Imagine that you have a moment of reckoning and decide to set up a business with that one big idea. You realize that it's a capital-intensive business so knocking you go to your investor's doorstep asking for a $250 Mil cheque! Wait, What? That’s not possible. Who would give INR 1,875 Crore for an idea? Right?
Now imagine your investor agreeing to it and writing that cheque for you. Promises, promises. Not gonna happen unless you're Ambani or Bezos, you must be thinking.
The sweet part here is that this has happened, and the protagonists in this story are Thrasio-styled startups, Mensa Brands and GlobalBees. Within 6-7 months of being founded, Mensa Brands has raised a total of $218 Mil while GlobalBees has raised $290 Mil.
Not only that. While the average time to achieve unicorn status by an Indian Startup is approximately 6.5 years, these 2 Startups have thrashed the statistics by achieving the status in just 6-7 months only.
The Thrasio model
These startups are following in the footsteps of the pioneer, Thrasio, a US based company which acquires Amazon-only brands to expand their reach by fine-tuning their marketing, supply chain and product development. The model is built on the discovery that Amazon is like a mall, where the most advertised product, backed with quality, is sold the most. Thrasio realized that smaller brands are not equipped with the digital advertising tools required to scale-up and hence, they started scouting lean, profitable brands and building on them.
What you are buying on amazon is 'positioned’ and the position depends on the product’s performance in the past ~ Carlos Cashman, Co-founder, Thrasio.
Thrasio has already completed 150+ acquisitions, has raised more than $3.4 Bn in capital till date, and is valued at around $10B - all this in mere 4 years of existence - the reason why it’s known as the OG. :)
Indian D2C gameplay
While Fulfilled-by-Amazon was Thrasio’s way as it believed that Amazon’s giant audience and logistics network helped them reduce operational inefficiencies, Indian startups are attempting to do things a little differently. They are acquiring niche Direct-to-Consumer (D2C) companies at a value of 5-10x of their EBITDAs and then joining hands with the founding team to fine-tune their processes with the prowess of industry experts. Read here how firms like GlobalBees have been dominating the Indian ‘roll-up e-commerce’ space from day one.
Here's a peek into the acquisitions made by Thrasio-like startups in India since the later half of 2021:
Some of the notable acquisitions include Florona (Personal care), Estalon (Leather manufacturer), Mush (Sustainable clothing), The Butternut Company (healthy snacking foods), Hestia (kitchen appliances) and Green Soul (furniture) among others.
The big question:
Why are the VCs betting huge sums on roll-up startups?
First things first, this is a capital intensive industry as funds are required to buy out the founder's stakes - so capital is the fuel for such startups.
Opportune sector: thanks to the internet, D2C brands are climbing the revenue hills faster than ever and India’s D2C market is poised to reach $100B by 2025. VCs are eventually riding this D2C wave by betting on roll-up startups.
These startups identify the basic blocks that are common to all digital-first companies such as process optimization, product innovation, pricing and growth marketing among others. VCs know that this would unlock the true growth potential of the acquired companies.
Money pumped in roll-up firms is used to acquire ‘profit making startups’, a metric not commonly visible in Indian startups.
It appears that roll-up firms are able to show a clear proof of concept as many investments have already started reaping benefits.
Interestingly, Thrasio has itself entered the Indian markets and has earmarked a $500M kitty.
Where are these companies headed?
Below are the three possible ways this model is going to pan out:
If one’s a true follower of OG Thrasio, it will earn profits from the enhanced visibility of the portfolio companies and their products.
Build on the synergies and slowly emerge into a new-age digital conglomerate like HUL or P&G.
Bundle enterprises based on a core-competency and sell the bundled venture to major players as a whole or in parts at heightened valuations. Case in point: TTSF, a Thrasio-like venture in F&B industry.
Whilst roll-up e-commerce firms are definitely poised to grow, only time will tell how they pivot their stories. What are your thoughts? Do let us know.
Until next time..
This article is a part of the December'21 edition of our Startup Newsletter. Here's the complete publication:
