In the latest development, Berlin Brands Group has raised $240 million that it says it will be using to acquire smaller but promising enterprises in Europe and North America specifically the U.S. that are already making between $1 million and $100 million in sales via marketplaces like Amazon.
The funding is coming in the form of debt, not equity, and it is coming specifically from UniCredit, Deutsche Bank and Commerzbank, BBG founder and CEO Peter Chaljawski said in an interview. BBG is profitable and earlier this year it committed more than $300 million off its balance sheet for buying up and operating companies, and so with this debt round (which we reported earlier this year was in the works), it now has $540 million for that purpose.
“We’re in a wonderful situation with a proven business model, and this is the cheapest money you could get,” he said of the decision to go for debt, a choice often made by startups that are in capital-intensive modes but either reluctant or do not need to give up equity to raise capital to scale if they are generating cash. In the case of BBG it’s the latter, since the company is profitable. “This is better than equity. BBG does not have any debt as of 2020, and we had cash on hand for our first acquisitions, 20 brands that we bought in cash from our balance sheet. Now we want to accelerate that even more.”
Chaljawski said that BBG may well tap an equity round in the near future to bring on investors to shape its own growth and set a valuation for the company. (For a point of comparison, competitors like Thrasio are now valued in the multiple billions of dollars.)
BBG has to date mostly built its business around starting up and scaling its own in-house brands that sell on Amazon and elsewhere — starting first with home audio equipment, coming out of Chaljawski’s own interests in sound technology from a previous life as a budding dance music DJ. Its brands include Klarstein (kitchen appliances), auna (home electronics and music equipment), Capital Sports (home fitness) and blumfeldt (garden).
In a big move to scale and build out what it’s established itself, last year BBG shifted over to the roll-up model: leveraging a more buying power to cut better deals with manufacturers and other suppliers, consolidating some of the other functions like marketing, and providing a more comprehensive set of analytics around what is selling best, who is buying, how best to market an item, and more. It says it has 1.3 million square feet of warehouse space in Europe, Asia and the U.S. and is one of the biggest Amazon sellers in Europe today.
The basic idea of rolling up businesses that sell on the Amazon platform with FBA (Fulfillment by Amazon) has been around for years in fact, but the notable and more recent shift is that it has taken on a startup profile in part because of how some of the latest entrants are leveraging big data analytics, the latest innovations in manufacturing and logistics technology and a founder-led, e-commerce ethos to grow the model.
“Without data, you would go nowhere in this business,” Chaljawski said. “But on top of that, there is something you can’t pull from market data — a toolbox of manufacturing and engineering expertise that we use to evaluate products.” He says that BBG’s data scientists build algorithms that millions of products, and hundreds of thousands of sellers, to produce the data that it uses both to source potential acquisitions and to run the business.
U.S. players like Thrasio which itself closed a $1.2 billion Series C for the same purposes: rolling up and scaling — have led the charge. But in recent months we’ve seen a number of others also move into the space, buoyed by hundreds of millions of dollars in funding from investors very keen to ride the e-commerce wave and the vision of tapping into some of the economies of scale and the marketplace model that have been such a juggernaut for Amazon.
It’s a two-sided marketplace, and Amazon has focused primarily on earning money from operating the marketplace itself and sales to consumers, so that leaves a huge opportunity on the table for someone else (or as it happens, many others) to tackle the opportunity to address the needs and services of the other side of that marketplace: the sellers.