Hello my friends,
This week we have a jam-packed series of topics all related to innovation in building product distribution. First, we cover the announcement by Brad Jacobs, billionaire entrepreneur and operator, for his new venture QXO. Next we look at Specialty Building Products’ newly announced partnership with TOOLBX and an interview with one of TOOLBX’s investors, Managing Partner at Superseed Ventures, Reece’s CVC.
$1 Billion Innovation Rollup
Brad Jacobs’ recently announced his new venture, QXO, in the building products distribution space and it has stirred significant excitement in the industry.
Jacobs is the billionaire who founded XPO Logistics, and earlier this week he announced plans to invest $1 billion for an M&A rollup strategy to acquire building product distributors. The $1 billion is equity capital, so presumably QXO has a few billion dollars, when levered, to execute its acquisition strategy. Jacobs’ investment thesis cites immense fragmentation and extremely low eCommerce penetration at less than 4%. He plans to invest in common technology layers to leverage AI and robotics to automate processes, optimize delivery routes, and more accurately forecast demand.
Jacobs hasn’t indicated a specific vertical within building material distribution and it seems he is evaluating both Europe and the United States.
Specialty Building Products’ Partnership with TOOLBX
In the same week as Brad Jacob’s announcement, leading building material distributor - Specialty Building Products - announced its strategic partnership with TOOLBX, a provider of eCommerce tools for lumber dealers. Quite opportune timing!
Clearly, multiple firms are seeing the same opportunity: a massively fragmented landscape of building material distributors with little to no eCommerce adoption.
Specialty Building Products sells to many thousands of lumber dealers who have less than 1% eCommerce adoption according to the press release. SBP wants to help its customers digitize and better compete by enabling them to use TOOLBX’s technology.
Reece’s CVC: Superseed - Interview with Managing Partner
We recently had the pleasure of talking with Phil Sondhu, the Managing Partner at Superseed Ventures. Superseed Ventures is the CVC (corporate venture capital) arm of Reece, an Australian and US-based multi-billion dollar distributor focused on HVAC and plumbing.
Coincidentally, they are also an early-stage investor in TOOLBX as well as Bluon, Fieldpulse and Buildxact to name a few.
In this interview, we learn about:
The CVCs investing in the construction and building products space
Evaluating the trade-offs from strategic value vs ROI
Investing in the current VC climate
The key traits and skillsets of a successful startup, from the view of a former founder
The outsized opportunity in B2B Building Material Distribution and relevant tailwinds
Background on Superseed & Reece
Phil introduces Superseed and its investment objectives. Reece developed as a top tier distributor for HVAC and Plumbing products both in the US and internationally, with multi-billion dollar revenue businesses. It saw significant opportunities to increase visibility and engagement to operators by investing in technology and stood up Superseed. Reece’s thesis is to invest in complementary technology, meaning either products or solutions that credibly demonstrate value-add in top line revenue or increased user experience for its customers.
Government Regulation Sustained Tailwinds
Phil’s thoughts on investing wise in the current climate and the shift in sustainability driven by government regulation.
Superseed’s focus continues to be towards the end consumer, trades people and contractors. Within those audiences, brand differentiation is incredibly important. With the clear shift towards sustainability, driven by broader governmental mandates, these tailwinds will inevitably alter long term strategies for many organizations. For Superseed, Phil sees strategic value in investing in startups that have long-term alignment with Reece business units.
Playbook For Setting Up A Successful CVC
We discussed how to thoughtfully execute and stand up a CVC business arm.
One key challenge was the degree of separation between the management at the operating business and the CVC. In Phil’s opinion, hiring the right people, that matches the fit and culture, can be crucial in the first step of deploying a Fund I. This team does not necessarily need to have traditional venture experience but absolutely need to be problem solvers, being able to make deliberate decisions with very little oversight.
Phil expanded on what has worked for Superseed and Reece, which have an “arm’s length” relationship, allowing Superseed to make investment decisions without significant scrutiny from Reece’s operational management team. An additional point of consideration is the fundamental mismatch between a 10-person thriving startup and a large enterprise with thousands of employees. It is important to understand that the first 3-4 years for a startup is not necessarily customer growth or revenue but more so honing the business product and getting ready to scale. By letting these startups mature over an extended period of time and aligning proper expectations, the effective end result will be more positive for all parties involved.
Traits For Success
What a VC looks for to identify successful startup founders.
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