Verma Farms Case Study: Founder AJ Agrawal Talks E-commerce Growth and Life Changing Exit

AJ Agrawal has been starting businesses ever since he can remember. From creating and selling energy drinks to his classmates in third grade to founding a successful marketing agency, his entrepreneurial spirit runs deep. Most recently, he built and sold Verma Farms for an impressive high 7-figure sum.

Verma Farms is a luxury CBD health and wellness company that Agrawal built and scaled over the course of two years. By the time Agrawal decided to make his exit, Verma Farms had become a highly profitable e-commerce business in the health and wellness space.

In this video, he shares why he decided to divest and details the acquisition process and his experience working with FE International.

The Inspirations Behind Verma Farms: Building and Scaling an E-commerce Business

Agrawal officially entered the e-commerce and marketing space when he was 18. His first notable win was a marketing agency, Verma Media. During his seven years at Verma Media, he worked with Fortune 500 businesses and honed his marketing skills. Eventually, he decided to pursue his lifelong dream of developing his own products. “It’s something I’ve always wanted to do, but I’ve been scared to do it,” he reveals. But he took a leap of faith and dove in headfirst, founding Verma Farms.

Agrawal’s first personal experience with CBD was as a sleep remedy. In college, he ran collegiate cross-country, which meant every part of his life was structured.

“We had a nutritionist, a coach, a stretching coach, a weightlifting coach,” Agrawal says. Every part of his life was structured, and the routine ensured overall wellbeing.

Graduation meant losing those systems of wellness, though. It was a difficult adjustment, and Agrawal struggled to maintain good sleep. Going down a journey of catching elusive sleep, he tried CBD as a remedy. CBD did so much for him that he wanted to make its benefits more accessible and widespread.

“I wanted to bring this to more and more people,” Agrawal explains. And that was the inspiration for Verma Farms.

A Good Product Margin to Build a Great E-commerce Business  

Before diving into a new market and starting a business, Agrawal looks at a specific set of metrics. The biggest one is product margin. “CBD has a 90% product margin, which is exciting because you can introduce new marketing channels if you have a high product margin. You can invest into things like branding and the website,” he says.

In e-commerce, product margin strengthens the foundation of a profitable business. Verma Farms would operate in an interesting market: it needed to decide on the target demographics. CBD could cross into the health and wellness space, which was the direction Agrawal wanted to take Verma Farms.

“The amount a buyer will pay differs greatly,” Agrawal says. “Nobody is paying $10 for a toothpick. But there’s a huge scale when it comes to health and wellness.”

Agrawal wanted to be the one to build a bridge to connect high-quality, luxury products with the 90% product margin of CBD. He wanted Verma Farms’ products to appeal to buyers that weren’t as focused on the price, and he knew that the health and wellness space was perfect for that.

Every experience Agrawal had gone through thus far, all the skills he had honed, seemed perfect for this moment. “My background in SEO, affiliate, marketing, growing and scaling brands, and conversion optimization matched perfectly,” Agrawal says. “It was such a good opportunity that I felt like if I don’t do this, I’m going to regret it.”

Achieving and Maintaining Critical Mass 

When running a business, it’s always a wonderful moment to know that you’ve hit critical mass and the company has become self-sustaining.

Agrawal realized he had hit critical mass with Verma Farms when the company’s EBITDA was roughly over 50%. “The business was growing without my involvement,” he says. “At one point in the business, we grew 10, 15, 20% month over month. The business was growing itself.”

To stay on the growth path, a business must implement strategies to soar above critical mass. “We introduced subscriptions, we added new skews for the business,” Agrawal explains, giving a few examples of how Verma Farms found more success. “But I knew that when it came to the point where I could spend zero hours in a week, and that the business was still growing, I had hit where I wanted to go with this business.”

With a clear understanding of success metrics and market conditions, Agrawal grew Verma Farms into an incredible luxury e-commerce business.

Read more about the current state of e-commerce and what that means for sellers.

Deciding to Exit Verma Farms

Agrawal watched Verma Farms grow for two years, gaining a significant market share. He had never imagined selling the company. He assumed the business was too young and that, typically, acquisitions took place about five to ten years down the road.

However, once Verma Farms became profitable, Agrawal decided to get a free valuation. “I thought, ‘There’s no harm in asking for a number for this business,'” he says. “And if I can’t get that number, okay. But at least engage in the conversation and find a really good partner to help you.”

Learn more about the e-commerce exit process in our E-commerce Business Exit Planning Overview.

Exiting Verma Farms Through FE International

From the free valuation to going through the due diligence process, there are several steps to selling an e-commerce business. Although the process seemed daunting, Agrawal says the experience proved easier than anticipated.

“The offer that we got for the business was amazing,” Agrawal says. “We had a really good experience. One of the things that surprised me the most about the sales process was honestly just how easy it was.”  Agrawal’s worries surrounding getting a fair valuation, finding interested buyers, and then going through the due diligence processes were alleviated by partnering with FE International. The deal officially went through in December 2021, and Verma Farms was acquired by Branded.

“[FE International] would only make money from the deal if the sale goes through,” Agrawal says. “I think that’s rare to find in a partner within the M&A space.” A few weeks into the partnership, FE International had already helped Verma Farms attract serious offers to the table. The process was “structured [and] easy,” he says.

Today, Verma Farms is one of the luxury CBD industry’s top leaders. The lines of CBD gummies, oils, dried fruit, and topical products are constantly evolving to help provide people and pets with more relief and comfort.

“I think we’re a rare case where we just had a Cinderella story,” AJ said, talking about how blessed and excited he felt. “We ran a business for two years. It’s highly profitable. We sold for an amount that gave me financial freedom for the rest of my life. And I think that in this scenario, [there’s] not too much to complain about.”

If you’re feeling inspired by Agrawal’s monumental exit and are interested in selling your business soon or later down the road, get in touch for a free valuation.