Deal in Focus: Mangrove et al. in $40m round for Lesara

Private-equity- and venture-backed Lesara has raised a $40m funding round. The lead investor was not disclosed but Lesara said that all previous investors took part. According to unquote" data, this list includes Mangrove Capital Partners, Paua Ventures, Cherry Ventures, Simile Venture Partners, Partech Ventures, Northzone and Vorwerk Direct Selling Ventures.

Lesara will use the fresh capital to drive European expansion, focusing on France, Sweden, Denmark, Spain, Belgium and the UK, while it continues to expand its market share in Germany, Italy and the Netherlands.

The company reports a 175% revenue increase for 2016 and has 1.5 million active customers. David Waroquier, a partner at Mangrove, explains the company is more than an e-commerce platform: "It is using these digital tools to drive its growth, of course; but it is fundamentally a new-generation fashion retailer with a strong brand, a unique machine learning technology that predicts fashion trends and consumer demand, and a fully integrated infrastructure and distribution network."

Speaking to unquote" on condition of anonymity, a consultant in operational due diligence for private equity deals in this sector says online retail is a big growth market with niche opportunities: "Online retail is dominated by big players with very wide product ranges but specialists can also find a niche where there are growth opportunities and it's profitable. Lots of online shops start with an idea for a product that can fill this niche."

These opportunities are not limited by type of product; many different kinds of retailers have found successful business models in e-commerce. The adviser cites food delivery as one such sector: "Companies that bring food to your house in the evening have found a niche and in a similar way fashion e-commerce has also found its niche." One example of this is VC-backed Hellofresh, a Berlin-based company that delivers weekly meal kits. The company raised €75m from Insight Ventures and Phenom Ventures in its most recent funding round in September 2015.

On trend
Yet the fashion space appears particularly attractive to private equity investors. In May 2016, London-based Farfetch raised a total of $110m in its sixth round of funding, led by Eurazeo. Similarly, Equistone announced the acquisition of Berlin-based DefShop in September and Apax Partners acquired UK-based Matchesfashion. The latter deal's value was reported to be £800m, around 42x its 2017 EBITDA. A reason for high valuations in the space, as the adviser explains, is that online retailers expand rapidly: "When these businesses are started, they are often run out of a garage and they grow fast so they quickly expand to a warehouse."

Private equity firms look at this rapid growth and see opportunities to enhance efficiency. Says the adviser: "When you view it as an investor you ask, is this warehouse the right size? Do I have the right processes in place? Do I have the right IT systems in place? How much efficiency can be gained by changing the structure?"

Waroquier argues that having these systems in place and well developed will make the company valuable when the time comes to make an exit: "An IPO is possible, as is a trade sale to one of the bigger online retailers. However, it is also possible that a traditional retailer that is behind in the digital transition could acquire the business."

Lesara was founded in 2014 and is based in Berlin where it employs 230 people. It also has operations in Guangzhou where its 70 staff are responsible for direct collaboration with factories and manufacturers.

The company has now raised a total of more than €50m over four funding rounds. In January 2014, Simile, Paua and Cherry invested €1m in a series-A round. This was significantly extended by Mangrove in October, which invested from Mangrove IV fund, as well as Partech and US-based Funderguild. Following the extension, the total size of the series-A amounted to €7m.

All previous backers then reinvested in a €15m series-B in September 2015, with new investors Northzone and Vorwerk leading the round.

People
Mangrove Capital Partners – David Waroquier (partner).
Lesara – Roman Kirsch (CEO).

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• Topics
• Expansion
• DACH
• Consumer
• Germany
• Venture
• Deal in focus