Backing Peak21 — Best Home for Consumers’ Favourite Brands
Nearly a 100 aggregators of Fulfilled-by-Amazon (FBA) Direct-To-Consumer (DTC) brands have been formed over the past 3 years and together raised over $12bn of capital. The “e-commerce LBO” came to the fore seemingly overnight and now nearly every investor, VC or PE, has bought into the value creation potential by backing their favourite team.
I followed the broader space ever since in 2014 my then-employer KKR invested £100m into Matt Moulding’s The Hut Group (THG), which was the first major aggregator and went on to be wildly successful since, notwithstanding the recent controversy. Having met many entrepreneurs trying to replicate THG’s success, I found the team around Roman Khan and Edoardo Romagnoli at Peak21 clearly standing out with their strategy, which was informed by exceptionally deep experience in e-commerce over the preceding 10+ years. Their personal qualities inspire confidence that they’ll be able to hire the best in the business to become the preferred home for entrepreneurs wanting to take their brands to the next level.
Between them, they have tackled all the challenges a fast-growing global e-commerce business can face, both as senior executives at Rocket Internet in early 2010s and as principals later on. They scaled four different DTC brands “with their bare hands” and little to no external capital to the stage where the combined portfolio has consolidated revenues of $200m+ and is spending an annual $50m+ on COGS and $50m+ on marketing, profitably and sustainably, while managing complex supply chains and diverse employee groups. I have tremendous respect for their grit and resourcefulness; they’re the definition of scrappy and now they’re ready to strike out at a much bigger scale.
Their focus is the Shopify economy rather than the FBA economy per se, similar to Mensa Brands, an India-based start-up that became a unicorn within 6 months of launch. The FBA-only model has showed attractive economics, but poses severe long-term defensibility challenges that this team knows better than anyone. Their approach is much less dependent on multiple arbitrage and consists in buying great brands that they can hold perpetually while having a clear view on transformative value creation, which the sellers can benefit from by retaining minority stakes. The companies the team is working with have real audiences and brand equity, posing less top-of-the-funnel risk than a classic FBA business, which is only reliant on Amazon. The growth and profitability of the companies bought are then turbo-charged by a highly specialized central team. As a result, Peak21 is perceived as a growth partner rather than a mere liquidity provider.
The team has been off to an exceptionally strong start with $30m+ of acquired, highly profitable revenues and amazing brands joining the portfolio within the first two months of operations. I look forward to supporting the team for the next 10 years on their way to building a $1bn+ revenue business, an exceptional brand portfolio, and a top-quality team.
