became the fastest US company to achieve unicorn status — in six months — when it raised $260 million in a funding round led by Advent International. The largest acquirer of Amazon businesses and one of the top 25 sellers on Amazon, three-year-old Thrasio is credited with creating a whole new category of businesses — ecommerce rollup firms.
Earlier today, one such company inspired by Thrasio — Mensa Brands —
became the fastest Indian startup to join the unicorn club. But what are ecommerce firms, how do they make money, and why are they one of the biggest trends of 2021?
What are ecommerce rollup firms?
These are companies that acquire several ecommerce brands with the goal of accelerating their growth and increasing their scale. These acquisitions are different from takeovers, in which larger firms merely buy out smaller ones. Rollup ecommerce firms, on the other hand, allow individual brands retain their identity and, more importantly, control over their future, while offering expertise and infrastructure to help them grow.
Why is this only a thing now?
Of course, these firms wouldn’t exist if there weren’t thousands of small but popular brands out there to acquire. While rollup firms aren’t a new concept, and even existed offline, the explosion in online shopping during the pandemic — especially on large platforms such as Amazon and Flipkart — led to a proliferation of small, direct-to-consumer brands.
These in turn have led to the creation of companies such as 10Club, Mensa Brands, Goat Brand Labs and GlobalBees, which acquire or “roll up” such brands. Of course, the huge liquidity and unprecedented funding for Indian startups this year has also helped.
So why not raise money from PE/VCs?
While there’s been no shortage of private equity and venture capital investments this year, such funding requires founders and other existing investors to dilute their stakes. Rollup firms on the other hand offer quick access to capital while allowing founders to retain control.
The Indian ecommerce rollup firms we mentioned above follow the model invented by Thrasio, in that they scout D2C brands that already have a presence on large marketplaces such as Amazon and Flipkart.
Another reason some brands prefer to be acquired by rollup companies than receive PE/VC money is that rollup firms adopt a tech-first approach, which makes them the perfect fit for brands born in the internet age.
Rollup ecommerce in India
While Mensa Brands has achieved
status, India’s ecommerce rollup space is still nascent. Before the pandemic, there were no such companies in India. Now there are at least six, including Mensa. The other five have raised funds in the two months from June 29 to August 31.
- One of the first Indian ecommerce rollup firms was 10Club, founded in 2020, which said on June 29 that it had raised $40 million in one of the largest seed funding rounds in India. Co-led by Fireside Ventures and an undisclosed international investor, the round also involved HeyDay, a competitor to Thrasio in the US.
- GlobalBees said it had raised $75 million in equity in a Series A financing round led by FirstCry in July.
- Goat Brand Labs, a Thrasio-style venture of former Flipkart executive Rishi Vasudev, raised $36 million from Tiger Global, Flipkart Ventures and others in July.
- In August, the apt-named Upscalio raised $42.5 million in Series A funding co-led by Presight Capital.
- And on August 31, Powerhouse91 said it had raised an undisclosed sum from several global investors, including US-based FJ Labs.
In India, ecommerce’s share of overall retail sales was just 4.3% in FY20, despite the huge Covid-driven push online. In countries such as the US and China, ecommerce contributes about a quarter of total retail sales. Given the proliferation of D2C brands in 2021, rollup firms could be just the ticket to take India’s ecommerce market to the next level.
