Private Equity Sponsor Altacrest Capital Invests in eCommerce Brands, Provides an Alternative to Venture Capital Investments
May 9, 2019 - In November 2018, the founder of Austin-based Barton Watch Bands (please see bartonwatchbands.com), the leading online provider of interchangeable watch bands for traditional and smartwatches, sold a controlling ownership interest to Altacrest Capital LLC, a Dallas-based private investment firm (please see www.altacrestcapital.com). While Barton met every benchmark to be considered a successful, high growth, early stage eCommerce brand, the investment it received was not a venture capital “flavor”, where a venture investment fund takes minority stake and bets on an existing management team and growth plan.
Instead, the founder recognized that, while he was the right “idea person” to take the business from startup to $10 million of revenue, he was not the right person for the next phase of growth. Like several entrepreneurs, he saw a clear opportunity for the business to grow significantly higher - $50+ million of revenue, but he was not comfortable doing it alone and he desired to put some well-deserved money in his pocket and take some “chips off the table”. He sought help from someone who understood the brand and saw the growth opportunity. The partners at Altacrest were experienced with brands, eCommerce, transactions, raising capital, and building management teams. Since close, they have executed on the plan to move the company toward the revenue goal.
“Our model won’t be for everyone,” said partner Tim Laczkowski. “We require a controlling stake in our investments. But in exchange, we take responsibility for managing the business to the next level of scale. We are open to the founder driving the growth of the business going forward and providing him or her the necessary growth capital. Often, the founder prefers that a new management team is brought in to drive future growth. We are comfortable with that too.”
Typically, Altacrest wants to invest with a founder that wants to participate in the next stage of growth by retaining ownership. It is critical that the brand is either a) successful on eCommerce channels or b) can be successful on those channels. Altacrest uses a “checklist” of characteristics to determine if a product or a brand has the necessary traits to be successful on eCommerce. Product categories of high interest include natural personal care, natural beauty products, athletic wear, socks, other selected durables with enthusiast customer bases, and many others.
Once a transaction has closed, Altacrest looks to build the team and identify other areas of support that are required to take the business to the next level of scale.
“Because we’ve founded, operated, and grown brands of our own, and have worked with many large successful brands in the past on important transactions, we know what we are looking for in the next management team,” said partner Rick Sukkar. “Our diligence focuses on the growth opportunity. If it’s there, we know we will find the right team to take it to the next level, because good people are out there seeking attractive situations. But good people won’t go work for just anyone. It’s not only about compensation. They want to know that ownership will support the brand with capital, the right team, investment in systems, etc. We know where to focus and how to do this.”
After purchasing control of Barton, Altacrest immediately sought a new CEO. Stephen Light was hired in February 2019 as CEO. Stephen has been a successful eCommerce executive his whole career. Altacrest and Barton continue to add resources to the company in customer service, fulfillment, and systems, all part of the plan from the beginning.
“This is a different model from venture investing,” added partner Brien Davis. “Typically, venture capitalists back a team and an existing plan. Our model is more appropriate for the founder that has identified an opportunity and needs help taking the business to the next level of scale, but still wants to participate in the increased valuation of a second exit three to five years down the road.”
Often an existing founder will receive a combination of upfront cash and various forms of incentive compensation – including an ownership stake - to ensure aligned interests going forward. It is also typical for a founder to have a board seat, and even a day to day operating role in the Company - often in product development. This role can be more meaningful depending on the situation.
“Ultimately the goal is to execute on the growth opportunity that has been identified by the founder, and take that $5 - 10 million revenue business to $30 – 50 million of revenue and higher,” added Laczkowski. “The road isn’t easy, but the valuation multiples at these scale levels change meaningfully. It’s worth the pursuit.”
Altacrest continues to seek more Barton-like opportunities and expects to announce the closing of additional transactions in the near future that meet these criteria.