Hipster apparel merchant Karmaloop has been one of Boston’s rare consumer e-commerce hits: the company, founded in a Jamaica Plain basement in 2000, booked $165 million in sales last year, according to CEO Greg Selkoe. And the company’s headquarters have progressively taken over the inside of what was once the landmark Shreve Crump & Low jewelry store in Back Bay, where it employs almost 200 people.
But while Karmaloop CEO Greg Selkoe has been talking about an IPO for a while — and just this week told BostInno that he’s in the process of raising $30 million — he sent an e-mail to some of the company’s vendors this week that indicates the company is dealing with a cash crunch as it tries to nail down this new funding round.It’s one of the more, um, colorful communications between a company’s CEO and its vendors that you’ll ever read. Two different Karmaloop vendors who sell their wares on the site’s Kazbah marketplace sent the e-mail my way. It went out on Wednesday. Selkoe’s response is below.
Dear Kazbah Brands,I wanted to reach out to all of you because I know you guys are hurting bad for payments and let you know that we will be getting you current very soon.
…Karmaloop had an amazing year in 2013 our best year ever and 2014 is going to be even better! You say well if that is the case why the f*** can’t you pay us quicker you mutha f****s?
Our current cash levels are tight and we are managing sh** very strategically. Karmaloop undertook expansion plans in 2013. We launched several new ecommerce businesses (MissKL, BrickHarbor, Boylston, Monark Box) in retrospect we may have been a little too aggressive. Over the last several years the funding markets rewarded ecommerce companies that had been growing and expanding rapidly with a focus on top line revenue providing high multiples for valuation. Because of this there was lot of relatively cheap money in market so dilution of ownership was small and people us included were putting a lot of money into new initiatives..but due to some high profile f**** ups of several ecommerce sites (Fab.com, Beachmint.com thank you for that) the market has done 180 degree turn away from valuing expansion to an EBITDA focus. Karmaloop had pivoted aggressively and shut all of our extra business to get spending in line with the renewed focus on EBITDA.
The good news is Karmaloop has been profitable for many years we had [been] putting that money into investing in newness in 2013 and we have already made cuts that have brought us back to cash flow positive on a go forward basis plus we have been raising a new round of capital to support continued growth of our core which we are focusing ONLY on this year (Karmaloop, Kazbah, PLNDR). We have three different offers on the table for new financing for core business, but we are taking our time and making sure we get the best value and best investment partners. We cannot rush this it, we need to make sure it is the right fit. I put my whole life into Karmaloop blood, sweat and tear…and for some reason all the money I make seems to just go back in….. cause well I am like you I like to build sh**! For those of you starting out you will see that the ups and downs of cash flow is a big part business.
…You have my word everyone will get paid and we will f****n kill it for you guys this year!
I appreciate everyone’s understanding…
Selkoe told me this afternoon that the payment issues have only been felt by the vendors who sell through the Kazbah marketplace, and that it’s “absolutely false that we’re having financial issues.” The Kazbah marketplace is “about five percent of our business, where we work with very small up-and-coming brands,” and those small vendors tend to get paid last. “Basically, we changed our payment terms from one month to two months, and that’s what I should’ve said,” Selkoe says. Shortly after sending out the e-mail on Wednesday, “We got a small infusion of capital.”
Selkoe says he is in the process of putting together what he hopes will be a $30 million funding round, and that some of that money is already committed. Though he had predicted that revenues might be higher, at $165 million he still says that 2013 was the company’s best year ever.
Several new sites that the company launched, including Monark Box, Boylston Trading, and the female-focused Miss KL, “didn’t pick up speed as much as we wanted to,” and so Karmaloop shut them down and laid off the employees involved. (An earlier plan to launch a cable TV channel with producer Pharrell Williams also didn’t fly.) Selkoe says there are now about 190 Karmaloop employees in Boston, and adds that a European outpost in Copenhagen has been growing.
Instead of expanding into new brands, Selkoe says he’s now focused on three core brands: the main Karmaloop side, a flash sale site called Plndr, and the Kazbah marketplace.
(All of the Kazbah vendors will be paid in full by March, he adds.)
Selkoe acknowledges that things have shifted in the world of e-commerce. “We’ve seen a lot of sites like Ideeli, BeachMint, and Fab that spent a lot of money and lost a lot of money,” he says. That got investors interested once again in profitability. “We invested in a couple new businesses, and as soon as we pull the plug then there’s no more burn. The core business will continue to crank.”
Selkoe has been one of the more creative — not to mention straight-talking — entrepreneurs on the Boston scene in recent years. Will be interesting to see how things play out at Karmaloop…
(Here’s audio from an interview I conducted with Selkoe at a MITX event last year. At that point, Selkoe said that employment in Boston was 250.)