E-Commerce Marketplace Aggregators Are Hot On Thrasio’s Heels As Companies Raise $2.3B

JuicyBear co-founders Lucy Sherman and Sarah Walker felt it was time to look for a buyer for their Holiday Styling brand after spending 18 months selling the company’s outdoor decor products on Amazon.

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The entrepreneurs always talked of selling their 4-year-old Australian brand, but were getting nowhere with traditional business brokers. Then they found digital consumer goods acquirer Thrasio in 2019.

“It felt like we weren’t going to tell brokers what they wanted to hear,” Sherman told Crunchbase News. “We thought we were building something good on our hands, and the purchase orders were getting bigger, which meant the investment from us was going to be bigger. We wanted to feel Thrasio out, and their answer was ‘yes.’”

They ultimately sold their business last September and it is now one of 100 brands under Thrasio’s umbrella.

Founders like Sherman and Walker are seeing value in selling to companies like Thrasio and others. Often called rollup companies or aggregators, such companies purchase thriving private labels and direct-to-consumer e-commerce brands that sell on marketplaces such as Amazon and Shopify, and then use their expertise and capital to take the brand to the next level.

Walpole, Massachusetts-based Thrasio, founded in 2018, is one of the earliest companies to figure out the secret sauce behind Amazon’s Marketplace data. It’s also been successful in attracting venture backing and other capital, touching off a wave of competitors and investors eager to get a piece of the action.

Since the beginning of the year, at least six marketplace aggregators, including Thrasio, announced new fundraising deals:

• Thrasio raised $750 million of financing from a group of existing investors including Oaktree Capital Management and Advent International.
• Branded Group raised $150 million in a round led by Target Global.
• Elevate Brands, which uses a data-driven approach to acquire and operate Amazon third-party businesses, announced more than $55 million in committed funds from a group that includes FJ Labs.
• unybrands, which raised a $25 million seed round, launched an e-commerce platform aimed at acquiring successful fulfillment by Amazon and direct-to-consumer sellers looking to scale.
• Technology Commerce Management, providing predictive value analysis and financial performance of online stores for e-commerce aggregators, announced $28 million in pre-IPO equity and debt from undisclosed backers.
• Win Brands Group, which also acquires brands from marketplaces, said it raised $50 million from Assembled Brands and funds managed by Oaktree Capital Management to grow its platform of consumer brands.

Last September, Boosted Commerce, a consumer packaged goods platform that buys a variety of verticals and business sizes, raised $87 million in a venture round. Shortly after, Perch, a startup that acquires direct-to-consumer businesses that are selling on Amazon and growing their operations, announced $123.5 million in a new funding round led by Spark Capital. Then Heyday, a digital marketplace space built for sellers to accelerate consumer product brands emerged as a new player with $175 million in Series A funding.

In total, these companies raised just over $2.3 billion in known venture capital funding, with Thrasio leading the group with $1.6 billion, according to Crunchbase data.

Attractive enough to acquire

One of the fastest ways to go to market is to open a store on one of the marketplaces, said David Nour, business strategist and adjunct professor at Emory University’s Goizueta Business School.

Successful businesses end up gaining market traction with paying customers, and then get on the radar of dashboards that measure visits, sales, upsell and cross-sell, Nour said via email.

That’s when the rollup or aggregator companies, which have assembled deep domain expertise in merchandising, branding, packaging, scale, supply chain and logistics, come in and offer them either an investment or outright buy that small business, Nour said. Their strategy is to create a portfolio of small businesses around similar market segments or target customer segment audiences.

The portfolio, which could include anywhere from 10 to 20 brands, will create a critical mass, something like $50 million to $100 million in sales, and then sell that to a bigger player looking for that online sales presence, he added.

“Think of the mom-and-pop stores on Amazon or Shopify as undervalued assets. They’ve tapped into a niche and have grown their business as far as they can take it,” Nour said. “When ‘brand aggregators’ come calling with a sweet offer, they gladly cash out or earn out.”

Author and entrepreneur Jason Boyce, a former Amazon third-party seller, sold one of his brands a few years ago, though not to an aggregator.

“I wish I had hung in there because the valuations now are insane,” he said in an interview. “Thrasio has a strict formula, and their valuation is insane. Competitors are coming in thinking they can do something better.”

