Fruugo was one of the most talked about companies in the Finnish startup scene, perhaps due to the fact that the company was able to attract the top executives of the Finnish business world. In the early days, the most well known people on board were Jorma Ollila (the former CEO and Chairman of Nokia), Risto Siilasmaa (Chairman, Founder and former CEO of F-Secure and current Chairman of Nokia) as well as Marko Parkkinen (co-founder of Bob Helsinki and a board member of various Finnish companies), among others. The company has also gained some infamy in Finland due to the millions of euros it burned through in anticipation of their global, multi-retailer online store.
Fruugo has tried to innovate in the space of e-commerce through a multi-retailer site where consumers would be able buy goods from numerous stores on one site and pay in their own, local currency through one check out. The company was started in 2006 by Nils Forsblom, now currently running TenFarms.
We’ve gotten our hands on Fruugo’s 2010 financials and they’re not pretty. The company generated less than €85 000 in commissions, revenue, while running a loss of around €8 million, taking the cumulative losses to around €37 million (as of the end of 2010). The figures also reveal that the company is basically bankrupt.
In 2010 the loss was €8 million, in 2009 it was €11 million and in 2008 they burned through €14.5 million. This has pushed Fruugo’s equity into negative territory. To be exact, the 2010 financials reveal their equity was € -5.7 million, while in 2009 it was € -5.9 million.
Once a company has “negative equity”, it must
apply for bankruptcy procedures file a registry notification without hesitation, according to Finnish legislation. Clearly Fruugo has not applied for this and keeps it business running in a situation when it should not be possible. The notification will also notify creditors allowing them to decide if they want to pursue with bankruptcy procedures in this kind of a situation.
Furthermore, the financials reveal that the company has received some €31 million in funding as well as €6 million in other loans. These push the overall funding to some €37 million.
Back in 2010 when we wrote about the merger between DTL and Fruugo, the current financials reveal that Fruugo Oy (the Finnish company) owns 98.99% of the UK based Fruugo.com Ltd (formerly known as DTL). The financials tell us that that Fruugo.com Ltd is also in the red, generating a loss of around €100 000 in 2010.
As Fruugo slides towards bankruptcy (unless it is able to take care of its finances), the company’s journey will most likely become difficult for many people to understand.
Luckily there is much more awareness towards early stage companies, even though they are not yet as mainstream as we would hope. The biggest setback in all this is that startups are condemned as bubbles that don’t deserve the hype when only the executives of the company at hand are to blame for the wrong strategic decisions.
While we don’t know exactly which management decisions took place, Fruugo is a great reminder that the processes in place at larger companies seldom work on a startup level. Larger companies can usually afford to work through the uneffective waterfall model where as startups need to iterate constantly and be in contact with their users, clients and customers to better understand the need in the market. Fruugo burned a lot of money in the couple of years leading up to its launch when perhaps it should have gone live earlier and responded to the needs of its users.
If you’re not able to understand the market and consumer behaviour – you’re bound to head to the wrong direction for years while burning through a lot of cash in the hopes that your hypothesis and expectations will carry through.
Spending almost €40 million and being able to generate just €100 000 cumulatively is hard to swallow when you work in e-commerce.
Disclosure: The author of this article is, at the time of writing, an advisor to TenFarms Inc.
Update (16th of April 11.20AM GMT): Added a factual error regarding bankruptcy procedure. The company must file a notification to the National Board of Patents and Registration, which will allow creditors to decide if they want to pursue with bankruptcy procedures.