Case Study

Growing an eCommerce Retailer from $4.5M to $7M and $1M+ in EBITDA within 5 months

As investors, we only get involved with companies we can help scale faster and cleaner by leveraging our operating experience as entrepreneurs.

Our team funds deals with our own capital, so we aren’t restricted at all when it comes to who we work with, and how.  Remember, we don’t operate like private equity or venture capital firms; they’re restricted by mandates from their funding LPs to very specific deals and structures.

This case study breaks down exactly how we’ve worked alongside one of our portfolio companies to help save the founding team from excess dilution, while driving revenue growth and growing EBITDA margin.

The Deal

The company, an eCommerce retailer that we’ll refer to as Company X, came to us looking to raise $600,000.  They planned on additional rounds down the line that would reduce founder ownership significantly. When the founders approached us, they had approximately $4,500,000 in revenue, with $540,000 in EBITDA.

Funding sources like venture capital firms or traditional angel investors weren’t a fit because Company X is in an industry with traditionally low valuation multiples/unicorn potential.

After all, venture capital firms (and most angels) buy into companies with the intention of going to a billion or bust because they need one winner to bring back their entire portfolio, and more. Company X was not going to be able to do that, purely due to the nature of the products they sell, and the valuation multiple assigned to companies in their industry.

Suppliers, SBA-backed loans, and other similar funders refused to get involved due to a poor understanding of eCommerce – low capex and payroll costs terrified them.

The Process

Company X was fully funded by us in less than 25 days from our first meeting with the founders.

Here’s how our deal worked with Company X, and how we typically work:

  • Initial meeting/call to discuss long-term goals and assess alignment.
  • Review financials and conduct preliminary due diligence.
  • Create a strategic roadmap alongside the founders based on due diligence inputs.
  • We send an easy-to-understand term-sheet to founders.
  • Formal due diligence & legal.
  • Write a check & get to work with helping the founders grow their company.

Simple, clean, and fast.

Post-investment, we worked closely with Company X (when needed) to execute on the preagreed roadmap.  We’re always available, only a phone call away.

How Did We Drive Value? Grow Sales & Earnings.

We worked with the founders to immediately scale to $7M+ in annualized revenue (from $4.5M) and $1M+ in EBITDA (from $540,000) within 5 months.

Avoid Excessive Dilution for Founders: Raise Debt with Bonds.

We saved the founders of Company X from unfair and excess dilution by raising funds via private debt instead of selling more equity.

The required capital was raised in under 48 hours, all from strategic sources that drive value far beyond the cash they’ve loaned.

Take the example of one bond-purchaser who is an experienced engineer and data scientist.  She helped Company X build an intuitive, live P&L reporting system. This tactical system proved crucial to supporting AdWords, the primary customer acquisition driver.  Today, Company X is able to calculate and respond to maximum CPA, down to the hour.

Increase Margin and Reduce Reliance on Third-Parties: In-House Brand Play.

We helped Company X source reliable manufacturers and launch its own brand and products.  How?  We called on another company we’ve invested-in, specializing in sourcing and executing on overseas manufacturing.

The immediate result?

An instant margin boost that allowed Company X to get far more aggressive with customer acquisition by increasing its CPA limit in AdWords.

Long-term, the company increases LTV, and builds a stronger and more entrenched brand while reducing its reliance on the third-party brands that it currently retails.

Enhance Profitability: Forex/Banking Optimization.

Company X is a Canadian business.  When we first met, currency conversion to US dollars ate away 6-figures of its bottom line every 12 months.

During our first meeting, we showed the company how to better execute forex, restoring 6 figures to the bottom line.

Even though we hadn’t invested in Company X at that point, we were happy to help the founder solve their forex issue.  It was simply the right thing to do.

Diversify Revenue: Put Marketplace Listings to Work.

Prior to our investment, Company X wasn’t able to utilize Amazon, eBay or other marketplaces for a host of reasons. We immediately brought on a proven marketplace specialist who previously scaled one of our other holdings from ~$3M -> $10M in one year.  His mission was clear: launch Company X on marketplaces to drive sales.

Our specialist systematically deployed Company X on hundreds of marketplaces, simultaneously listing 10,000+ SKUs and driving traffic, brand visibility, and sales.

Increase Margins & Enhance Customer Experience: In-house Fulfillment Arrives.

We helped Company X plan and launch in-house fulfillment by leveraging Alex Ledoux’s experience with scaling a manufacturing and fulfillment operation from inception to $10M in less than 2 years.

Within only a few short months, Company X has far greater control over the customer experience, reduced its shipping costs, and achieved a huge boost to margins by holding inventory instead of using the drop-shipping model that was weighing down operations.

Long-Term Strategy: Drive Growth Using What We Already Have.

We’ve worked closely with management to create a strong long-term strategy to scale growth faster while significantly reducing operational risks.

As a result the founders no longer need to raise additional capital through the sale of more equity.  Why give up equity when you don’t have to?

How is this possible?

We’ve engineered a series of asymmetrical plays that strategically make use of the huge amounts of data already owned by Company X.  These plays drive sales while reducing risk.

For example, we interpreted customer feedback data and analyzed purchase habits to drive the design, engineering, packaging, price-point and launch of the company’s first-ever in-house brand. The results: higher sales, lower costs, and higher margins.

Our product-design process is proven, having been previously successful across two other brands that we own.  We imported and utilized the system here, and its driven huge growth in EBITDA.

What’s Next?

This case study explains only how we’ve worked with the founding team in the first 5-month period. We’ll continue to execute on the strategic roadmap we built together, and help in any way we’re needed.

Next year, we’re optimistic that Company X may even be in a position to acquire its own distributor, lowering COGS, driving earnings, and acquiring even more customer data along the way.  We look forward to sourcing the capital and expertise to help make this happen.

If you’re looking for a flexible, fast, value-driven partner to help grow your business faster…drop us an email. We won’t bite.