Boyce is now founder and CEO of Avenue7Media.com and helps entrepreneurs do what he did. He also consults with many of the aggregators and sits on the board of unybrands.

He also recently wrote a book titled, The Amazon Jungle: The Truth About Amazon, The Seller’s Survival Guide for Thriving on the World’s Most Perilous E-Commerce Marketplace.

Not all businesses will be attractive to an aggregator, but if a founder can sell their business for three to 10 times EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization), Boyce said to go for it.

“If you can get a 7-figure brand going and are clearing $100,000 or $150,000 EBITDA, consider selling to aggregators,” he added.

The Thrasio model

Boyce believes much of the capital pouring into aggregators now is because of Thrasio, although it was not the first company to break into this space.

That credit goes to 101 Commerce in 2018, experts say. The Austin-based company has raised $12.7 million in known venture-backed funding, according to Crunchbase data. In 2019, the company merged with Florida e-commerce software developer GOJA after not attracting enough investor interest, according to Keith Richman, co-founder of Los Angeles-based Boosted Commerce.

“Thrasio’s success comes from the ability to take that marketplace data and do something smart with it where there was no ability to to that before,” said Ari Horowitz, a former Thrasio executive and now co-founder and CEO of New York-based Yardline Capital, a fintech startup providing funds to professional Amazon sellers. “The genius was recognizing the data was there, as well as their ability to apply a layer of operations expertise to accelerate the business.”

Although there are a number of companies on his heels, Thrasio co-founder and co-CEO Josh Silberstein doesn’t see many of them as competition because his business is unique, he said.

“There is no company like ours,” Silberstein added. “There are lots of people who only understand a third of our business plan and are trying to execute against it.”

The statistics speak for themselves: The company set a record for fastest profitable unicorn, Silberstein said. The company also closed a record number of deals in 2020, and there are enough potential deals in the pipeline to more than triple that, he said.

Silberstein expects more aggregators will enter the market, but predicts that in the next few years the existing group of companies will self-separate into the 10 percent to 15 percent that have a chance to create value and the 85 percent that may not succeed. And, to further differentiate, any new entrants will have to figure out a new way to do it, rather than just replicate Thrasio’s business model, he said.

In addition, Thrasio is focused on following its terms of service and operating ethically, even turning down potential acquisitions if it doesn’t seem right, something some other companies aren’t as prudent about, according to Silberstein.

“I can guarantee you that people are finding a way into the market that are not coming at it with being the white hat as the core of their business,” he added. “I can see it in the companies they bought that we wouldn’t touch. There are lawsuits out there already from people who have experienced horrific things.”

He also believes many of the companies are receiving funding because of his efforts: Between March and July 2020, he and co-founder Carlos Cashman spoke to nearly 50 different private-equity and venture capital investors, Silberstein said. The vast majority of them wanted to do business and, in fact, he received seven or eight term sheets, he said.

The thing that changed was 46 other large investment firms were now educated about the space and Thrasio didn’t take their money.

“Now there was a significant group of investors who bought into the thesis and wanted to place money,” Silberstein added. “The net result was a world where they wanted to invest and were looking for people in which to do that.”

Broader ecosystem

Other companies take a different approach. Sebastian Rymarz, co-founder and CEO of digital marketplace Heyday, doesn’t think of the company he founded with Adam Gerchen in August 2020 as an investor, aggregator or a rollup.

Rather, he sees San Francisco-based Heyday as a company that is part of a broader ecosystem, not just acquiring businesses, but helping founders get off of the ground.

“Long-term, we want Heyday to be known as the platform to accelerate brands on digital platforms,” Rymarz said in an interview. “Our focus is on entrepreneurs. That starts with capital and forming relationships, but then adding technology.”

As for other competition, Rymarz said the barriers to entry as an aggregator are not high. Anyone can raise a little money and buy businesses. He estimates there are between 50 and 75 aggregators in the space now, but predicts that within two or three years, obvious leaders will separate from the pack.

Now that much of the shopping world is direct-to-consumer, where brands have direct relationships with customers, many brands have emerged, custom built for that channel.

Some companies, such as Shopify, build tools for direct-to-consumer retailers. But, what’s been missing is a tech stack for marketplaces, and Rymarz said that is where Heyday comes in and is putting its $175 million Series A to work.

