Upstack Private Equity Investment ‘Largest in Agent Channel History’

New York-based Upstack recently closed what it calls the largest private equity investment in the history of the agent channel.

The four-year-old company announced an initial $50 million private equity investment from Berkshire Partners. Upstack had already raised more than $35 million before Berkshire’s investment. The funding helps Upstack expand its portfolio and buy other sales agencies. To date, the company has acquired ten other independent agents, with more transactions in the works.

Josh Johnson, principal at Berkshire Partners, said Upstack works in a burgeoning, yet “highly fragmented market.”

Berkshire’s Josh Johnson

“Our experience has reinforced the importance of the agent channel to enterprises designing and procuring digital infrastructure,” Johnson said. “Upstack’s platform accelerates this digital transformation by helping its advisers better serve their enterprise customers. We look forward to supporting Upstack’s continued growth through M&A and further investment in the platform.”

Upstack founder and CEO Christopher Trapp said Upstack could have continued to buy companies without Berkshire; however, he said Berkshire helps his firm achieve its goals more effectively.

Upstack’s Christopher Trapp

“They have a track record of success with multibillion-dollar exits. That’s obviously what we’re positioning this business to be over the next several years,” Trapp said. “Bringing in a platform like Berkshire optimizes our chances of getting there.”

Berkshire has made a minority growth investment, which means that Upstack retains majority control.

Different Kind of Company

Although we have written extensively about consolidation involving national master agents, Upstack lands in a different category. The company identifies as a direct agency, transacts with several master agents and distributors, and will continue to do so. It competes with internet consulting firms, agents and subagents. Moreover, Trapp said Upstack is targeting top-performing agencies to join its team.

Trapp said the agent firms Upstack buys will function as equity partners in the business. Indeed, Trapp said Upstack intends to be the first “agent-owned enterprise” that gives channel partners direct equity. Consider, for example, how other industries view the term “partner” with esteem.

“If you’re a lawyer, and you join a law firm, your goal is to make partner. As a partner, you have equity. If you join Goldman-Sachs, your goal is to make partner. As a partner, you [have] equity in that company,” he said.

Similarly, the agents that join the Upstack team will earn compensation for Upstack’s future success.

“When there is a larger exit event at some point in the future (at some point in the future every business at eventually exits), the agents that were predominantly responsible for driving the success of that business get to share in the success as well at the equity level,” Trapp said.

Trapp said Upstack’s concept of an agent-owned enterprise stems from his status as an “outsider” to the channel.

Trapp comes from the supplier side of the channel — in particular, the data center/colocation side. He co-founded the company that preceded Aligned Energy, in addition to co-founding two other data center businesses.in Virginia. His companies put him in contact with the indirect channel; however, he said the relationship between the channel and colocation services was in its infancy.

When he left his last company, he set out to learn about the larger IT channel. This research showed him a glaring statistic: Colocation accounted for only 10% of agents’ sales. Who would fill this gap? Moreover, Trapp said he found the agent business model very appealing. The rapidly evolving nature of technology puts suppliers in constant risk of losing relevance. Agents, on the other hand, can take advantage of disruption to advise their customers on the latest and greatest products. In addition, the pairing of residual commission streams and minimal risk made for an attractive proposition.

“I think every entrepreneur comes up with an audacious goal, and mine was to build the best direct sales agency in the country,” Trapp said.

Not a Master Agent

Trapp and his team first debated if they should form a master agency or a direct selling firm. But the answer seemed clear to them when they ran the numbers.

“We looked at the industry and said, ‘Wow, the total addressable market for direct agents is about five times the size of the master agency industry and about a thousand times more fragmented,” he said.

Trapp said master agents and direct selling agents differ significantly in what they emphasize. He said that while master agents need to stress their sales volume, direct agents need to emphasize “the quality of the actual production.” Moreover, Upstack runs the bulk of its business through …