Venture capitalists are getting eager to invest in e-commerce-related businesses in Latin America. LAVCA‘s (the Association for Private Capital Investment in Latin America) recent stats show a 71.9% growth in venture investment in e-commerce, and a 11.4% growth in deals in 2020 compared to 2019.
This year already has 11 announced e-commerce deals over $10 million, doubling the amount of LAVCA’s verified e-commerce investment tracked for full-year 2020. Furthermore, VCs turned their attention to a whole new category of investment for Latin America, the e-commerce brand aggregators, which is the case of Merama, Valoreo, and, more recently, Wonder Brands, a Mexico-based startup that raised a $20 million Seed round from ALLVP and Mountain Nazca. CoVenture, Victory Park Capital, GFC, QED, Korify Capital, and Endeavor Catalyst also joined the round.
But why are these so-called brand aggregators such a hot topic now? As the name suggests, Wonder Brands optimize brands through acquisitions, i.e. it acquires small and medium-sized e-commerce shopkeepers that sell in marketplaces such as Mercado Libre, Amazon, to accelerate sales with them. It boosts their marketing, analytics, supply chain management, and brings them working capital through equity investment.
“Broadly across venture capital, there has been a lot more interest in LatAm. There’s so much innovation and so many exciting companies that are growing,” said Michael Breitstein, WonderBrands’ investor from CoVenture, in an interview with LABS.
“We have done a lot of debt and equity across e-commerce and especially Amazon for the past few years, and we realized we haven’t made an investment in LatAm, where e-commerce growth is the highest and continues to become more exciting, as more people gain access.”
Looking to expand its e-commerce portfolio, CoVenture found Nicolás Gonzalez Luna and Federico Malek, who started Wonder Brands at the beginning of this year.
Malek has been working with e-commerce for the last 12 years. He founded a company that was acquired by Groupon, and operated a Groupon office in Spanish-speaking LatAm.
Luna has a financial background, working mainly in private equity. He ran Goldman Sachs in Buenos Aires for nearly three years. “We have the background on e-commerce/tech/startup from Fed and in my case the financial background which is required for all the investment part of our business.”
The recently raised Seed gave Wonder Brands the firepower to handle its first acquisition and to invest in the company that it acquired, besides building the teams. In Wonder Brands business model, it acquires companies that it identifies as successful ones to help them grow aggressively, developing new brands within the categories the companies operate.
“These businesses, in general, are capped on their growth because of limitations in working capital. With our capital, we can fix that, and basically boost growth with more inventory. Otherwise, these entrepreneurs are usually on their own with limited resources, that’s why they can’t grow as fast as they could,” added Luna.
The financing through equity rather than credit
Rather than credit financing that has an established period and repayment date, Wonder Brands provides equity capital to the companies that it invests in. “With our equity financing we also explore the facilities with the companies that we invest in, so we professionalize much more the financial aspect of how those companies run,” said Luna.
Wonder Brands has already acquired two companies, but it doesn’t disclose their names. Companies that the startup focuses on partnering up are the ones that sell mostly in marketplaces like Amazon, Mercado Libre, Walmart, and it is already targeting Brazilians selling with Magazine Luiza, as it intends to arrive in LatAm’s largest economy by the end of 2021 or the beginning of 2022, its first expansion outside Mexico.
“Through these marketplaces, you access all the customers in a country. That’s why we focus on having very good products, very good brands, at affordable prices and with great customer service, and these platforms allow us to sell to anyone in a country,” said Luna.
The startup has the goal to surpass the $55 million revenues by the end of this year and says it has already accomplished more than half of that. “We’re on track to accomplish that target, next year we will also do a few more acquisitions in Mexico to surpass the $100 million revenue target.”
Wonder Brands sees itself as an expert in operating in marketplaces. More than owning the brand, the startup built operations with warehouses in Mexico. It has 20 employees, but counting the companies that it acquired it has already 100 people on the team in less than seven months of existence.