“We are investing in technology, and though we are later to the game, we are the best capitalized behind Thrasio, and we are using it to our advantage,” he added. “We have already deployed most of our capital. When I look at Thrasio, it is impressive, but long-term, we will be bigger.”

‘A large pond and a lot of fish’

The Amazon third-party seller Marketplace appears to be a treasure trove of successful businesses. Within Amazon’s 2020 total gross merchandise volume of nearly $490 billion, the Marketplace accounted for $300 billion in sales, up from $200 billion in 2019, according to Marketplace Pulse estimates based on Amazon disclosures.

“Amazon’s ecosystem was suddenly an interesting thing that everybody I talked to was doing,” Boosted’s Richman said. “The entrepreneurs have done the hardest part: creating and sourcing their products and getting them into the hands of consumers.”

He found the aggregator concept while trying to achieve product market fit for the company, which is a consumer packaged goods platform that buys a variety of verticals and business sizes. Richman started Boosted in 2019, and it acquired its first business by the end of that year. Boosted now owns 17 brands.

“It’s easy to find companies that want to be bought,” Richman said. “There is a large pond and a lot of fish in the pond, and an incredible number of sellers available for acquisition.”

For Richman, the most rewarding part of the job is talking to founders who have achieved product market fit on Amazon.

One of those founders is Albert DiPadova. In 2015, he created the Tub Cubby, a bathtub organizer for children’s toys. By that time, he was a serial entrepreneur with several successful e-commerce brands under his wing, including a women’s fashion brand that he operated from 1998 to 2007.

Early on, it was easy to have market share online, and the clothing brand consistently ranked No. 1 on searches, DiPadova said. Then in 2005, major clothing stores began pouring money into Google Ad words, making it all but impossible to rank near the top of search results, he said.

“This was before social media, so there was no way to launch a business and drive customers to your website,” DiPadova added. “Amazon came to us to sell on its platform, but at the time, they wanted 38 percent of the margin, and the numbers didn’t add up, so we declined.”

In 2015, he heard that Amazon had reinvented its Marketplace and decided to give it a go. Over the next five years, Tub Cubby became a hot seller and amassed more than 7,000 reviews on Amazon.

Five years later, DiPadova received another call, this time from Boosted Commerce asking if he wanted to sell his company. And, it wasn’t the only aggregator that came calling.

It’s been interesting to watch aggregators make “the land grab” for sellers, DiPadova said.

“Three of the top aggregators called us,” he said. “But Boosted made an offer I couldn’t refuse. They have a real content-driven strategy and the best story on how to grow our brand.”

His deal with Boosted closed in February, and now DiPadova has plans to move on with new products.

Investor interest

Third-party seller acquirers will continue to be popular because many of the large consumer packaged goods companies aren’t as good at selling online, according to Jason Stoffer, general partner at Maveron, a venture capital firm investing in consumer products and services.

“These aggregator companies are good at the online perspective with distribution, marketing and supply chain,” he said in an interview. “Small sellers will want to have liquidity opportunities, so this is a win.”

In addition, with the shift to online accelerating, largely catalyzed by the global pandemic, Amazon’s third-party Marketplace generated $80 billion in 2020, where it had been $12 billion in 2014, a growth rate Stoffer said is interesting to investors.

The enormity of the e-commerce market size was what attracted General Catalyst Vice President Mark Crane to co-lead the $175 million Series A investment in Heyday last November. Data shows global e-commerce sales are poised to reach record numbers by 2022, with revenue expected to grow to $6.54 trillion.

“This is one of the largest markets we can think of outside of infrastructure, software and health care,” Crane said in an interview. “And we think there is more to go.”

There is also plenty of capital yet to flow into companies in this space, and the companies that can innovate and move quickly will rise to the top, though Crane said it won’t be “one winner take all.”

This area is still maturing and will evolve into bigger operations, perhaps adding manufacturing and fulfillment capabilities, said Crane.

Stoffer also sees a maturing of the ecosystem and consolidation of companies over time.

“It is still very early,” Stoffer said. “We see Thrasio is so big, which is immaterial of the Amazon Marketplace at large. My gut is that in four or five years, these companies will not be immaterial — they will be meaningful players.”

Illustration: Dom Guzman

Editor’s note: The story was changed to reflect that Thrasio has 100 brands.