At 12:30 Chile time on Tuesday, he was called by Zoom Marcos Ramirez (36). The engineer from Concepción wears a short-sleeved shirt in a room in an apartment with white walls and open windows and in the background another old white building with shutters.
He’s in Madrid, and from there he orders Factory 14, a startup that buys online stores to grow it. In the middle of last year the idea was born, and it closed an initial $200 million round of Europe. But this, he says, is just beginning. How did you get there? There are three keys: Mr. Sockland. Amazon and Luxembourg.
1.- Socks with design
Two years ago, Fernanda Roa, a UAI commercial engineer with an MBA from Milan Polytechnic (married to Ramirez), designed and made socks in Portugal with designs for sale online. The brand called it Mr. Sockland, created a website for it, Instagram, and with great effort was able to sell in Falabella and Ripley markets. Her husband, an industrial engineer from UCLA and an MBA from INSEAD, says the experience has been upsetting: It took them three months to put their products up for sale and that, plus commissions from retailers, is discouraging.
Meanwhile, he worked full time in Luxembourg at Amazon’s headquarters in the private label district and then on implementing “a strategy Amazon uses to bypass its warehouses and send products directly from sellers to the end customer,” he explains. In 2019 he moved to Madrid in charge of this program for Italy and Spain.
The epidemic spread in Chile. They returned to Concepcion on parental leave for the birth of their second daughter, and were unable to return to Spain. In the middle of working remotely, Marcus got a call from his friend from an MBA in Singapore, Jilherme quarry. The Brazilian was leaving German venture capital firm Rocket Internet and told him about a new business model, which in the United States was promoting Thrasio, which consisted of buying online brands and making them grow.
“Guilherme, who comes from the world of venture capital, loves to look for investment opportunities, and I love the e-commerce and growing business part, so he immediately clicked on us,” says Penquista.
The first talks were in May. In July, they set out to research potential acquisitions and talk on Zoom with potential investors in Europe, the continent where they both want to live.
After a while, they realized that because they were not European, it was difficult to reach these contributors. Then they added Italian Gianluca Cocco, who, after being part of Amazon’s first 30 employees in that country, dedicated himself to scaling the startups.
In mid-August, the trio established 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 would be easy to get investors. We developed an interesting business plan, we discovered about 200 buying opportunities, of which we signed 5 letters of intent,” says Marcus. The initial goal was to raise between €10-20 million in equity and €20-40 in debt to invest in e-commerce companies that on Amazon — and hopefully on other platforms — sold more than €1 million annually, which were growing solidly and without volatility. Periodically, it has had good reviews and is ranked well in the search algorithms.
“Businesses that work buy, so we thought it was more attractive for private equity or family offices to invest,” he says. That’s how former Italian Prime Minister Silvio Berlusconi’s family office, among others, knocked on doors. But for that group this was a very small investment. “It didn’t work out for them because generally they want to buy 80% and we don’t want to lose control,” he adds. “It was an apprenticeship,” he says. They changed strategy and focused on venture capitalists. “It made sense to them almost immediately because of the issue of complications: you buy 3 or 5 times the Ebitda but you raise the capital 20 times,” he explains.
In Chile, he says, they spoke with the family offices of the Angelini and Solari group, as well as the Kaszek fund linked to the Mercado Libre co-founder, as well as other recognized groups in Brazil. But the presentations came to nothing. “We didn’t aim so much at Latin America because we knew it was an unknown model,” he says. In Europe, on the other hand, the figure is starting to fly. In December they closed out expenses for €11m with three groups together: Dmg Ventures, the venture capital arm of Britain’s Daily Mail; DN Capital, one of the early investors in Shazam; and VentureFriends.
With that, they went looking for debts of between 20 and 40 million euros. “An American risk-debt fund (Victory Park Capital) appeared that wanted us to put 150 million euros of one and five million more into convertible bonds,” he says.
Why did they choose debt? Ramirez gives three reasons: They are cheaper than stocks. allows them to maintain control of the business; And they have funding for a longer horizon. “It’s a capital-intensive business model, we didn’t want to take to the streets to raise money every two or three months,” he says.
Of course, both groups set a condition for them: to become “a more investor-friendly place than Spain,” he said. They chose Luxembourg.
Incorporating the company was relatively simple. At least if compared to opening a bank account, the operations manager confirms. “Banks have a lot of capital, a lot of people see Luxembourg as a tax haven, so the process of opening a bank account took 3 months.”
In March they moved About 165 million euros to the account. The next day they bought the first company.
3.- Amazon fingerprint
Today, the three founding partners of Factory14 live in Madrid, where a large part of the company’s operational team is located. In Asia – in Taipei and Shanghai – there is a group that deals with suppliers, product development, requisitions, exports, etc. And in the UK another area sees marketing. Currently, 30 people work for the company, but Ramirez says that by the end of the year the number should grow to 85 and next year to 250.
“For every company, you have to hire people, but there’s a lot of synergy,” he explains. Most of the products are manufactured in Asia and sent to the US or Europe either to Factory14 logistics partners who manage warehouses or directly to warehouses. From Amazon, simpler but more expensive.
So far they have purchased four brands, the largest of them Pro Bike Tools that sell bike tools online. The goal is to close between one and two acquisitions per month.
What they do, in simple terms, is to take businesses and make them grow exponentially, not just at Amazon – in fact the goal is to reduce dependence on the giant brands that Jeff Bezos controls – and at the same time expand them, to other channels like Ebay, Shopify, Alibabá or Mercadoliber 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 tax returns recurring, and 5 tax returns when you reach the sales limit, which makes it complicated,” he says.
Partners are still not clear about how far they will grow, and this will depend on the size and type of brands they buy. They know that they later intend to land in Latin America – primarily via Amazon Brazil and Mercadolibre – and that an important part of the work will be in automation and data engineering. For that they are building a technical team based in Madrid, with remote developers from that city, Barcelona and Lisbon. So far.
And Mr. Sockland’s socks?
When Ramirez started forming the startup, he already had all of Amazon’s experience as a company, but not as a seller user. So he created an account to sell them in Spain and Germany. If he was in Chile three months, in two days – he says – he already had socks in the giant European warehouse, ready for dispatch. The account is kept as a way to test what they will do next with the brands they buy. And in Chile it still works through Shopify.
“Creator. Devoted pop culture specialist. Certified web fanatic. Unapologetic coffee lover.”