Transactions
Karmaloop, Inc.
Boston, Massachusetts
Online Branded and Private Label Apparel Retailer
INVESTMENT AMOUNT: $13,000,000
INVESTMENT DATE: June 2014
“We are thrilled to have CapX as part of the investment team backing Karmaloop and are honored to have their support and confidence. Steve and Jeff have already proven to be valuable partners above and beyond just capital.”
— Greg Selkoe, CEO, Karmaloop
INVESTMENT SITUATION
Founded in 2000, Karmaloop is a multi-platform online retailer, community of style and media company specializing in global streetwear fashion and culture for men and women. Headquartered in Boston, Massachusetts, the Company has become a cultural force, with presence across the U.S. and in over 120 countries with 4 million unique visitors coming to the site monthly. Karmaloop embraces and advocates the convergence of underground fashion, music, art, and entertainment through multiple platforms such as online retailing sites, blogs, music, video and the first cable channel for Verge Culture. More than just an e-retailer, Karmaloop is a cultural hub for multi-cultural 18-35 year olds, trendsetters, and brand loyalists.
Over the past few years, Karmaloop validated its marketplace position and brand presence by growing top line revenue, reaching critical mass scale and exploring brand extension initiatives in media as well as niche acquisitions. The Company’s goals for fiscal year 2014 are to enhance operating initiatives and maintain its leading market position. Before Karmaloop explored any material recapitalization to its balance sheet, the Company searched for incremental capital to support additional inventory needed to satisfy its loyal customer base. CapX was contacted to see where it might fit in the Karmaloop’s capital structure and provide the additional growth capital requested.
THE CAPX APPROACH AND SOLUTION
As a mature and expanding business, Karmaloop already had a well-defined capital structure at the time of CapX’s introduction. CapX consistently looks for growth opportunities that exhibit underwriting balance amongst cash flow, collateral, and business enterprise value. CapX appreciated Karmaloop’s improving operating metrics and had interest as a senior lender. Karmaloop’s Corporate Counsel, Burns & Levinson LLP, strategically introduced CapX to Company management and its existing senior lender, Comvest Partners, to see if all parties could reach the common goal of more growth capital. The result was Comvest inviting CapX to equally share the total senior loan facility including a material increase to working capital. In addition, CapX was able to expedite its due diligence and close within the highly desired 30 day time frame.
“CapX favors industry leaders and looks for opportunities to fuel a company’s growth objective. Karmaloop has many compelling business characteristics whereby CapX believes the Company will achieve its long term constituency goals.”
-Jeffrey Pfeffer, Managing Partner, CapX Partners
“CEO Greg Selkoe and his team, along with the support of lead investor Insight Venture Partners, have built a dominant brand in the 18-35 year-old verge market. We worked with management and incumbent lender, Comvest Partners, to tailor a financing package to meet the needs of this growing company.”
-Stephen J. Healey, Managing Director, CapX Partners