factory14 Secures $200M for Amazon Marketplace Roll-Up Strategy

The Rise of Marketplace Roll-Ups: Introducing factory14

Currently, a significant trend is unfolding where numerous startups are securing substantial funding to consolidate and expand successful brands operating on marketplaces such as Amazon. A new European venture, factory14, has recently emerged from stealth mode, backed by $200 million in funding, with the intention of acquiring smaller businesses and enhancing their operational efficiency.

Acquisition Strategy and Initial Success

To demonstrate its acquisition-focused strategy, factory14 has announced the purchase of Pro Bike Tool, a direct-to-consumer seller specializing in bicycle accessories and tools. The original founders will remain in leadership positions within the acquired company.

This marks factory14’s fourth acquisition since its launch earlier this year, and the company reports achieving profitability due to its focus on acquiring already-successful and scaled marketplace sellers.

Funding and Investors

While described as a seed round, the majority of factory14’s funding comes in the form of debt used for acquisitions. The equity portion of the seed funding was co-led by Dmg Ventures (the venture capital arm of the Daily Mail Group) and DN Capital, with participation from VentureFriends and other tech industry individuals.

Victory Park Capital provided the credit facility and also contributed to the equity investment.

The Team Behind factory14

factory14 was co-founded by Guilherme Steinbruch, CEO, alongside Marcos Ramírez (COO) and Gianluca Cocco (CBO). The founders bring extensive experience from leading e-commerce companies like Amazon and Delivery Hero.

CEO Steinbruch comes from a prominent Brazilian industrial family with interests in steel, textiles, and banking, though he emphasizes factory14 operates independently and receives no investment from these entities.

Inspired by the Roll-Up Model

Steinbruch’s interest in e-commerce and the success of U.S.-based pioneer Thrasio inspired the founding of factory14 in Europe. He recognized the potential of the roll-up model for marketplace businesses.

The Amazon Marketplace Landscape

The Amazon Marketplace is a substantial business, estimated to host 5 million third-party sellers, with over 1 million joining in 2020 alone. Thrasio has estimated that approximately 50,000 businesses on Amazon utilizing Fulfillment by Amazon (FBA) generate $1 million or more in annual revenue.

factory14 specifically targets businesses in this latter category, believing that focusing on more established sellers will result in a higher success rate due to their stronger supply chains, branding, and overall quality.

Competition and Differentiation

Steinbruch acknowledges a crowded field with over 50 roll-up players pursuing similar opportunities. However, factory14 differentiates itself by prioritizing high-quality assets, even if it means paying higher acquisition multiples.

“We decided to focus only on high-quality assets,” Steinbruch stated. “We knew we would have to pay higher multiples for a brand growing 200% a year, but when we started targeting these we were surprised to find there was less competition for these assets rather than for the smaller ones.”

The Value Proposition of Consolidation

Consolidators are attracted to the repeatable processes inherent in Amazon’s system, including analytics, supply chain management, and marketing. Building a framework to manage these processes for multiple companies simultaneously offers significant efficiencies.

Furthermore, many marketplace sellers, despite achieving success, may lack the investment or desire to scale their businesses further.

A Competitive Landscape

The roll-up space is becoming increasingly competitive. Heyday, another player based in San Francisco, recently secured $70 million in equity funding. Like factory14, Heyday is also exploring innovative approaches to accommodate promising Amazon sellers.

Berlin’s Razor Group, backed by Steinbruch’s former colleagues, raised $400 million earlier this month. Thrasio has also secured substantial funding and is profitable. Other notable players include Branded, Heroes, SellerX, Perch, Berlin Brands Group (X2), Benitago, Valoreo, Rainforest, and Una Brands.

Future Outlook and Growth

Despite the competition, entrepreneurs believe opportunities exist to consolidate smaller e-commerce retailers, enabling them to leverage marketing, supply chains, analytics, and business expertise for long-term growth.

factory14 projects $20 million in trailing twelve months EBITDA by the end of 2021 and plans to double its team to 80 employees.

Investor Confidence

As long as Amazon and its marketplace model continue to thrive, investor interest is expected to remain strong.

“E-commerce is undergoing structural changes which are enabling thousands of exciting new brands to be born every day,” stated Manuel Lopo de Carvalho, CEO at dmg ventures. “factory14 can provide these brands with the tools, capital and expertise that enable them to play in the big leagues.”

Ian Marsh, principal at DN Capital, highlighted factory14’s differentiated vision, strong team, and backing from top-tier private equity investors and experienced e-commerce executives. “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.”