Chris Froome is investing in Factor Bikes – a Q&A with Factor CEO Rob Gitelis

Published August 24, 2021 05:58AM

Factor Bikes and sister company Black Inc components are relatively small names in the bicycle industry. Once a contract manufacturer for others in the industry, Factor has morphed to become one of the few premium brands with in-house manufacturing facilities.

Today Factor/Black Inc has announced three new investors who’ll assist the company in its growth plans. The name you’ll all know is Chris Froome (yes, that one), who joins the company’s board of directors. Also joining the party is Scott Farquhar, co-founder of Australia’s most successful tech business, Atlassian, who has invested in Factor Bikes via the investment fund he co-founded, Skip Capital. Sam McKay, co-founder of Point King Capital is the third investor and will represent both Point King Capital and Skip Capital on Factor’s board of directors.

Factor Bikes has not published details about the size of the funding round but The Australian (paywalled) has suggested the figure is north of US$10 million. It’s the first cycling-related investment for both Froome and Farquhar.

CyclingTips spoke with Factor/Black Inc founder and CEO Rob Gitelis about the new investment, where the company is headed, and current challenges facing the bike industry. This conversation is below.

Rob Gitelis: Yes, it took a while. We started talking about it eight months ago. But, yeah, it’s pretty cool having people like Scott and Chris involved.

Can I get a little bit of background on the investment? How many shareholders does this bring it up to for Factor?

I’m still the majority shareholder while Chris and Scott are coming onboard as significant minority shareholders. And then there’s just a handful of other people (e.g. employees, family, and friends) with smaller shares.[ed. Baden Cooke is no longer a shareholder].

It’s all growth capital and it’s all about how to take the company to the next level.

Does Scott Farquhar have any personal responsibility with the company or is his interest being managed through Sam McKay?

Scott will be participating at the board level (with Sam McKay as his nominee), but he is also sharing his vast network with us to help Factor open more doors and identify new opportunities.

And is it actually Scott himself that you’ve been dealing with or is it via his investment fund?

This all started by a personal conversation with Scott [ed. Scott is a passionate cyclist].

That was kind of how I met him. We wear a lot of hats at Factor and one day I was sort of manning live chat and he came on to the live chat just asking some questions. And I replied and he was very surprised that the owner of the company was manning a live chat. A couple of days later, he came back and asked more questions and then all of a sudden we got this enquiry (through Sam) if we were looking for investment.

Was Chris joining as an investor always on the cards when he signed with Israel Start-Up Nation or is that something that came up after?

That came about after. I think the first time he reached out to me was when he was riding the bikes in Malibu. I think that was the first time that he reached out just wanting to know more about the company and where we were at as far as if we were interested in investment or not. It wasn’t something that I approached him on and he had already signed on with the team at that point.

Chris has made a significant personal investment and will be joining our board as well. He’s definitely not a marketing investor or ambassador.

We are not really expecting much until he finishes his racing career. We look at Chris as sort of like one of those generational athletes that will have a career in cycling whenever he decides to hang up his wheels. We expect to leverage his experience to make smart decisions related to sponsorship and technical developments, working with him on future bike and Black Inc component developments, etc.

So we’re not looking at him being sort of the poster boy of Factor; we’re looking at [him] having a clear input into the company over time.

I would say that he’s provided some very valuable input on the bikes. We already know about his take on disc brakes. And we’ve taken all that into account. We haven’t really had to change that much around the bikes, but definitely thinking towards the future, we want to incorporate some of those things that he’s recommended.

In some countries, we very much value our distributor relationships and nothing is going to change there. However, in other countries such as the United States, Australia and the UK, we’re going to continue to push through on our direct-to-consumer level of business. So this capital raise provides us with some additional runway for these initiatives. It’s also going to help us enter some new product categories very soon.

Right up until now, we haven’t really addressed the United States in a proper way, so that’s really going to be our focus over the next 18 months – really looking at the United States and how can we be a competitive supplier there.

We want to have a few select retailers as well as direct-to-consumer. There will be some Factor partner dealers in the United States. We’re going to have a new Melbourne shop, and we’re going to look at having a few in the US as well.

[The previous Melbourne-based Factor shop] was just a little too huge and it’s just being downsized. Being closer toward the CBD is the thought there. We feel like we don’t need an all-in-one bike shop; we need a showroom where we’re sort of warehousing and assembling bikes offsite and just having a very premium showroom. That’s what we’re going to do in Melbourne.

We’ll continue innovating and developing premium products, expanding both in terms of depth and breadth; for example, beyond road. We want to invest in better marketing and storytelling, hopefully getting more customers to understand our brand and all the hard work that goes into developing and making our bikes unique. Lastly, we will invest in infrastructure, both physical and virtual, to provide our customers with a best-in-class purchase and ownership experience, and even more customization and personalization options.

What’s the exit scenario for investors here? Is it a private sell? Do you have plans for going public.

There has been a lot of investment activity in our industry recently, which I believe has been further elevated by pandemic-related lifestyle changes. I believe our investors are long-term and strategic in nature, and want to help Factor get to the next level. We’ve never once had a conversation around an exit; the plan is to continue to grow.

Each investor is bringing certain things to the table. Obviously, Chris is bringing a lot of performance. And Scott obviously has a lot of electronics and connectivity. And we want to be looking at those arenas and understanding how we can be adding more value to the bicycle and doing something a little bit different with someone like Scott behind us.

