Deal focus: Wholesum brings agglomeration to Korea

Wholesum knows its target customer: a 37-year-old woman with two children, living on the outskirts of Seoul, driving a Kia, and married to a man who earns around USD 70,000 per year. This helped shape the Korean brand agglomeration platform's category focus.

"This woman controls the purse strings at home. She shops from 10 a.m. to 1 p.m. and from 10 p.m. to 1 a.m. Of that USD 70,000 pre-tax income, there is USD 40,000 in discretionary income and 60-70% gets spent on home and living, children, and pets. Over one-quarter of Korean families now have pets," said Andrew Joo, co-founder of Wholesum.

Barely eight months old, the company has followed up on its seed round last year with a USD 50m Series A led by Kingsway Capital and Antler Global. KSV Global and Bold Ventures came in as new investors, while Nordstar and Bass Investments re-upped alongside several angel investors.

The Series A is split 60-40 between debt and equity. The debt portion, led by Widus Partners, is said to be the first venture debt facility ever raised in the Korean market.

Wholesum has already made six acquisitions, putting it ahead of others that have tried the agglomeration model in Korea. The plan is to complete 15 deals by year-end. Most are in the USD 1-2m range, although the most recent was USD 6m. All sell across multiple marketplaces – Coupang, Naver, Gmarket, and Auction – in Korea's vibrant e-commerce space.

"There were some growing pains with the first one in terms of learning how to transfer the landing page to us and get the marketplaces comfortable with it. The whole process took around eight months," said Joo. "We are reducing it by a week to 10 days with each deal. The latest took five weeks and we want to average about one a month."

Sowing seeds

Like many entrepreneurs in Asia's nascent brand agglomeration space, Joo was inspired by Thrasio, which has become the preeminent platform in the US and is pushing into China, Japan, and India. However, he can claim a passing acquaintance with the founders as well as with the business model.

Having spent more than a decade working on special situations deals, first for Standard Chartered Private Equity and then for Fortress Investment Group, Joo enrolled for an MBA at MIT Sloan School of Management in 2018. He attended a pitch session by Thrasio, which at the time was a five-person team with a search engine optimisation (SEO) software-as-a-service (SaaS) platform.

"They claimed they could grow Amazon brands by 100% year-on-year. I raised my hand and said, ‘I've been in private equity for 15 years, that kind of growth is high even from a low base, but why don't you consider acquiring these brands? You'd probably be paying single-digit multiples,'" he recalled.

"They dismissed me quickly, but afterwards Josh [Silberstein] and Carlos [Cashman, co-founders of Thrasio] pulled me to one side. I talked to them about LBOs and the value creation element. Two years later, they were raising USD 200m at a USD 2bn valuation. It's all about execution."

During this period, Joo launched a US-based financial technology start-up. On exiting in 2020, he reconsidered agglomeration and its applicability to Korea, the world's fourth-largest e-commerce market with USD 156bn in gross merchandise value (GMV) last year. While conducting due diligence, Joo was introduced to K.B. Ham, a product and supply chain specialist, who became his co-founder.

The agglomeration proposition is straightforward: the platform leverages its understanding of rankings, ratings, and reviews to identify and acquire emerging brands; and then it applies expertise across data science, logistics, and marketing – plus economies of scale that arise from running a consolidated back-end operation – to accelerate growth.

"On reaching USD 500,000 to USD 2m in annual sales, these brands tend to run into working capital issues. As minimum order quantity ramps up, they need to outsource fulfilment, hire a CRM [customer relationship management] manager and an ERP [enterprise resource planning] manager, and get someone who understands online marketing," said Joo.

"They aren't disciplined on marketing and budgets, and they can't negotiate with manufacturers. When we take over, we see a lot of margin expansion because we know the industry standards."

Local nuance

Thrasio's approach is built on simplicity. Targets must derive significant revenue from Amazon, typically relying on Fulfilment by Amazon (FBA) to handle order reception, packing, shipping, customer service, and returns. In Asia, most brand agglomeration platforms have no choice but to embrace the complexities of dealing with local marketplaces as well.

Wholesum's solution is to be very targeted. The start-up sticks to its chosen categories, won't look beyond Korea – though it is open to helping local brands sell on overseas platforms – and turns the highly concentrated nature of Korea's e-commerce landscape into an advantage.

"I can conduct due diligence at the sort of level I'm used to on our manufacturers," said Joo. "If you're sourcing a factory in Shenzhen, you don't know if it will shut down tomorrow and the best way to communicate with management is by WeChat. We can visit brands and manufacturers and develop a close understanding of the value chain so we can underwrite risk."

Joo also leverages his background in special situations when buying brands, wary of the consequences of being too loose on terms. Leverage is capped at 50% loan-to-value (LTV) or 1.5x EBITDA, whichever is lower. Many others in the market are happy with 80% LTV, he explained, but Wholesum wants downside protection. The average acquisition multiple is 2.4x EBITDA.

"We were conservative on negotiating terms for the venture debt," Joo said. "Some venture debt facilities are 80% LTV, all PIK [payment in kind], zero amortisation, with four-year terms. What we negotiated is more like what you see in distressed credit."

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• Topics
• North Asia
• Consumer
• Technology
• Early-stage
• South Korea
• antler
• e-commerce
• venture debt