It doesn’t seem like a week goes by without another startup not showing up armed with a huge wallet in pursuit of a strategy of consolidating and then scaling up promising brands that have built a business that sells on marketplaces like Amazon. In the latest development, a startup called Factory14 is stepping out of stealth mode in Europe with $ 200 million to track down smaller businesses and help them grow through better economies of scale.
At the same time, Factory14 is announcing its latest acquisition to underline its acquisition strategy: Pro Bike Tool, a popular D2C seller of its own brand of bicycle accessories and tools, will be acquired at an undisclosed price. The company, now 100% owned by Factory14, has retained the original founders to run the smaller business.
This is Factory14’s fourth acquisition since it launched earlier this year. The company announced that its focus on attracting market vendors who are already doing well and to some extent already profitable means the company is already profitable.
The startup, which is based in Luxembourg and has offices in Madrid, London, Shanghai and Taipei, describes this injection of funding as a start-up round, but in fact most of it comes in the form of debt to buy companies. Dmg Ventures (the VC arm of the Daily Mail Group) and DN Capital jointly ran the share-based seed financing, which also included VentureFriends and nameless people from the tech world. Victory Park Capital meanwhile provided the credit facility and also participated in the equity syndicate.
CEO Guilherme Steinbruch, an alum from Global Founders Capital (the investment firm co-founded by the Samwer brothers of Rocket Internet, among others), founded Factory14 together with Marcos Ramírez (COO) and Gianluca Cocco (CBO) worked on e-commerce Giants like Amazon and Delivery Hero.
Quarry itself also has an interesting background. He is from Brazil and is part of the powerful industrial family that controls a large steel producer, a leading textile producer, and a bank (Steinbruch said Factory14 has no connection with these and is not an investor in the startup).
He said the idea of starting Factory14 in Europe sparked his interest in e-commerce and, in particular, the traction that Thrasio, one of the pioneers in the roll-up space in the US, saw for the model.
The marketplace on Amazon is huge business. An estimate is based on 5 million third-party providers, with more than 1 million sellers joining the platform in 2020 alone. Thrasio has estimated to me in the past that there are probably 50,000 companies selling through FBA on Amazon with sales of at least $ 1 million per year.
It is the latter category that is the target for Factory14, Quarry told me. He believes that focusing on more successful companies means a better hit rate when finding companies that have already built solid supply chains, branding, and overall quality. A willingness to pay a little more for these sellers will help him hold out against what has become a very crowded field.
“There are a lot of players out there, that can’t be denied,” he said, adding that their research (so far) has shown that more than 50 roll-up players are enjoying the same general opportunities as they are.
When planning how Factory14 could differentiate itself in this mix, however, Steinbruch found some clear differences.
“Some are looking for volume and are willing to buy up many companies as cheaply as possible. However, we chose to focus only on high quality assets, ”he said. “We knew we would have to pay a higher multiple for a brand that was growing 200% annually, but when we focused on these we were surprised that there was less competition for these assets than for the smaller ones. That was a good surprise. That means we have competition, but we still managed to be pretty successful. “
Even among the larger retailers selling through the e-commerce giant’s sales and fulfillment platform on Amazon, there are reasons why the consolidators are no longer looking to focus on just one good cause. The system contains a lot of work that can be repeated in many different companies, especially in areas like analytics, supply chain management, marketing, and more: it makes sense to create a framework that can handle these processes for many at the same time. There’s also the fact that, in many cases, market sellers have sat on top of successful businesses but haven’t been able to raise the investment (or will) to scale them to the next step.
That said, the mix of competitors hoping to win it is pretty impressive, and the point of distinction between them all may not in itself be as different as Factory14’s (or any of them) hopes.
Just today, another ambitious player in the field, San Francisco-based Heyday, announced another $ 70 million equity financing led by General Catalyst. The company is also increasing its debt and is looking for more innovative ways to make an offer for more quality and success to the most interesting companies that sell on Amazon.
“The top 1.5% of market sellers have $ 1 million in revenue, and we believe there will be some who will eventually cross the $ 1 billion threshold,” said Sebastian Rymarz, CEO and CEO Co-founder of Heyday last week. It is also taking a very open approach to promoting the best of them in the current marketplace, as part of its quest to become the P&G of the 21st century, he said.
“Some of us came to Heyday, or we brought in our own brand managers. Sometimes it is a matter of continued ownership and interest, growth capital, where we are going to buy some now and buy more of your business over time. We’re still defining that and that’s fine, we’re comfortable with that, ”he said. “It’s about the unique partnerships that we create to accelerate your business.”
Berlin-based Razor Group, which is closer to home in several ways and funded by Steinbruch’s former GFC colleagues and founded by former Rocket Internet employees, raised $ 400 million earlier this month. Thrasio itself has collected very large rounds totaling hundreds of millions of dollars very quickly over the past year and is also profitable. Others in the same area who have also set up huge war chests are branded; Heroes; SellerX; Perch; Berlin brand group (X2); Benitago; Valoreo from Latin America (with his supporters including Razors CEO) and an emerging group from Asia including Rainforest and Una Brands.
With all that said, these entrepreneurs believe there will be opportunities to bring together more diverse smaller ecommerce retailers to better leverage marketing, supply chains, analytics, and wider business literacy to grow in the long run and capitalize on the market model that has dominated, like many shop online today.
Factory14 expects an Ebitda of $ 20 million after twelve months by the end of 2021 and expects to double its team to 80 by then.
As long as Amazon and its marketplace model exist, investors seem to be coming with their checkbooks too.
“E-commerce is undergoing structural change, making it possible to develop thousands of exciting new brands every day,” said Manuel Lopo de Carvalho, CEO of dmg ventures, in a statement. “Factory14 can provide these brands with the tools, capital and expertise to enable them to play in the big leagues.”
Ian Marsh, principal at DN Capital, said the VC did its homework before helping the startup as well. “We had conversations with most of the aggregators and were immediately impressed by factory14’s nuanced vision, which focuses on strong consumer brands and the world-class team they work with world-class private equity investors combined with seasoned e-commerce executives and former Amazonians have put together. We are excited to work with Guilherme, Marcos, Gianluca and the rest of the factory14 team to create brands that inspire consumers around the world. “