Funko - Overview

Originally, Funko was founded as a bobblehead company back in 1998 by Mike Becker. Today, Funko Inc, is an American company specializing in the manufacturing of licensed pop culture collectibles. One of their best known product lines would be their POP! Vinyls – sleek, detailed collectibles whose oversized heads have become a trademark aesthetic, these adorable figures come in a variety of options from virtually every branch of culture you can imagine. In addition to their famous POP! Products, Funko features a fantastic product line ranging from Dorbz – these vinyls bear a wide, adorable, grin – aptly named – to Vinyls, Plush, Homegoods, and more.

In 2005, Mike Becker sold Funko to the current CEO, Brian Mariotti who relocated the offices to Lynnwood Washington as well as vastly expanded the companies product lines. As of 2018, Funko moved its offices where they are currently headquartered in Everett, Washington.

Loading up on licenses

Funko has a business strategy that capitalizes on producing short-term demand for highly sought after collectibles thereby creating a sense of urgency around their products. When it comes to licenses, Funko boasts a broad range of well-known franchises including Harry Potter, Magic The Gathering, Lord of the Rings, The Nightmare Before Christmas, DC Comics, Star Wars, World of Warcraft, Kingdom Hearts, Naruto, Fortnite, Sailor Moon, Rick & Morty, NFL, Looney Tunes, and the list goes on.

A vast array of pop culture collectibles expanding this widely across genres ensures there is a vinyl that anyone can appreciate. The age-range for these nostalgic niches of memorabilia lies beyond the youth, and reaches upwards into the millennial demographic capturing the childhood of Funko fans and fanatics alike.

Engage Manufacturing - Warp Speed

Manufacturing can be a grueling process for many companies especially those who deal with concept art, pop culture, or anything that can be considered a fad. However due to the unique methods Funko employs, they are able to take an idea from concept to product in roughly 70 days! This agile manufacturing process keeps the company on the bleeding edge of nostalgic trends allowing them to produce figurines when their licensing companies have a release of their own such as a new movie, video game, or series.

The process begins with a new idea, but Funko does things a little different than most companies. They are known to welcome ideas from anywhere within their organization – or even outside of it – from the fans themselves. A unique ideation process such as this further assists the company in compounding intellectual property that is collectively desired from its user base. After an idea has been decided on, Artists begin conceptualizing the figurines digitally to acquire a sense of what the series may look like. If an idea comes from in-house or has been suggested by fans, Funko will reach out to the content owner to begin negotiations about using their characters as a Pop!

Once the idea has been conceptually approved, digital sculptors use the Pixologic – Zbrush app to create a final design before it’s sent out for prototyping. After the file is sent to their manufacturing partners in China and Vietnam, a final approval process awaits to be sure the final prototype matches the digital design. Manufacturers then begin the molding process outputting the design from a 3D print. At this point, we have a fully molded Pop! Sculpture which is the last point in the manufacturing process before the figurine is producing on a mass scale. The manufacturing facilities schedule and queues the figure run. The size of the production is dependent on prior market research.

During the time figurines are being produced en-masse “in-mold”, Funko has roughly 30-45 days to collect the branding elements required, and the designers use this time to finish paint schemes known as “deco” (for decoration)  and “paint ops” (paint options). Another group of designers comes up with packaging art, which undergoes a similar evaluation process before factory approval. Once all figurines and packaging has been produced a final sample is sent to Funko for review. If approved, the figures are sent to on of three Funko warehouses in Everett where the company coordinates distribution efforts to specialty outlets, retailers, and conventions.

FunkO’s - A sweet way to start the day

In July 2018, Funko released a line of multigrain cereal called – yep, you guessed it – FunkO’s. Within each box a unique character from pop culture can be found including Batman, Beetlejuice, Freddy Krueger, and even the Golden Girls. While Funkos cereal may only account for a small portion of their revenue, Brian Mariotti has stated the product fits their strategy of creating demand. For example, anyone who was unable to snag their Beetlejuice cereal won’t have another chance to buy it now that it’s out of stock.

Perhaps even more amazing, is that FunkO’s are selling out fast at a time when cereal sales are on the decline. Funko is working with Organic Milling – A California based company that has been producing cereal since 1960. Usually, it takes between 12-18 months for a product to go from conception to the shelf at a grocery store, but not for this powerful partnership, Funko and Organic Milling are completing that process every 5-6 months. Currently, they are working on creating white and pink colored cereal, although Funko won’t comment on which characters they are for. In finality, Funko is scheduled to release 75-85 different cereal in limited runs of just a few thousand with brands such as Target, Boxlunch, and HotTopic.  

Stop, Drop, and Pop! - Yourself!

That’s right! Funko knows it’s fanbase wants to Pop! Everything including yourself! With this intuitive feature, anyone can slap together a fun Funko figurine for themselves. Fully customize your own avatars gender, skin tone, eye color, hair color/style, outfit, accessories, and even it’s background. This tool allows anyone to get creative in their own way and express their innermost Pop! Desires. With a few quick click we were able to Pop together this too-cool-for-school Hippie man – pants optional.

Poppin’ Conclusion

Funko capitalizes on the innate nostalgic desire generations develop as they grow over time. Therefore, as trends and fads change over time, Funko can quickly adapt the themes of product lines to stay up-to-date on the most current pop culture trends. It’s hard to deny that Funko is a great company, their slew of licensing partnerships, fleet-footed production and manufacturing process strategically position them to stay on the cusp of collectors imaginations. Furthermore, we believe Funko is less exposed to the risk of retail stores than most toy manufacturers. Lastly, we also see this as a great opportunity to create portfolio exposure to the 3D-printing sector.

Many toy companies are threatened by the ability future generations will have to simply order a toy design online, and have it printed at home in the next couple of hours. In this scenario, we believe Funko would have very little trouble distributing their designs which in turn would save them the costs of outsourcing manufacturing. Moreover, the soaring sales in the toy industry for the first half of 2018 are up 7%, and in 2016, collectible merchandise sales grew 33% to $1.8 billion.

Most recently, the company announced a commitment with new credit facilities through PNC Capital Markets LLC with JPMorgan Chase Bank, NA serving in Joint Lead Arranger and Syndication Agent capacities for the Credit Facilities. Under this commitment, the Credit Facilities equal a net sum of $285 million which consists of a revolving credit facility of $50 million and a term loan of $235 million, it will have a maturity of 5 years from the closing date of the Credit Facilities. In conclusion, we see a very

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