B2B (business to business) exchange Rebound is burning $500,000 a month and needs more money if it is to continue further down the P2P (path to profitability). This is before it makes the grade for an initial public offering on Nasdaq in mid-2001. The company provides an online exchange for excess inventory, a market that is estimated to be worth around $100 billion a year, two thirds of which is in Asia-Pacific and North America.
The company, which has some 80 employees in 14 cities around the Asia-Pacific region, had start-up capital of $650,000 and in November last year secured $3 million of first round financing from Goldman Sachs and Chengwai Ventures. Now it needs an additional $25 million to open new offices in the Middle East, Europe and Latin America, to increase its marketing spend and to buy new technology.
The timeframe for getting this money is now, however, uncertain given the sharp drop in the valuations of internet companies. "The $25 million is a bit of a moving target at the moment. We have had commitments up to $25 million, but there is a bit of a debate at the moment as to how much we should take now given that markets are soft and valuations are soft and how much we should look at taking sometime at the beginning of next year when the market has improved a little bit," says Jeremy Tang, chief executive officer and co-founder of Rebound. "It most likely will be a staggered financing effort given the way that the markets are ... the (equity) dilution impact is a lot higher than it would have been say three months ago," he adds.
Despite there being stacks of cash earmarked for investment in internet companies - particularly in Hong Kong where one of Rebound's two headquarters is - little is actually being committed right now. This is a double-edged sword for Rebound. On the one hand, the company needs further financing and a tight market means second round funds will likely be secured on less favourable terms than had been hoped for. On the other hand it also prevents potential rivals getting away from the starting blocks. This latter effect is not all positive, however, as it also stalls the development and acceptance of e-commerce in Asia.
As Tang freely admits, companies have been slower to adopt e-commerce as a normal business practice than he had originally envisaged; in some cases it can take as much as six months to get companies to consider conducting business online.
"Initially we all thought e-commerce would revolutionize the way people operate. We have found it's a far more evolutionary process; it's an incremental process."
Rebound, which expects to achieve operating breakeven in the third quarter of 2001, has reacted to the slower-than-expected take-up of e-commerce. "We have revised our overall expansion plans to take a much more conservative approach in terms of rollout ... We originally forecast to have about 180 employees by year-end, now we're looking closer to 115-120," says Tang. As well as cutting its headcount target, marketing spend has been reduced by around 65%. The main marketing spend reined in was advertising, which proved costly and relatively ineffective.
A slow start has not disillusioned Tang. Rebound's target market is consumer products supply chain participants who either need to clear unwanted inventory and/or pick up discounted goods. Since Rebound launched its website in March, the company has handled around 150 transactions worth a total $7.5 million on which it has earned commissions ranging from 4% to 8%. Of these deals, 80% have been cross-border and 20% within the US. The largest single deal was the $1.7 million sale of 140 containers of household items within the US.
Ideally, Rebound is looking to handle transactions of $50,000 or more. To date, many deals have been smaller than this as its customers take time to get comfortable with transacting online rather than via the army of intermediaries that already exist. "There are no players in Asia managing liquidation within the Asia-Pacific region and there are definitely no players trying to do this on a global basis," says Tang. "We are trying to rationalize a somewhat irrational market, create a centralized point of contact for people to come and buy and sell product."
Rebound has proved attractive to sellers, as evidenced by the $140 million of goods advertised on its website. As well as offering anonymity, the company is also able to give sellers control over where the products they advertise wind up - something necessary to avoid cannibalizing existing sales, souring relations with clients and devaluing brand names. "Instead of the Revlons of this world being at the mercy of the parallel (discount) market they can actually get in and start managing and controlling it themselves by managing the liquidation process themselves," says Tang.
In order to control where product winds up, sellers can hold private auctions on Rebound's website, with only end-retailers in selected countries or regions invited to participate. Brand names can be protected by repackaging and re-branding goods.
While keeping sellers happy, the main task for B2B e-commerce players is getting the buyers in. "You can put 100 sellers in a room and no buyers will come. You put 10 buyers in a room with cheque books and sellers will flock to the room and do transactions. That's proving itself with us as well; the buyers are pulling products through the system; you can't really push excess inventory through an exchange," says Tang.
For buyers, the primary concern is whether or not advertised goods are what they claim to be, both in quantity and quality. To this end, Rebound itself takes samples from vendors or inspects goods for sale and encourages buyers to use the services of Societe Generale de Surveillance, the world's biggest inspection company.
Also, buyers are still reluctant to use online payment services, preferring to execute deals using traditional means. Conversion to online payments in the B2B market is still some time away, forecasts Tang.
Prior to setting up Rebound, Tang worked for Hong Kong socialite and entrepreneur David Tang (no relation), helping to establish Pacific Cigar co, Havana House, China Club Beijing and Shanghai Tang. At Shanghai Tang, an upmarket retailer famous for Mao jackets and cheongsams with fluorescent pink or green silk linings, the two Tangs had trouble shifting some unwanted silk and, in part, this was what pushed Jeremy Tang to team up with Marybeth Dee, a Vancouver-based liquidator, and create Rebound.
Today, he is still looking for silk buyers or, more precisely, anyone interested in 11,732 men's silk shirts currently under lock and key in Shanghai. Or if you're selling, he has a client in Manila in need of 16,667 frozen chickens, preferably from the US, at $1.07 apiece.