Hans-Jürgen Schmitz (Mangrove): After Skype, Wix!
Hans-Jürgen Schmitz, Mangrove Capital Partners’ co-founder and managing partner, answers our questions.
How did the Wix story start for Mangrove?
In 2007, we began to explore the Israeli market. As a result of this investigation, we were approached by a seed financer who told us about Wix and asked for our opinion. Mangrove immediately purchased 3% of the company, before going on, 9 months later, to launch a financing round of 3 million dollars to help the start-up company move up to the next gear. This is completely in line with our philosophy, which is based on “getting a feel for” the company we are investing in, while aiming to acquire between 20 and 30% of the capital. At the time, the team in Tel Aviv had barely twenty members and the product was still in the test phase. However, the company’s three managers convinced us from the very start: these hard-working pioneers focused on innovating and on the precise statistic of the number of new customers acquired. They also had a broad vision of a platform offering unrivalled ease of use and encompassing different aspects of website management: creation, hosting, ranking, e-commerce, etc.
What were the key milestones in this project up until the listing on the Nasdaq?
There were two main question marks. First, back in 2011, we received a bid of 400 million dollars for Wix. We were tempted to take this “exit” on behalf of our investors, but we believed in the company’s potential and turned the offer down. Time has now proved us right. Following an investment of 10 million $, our share is now valued at $200 million. Secondly, in the beginning Wix used flash to display its customers’ websites. In 2012, prompted by the success of the iPhone and iPad, the company’s managers decided to recode everything in HTML 5, a language compatible with all terminals: computers, iPhone, tablets, etc. This could have caused delays, a slowdown in commercial development or the appearance of new competitors, but none of these things actually happened. Quite the reverse, the arrival of HTML 5 at Wix accelerated the arrival of new customers.
After recording sales of more than 50 million dollars over the first 9 months of 2013, why is Wix not yet profitable?
A break-even point was reached in some quarters, but this isn’t the main focus. We must bear in mind the many competitors, such as GoDaddy, operating around the world. It was the same with Skype: they were not the only people developing Voice over IP in the early days. For a long time, the priority for Wix was growth and winning market share. Today, the ability to precisely anticipate the costs of acquiring new customers is allowing Wix’s managers to increase their marketing expenditure in a controlled manner to save time. In particular, as customers stay for an average of several years. If the CEO Avishai Abrahami wanted to return to a break-even situation, he could achieve this very quickly, but this would have consequences in terms of future growth! Financial analysts estimate that the funds raised on the stock market will enable Wix to double its turnover within the next 18 months.