Product discovery is an essential problem faced by nearly every consumer product business today. In this unprecedented period of consumer choice, direct-to-consumer brands struggle to spread the word about their products. 

Paid advertisements on social media are the dominant method of modern marketing. However, they don’t work for many business owners: 62% say that Facebook ads are ineffective for their business. These issues are compounded by recent Facebook scandals that have caused many major advertisers to boycott the platform.

Focusing on Amazon sales is also not a viable solution for many companies. It’s extremely difficult to game the Amazon algorithm to promote new products. This has become particularly true due to recent algorithm changes that promote Amazon’s own products instead of sellers’.

Sellers and consumers alike could benefit from a centralized marketplace for interesting product discovery. Consumers are hungry for a more bespoke shopping experience that prioritizes efficient resource spending. 

Fancy.com is an e-commerce marketplace that serves as a third-party provider of “interesting” products in areas like home decor and gadgets. Consumers can browse Fancy.com to find the latest curiosities, some endorsed by leading celebrities and influencers. Sellers can list products on Fancy’s backend e-commerce platform to gain access to over 900,000 monthly active users. 

Fancy was founded in 2010 as a first-party merchant that stocked inventory of other manufacturers’ interesting goods and sold them to consumers directly. Despite raising a tremendous amount of venture capital investment (over $100 million), Fancy faced a number of difficulties. The company chose to make a significant pivot and become a third-party marketplace. Fancy now focuses on providing e-commerce solutions to sellers in addition to a fresh consumer product discovery experience. 

Fancy has hosted over 2 million transactions across 120 countries in the last ten years. Over 12 million user accounts have been created on the site. The company has established partner relationships with over 800 brands and has forged partnerships with cultural icons like Kanye West. 

Fancy generates revenue through three primary streams: transaction fees, license fees for white-labeled technology, and “media solutions.” The bulk of Fancy’s revenue appears to come from transaction fees, up to 40% of the value of each order processed through the platform. 

Fancy was originally founded by Joe Einhorn, an entrepreneur with A-list connections to top investors and celebrities. After Fancy encountered challenges and restructured its leadership team, turnaround CEO Greg Spillane took over the reins of the business. Spillane is a senior startup executive with 20 years of experience in entrepreneurship, business development, and operations. He formerly served as the COO of Granicus and later Events.com. 

Fancy describes its upcoming priorities as fourfold. First, the company wants to invest in building the Fancy brand via additional marketing and data projects (though not stated directly, this priority may be tied to the company’s recent struggles and need to reestablish itself). Second, Fancy plans to improve unit economics by increasing the average order value of customers’ transactions. Third, Fancy is focused on new customer acquisition around the world, with a particular focus on the U.S. and Middle East. Finally, Fancy plans to grow its base of boutique and artisan sellers to expand and diversify the products available on Fancy.com. The largest portion of capital raised is intended to fund the third category, new customer acquisition. 

After careful consideration of the company’s areas of opportunity and seeming weaknesses, Fancy.com has been ranked as an Underweight deal. Investors should consider three critical uncertainties when evaluating this deal: 

• Complicated circumstances surrounding company history and restructuring: Fancy’s raise page describes the long and successful history of the company. However, it neglects to include critical details about the significant restructuring and financial difficulties that Fancy has faced over the course of the last 10 years. Though it is difficult to tell clearly from raise materials, Fancy has actually raised significant venture capital before: a full $124 million of it. Fancy was even reported to be in talks about a $1 billion acquisition. Now, the company is raising at a $12 million valuation on WeFunder, with an entirely new leadership team and a markedly different focus from its first years of operation. These facts should raise red flags for prospective investors, in particular because they are not adequately disclosed in Fancy’s fundraise materials. 

• Recent financial underperformance: Fancy has faced significant challenges over the years, and finances are no exception. Despite having raised $124 million in venture capital, Fancy generated just $5 million in revenue in 2019. That figure was down from over $6 million in revenue in 2018. Fancy supposedly cut costs significantly as part of its restructuring (per CEO Greg Spillane’s comments on WeFunder), yet the company’s gross margin was actually higher in 2018 (34.12%) than in 2019 (17.32%). These financial issues raise significant questions about the company’s long-term business model, and again, they are not adequately addressed in fundraise materials.  

• Stiff competition from Shopify and Amazon: Beyond Fancy’s difficult history and seeming lack of transparent disclosure, the company is operating in an extremely competitive space dominated by two market giants. Fancy makes the fair argument that its marketplace is differentiated from Amazon’s in that it promotes social product discovery. However, Amazon has the vast resources and product expertise to quickly expand into this area should it choose. If that happened, it could present serious challenges for Fancy in its current state of reorganization and low capital reserves. Moreover, Shopify recently introduced the Shop app, which inches Shopify closer to a product discovery experience similar to Fancy’s. These mega-competitors are either already or have the potential to be very similar to Fancy’s concept, which does not bode well for Fancy in this vulnerable moment of pivot.  

Startups often pivot and restructure to maintain competitiveness. It is not the mere fact that Fancy has done so that gives us pause. Instead, we are concerned that Fancy does not describe the company’s history in straightforward terms in the principal sections of its fundraise page, leaving those descriptions instead for FAQs, forum responses, and the Form C filing. Even those disclosures do not address the full reality of Fancy’s circumstances — which include plunging by more than $100 million in valuation and facing dramatic layoffs and internal conflict. 

We at Kingscrowd cannot in good conscience recommend that investors contribute capital to a company that seems to intentionally obfuscate critical details about past performance and challenges. Therefore, Fancy is an Underweight deal.