The Hyper-Competitive Rollup Commerce Space
Many startups in India have replicated Thrasio's business model, leading to an increased competition
While 2020 was all about the growth of e-commerce and D2C brands, 2021 saw the addition of many new business models within e-commerce such as quick commerce, social commerce, e-commerce builder platforms, among others. One model that made the most headlines was the Thrasio-style startups, also called "rollup e-commerce.'
For the unversed, Thrasio is a US-based startup that looks for well-performing third-party private-label businesses on Amazon, collaborates with them, and acquires them. Founded by Joshua Silberstein and Carlos Cashman in 2018, Thrasio clocked a revenue of over $500 million as early as 2020. The startup gives these small brands upwards of $1 million, integrates them to its platform, and gives them an operational boost to drive rapid growth.
In India, many startups have been replicating the model. Basically, these startups look for brands with strong potential for sustainable hypergrowth, acquire them and help them grow. A dozen of startups have raised a significant amount of funding from VCs. Some of the notable names include GlobalBees, Mensa, Goat and 10Club.
However, the competition in the segment is getting fiercer than ever. Last month, Mensa Brands became the fastest Indian unicorn. This month, NCR-based UpScalio made its fourth investment in Autofurnish, GlobalBees is reportedly in talks to raise $100 million at unicorn valuation and earlier this week, the Good Glamm group made its fifth addition to the group with the acquisition of MissMalini Entertainment.
As 2021 comes to an end, we look at how the space will look like in the coming year.
Rollup Commerce In 2022
"Many of the Thrasio-based startups have completed their funding rounds and have started acquiring brands and we could see the acquisition pace pick up in 2022. The next year could be sort of a litmus test for the investors in this space as the startups would go on to prove their business models on which huge amounts of funds have been raised," said Ankur Bansal, co-founder and director, BlackSoil.
He also added that some of these companies are likely to go for a bigger equity round or lever up their balance sheet with significant debt by early 2022 in order to expand operations of acquired brands as well as take over new ones.
Alka Goel, founding partner, Alkemi Growth Capital, believes that the pool of acquirable companies is limited, which is bound to have one of two effects - companies will be forced to ascribe a higher valuation (with an increase in competition) or there may be a delay in the pace of acquisitions. "For younger companies of course, it is a boon as they have many more exit options," she said.
India is the eighth largest market for e-commerce with a revenue of $46 billion in 2020 and this is estimated to grow at more than 30 per cent YoY, which opens up a huge opportunity for different business models to flourish. "Last year, Amazon India said that 4,152 Indian sellers surpassed sales worth INR 1 crore on its platform. This constitutes a significant opportunity set and I am not surprised that there are more than a couple of start-ups trying to get ahead in this race," said Nupur Garg, founder, WinPE, earlier.
With an acceleration of consumer demand moving online, the timing seems right for this model to scale, believes Pranav Pai, founding partner, 3one4 Capital. "However, the integration of so many disparate product lines after an acquisition is a challenge for any company in any geography. That will be the test of this model over 2022," he said.
Thrasio Eyes India, Will Others Survive?
Thrasio is ready to set foot in India. Will this make a difference to the segment? "There is already steep competition in India for this space. So 2022 may be the year that these rollup companies launch their brands globally. The arrival of Thrasio may accelerate the need to demonstrate growth and the Indian category leaders may emerge," said Pai.
To me, Thrasio is another company that will be added to the mix of companies pursuing a similar model, said Goel. "In 2021 alone, you have almost 10+ companies who have declared their intent to pursue such a model. The direct implication is the demand to acquire young companies will increase not only from Thrasio like models but also from other larger established startups and strategic acquirers," she said.
Thrasio also offers a great exit opportunity for online sellers and brands who might not likely go for an institutional raise and expand but rather operate efficiently at a smaller scale. "In the US, the Thrasio model arrived when the e-commerce seller space was fairly large and mature. In India, this model will in fact act as a catalyst for the exponential growth of this space. For the Thrasio model-based startups acquiring the right brands at the right price and operating them efficiently would be the key to raising further funds, which will ultimately decide who survives amongst the many players in this segment and ultimately will boil down to their capital raising skills both debt & equity," said Bansal.
Further, the house of brands model is not something new, it has existed for years. "For the aggregator model to work, there have to be synergies in the business being rolled over. By not needing separate marketing divisions, accounting teams, sourcing teams, etc., the operating expenses are considerably reduced, and thus a higher EBITDA for the brands. Thrasio has a proven business model, and the success of aggregators like Mensa has shown that the Indian market is ready for the house of brands model," said Tamiesh Sood, founder, T.A.M. Collective.