Building a High Impact Social Enterprise over 20+ Years: Roberto Milk, CEO of NOVICA (Part 4)

Sramana Mitra: This is before any venture capital. You’re still working with your $1.5 million angel round.

Roberto Milk: No. In April of 2000, we did our first venture capital round.

Sramana Mitra: How much did you raise?

Roberto Milk: $6 million.

Sramana Mitra: That’s timely because that was when the market was crashing.

Roberto Milk: Exactly. We started conversations in February. It was very easy to have those conversations. By the time it was time to fund, we were one of the last companies to get funded through Scripps Ventures. They had other investments like Garden.com. We’re the last standing portfolio company.

Sramana Mitra: So in April 2000, you raised $6 million. The next major deal is the National Geographic deal in November of 2000.

Roberto Milk: At that point, we did a big national advertising campaign. With that, we cut back in the middle of that campaign as the market got more tentative.

Sramana Mitra: What about revenues?

Roberto Milk: They were picking up. We were getting nice growth month over month.

Sramana Mitra: In the year 2000, I imagine the National Geographic revenue hasn’t kicked in. What kind of revenues were you doing?

Roberto Milk: I can’t quite remember. It would have been in the $2 million to $4 million range.

Sramana Mitra: That’s the gross merchandise volume or is it the commission?

Roberto Milk: That’s GMV.

Sramana Mitra: How much were you taking commission-wise?

Roberto Milk: Our model is not set up that way. We were taking ownership of the products. Most of them were on consignment. Maybe a third were purchased. Even if it’s consignment, we were the ones that were taking ownership for all the international logistics.

The minute that the item is ordered, the ownership transfers to us and the artisans are paid. We’re not shipping someone else’s product at that point. We’re shipping only our products. We’re booking the revenue because we’re also guaranteeing the return.

Sramana Mitra: What kind of gross margin were you working with?

Roberto Milk: 40%.

Sramana Mitra: In 2001, what happened? The National Geographic traffic should be kicking in.

Roberto Milk: Yes, we got advertising credits in all their magazines. We got access to their mailing lists. We started selling to their catalogs. 

Sramana Mitra: What were the terms of that deal? What percentage were they getting?

Roberto Milk: We actually gave them equity. They received 20% of the company. They invested assets and capital. 

Sramana Mitra: It was an in-kind in-cash investment?

Roberto Milk: Yes. It was a big deal for them because they haven’t made too many investments like that. They had just moved from a model where they had been purely reporting on culture.

They were purely reporting and they decided that when they turned 100 that they had seen culture and traditions disappearing rapidly. The environment was being degraded so quickly that they had to play an active role. As part of that, they decided to invest in us. We were actively preserving culture and tradition.

Sramana Mitra: Great! Tell me a bit more about the highlights of 2001. What were some of the strategic moves to get to the next levels of inflection points?

Roberto Milk: We were booming. The business works because we have a high level of repeat customer activity. People love to help artisans. They loved the way they received our products around the world. The core value proposition worked.

Customers are paying less for products that they were normally unable to see. Also the quality was better. Artisans were spending more time making the item. It was boom time.

Then 9/11 happened. It was almost like a shock to our ability to continue and our approach on spending. We came at it from a conservative standpoint where we wanted to make resources last. When 9/11 happened, we had to significantly scale back.

We were expanding in many more countries. We were doing more brand marketing. We had to scale back a lot of that suddenly. We became cash-conscious. It was a five-year period of strategic and careful growth.

This segment is part 4 in the series : Building a High Impact Social Enterprise over 20+ Years: Roberto Milk, CEO of NOVICA
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