FORBES – January 21, 2014 – While Home Depot HD -0.95%, Loews L -0.38% and Menards battle it out to be the preferred destination for home improvement shoppers in the United States, a challenger in Canada has taken on some serious cash to take that spending online. BuildDirect announced today it raised $30 million CAD, or about $27 million in U.S. dollars, in a Series B round to amp up the pressure on the brick-and-mortar establishment.
There’s a Canadian flavor to the whole deal, with the fourteen-year-old company still based out of Vancouver and Mohr Davidow Ventures leading through the round through Canadian partner Katherine Barr. Existing investor from north of the border BDC Venture Capital also re-upped in the round, which despite the company’s relatively long private life is just its second institutional raise.
BuildDirect doesn’t have the name recognition of those big-box stores you’re used to checking out for paint, planks or whatever else you need for home improvement, but the company takes in more than $100 million in sales by working directly with more than 130 manufacturers. Because it ships directly to its warehouses and then the construction site, the company’s orders are much larger than what you’d see on average at a Home Depot: $2,000 orders each, often for hundreds or thousands of pounds of freight.
That market could be limiting long-term, however, so Barr says investors are betting that BuildDirect can make a splash in the consumer market of smaller orders as well. A survivor of the first dot-com bubble, BuildDirect has infrastructure to scale up its operations and will increase its headcount to almost 400 by the end of this year.
“Technology has been largely kept out of this space, and that’s our advantage,” says CEO Jeff Booth, who was a builder himself before founding BuildDirect.”What was broken in this industry was the information sharing and how many steps there were to get a product from Point A to Point B.”
The model BuildDirect now uses is supposed to streamline that–more Amazon.com or Zappos than it is a traditional hardware store.
BuildDirect’s order minimums help ensure that its logistics play of housing and reselling products doesn’t grow costlier than the alternative, Booth says. Without hundreds of retail locations to manage for distribution, the company can also afford to sell at a lower cost. For smaller orders, Booth recommends a preferred reseller.
Others have tried to jump into this market before–search engines for home improvement raised millions in the United States around the time of BuildDirect’s launch. The company languished for several years without much venture interest in Canadian startups, Booth says. Now, the company’s main competition remains the in-store sellers and their secondary websites.
And BuildDirect is a long way from really scaring that establishment, even with 100% year-to-year revenue growth. Menards, the distant third in the group with a billionaire founder, still takes in about $8 billion in revenue–80 times what BuildDirect has brought in. The company wouldn’t catch up to Menards for seven years even if it kept doubling revenue, which would be unlikely as it grows. So the most likely scenario for BuildDirect is to work toward a public offering in the not-distant future. Booth says the company “sees an IPO in its future” but doesn’t have immediate plans to use this money as the fuel for that push.
“Ten years ago over a billion dollars went into this space in the United States and we were told the market was locked up,” Booth says. “Now there’s so much runway in front of us.”