Linio, the Rocket Internet-incubated e-commerce portal that has aspirations to be the Amazon of Latin America, is today announcing a round of funding that brings on board the startup's first large, strategic local investor. Latin Idea, a Mexico based private-equity fund, is leading a $50 million round in the company, with participation from existing investors and Rocket regulars JP Morgan Asset Management, Investment AB Kinnevik, the Tengelmann Group, Summit Partners, and Rocket Internet itself.
This comes on the back of what appears to be two previous rounds in Linio: $26.5 million from Summit Partners in February 2013, and what is believed to be between $20 million and $26.5 million from Tengelmann in the same month. If these figures are accurate, that means over $100 million already for the company this year, after Linio was founded in 2012.
We've asked Rocket Internet and the company declines to disclose the total amount raised by Linio to date, or any figures on sales, run rate or other financials. (It does offer some fairly wooly ones, though: 20 million site hits; 2 million Facebook fans; 35,000 followers on Twitter.)
So what does Linio plan to do with the funding? A spokesperson confirms that it will not be to expand into new markets beyond existing operations in Mexico, Colombia, Peru and Venezuela - not yet, at least. This is somewhat surprising. In the e-commerce marketplace business model espoused by the likes of Amazon and eBay, economies of scale are of the utmost importance because margins on products are too low to make a business viable as a small operation.
For Linio, there will be scaling, but in its existing operations rather than into new countries. “We are delighted to have secured this new round of funding, which will allow us to continue our growth trajectory in existing markets, scale our operations, and continue to improve our service,” said Andreas Mjelde, CEO of Linio, in a statement. “Due to their great experience in supporting businesses in this region, Latin Idea is the perfect partner for us on our path to become the leader in all markets in which we operate. It is our aim to use this funding to increase our market share and market leadership in Mexico, Colombia, Peru and Venezuela.”
Latin America, and these countries specifically, are already home to a number of other Rocket Internet operations, and likely more in the future. What the company does is centralize logistics and other back-office functions for various businesses in order to cut down on operational costs.
To date, Linio has built its business offering products to consumers across some seven categories - technology, home, fashion, health and beauty, kids, books and magazines, and sports, with some 150,000 items in inventory.
Linio follows a larger trajectory at Rocket Internet that has seen the Berlin-based incubator move deeper into building out e-commerce businesses emerging markets in the last few years, after originally focusing on building businesses in Europe.
The earlier European strategy has seen Rocket sell operations to the likes of Groupon (CityDeal for around $100 million) and eBay (Alando for $54 million). The logic for the buyers is that buying Rocket Internet-created lookalikes is a quick way to enter new markets with an already-established presence.
With Europe much more saturated these days, the focus has shifted to markets where these U.S.-based giants have yet to make significant moves, and this is where services like Linio come in, with a large amount to capital to build out the operation. But as I pointed out in July, when Rocket Internet announced a new $500 million fund, the company may find it harder to find buyers to pay up for the kinds of valuations that such highly capitalized portfolio companies are getting. So it may be that what Rocket Internet is doing is building out businesses for the long run instead. This seems to be what is on the minds of Rocket Internet's founders, too:
“We have been building companies for the last 15 years in the internet space. We have long-term investors like JP Morgan and Summit and Kinnevik,” Rocket Internet co-founder Oliver Samwer told me in an interview at the time. “What they all share are two things: They are very long term oriented, and they are very international. They have a global perspective. The one benefit that we have is that we feel and think very much the same way they do. We start from scratch, and we have created sustainable companies, long-term investments where it is up to us to choose the route to liquidity.
“Our biggest mistake we made in the first 10 years was to not build the biggest business, but to sell businesses too early," he continued. "We sold a company for only $54 million [Alando] that until recently [see: Europe recession, and the ineluctable rise of PayPal] was eBay's best acquisition ever. It was our mistake to exit too early… And back then we needed to create a track record to be able to do what we can do today. We have grown up.”
The key will be to see whether Linio becomes a strong independent player in this new-look Rocket Internet - or at the least be a strong contender for a Rocket Internet liquidity event of old.