Disclosure: Alan Colmenares is an advisor to Magnolia, but does not currently hold shares in the company.
With a regional ecommerce market growing at greater than 25% per year and a home-grown behemoth called MercadoLibre (which has a $6B market cap), there’s no shortage of new ecommerce startups popping up in Latin America chasing this expanding market opportunity.
What is unusual is coming across an early-stage, bootstrapped startup with an experienced team of founders executing well on an ambitious vision. Such is the case with Magnolia, a year-old company pushing $100k in monthly revenues and boasting a founding team that ha previously ramped sales from $0 to $11M in a year at Groupon Peru.
Brazil, which represents about 60% of the region’s ecommerce sales, is most definitely getting most of the attention, but the rest of the region hosts a number of startups targeting a more fragmented market. Although these countries are united by a common language – Spanish – each country is home to some unique tastes and customers. This makes Magnolia’s rapid expansion in these countries (e.g., Peru, Colombia and Chile) all the more impressive especially considering they haven’t raised money from outside investors, yet.
The region already boasts a number of ecommerce startups that were either able to secure funding from the outset or after a quick launch period. These include, among others, Rocket Internet’s Amazon clone, Linio (approximately $50M in funding) and Zappos clone, Dafiti ($230M in funding including $70M from Ontario’s Teachers Pension Fund) as well as Diapers.com clone, Baby.com.br with over $20M in funding. These Latin American startups (and investors) are chasing what some are calling (perhaps, with a tad of hyperbole) a “digital-age goldmine” of untapped opportunities in a rapidly growing market.
Magnolia’s co-founders and co-CEOs, Alvaro de la Fuente and Arturo Meza are based in Peru (the third co-founder, Andres Londono, is based in Colombia). They believe their success has a lot to do with strong execution and an even stronger value proposition: getting premium brand products (either unavailable locally or grossly overpriced) to eager fashionistas. Combined with strong Latin American economic growth as well as favorable digital trends (e.g., growing mobile adoption, better access to broadband, etc.), the founders are banking on reaching more fashionistas with growing disposable income.
As mentioned in a recent VentureBeat article, Linio, Rocket Internet’s horizontal (aka, Amazon clone) ecommerce play, is betting on just these trends. For instance, as mentioned in said article, Ericsson recently published a report stating that Latin America consumers are “ripe for mobile commerce” and Comscore affirms that Latin American’s Internet population grew faster than any other global region in the past year.
Magnolia has been able to cost effectively reach their target audience through a variety of channels, but social media has been particularly effective. As recent studies have shown, users in developing nations are avid users of social media (sometimes more so than in the US). Thanks to the aspirational nature of the products sold on the site (e.g., Michael Kors, Coach), social media lends itself particularly well not only to drive traffic, but also to position Magnolia as a premium retail fashion brand.
The company has ten full-time employees in addition to the founding team and they continue to make investments in back-end infrastructure. They are currently raising a $300k seed round to invest in business operations and customer acquisition activities. A larger Series A round is scheduled for July 2014.
When asked about their current success co-CEO Alvaro de la Fuente said, “from our experience at Groupon, we knew there was a large untapped opportunity in Latin America, particularly for higher-end fashion brands.” Alvaro mentioned that, for now, their focus is on executing and providing an excellent customer experience not only to grow revenues, but also to position the Magnolia fashion retail brand.
With respect to the future, as their brand is more established in the minds of the region’s fashionistas, Alvaro and Arturo are open to testing. This may even include the company’s own branded products, which is one ecommerce strategy with some notable proponents. Other options include providing offline experiences through showrooming or other means. Co-CEO Arturo Meza stated that, “we firmly believe that, if we continue to focus on an unparalleled customer experience for our target customers, a number of growth options will open up and help us build a solid, large company in the region.”
Alan Colmenares is General Partner at Socialatom Ventures, an accelerator in Colombia, South America and Director of the Founder Institute in the same country. He also writes about his experiences in his blog, TropicalGringo.com.
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