The market remains very hot for startups that are building e-commerce empires by consolidating independent third-party merchants that have gained traction in the Amazon market, and in the latest development, Razor Group – a Berlin-based startup that buys retailers. promising Amazon sellers and turning them into bigger, multi-channel companies – has closed $ 400 million in funding to scale up its own efforts in the space.
About $ 25 million is in the form of equity to grow its business and $ 375 million is in debt to make acquisitions, with target companies typically already making between $ 1 million and $ 15 million in annual revenue.
Razor Group itself is not even a year old, but has grown its business at a rapid pace. Founded in August 2020, over the past eight months CEO Tushar Ahluwalia said the startup has grown to 107 employees in four offices and is currently on track to cross $ 120 million (€ 100 million). in sales of the 30 brands in which it has already amassed its stable in categories such as personal well-being, sports and home and life. Assuming that the debt capital he has now raised is used up, Ahluwalia expects Razor Group to achieve $ 480 million (€ 400 million) in revenue within the next 12 to 15 months.
For comparison, Thrasio, one of the oldest players in this current market, was founded in 2018 and has 100 brands in its stable.
Indeed, as you may have seen, many others in the market are pursuing the “FBA rollup” model – nurturing businesses that were built on the backs of Fulfillment by Amazon, with the idea that they can apply more sophisticated economies of scale, analysis and management to turn large cottage industries into tall buildings, so to speak. But Razor believes its point of differentiation is its focus on technology to improve its responsiveness to the market, both when it comes to identifying and buying brands, and then developing them.
It’s a great opportunity. According to one estimate, there are around 5 million third-party sellers on Amazon today, and their ranks are growing exponentially, with over one million sellers joining the platform in 2020 alone. In the past, Thrasio estimated to me that there were probably 50,000 companies that sell on Amazon through FBA and make $ 1 million or more per year.
“It’s perfectly okay to start a business based on FBA, but at some point you can go beyond that,” Ahluwalia said in an interview. “We want to transform what we see as the levers of business operations in this space. We don’t see ourselves as the next P&G, but a new version of it, building micro-fields in micro-markets, identifying undervalued digital real estate. It is not enough to think of it as shelter.
The financing, a mix of equity to invest in the startup itself and debt to use for acquisitions (and this is mostly debt), is led by funds and accounts managed by BlackRock and Victory Park Capital. (“VPC”) as well as by its existing shareholders, a list which includes a number of individuals as well as venture capital firms such as Redalpine, FJ Labs and Global Founders Capital, the venture capital firm co-founded by the Samwer Brothers, also the founder of the famous Berlin e-commerce incubator Rocket Internet.
Ahluwalia and Razor’s CFO Christoph Gamon – who co-founded Razor with CTO Shrestha Chowdury – are both Rocket Internet alumni, and Ahluwalia and Chowdury also worked at a previous e-commerce company in India. called StalkBuyLove (a clone of Wanelo – short for “Want Need Love” – for India, I think) which ran out of cash and closed its doors.
This is all a testament to both the forays the Founders may have had in securing early funding from fellow Rocket alumni and others, as well as their experiences, good and bad, of what it takes to grow and develop. e-commerce businesses.
Including the $ 25 million of this latest installment, the funding brings the total equity raised by Razor Group to around $ 40 million – the previous money being used to get the ball rolling and “validate the model,” said Ahluwalia. He is not disclosing his valuation today, but has confirmed that he is also launching another bigger round of action when he talks more about it.
Meanwhile, the huge injection of debt financing she receives for acquisitions – doubled after her initial plan to raise $ 200 million garnered a lot of interest – is a sign of not just what investors and the Razor Group itself see an opportunity, but also encroaching on competition from other roll-up players who are also well capitalized, are also considering buying out the most promising independent companies selling through Amazon and other vendors. Steps.
This list of competitors is growing day by day. It includes Thrasio, one of the first startups to identify and build this space, which raised very big rounds in quick succession totaling hundreds of millions of dollars last year, and is profitable; Mark; Hero; SellerX; Perch; Berlin Brand Group (X2); Benitago; and Valoreo (with his backers, including the CEO of Razor).
The opportunity is also to create other ecommerce startups like Jungle Scout, which also raised $ 110 million recently, providing tools for some of these third-party vendors to help them stay, in fact, independent (or less to become more valuable to buyers)
Razor believes her ability to stand out in this crowd will not just be based on how much money she has to spend, but the technology she uses to identify top third-party sellers faster in order to wind them up first. , and then to take advantage of this early initiative by giving these companies better tools to grow faster.
Chowdhury describes the platform she built as “M&A 2.0,” a system that performs machine-wide “massive due diligence” by rating roughly 1 million businesses every week while they operate on. platforms like Amazon. “Technology runs through the whole business,” she said, starting with acquisitions, where Razor identifies the most interesting companies faster than the rest, she said. “We’re looking at thousands of data points,” she continued, creating algorithms, “to signal what we want to acquire. This means that our acquisition funnel is 99% direct and that we do not rely on brokers. Brokers, she said, are an unspoken part of this field, but bypassing them means less competition and better prices.
Being early also means building better relationships with the owners of those businesses, with less time pressure.
“Closing deals is extremely personal,” said Ahluwalia. “A salesperson must love you. Our calculations have allowed us to be the first in these chord conversations. “
Further, this data will also help Razor grow these businesses and determine where other brands can be sold beyond Amazon and how to better sell them.
It’s a plan that has yet to be proven, given the age of the company, but investors – adding up the numbers and backgrounds of these founders, as well as the technology they’ve built – are willing to bet on this one.
“We are delighted to partner with Tushar, Chris and the rest of the Razor Group team. The ability to identify, underwrite, integrate and ultimately create tangible value across a wide range of e-commerce assets is a real competitive advantage in the market, ”said Tom Welch, Partner at VPC , in a press release.
“We are pleased to make this investment in Razor Group to support the company’s strong growth momentum as it continues to diversify its brand portfolio and expand into new markets,” added Dan Worrell, MD at BlackRock .