Investment Notes: Directo

Today, we are pleased to share a look at the thesis behind our latest publicly-announced investment in Directo, and its ambitious founder Gavin Upiter.

‍Directo is an online B2B marketplace that is transforming the management and interactions of the supply chain for pharmacies in Australia, by connecting them directly with suppliers and wholesalers. The transformation is enabled by a networked marketplace built on a proprietary enterprise tech stack that is configured for, and integrates, into the pharmacy enterprise solutions.

Directo adds tremendous value, reducing costs in the supply chain, improving efficiency, ensuring price transparency and simplifying interactions between suppliers and pharmacies. In doing so, the company is establishing itself as the owner of digital pharmaceutical distribution within Australia, a multibillion-dollar market with little to no direct competition.

Investible is excited to lead this oversubscribed $2.3m seed round, which was also supported by existing investors and HNWs, mainly industry insiders. We are proud to represent the company’s first institutional investor on its cap table.

A shining example of lines over dots

We first met the Founder and CEO of Directo, Gavin Upiter, in 2019. While overwhelmingly impressed with his expertise, drive and the early traction he had achieved, our Investment Committee passed on an investment in 2019 only to reconsider the opportunity and invest two years later. Maintaining these open lines of communication with founders, even when we pass on an investment round is one of our core operating principles.

A ‘no’ can often just be a ‘not yet’.

During that period, Gavin was able to address concerns regarding the company’s ability to stand-up a thriveable digital marketplace in a market which is dominated by wholesalers that often control retail buying groups. He also provided conviction over the economics of a low-margin model. Further confidence was gleaned from Gavin’s decision to speak without the aid of a PowerPoint presentation during the Investment Committee, something that we do not often see, but which resonated with those present given his compelling articulation of his vision and path to achieve all that he and his team have set out.

An incredible founder-solution fit

Gavin’s vast professional history as managing director/executive level at multiple pharmaceutical businesses could not be overlooked. His proven execution on his vision to break into a historically complex and difficult market was compelling. Very few people exhibit the level of sector knowledge—let alone hustle—that Gavin does, which is necessary to displace the traditional buying practices of pharmacies.

We believe this monumental objective can only be tackled by an industry ‘insider’ who is able to successfully navigate the fragmentation between who owns, controls and operates pharmacies. In practice, this sometimes took Gavin and his team 12 months of investment to onboard a single pharmacy. However, once a single pharmacy within a group is onboarded, the speed at which the rest of the group can be onboarded, as well as their suppliers, is undeniable.

Getting the marketplace humming

Arguably the single largest prohibiting factor to the success of a marketplace in this sector is to achieve sufficient penetration on the demand and supply side to start to be value accretive to customers. At the time of our investment, Directo had 240 pharmacies onboarded, from ~35 pharmacy groups, and 61 suppliers, with a very healthy pipeline. With users ratcheting up at a compelling pace and GMV following suit it was evident that the Directo marketplace had reached the inflection point where it was now beginning to hum.

While Gavin and the team had worked extremely hard over the last two years to build relationships with large pharmacy groups, the flywheel effects were starting to merge resulting in organic customer acquisition. This was evidenced by the number of pharmacies encouraging suppliers that they buy from, and suppliers encouraging the pharmacies they service, to join the Directo platform to unlock supply chain efficiencies. These favorable ‘network’ dynamics are expected to deliver significant organic growth into the future and provided a strong signal that it was the right time to invest.

We’re excited to be partnering with Directo as the promising young business accelerates its go-to-market strategy and grows its team to bring efficiency to a hugely underserviced sector.

‍