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Howard Schultz & Dan Levitan Partially Cash In As Zulily Completes $253 Million IPO

Dan-Levitan Howard Shultz

Howard Schultz                                                                                     Dan Levitan

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Just over a month ago, on October 8th, 2013 Zuliliy Inc, an online eCommerce platform seller of children’s, baby’s and women’s clothing based in Seattle Washington, published a preliminary S-1 Registration Statement with the Securities and Exchange commission for an initial public offering of shares in the United States.

Finally last week Zulily inc. [NASDAQ : ZU] completed its IPO, selling 11.5 million Class A shares to the public at US$22 per share, a price US$2 per share above the expected range previously indicated in its draft documentation for the offering. At that price the offering raised in total US$253 million, before deducting Underwriting fees of US$16.45 million (6.5%), and before other expenses of the issue, estimated in the prospectus at a total of US$3.3 million.

These proceeds are also before exercise of any shares under a 15% over-allotment option grant that may be exercised by the Underwriters, which could bring in even more money. Lead managers for the offering were Goldman Sachs, BofA Merrill Lynch and Citigroup.

Not all of the shares issued in the IPO came from Zulily themselves however, who sold only 6, 377, 500 new Class A shares directly from Treasury. The company therefore raised just US$140.3 million of new money, before their proportionate share of the fees and expenses of the issue – and approximately US$127.9 million net.

The rest of the shares sold in the offering came from certain selling shareholders who were reducing their positions to take some profit on the 5, 122, 500 Class A shares they were offering. Obviously Zulily gets no money itself from the sale of any shares sold by existing selling stockholders.


The market received the IPO well and in initial trading on Friday the share were trading up very strongly indeed, settling in at US$37.85 per share by mid-afternoon. This puts a public valuation on the company of over US$4.5 billion currently.

Zulily was co-founded by its CEO Darrell Cavens and Chairman Mark Vadon and launched with an eCommerce platform for the public in January 2010. It is currently built around what is called a “flash trading” model, which delivers frequent, time limited, product sales and daily deals – something not always universally popular with other merchants these days.

For the most part bookings are placed with suppliers only after receiving a customer purchase order thus reducing the company’s inventory risk considerably and certainly helping to validate its business model.

The IPO has now made very wealthy men of its co-founders Darrell Cavens and Mark Vadon, neither of whom sold any shares in the offering. However Starbucks Chairman Howard Schultz’s venture capital firm Maveron, which he founded with Dan Levitan, were sellers, with Schultz and Levitan each picking up over US$50 million in cash each for stock they sold.

After this deal Schultz and Levitan will however still each control 22% of the total number of the company’s outstanding 110.6 million Class B shares, and the two founders will also have 53% of the Class B shares between them as well.

The company’s Class B shares, somewhat unusually these days, hold special voting rights of 10 votes each per share, and there are almost ten times as many of them outstanding post issue as of the single vote Classs A shares themselves that have just been issued to the public. The Class B shares are also convertible into Class A shares by the holder at any time.

So the control group math is quite easy to do, and the road map laid down if the company wishes to grow and issue more capital in the future following the public route. When and if it does so the current control groups would then likely have no difficulty staying in charge when faced with such future potential dilution – whether by sales of new treasury stock by the company, or by selling down some of their own shares.

Indeed, in the offering prospectus Zulily states clearly that one of the principal purposes of its offering is simply to create a public market for the Class A common stock, facilitate access to the public equity markets and increase its visibility in the marketplace, not just to obtain additional capital. Fair enough; indeed it looks like they have done just that.



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