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With the Internet booming and their classmates concocting business plans, a group of Latin American graduates from Harvard Business School, class of '97, decided to try to their luck on the Net. In August, 1999, they launched DeRemate.com, Latin America's answer to eBay. Their cyber-auction company has grown quickly, thanks to capital infusions from investors such as Citicorp Venture Capital Latin America and Merrill Lynch. In February, Terra Networks, a leading Spanish- and Portuguese-language Internet portal, took a 30% stake in DeRemate for an undisclosed sum. That deal made DeRemate the exclusive auctions channel on all of Terra's sites.
DeRemate's latest coup was the launch, on Feb. 28, of a site targeting the 30 million Hispanics living in the U.S. DeRemate CEO and co-founder Alec Oxenford is now in the process of moving offices from his native Argentina to Miami. On Feb. 28, BW Latin America Editor Cristina Lindblad met with Oxenford in New York and discussed his site's growth and future strategy. Here are edited excerpts from their conversation.
Q: What gave you and your Harvard Business School classmates the idea of starting up DeRemate?
A: It wasn't too difficult to figure out that to have a big impact without lots of capital, the Internet was the obvious way to go. And within the Internet, the eBay model seemed the most attractive because, on the one hand, you have a very high valuation, which talks to the high potential of the business model. Also, this was virgin territory in Latin America.
Q: Where did your startup capital come from?
A: At first, all of the founding members put our savings into DeRemate. That was very good, I think, because it aligned everyone's expectations. Imagine: You've given up your steady job, you've put all your savings into this new company, and you are not collecting a salary. It turned out that we didn't get paid for four months, but for all we knew it could have been 14 years.
We got our first round of financing on Nov. 29 of last year, after three months of being online. Citigroup Venture Capital Latin America, Merrill Lynch, Texas Pacific Group, e Quest Partners, and SLI.com put up $12 million. Terra came in as an investor in the second round. [In February, Spain's Terra Networks acquired a 30% stake in DeRemate for an undisclosed amount.]
Q: How many countries are you in right now?
A: We launched in Argentina at the end of August. Two weeks later, we bought an online-auctions company in Brazil, called Ebazar. After that, we launched sites in Mexico, Venezuela, Colombia, Uruguay, Chile, and Peru. And last week, in the U.S. We've been expanding at a rate of one new office every two to four weeks, which is unprecedented in Latin America. It's pretty impressive. It took very good companies, like Patagon [an online broker for Latin America], 18 months to be present in four countries. We have 300,000 registered users across the region. It took eBay slightly over a year to get to the 100,000 mark. It took us four months.
Q: What is the biggest obstacle you've faced in your expansion?
A: The organizational constraint is the largest constraint. Because in the Internet today, and especially for Latin America, money is not a problem. Also, technology is increasingly becoming a commodity. You can buy auction software for $50,000 -- a very good [program] -- and have it set up the next day.
Q: Does that mean you are having problems finding qualified people?
A: The good thing is that we are kind of at the forefront of the second wave of Latin American Internet companies. The first wave was portals like StarMedia, Terra, and Yupi. That wave is almost over. And those companies are seen by many people that want to work on the Internet as almost bureaucracies, because they are very big already and less dynamic. And the upside is much more limited.
Then you have the very small startups that have lots of potential but phenomenal risk, and nobody knows whether they'll be around next week. And then in the middle, there are the companies like us, which have that very unique energy of a startup, but at the same time have had the backing of solid financial investors.
Q: But the cyber-auctions space is already getting crowded in Latin America. Isn't that right?
A: Yes. Fifteen companies existed five months ago. Ten will probably never get funding. And in this business, if you don't get funding, you can't do marketing. And then no one besides your competitors knows you exist. Only four have gone regional. We know that nobody has half of our user base, or half our product base. We are slowly, but very consistently, leaving behind our competitors.
Q: Do you have a lot of cross-border traffic on your different portals?
A: This is the Internet, so we have to let our customers go where they want. But even in Europe, which has a single currency and distances between countries are very small, there are almost no cross-border transactions. People tend to buy as local as possible. In the U.S., with eBay, that's what's happening right now. People are almost moving to zip-coding -- they transact within the same neighborhoods, and maybe the endgame is the same building. Get in the elevator and trade in your tennis shoes for a camera.
Q: What are DeRemate's sources of revenue?
A: We, [like] everyone else in the region, are not charging right now. Most people in Latin America are just learning to use their e-mail and to navigate the Web. It's very difficult to charge those people before they understand there's value in what they're paying for.
When we start charging, we'll have two revenue sources. There will be a charge for posting items, just like a classified. The price will range from 25 cents to $5. The other revenue source will be a fee per transaction closed. This fee will be on average 2.5%. Fees will be introduced in the next 60 days, and they will be phased in country by country.
We don't plan to have advertising on the site, because we believe advertising disturbs the experience of our users. Right now, we have more than 1 million page views a day, which is very high for Latin America.
Q: Why are you launching in the U.S.?
A: That's a bold move. We're doing it because of the size of the market, the wealth of the market, and the similarities with Latin America. We waited because we wanted to come well prepared into this extremely attractive 30 million [member] community of U.S. Hispanics. It's a difficult market. The level of service a U.S. customer is used to is very different than [the service] a Latin American is used to. We don't want to let anybody down.
We organized our U.S. site differently from our sites in Latin America. The U.S. site has a community-based structure. You have a section for Cuban Americans, a section for Mexican Americans -- because there is no such thing as a typical U.S. Hispanic. And the offering varies according to the section. In the Cuban area, you can buy a dictionary of Cuban usages, for example. In Argentine section, you have alfajores [a typical Argentine sweet snack]. We are the only player in this arena that has adapted the site in this way.
Q: What's has been DeRemate's biggest success so far?
A: What we've done is pretty huge, in terms of actually building a brand in a very short period of time. I was having lunch in a restaurant in Miami, and I had one of our promotional folders with our logo on the table. Two people from Ecuador walked by and they saw the logo. They said, "Wow, DeRemate. How do you know the company?" And I smiled, and I told them I was one of the founders. And DeRemate is not even in Ecuador yet. This brand is very unique -- and its working. We're very passionate about this.
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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