The market is still too hot for startups building e-commerce empires by incorporating independent third-party merchants that have gained traction in the Amazon marketplace and, in the latest development, Razor Group – a Berlin-based startup that is buying promising Amazon sellers and expanding them into larger multi-channel companies. Closed $400 million in funding to expand its efforts in space.
About $25 million comes in stock to grow its business and $375 million owes to make acquisitions, with target companies typically already earning between $1 million and $15 million in annual revenue.
The Razor group was only a year old, but it was building its business at a rapid pace. Founded in August 2020, CEO Tushar Ahluwalia said in the past eight months that the startup has grown to 107 employees across four offices and is currently on track to top $120 million (€100 million) in sales from 30 brands it has already raised. It is stable in categories such as personal wellness, sports, home and living. Assuming the debt capital raised now is used, Ahluwalia believes Razor Group will cross $480 million (€400 million) in sales over the next 12 to 15 months.
By way of comparison, Thrasio, one of the major players in this current market, was founded in 2018 and has 100 brands in its stable.
In fact, there are, as you may have seen, plenty of others in the market pursuing the “FBA rollup” model – integrating companies built on the back of Fulfillment by Amazon, with the ability to apply the most advanced presentations from scale, analytics, and management to grow large cottage industries into Tall buildings, so to speak. But Razor believes that its point of differentiation is its focus on technology to improve its response to the market, both when it comes to identifying and buying brands, and then growing them.
It’s a big opportunity. According to one estimate, there are around 5 million third-party sellers on Amazon today, and their ranks are growing exponentially, with over a million sellers joining the platform in 2020 alone. Thrasio Lee has estimated in the past that there are likely to be 50,000 companies selling on Amazon through FBA that bring in $1 million or more annually in revenue.
“It’s perfectly acceptable to set up an FBA-based company, but at some point you can get past that,” Ahluwalia said in an interview. “We want to transform what we see as the arms of business operations in the field. We don’t see ourselves as the next P&G company, but rather as a new version of it, building small businesses in small markets, identifying low-priced digital real estate. Just thinking of it as absurd is not enough.” .
Funding, a combination of equity to invest in the startup itself and debt to use for acquisitions (which is mostly debt), led by Victory Park Capital (“VPC”) with funds and accounts managed by BlackRock, where it participates substantially in addition to its existing shareholders, The list includes a number of individuals as well as venture capital firms such as 468 Capital, Redalpine, FJ Labs and Global Founders Capital, a VC firm co-founded by Samwer Brothers, which is also behind the well-known Berlin e-commerce incubator Rocket Internet.
Ahluwalia and Razor Chief Financial Officer Christophe Jamon — who together co-founded Razor with CTO Shrestha Chowdhury — are both alumni of Rocket Internet, Ahluwalia and Chowdhury also worked in a former e-commerce business in India called Stalkbuylove (a version of Wanelo — short for “want” need love” – for India, I think) The criticism ran out and closed.
All of this speaks to both the successes the founders may have had in getting some early funding from other Rocket alumni and others, as well as their experiences, good or bad, in terms of what it takes to grow and scale an e-commerce business.
Including $25 million in this latest tranche, the funding brings the total equity raised by Razor Group to about $40 million — with prior funds used to roll the ball and “model validation,” Ahluwalia said. He’s not disclosing his assessment today, but he also confirmed that he’s raising another larger round of stock when he talks more about it.
Meanwhile, the massive injection of debt financing it’s getting for acquisitions — which doubled after its original plan to raise $200 million got a lot of attention — is a sign not only of what investors and the Razor group itself see as an opportunity, but also of encroachment. Over the competition from other players who are also well invested and have their sights set on buying the most promising independent companies selling through Amazon and other market providers.
This list of competitors is increasing day by day. It includes Thrasio, one of the first startups to define and build this space, which has amassed very large rounds in quick succession totaling hundreds of millions of dollars in the last year, and is profitable; branded[عامة]Seller X heroes; perch; Berlin Brand Group (X2); Benitago. and Valoreo (with its backers including CEO of Razor).
The opportunity is also nurturing other e-commerce startups like Jungle Scout, which also recently raised $110 million, providing tools for some third-party sellers to help them stay, in effect, independent (or at least grow more to be more valuable to acquirers).
Razor believes that its ability to stand out in this crowd will depend not only on how much money it has to spend, but on the technology it uses to identify the best outside vendors faster in order to bring them together first, and then capitalize on that early move by giving those companies better tools to grow. Faster.
Choudary describes the platform she created as “M&A 2.0,” one that does “enormous due diligence” on a machine scale by evaluating about a million companies each week as they perform on platforms like Amazon. “Technology runs the whole business,” she said, starting with acquisitions, with Razor identifying the most interesting companies faster than others, she said. “We look at thousands of data points,” she continued, “and build algorithms,” to “determine what we want to get. This means that our acquisition funnel is 99% directly acquired and we don’t rely on intermediaries.” She said brokers are an undisclosed part of the field, but bypassing them means less competition and better prices.
Being early also means building better relationships with the owners of these businesses, with less time pressure.
“Doing deals is a very personal thing,” Ahluwalia said. “The seller needs to like you. Our accounts have allowed us to be the first in these deal talks.”
On top of that, this data will also help Razor build those companies and learn where other brands can be sold outside of Amazon and how to better sell them.
This is a plan that has yet to be proven, given the age of the company, but investors – adding up the numbers and track record of these founders, and the technology they built – are willing to bet on this plan.
“We are excited to partner with Tushar, Chris and the rest of the Razor Group team. The ability to identify, insure, integrate and ultimately create tangible value across a broad range of e-commerce assets is a true competitive advantage in the marketplace, Tom Welch, partner at VPC, said in a statement.
“We are pleased to make this investment in the Razor Group to support the company’s strong growth momentum as it continues to diversify its portfolio of brands and expand into new markets,” added Dan Worrell, Managing Director of BlackRock.