Flash-sale site Fab scores $US105 million in funding as Groupon tumbles – what’s happening to the deals market?

The deals market isn’t done just yet. Design-focused flash-sale site Fab.com has managed to score another $US105 million in funding from some of Silicon Valley’s biggest investors, valuing the business at a massive $US600 million.

Yet it comes just days after group buying darling Groupon saw its share price lose 7% in just one week. Since the company first launched, its value has plummeted 71% – and onlookers question whether the company can remain viable in its current form.

Telsyte senior research manager Sam Yip says the issue isn’t the deals market in general but, rather, the strategies businesses are using to target different demographics.

“The shine hasn’t lifted from the fact that people want to get deals in a time-limited structure, but Fab.com is about the products. That’s what it’s about,” he says.

Fab announced it had scored a further $US105 million in funding yesterday, after an initial round of $US40 million last year. Some of the Valley’s biggest investors are involved, including Andreessen Horowitz, Atomico Ventures – which led the round – Menlo Ventures, First Round Capital and Baroda Ventures.

Founder and chief executive Jason Goldberg confirmed the funding in a blog post, saying the money would help the company expand internationally.

“Atomico is already helping us with our global expansion through their impressive footprint in London, Tokyo, Beijing, Sao Paulo and Istanbul,” he said. Atomico was founded by Skype co-founder Niklas Zennstrom.

Fab originally started as a social network, but was then spun off into a flash-sale site. Both had a common element – a focus on design. Now, the business offers flash deals for all types of products made by budding designers.

It’s taken off, too. The company has five million members and, according to Goldberg, they’re buying 3.4 products per minute from 5,000 designers – 44% of members are between 25 and 34 years old, and 50% of them come to the site through social networks.

Yip says Fab demonstrates the importance of targeting specific demographics in order to stay relevant in the deals market, rather than adopting a more general approach.

“There is a gradual progression towards products, rather than services, and in fact if you look at what we’re seeing in the market right now most of what is being sold is product-based, and that’s not going to stop.

“The margins are a lot higher when it comes to products and picking the suppliers and so on is just a lot easier than it is working with services companies.”

Not only has Fab focused on products, but it has picked a specific demographic, Yip says.

“Fab is focused towards a specific customer segment. So you can’t any longer say everyone is a target – you have to make sure your target is aligned to a specific demographic.”