E-commerce roll-up companies are big in the United States, and Wonder Brands wants to be that for Latin America.
The Mexico-based company closed on $20 million in seed funding, co-led by ALLVP and Mountain Nazca, with participation from CoVenture, Victory Park Capital, GFC, QED (Fontes), Korify Capital and Endeavor Catalyst.
Wonder Brands co-founders Nicolás Gonzalez Luna and Federico Malek came together to start the company in January 2021 to acquire digital brands in the MercadoLibre and Amazon ecosystem. It then leverages its technology to scale their operations and grow sales by taking care of the marketing, analytics, supply chain management and working capital needs of the companies. It focuses on companies in the areas of home and garden, sports and fitness, beauty and personal care.
“MercadoLibre has a larger share, but Amazon is entering the region quickly, so there is not one dominating marketplace. MercadoLibre may have half the market, but then it is more balanced between a number of different platforms,” Gonzalez Luna told Stock Market Pioneer. “That diversification means operations here are more complex than the classic Amazon seller. Negotiations take longer and require more discussion about who you are to get the trust in you. That’s why we will be doing fewer, but larger deals than our U.S. counterparts.”
Malek’s background is on the commerce side, having worked at Argentinian insurtech company iunigo.com before founding e-commerce fulfillment company Avenida.com, which was acquired by Groupon in 2010. He then worked as Groupon’s managing director in the region. He knew Gonzalez Luna, whose background includes Goldman Sachs where he focused on M&A.
Michael Breitstein, principal at CoVenture, said his firm has made a variety of investments on the debt and equity sides of e-commerce and believes Malek and Gonzalez Luna provide a “great one-two punch” with their backgrounds, as well as the ability to raise capital and build out a platform.
Though there is a lot of competition to acquire digitally native companies in the $1 million revenue range, Malek said Wonder Brands will focus on larger sellers and operators, with a deal target of at least $5 million in revenue. They are also taking a “buy and build” approach rather than the “buy and consolidate” business model many of the other roll-up companies have, he added.
With its approach, the company’s goal is to enable its acquired companies to sell on multiple channels. It provides support in four areas: category management and brand development, marketing and performance, technology to automate processes like inventory and logistics and operations to manage all of the channels needed. For example, in Latin America, inventory has to be consolidated into one warehouse, but then separated depending on the sales channel, Malek.
Acquiring and scaling companies is big business. London-based Hahnbeck Business Systems, an e-commerce M&A firm that tracks funding to FBA (fulfillment by Amazon) acquirers all over the world, reports that e-commerce roll-up companies raised $7.24 billion in disclosed funding to date.
According to the different sources, reports say Latin American e-commerce company MercadoLibre has a market cap of between $70 billion and $94.billion. Meanwhile, marketplace merchants accounted for 55% of units sold on Amazon.com, according to the retailer. In 2020, that accounted for $300 billion in sales, according to Marketplace Pulse estimates based on Amazon disclosures.
The seed financing enables Wonder Brands to invest in building a team to focus on the four support areas and marketing. The company has 20 employees currently and plans to triple that in the next month. The funding is also complementing larger debt facilities that the company has available to acquire brands. Its target is to make six or seven acquisitions this year.
The company is on target to achieve $55 million in revenue by the end of the year and will then move toward $100 million in revenue in the next 12 months, Malek said. It currently operates in Mexico and plans to begin operations in Brazil by the end of 2021.