A startup that buys online stores to make them grow. It was in the middle of last year that the idea was born, and a US $ 200 million seed round has just closed in Europe. But this, he says, is just beginning. How did it get there? There are three keys: Mr Sockland; Amazon and Luxembourg.
1.- The socks with design
Two years ago, Fernanda Roa, a commercial engineer from the UAI with an MBA from the Polytechnic of Milan (married to Ramírez) designed and had socks manufactured in Portugal with designs to sell online. The brand called her Mr Sockland, she created a website for him, Instagram, and with a lot of effort she managed to sell on the Falabella and Ripley marketplaces. Her husband, an industrial engineer from UC, MBA at INSEAD, says that the experience was unpleasant: it took them three months to put their products on sale and that, added to the commissions from the retailers, discouraged them.
Meanwhile, he worked full time in Luxembourg at Amazon’s headquarters in the private label area and then in fulfillment, “a strategy that Amazon uses to bypass its warehouses and send products directly from the sellers to the end customer,” she explains. In 2019 he moved to Madrid in charge of that program for Italy and Spain.
The pandemic caught them in Chile. They had returned to Concepción for parental leave for the birth of their second daughter, and could not return to Spain. In the middle of remote work, Marcos received a call from his friend from the MBA in Singapore, Guilherme Steinbruch. The Brazilian was leaving the German venture capital firm Rocket Internet and told him about a new business model, which in the US was promoting the Thrasio company, which consisted of buying e-commerce brands and making them grow.
“Guilherme, who comes from the world of venture capital, loves to look for investment opportunities, and I like the part of e-commerce and growing businesses, so he immediately clicked on us,” says the penquista.
The first conversations were in May. In July they gave the go and began to look for potential acquisitions and talk on Zoom with potential investors in Europe, the continent where they both wanted to live.
After a while they realized that being no European it was difficult to reach those contributors. Then they added the Italian Gianluca Cocco, who after being part of the first 30 Amazon employees in that country, dedicated himself to scaling startups.
In mid-August the trio founded Factory14 in Madrid, with Marcos (COO) from Chile, Guilherme (CEO) between Madrid and Brazil, and Gianluca (CBO) between Lisbon and Italy.
2.- Luxembourg as a condition
“We thought it was going to be easy to get investors. We put together an interesting business plan, we detected about 200 purchase opportunities, of which we had signed letters of intent with 5 ”, says Marcos. The initial objective was to raise between 10 and 20 million euros in equity and between 20 and 40 in debt to invest in e-commerce companies that sold on Amazon -and hopefully on other platforms- more than 1 million euros a year, which were growing strongly and without cyclicality, had good reviews and were well ranked in the search algorithms.
“You buy companies that work, so we thought it was much more attractive for private equity or family offices to invest,” he says. This is how the family office of former Italian Prime Minister Silvio Berlusconi, among others, knocked on the doors. But for that group these were very small investments. “It didn’t work for them because they generally want to buy 80% and we didn’t want to lose control,” he adds. “It was an apprenticeship,” he says. They changed the strategy and focused on venture capitalists. “It made sense to them almost immediately because of the issue of multiples: you buy 3 or 5 times Ebitda but raise capital 20 times,” he explains.
In Chile, he says, they spoke with the family offices of the Angelini and Solari group, in addition to the Kaszek fund, linked to the co-founder of Mercado Libre, as well as other groups recognized in Brazil. But the presentations came to nothing. “We didn’t target Latin America much because we knew it was an unknown model,” he says. In Europe, on the other hand, the figure took flight. In December they closed the termshit with three groups together: Dmg Ventures, VC arm of the British newspaper Daily Mail; DN Capital, one of Shazam’s early investors; and VentureFriends.
With that they went to look for debt. “A US venture debt fund (Victory Park Capital) appeared that wanted to put a significant amount of debt and millions of others on a convertible note,” he says.
Why did they choose debt? Ramírez gives three reasons:I it is cheaper than equity; allows them to maintain control of the business; and have financing for a longer horizon. “It’s a capital-intensive business model, we didn’t want to be out on the streets raising funds every two or three months,” he says.
Of course, both groups put a condition on them: to become a “more investor-friendly place than Spain,” he says. They opted for Luxembourg.
Incorporating the company was relatively straightforward. At least if it is compared with the opening of the bank account, assures the COO. “Banks have too much capital, and many people see Luxembourg as a tax haven, so the process of opening a bank account took 3 months.”
In March they transferred the approximately 165 million euros to the account. The next day they bought the first company.
3.- Amazon’s footprint
The three founding partners of Factory14 live today in Madrid, where a large part of the company’s operational team is based. In Asia – in Taipei and Shanghai – there is a group that deals with suppliers, product development, purchase orders, exports, etc. And in the United Kingdom another who sees the marketing area. For now, 30 people work at the firm, but Ramírez says that by the end of the year they should grow to 85 people and next year to 250.
“For each company you have to hire people, but there is a lot of synergy,” he explains. Most of the products are manufactured in Asia and sent to the US or Europe either to Factory14’s logistics partners who manage warehouses or directly to warehouses. from Amazon, the simplest, but most expensive.
To date they have bought four brands, the largest being Pro Bike Tools, which sells bicycle tools online. The goal is to close between one and two acquisitions per month.
What they do, in simple terms, is to take companies and make them grow exponentially, not only in Amazon – in fact the objective is to reduce dependence on the brands of the giant controlled by Jeff Bezos – and expand them, at the same time, to other channels such as Ebay, Shopify, Alibabá, Mercadolibre or even offline stores when it makes sense to do so. “Sellers can’t do that, because if you want to sell in 5 countries, you need 5 rut, file 5 tax returns when you reach a sales limit,” he says, “which makes it complex.”
The partners are still not clear about how far they are going to grow, that will depend on the size and type of brands they buy. They do know that later they intend to land in Latin America -mainly through Amazon Brazil and Mercadolibre- and that an important part of the business will be in automation and data engineering. For that they are building a technology team based in Madrid, with remote developers from that city, Barcelona and Lisbon. For now.
And Mr Sockland’s socks?
When Ramírez began to shape the startup, he already had all the experience of Amazon as a company, but not as a seller user. So he created an account to sell them in Spain and Germany. If in Chile it was three months, in two days – he says – he already had the socks in the giant’s European warehouse, ready to be dispatched. The account is maintained as a way of testing what they will do later with the brands they buy. And in Chile it still works through Shopify.
