Massdrop raises $6.5M to enable enthusiast communities to use their massive buying power

Massdrop has raised $6.5 million to empower enthusiast communities. It can, for instance, help dedicated fans of BMW cars get a group discount on their purchases.

The San Francisco-based company hopes to inspire a new wave of community-driven commerce, founder and chief executive Steve El-Hage told VentureBeat. Massdrop wants to form online communities for enthusiasts — for everything from audio and electronics to quilting and cooking — so they can connect with like-minded people, discuss their favorite products, and buy those products using their collective buying power.

“We’ve been floored by how fast it’s taken off, and we’ve only scratched the surface of our vision for the future of these communities,” El-Hage said. “This investment validates our vision and provides additional fuel in our mission to empower communities of passionate enthusiasts to create a new era in commerce.”

Mercata and Mob Shop tried this back in the 1990s. But the market wasn’t quite ready back then, and those companies concentrated on high numbers of users and mass market products. In the meantime, people have organized buying clubs in an ad hoc manner. One person on a quilting forum may order a massive roll of fabric and then split it up on the forum with other participants.

With Massdrop, the enthusiasts use a polling system to figure out what products they’re interested in buying. The poll creator will share that poll as a link in the forum. Others can vote or suggest something else. Once there are a few hundred people in that poll, Massdrop will call the vendor and negotiate a price. For seven days, Massdrop lists the product sale on the forum and the enthusiasts can sign up as buyers. The company then places the order and divides it up among the enthusiasts. The company concentrates on products that are not in the mass market retailer channel, with higher levels of quality and more room for profit margins.

Above: Steve El-Hage of Massdrop

Image Credit: Massdrop

Mayfield led this latest funding round, with participation from existing investors, including Kleiner Perkins Caufield & Byers, First Round Capital, and Cowboy Ventures.

“Mayfield is thrilled to champion Steve and Massdrop. We’ve long held the view that commerce stands to be disrupted by being a community and hangout first, and a marketplace second,” said Tim Chang, managing director of Mayfield Fund, in a statement. “Massdrop leverages the power of story behind each enthusiast, and that story is far more important than just price and availability. By aggregating the voices of the most knowledgeable consumers and then activating the supply side to fulfill or even create new products, Massdrop is reinventing community-based e-commerce.”

Chang has joined Massdrop’s board.

Massdrop also makes it easier for vendors to participate. For smaller companies, an order of 200 products might be a really big deal. They can showcase their products properly and reach many more enthusiasts than they otherwise might. Massdrop effectively lowers the barrier for companies to reach communities where they may find their best customers. The vendor repeat listing rate on Massdrop is about 85 percent.

El-Hage said that buying together not only removes inefficiencies in the distribution channel but also provides people with a shared experience that lives on after the transaction. He said that 50 percent to 70 percent of the products found on Massdrop are not sold by any other major retailer.

“It changes the dynamic between consumers and manufacturers,” he said.

One example of a community that reached out to Massdrop is ErgoDox, a group that created a community-designed ergonomic keyboard and needed help scaling it to larger sales. Massdrop worked with the global moderators. They had an initial run of $100,000, and now more than $1 million worth of the keyboards have been sold.

El-Hage came up with the idea while studying bulk buying at the University of Toronto. He left school to pursue it. El-Hage and cofounder Nelson Wu officially launched Massdrop in July 2012. They started by focusing on BMW and Audi communities. They got their first buy within a week. In five days, they had $12,000 in sales.

“Our role is just to effectively represent them,” El-Hage said. “And now we are looking to see how many communities we can serve.”

Massdrop is in six communities now, and it plans to enter 20 during the next 12 months. So far, the company is about six times bigger in revenue, users, and traffic than it was a year ago. There are hundreds of forums with thousands of members in a wide variety of interest groups on places such as Reddit. The primary competition is ad hoc buyers in the interest groups themselves.

The company has 20 employees now, and El-Hage hopes to hit 50 by year end. It has raised $8 million to date.

“We want to take the commerce-centric platform now and make it much more like a community experience,” El-Hage said. “We’ll add a full discussion layer on top of it and allow people to interact as individuals.”

These groups will be able to create local meetups.

“We want to scale this across the country,” El-Hage said.