Boston-born streetwear online retailer Karmaloop announced Tuesday it has raised $13 million in funding from CapX Partners, a Chicago-based private equity firm, and Comvest Partners. The round brings Karmaloop’s total financing to $70 million.
A total of $8 million from Tuesday’s funding will go toward paying down debt from Comvest, which Karmaloop raised $22 million in debt funding from in 2012. The additional $5 million will be in working capital, and go toward operations. Previous investors include Comvest Partners and Insight Venture Partners.
The round falls short of the e-commerce firm’s target of $30 million, which Selkoe confirmed with BostInno in late February of this year. At the time, Karmaloop shared that the round would be put toward expanding internationally.
According to a source close to the company, Selkoe and the team have been experiencing some difficulty raising the round, adding that Karmaloop "started looking for additional investment in August of 2013."
Karmaloop is still planning on raising the remaining funding, but “we don’t need it necessarily,” Karmaloop CEO and Founder Greg Selkoe told BostInno.
“We wanted to make sure we had the right partner and wanted to make sure we had the right valuation. We weren’t in a position where we had to take the first partner down the road. … They’re a really good group of guys,” the chief executive said of the fundraising process and CapX’s participation.
In 2011, Karmaloop did $130 million in revenue, Selkoe told the Boston Business Journal, an 81 percent increase from 2010. The company was rumored in early 2012 to be taking the first steps toward an initial public offering in mid-2013, and expected to pull $200 million in revenue that year. After Karmaloop raised $19 million in debt financing from Comvest in September of 2012, the company stayed quiet, while all whispers of an IPO were essentially put to rest.
Selkoe said that Karmaloop did approximately $165 million in revenue in 2013; the online retailer is on track to hit around that same mark in 2014 as well.
The drop in revenue, according to Selkoe, is symptomatic of both internal shifts at Karmaloop and the e-retailer landscape as a whole.
The company expanded quickly in 2012, and added new sites like Monark Box, Boylston Trading and Miss KL to its scaling e-commerce empire. An idea for the startup’s own television channel, Karmaloop TV, produced by Pharrell Williams, was also thrown into the mix. The handful of spinoffs weren’t performing as well as Selkoe had hoped, however, so the team decided to shut them down and let go of their teams.
“We were hoping those businesses were going to be more successful, but there’s a lot of cost and capital required to run those additional sites,” admitted Selkoe.
Now, the CEO, who founded the Karmaloop in his parents’ Dorchester basement in 1999, is bringing the company back to basics. “Anything that’s superfluous to Karmaloop.com, PLNDR or Kazbah we’ve taken out of the equation,” said Selkoe.
“We’ve been running the business and it’s been going really well, but e-commerce sites aren’t making money right now,” admitted the CEO, citing Fab and Beachmint. “We’ve been in the black before, and we want to show we can be in the black again.”
As a result, the company slimmed down in a number of ways. In addition to the team layoffs from Karmaloop’s satellite sites, the company cut 30 full-time jobs earlier this year when it shifted customer service efforts from Boston to a call center in New Jersey (according to Selkoe, some employees moved south to assume their former posts at the center). An email from Selkoe to the company's vendors through its Kazbah marketplace was also leaked in the Boston Globe, suggesting that the Back Bay firm was cash-strapped.
Karmaloop’s refreshed focus has brought its stateside team down from 200 to 120 people, with an additional 30 in the call center. Internationally, the company has an outpost in Copenhagen with 40 employees, and small associated offices in Paris and London with a handful of people.
Though the company isn't trying to launch new brands, Karmaloop acquired content publisher Soletron earlier this month. "It's a cool site that has a lot of traffic relevant to Karmaloop's audience," explained Selkoe. "Our blog, KLX, is a good sales driver for us, and Soletron seemed like a good acquisition to drive even more of that traffic."
And while Karmaloop’s $30 million round may not be completely there yet, its international business is. According to Selkoe, its European business is up 60 percent and profitable. Once the company closes on new funding, Karmaloop will set it sights on South Korea and Italy, among other locales.
