Camas-based mobba has no small ambitions, despite the lowercase “m” at the start of its name. The 3-year-old company plans to go head-to-head against established online retail giants such as eBay, Amazon and Yahoo as well as upstarts like Groupon. Its goal: to be the No. 1 online marketplace for group buying.
Mobba.com, a website to buy and sell all sorts of goods and services, uses social networks to bring like-minded buyers together in search of bargains. It is also a marketplace for retailers to sell their products in bulk.
“Anyone selling online is competition for us,” said co-founder and Chief Executive Officer Ramu Ramanathan, a Camas resident for more than 16 years. “But we’re looking for a small part of that market — a niche that is really valuable.”
It’s a grand dream, but the company has a good start. Mobba was the only Washington finalist among 10 startup firms chosen to present business plans at the Venture Northwest 2010 funding competition in Portland in November. The event, held by the Oregon Entrepreneurs Network, will give finalists the chance to pitch their plans to a panel of venture capital investors in hopes of landing funding and partnerships.
About half of the companies presenting in past years have ultimately landed funding, said Gerry Langeler, managing director at OVP Venture Partners in Portland and a member of the investor panel for Venture Northwest. The ratio is more like one in 100 under normal circumstances, he said.
“We all got to rank and vote (the finalists), and mobba from the very beginning was among the top few,” Langeler said. “This is a very big idea that, if they’re right about this combination of social networking and shopping portal, it’s a very big potential company.”
Mob mentality
Ramanathan, who holds a doctorate in mathematical modeling from Virginia Tech and has 15 years of management experience in the information technology industry, hatched the basic idea for mobba more than four years ago. When two of his co-workers at National Systems & Research in Camas were looking to buy the same kind of car, he suggested that they go together to the dealership to negotiate a better price. The pair saved $300 each in the deal.
Ramanathan thought an online auction could use social networking to make such group-buying bargains available to shoppers who are strangers, and who may live in vastly different areas of the country or the world.
He recruited a longtime colleague, software developer Qinsheng Huang, to be mobba’s director of technology and Ed Herinckx to be its marketing director. The three founders pooled their savings to start the company and worked for the next three years to develop and test the complex mathematical software behind the site.
Online auctions aren’t a new concept. But social networking sites have created new opportunities by allowing shoppers to spread the word about online deals and recruit their friends and family to buy in.
A new round of startups in the past three years has created a flurry of venture capital investments in the new “social buying” space. Leading the pack is Groupon, a service that sells shoppers a daily coupon — which they can purchase only if enough people sign up for the deal. Groupon raised $30 million from venture capital firms Accel Partners and New Enterprise Associates in December and has received a much-coveted $1 billion valuation. Other players include LivingSocial, Yipit, Dealon, and Buywithme.
Existing sites have an advantage in being early on the scene, but investor Langeler said that because the social buying sector is still evolving, there’s more room for new entrants such as mobba.
Mobba is also slightly different than other sites. Though called an auction, it is more like a bargaining marketplace. Shoppers can choose to buy an item at the listed price or name their own lower price. Others join the auction, naming what they’re willing to pay. The sellers decide how low they’re willing to go, essentially exchanging higher volumes for slimmer margins. At the end of the auction, all bidders can buy at the lowest price accepted by the seller.
“It’s a dynamic market, closer to a true market,” Ramanathan said. “Both the buyer and the seller can satisfy their own terms.”
Raising capital
Ramanathan calculates that social buying will be a $50 billion market by 2014. He aims to capture 3 percent of that with mobba.
But he’ll need to get there quickly, while the sector is still ripe and growing. That’s why mobba is seeking $1 million to $2 million in additional funding to help them expand.
For mobba’s second phase of development last year, the founders raised an additional $750,000 from angel investors. In February they did a test-run of the website, in partnership with Parenting magazine, that offered products such as infant car seats for 30 percent off. Then they launched the full service in Eugene in April, offering deals from businesses in that smaller market to ensure the software could handle larger transactions. They expanded to Portland in May and will be launching in Seattle before the end of the year.
For each additional city, they’ve hired support staff, bringing their total employment to eight in September.
Since April, the site has generated 8,000 transactions and signed up 20,000 registered users and more than 100 sellers, Ramanathan said. At this pace, he hopes to break even early next year and become profitable by the third quarter.
Eventually, he wants to be in every city, nationwide. Mobba has also applied for a patent on the mathematical model it uses for buying and selling.
Ultimately, mobba’s founders aim to sell the company to a larger retailer such as eBay.
“We’ve proved the model and expanded the volume,” Ramanathan said. “Now we need to expand (the site’s reach) and show it’s working.”