Your sponsorship with Israel Start-Up Nation is continuing through 2022. What sort of impact has it had on the business today?

It’s really hard to say because, you know, the first year was obviously the really rough pandemic year when there was very little racing. But obviously, with Chris joining the team for 2021, I think it had a huge impact as far as the visibility of the team and Factor has obviously gained a lot of visibility around that. [Ed. You can read more about this sponsorship and its goals in a previous interview with Rob Gitelis].

It’s really hard to say what is COVID and what is the team. Obviously, like everyone in the bike industry, it’s been great. It’s really hard to put a finger on what is really the root cause of it. I would say that things are going to sort of level themselves out in a year’s time, and that’s going to become the more interesting time as then it’s back to brand building again. And so really, that’s what this investment is about for us – what happens a year and a half from now when we have to continue to build our brand and be sponsoring and things like that.

You previously made frames in a factory based in Xiamen, China, and then prepped and finished frames in Taichung, Taiwan. Is that still the case?

We’re actually producing in both locations now. So we have manufacturing in Taiwan and in China. So right now in Taiwan, we’re making the Ostro VAM and 02 VAM, while in China we’re making the 02 and the LS. It became very difficult without being able to travel to the facility to do valid development work.

I haven’t left Taiwan now in nearly two years; none of us have. And so we had a manufacturing facility here for doing development and we just flipped it into full-scale manufacturing.

We concluded our contract work just a couple of months ago. And that was the end of that. So part of the mandate of the investment is that we will no longer be focussing on contract manufacturing. We won’t be taking on any new customers or any new carbon (contract) projects moving forward.

Let’s talk about the industry and timelines. What sort of lead times are you looking at for groupsets at the moment?

I would say Shimano is a total unknown. They are still leaving everyone in the dark a bit.

SRAM, I think, is about 400 days at the moment [ed. in reference to high-end road groupsets]. I have the personal belief that there’s a lot of what I call ghost orders in the system. I don’t believe the industry is growing at the same pace as people have placed orders for. And I think we’ll see by the end of the year a lot of cancellations and the lead times start to come back. This is my opinion.

I would say that it’s constrained our growth for sure. It’s also constrained our ability to provide complete bikes to our dealers and distributors. Complete bikes we only sell consumer-direct. We just don’t have enough groupsets to let one go with a reduced margin. So it’s created a little bit of, I would say, animosity in the whole supply chain as well.

Has there been a big jump in demand on just framesets as well through COVID?

I would say our business has probably doubled over the past 12 months. Whether it be framesets or complete bikes.

Are there any particular categories that you’re seeing the most growth in?

The Ostro has done incredibly well. It has rapidly become our signature model. We are still selling other bikes, but not at the same rate as the Ostro.

I used to travel to China almost on a bi-monthly basis. I haven’t been there in 18 months now. So the whole development process has become a lot slower because a lot of very small things get missed. And so you can only do so much by videoconferencing. And even though it’s our own factory with our own people, there’s always still some ambiguity. If you’re there in person, you can just catch those things a lot quicker than waiting until a finished product arrives to start going through it.

[It has affected] all of our staff. We had probably 10 people going to and from China. It wasn’t just myself. So all of that has kind of come to a standstill, while developing new product has definitely become harder. But I think we’re a lot better positioned than most because at least we have a staff and our own factory there in China.

One other real negative around the COVID situation … obviously everyone knows we have a new time trial bike, but there’s really no reason to launch it because we can’t get groupsets to put on it.

It’s just groupsets because we actually manufacture everything else ourselves.

So there are no supply issues with carbon or raw materials for manufacturing?

We’ve been very lucky, we haven’t had any issues there. Of course, prices have gone up, and so if you don’t agree to price increases, then you have a problem. But as long as you’re accepting that things are changing, then supply has been OK.

With those price increases and increased freight costs and all that, have your bikes increased in price in recent times?

No they have not. We haven’t adjusted our pricing. We are going to look and see when SRAM adjust their pricing and if that causes us to have to adjust our pricing. But we’ve been able to absorb everything so far on that. Like you said, the shipping costs, material costs – we’ve been absorbing that. I feel like we’re trying to be a little more understanding of our customers at the moment.

There’s some in the industry that have raised their prices quite substantially. Your pricing actually seems quite reasonable in comparison. Is that strategic?

I think our pricing has always been reasonable. I think a problem is we didn’t tell our story very well about what was included. So a lot of times when you looked at our frameset and you looked at the comparable Colnago or Pinarello, we looked like we were expensive. But then if you got deeper into it, it included a CeramicSpeed headset, a CeramicSpeed bottom bracket, a Black Inc bar and stem. And then you’re like, oh, that’s actually quite reasonable. But we weren’t very good at telling that story. And I think people are just starting to understand that better, and that we offer a lot of value when we’re selling a bike or a frameset.

Was there anything you wanted to add in terms of the investment or anything that’s going on?

It’s been another part of the whole learning process for me in owning a brand going into this, having to think so far into the future. Because when you’re speaking to these investors, they’re really not investing in what you’re doing today. They want to invest in where you’re going to [be] four or five years from now. And so it’s really a big difference from being a manufacturer [where] you’re just thinking about how to deliver a product to other people. Now, you got to really be thinking about [where] am I going to take this brand for the next five years and how am I going to continue to do that great job. And it’s been challenging for sure.