was a vital decision in generating growth.

“We could be five times the size if there was a real developed infrastructure” in Russia, he said.

Although Mr Hartmann had prepared carefully by studying how similar business models worked in other countries, KupiVIP’s launch was well-timed, coming as many retailers were left saddled with unsold stock when the downturn hit.

“I was 25 years old, I built an internet model and nobody understood how it worked, but I could get meetings with the top five offline retailers in Russia and the top brands,” he said, due to their desperation to shift goods. “It became less difficult to explain what the business model was supposed to do.”

The number of suppliers using the site quickly rose from 200 in 2009 to 1200 last year. It has also capitalised on growing middle-class demand at a time when many other Russian retailers were focused on the super-rich.

Mr Hartmann cites estimates that the Russian e-commerce market could be worth $80bn by 2018, based on rising internet usage and greater confidence in online transactions, many of which are still paid for offline today.

“If we make the right decisions, it’s going to be an $80bn market,” Mr Hartmann said. “If we make the wrong decisions, it will still be a $40bn market. Even if we make a big mistake it will still grow four to five times because the opportunity is so big.”

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