The numbers behind Luxola’s acquisition, and what they mean

Luxola brings in another $3 million to current funding round, pushing expansion in Southeast Asia

Easily the top news recently in Singapore’s startup scene is the acquisition of Luxola, the cosmetics ecommerce startup that launched four years ago. It was snapped up by Sephora and parent company Moët Hennessy Louis Vuitton (LVMH), a massive luxury goods company.

So, what has LVMH bought? How well was Luxola really doing? And what does this mean for the startup ecosystem in Singapore?

First, let’s remember how Luxola started.

As Luxola founder and CEO Alexis Horowitz-Burdick recounted in a video interview, Luxola had a rough start back in 2011. There were months when the startup estore would bring in only S$10,000 (US$7,400). Persistence, a fighting spirit, and prior experience (Luxola is the third startup Horowitz-Burdick has been a part of, and the second one she founded) drove her and the company forward. After receiving seed investment from venture capital firm Wavemaker Pacific, Luxola went on to raise a total of over US$15 million in funding.

Official data that Tech in Asia obtained shows that Luxola’s revenue for the 2013 to 2014 financial period was in the area of S$2.6 million (US$2 million). Certainly not bad, but not exactly cause for celebration either, since that’s less than what online fashion retailer Zalora made in any of its local operations.

The startup held about S$11.8 million (US$8.75 million) in current assets, which could be a mixture of cash reserves and unsold inventory. Finally, the same data places Luxola’s valuation at the time of its series C investment in May 2014 at US$28 million or more.

Horowitz-Burdick and the Luxola team declined to comment for this story.

How big of a win?

Sources speaking to Singapore daily The Straits Times said that this is an eight-figure deal, and “one of the largest startup acquisition deals in the last three years.” The newspaper places the deal “on a similar scale to the 2013 reported US$60 million purchase of Asian Food Channel by American television network Scripps Interactive Network.”

If so, this is in line with Luxola’s series C valuation and speculation we’ve heard that the final valuation could be as high as S$50 million (US$37 million). While leaving out the actual acquisition sum can be interpreted as a sign that the valuation was underwhelming – perhaps Luxola failed to meet performance targets – a source who declined to be named says the deal was definitely a win for the company.

Nonetheless, the numbers would still compare favorably with other high profile startup acquisitions in Singapore. Live chat for businesses startup Zopim was acquired by Silicon Valley’s customer support company Zendesk last year, in a deal believed to be worth around US$30 million. Digital advertiser Gushcloud was recently purchased by mobile advertising network Yello Mobile for a sum exceeding US$10 million – by how much remains uncertain.

Video streaming startup Viki’s acquisition by Rakuten in 2013 remains a mammoth deal in comparison, reportedly worth US$200 million. While Luxola isn’t exactly breaking new valuation grounds, it’s nonetheless another multi-million dollar exit from a Singapore startup.

For early investors in the company, this is likely good news. To illustrate, Wavemaker was the first to invest in Luxola, with a seed investment of US$590,000. According to official information, Wavemaker held 354,819 shares in the company at the end of financial year 2014. Based on the investment amount, the shares’ purchase price at the time of the seed funding round, in 2012, would have been about US$1.66 per share. A US$37 million valuation would now put the price of those shares at US$7.34 per share. That means, if the reported figures stand, Wavemaker was rewarded for its early trust in Luxola with an almost 5-fold return on its investment.

There are still many unknowns. For example, we don’t know how much of the deal amount is in cash or shares, or whether Horowitz-Burdick has previously cashed out or given away her shares to employees or co-founders. Official data confirms that Horowitz-Burdick herself held a tiny stake in Luxola as of 2014 – valued at around S$161,000 (US$119,000). The CEO declined to comment on that as well.

The French connection

So, returning to the earlier question, what did Sephora and LVMH get for their money? One answer could be that the cosmetics and retail giants get a ready-made ecommerce solution in the region, with an established user base. Luxola is currently active in 12 countries across Southeast Asia, Australia, and India, and a powerful brand name in its space. Sephora has global brand awareness and a strong presence in Asia, but it’s mostly through brick-and-mortar shops, or partnerships with estores like Zalora.

Sephora is part of LVMH’s “Selective Retail” category of businesses, which also include Parisian department store Le Bon Marché, luxury travel retailer DFS, and Starboard Cruise Services. In 2014, the category brought €9.5 billion (US$10.55 billion) in revenue, with a profit of €882 million (US$980 million). Asia was the source of 31 percent of this revenue in 2014 (excluding Japan).

LVMH has been behind several high-profile acquisitions in Singapore in the past five years, including restaurant chain Crystal Jade, nightclub Ku De Ta, and shoe retailer Charles & Keith.

The variety of businesses points towards a more accessible product lineup, as both Charles & Keith and Luxola aren’t considered luxury brands. This could suggest an attempt by LVMH to increase its market share and expand its customer base by appealing to consumers in the region’s rising middle class.

Luxola will most likely not be the last startup to benefit from the ecommerce boom in Southeast Asia and beyond. In the case of markets like Singapore, the infrastructure (internet penetration, online payments, logistics, and more) is there, but around the region, those same sectors present great opportunities for new ideas. Mobile commerce is rising (PDF), and it’s rising fast. Even brick-and-mortar retail has space for innovation, with the introduction of smart technologies such as iBeacons. If Luxola’s acquisition is as big a win as it seems, it just gave a good boost to the region’s ecommerce players.

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